Understanding the USMCA: Cost Savings and Strategic Implementation For Companies

1. Introduction: Why USMCA Matters

The United States-Mexico-Canada Agreement (USMCA) offers companies valuable opportunities for duty reduction provided they navigate and comply with its stringent origin and documentation requirements. It replaces the North American Free Trade Agreement (NAFTA), which previously governed trade among the three countries for over 25 years. USMCA provides a modernized framework for trade between the U.S., Mexico, and Canada, reducing barriers and promoting economic growth across the region.

For companies engaged in cross-border trade, understanding and leveraging USMCA can lead to substantial duty savings. These benefits can be further amplified by leveraging duty optimization strategies such as Free Trade Zones, First Sale for Export, or Duty Drawback. However, non-compliance can result in penalties and lost tariff benefits.

2. Rules of Origin: Qualifying for Duty Savings

USMCA preferential tariff benefits are only available for goods that meet the agreement’s specific rules of origin. In short, this means the goods must be produced in one or more of the three USMCA countries, using a certain percentage and/or type of materials sourced from within these countries.

The applicable rules of origin vary by product and can be complex, typically requiring compliance with either a Regional Value Content (RVC) threshold or a Tariff Shift requirement - or sometimes both. Certain industries, such as automotive, face even stricter requirements.

Tariff Shift: This means the finished product must have a different (HS) customs classification code than its non-originating raw materials or components to qualify for preferential duty treatment.

Regional Value Content (RVC): Products must contain a minimum percentage of regional content (typically between 60% and 75%), meaning a significant portion of the product’s value must originate from within the USMCA region.

De Minimis Provision: A small percentage (up to 10%) of non-originating materials may be disregarded when determining origin, but some industries have tighter limitations.

Certain sectors, like the automotive industry, faces some of the most stringent rules of origin under USMCA, requiring higher RVC thresholds-up to 75% for passenger vehicles and light trucks-meaning that a significant portion of the vehicle’s components must originate from North America to qualify for preferential treatment.

To claim preferential treatment, importers must provide a Certificate of Origin, which serves as proof that the goods meet USMCA’s origin requirements. Unlike NAFTA, USMCA does not mandate a standardized form. However, specific data elements-such as HS codes, certifier details, and clear origin statements-must be included in any acceptable documentation (e.g., commercial invoice, declaration, or customs form).

Failure to comply with these origin rules or improperly certify goods can expose companies to significant penalties, duty reassessments, and potential audits by customs authorities.

3. Financial Impact: USMCA Compliance as a Cost-Saving Strategy

For many companies, the most immediate and measurable benefit of USMCA compliance is the potential to reduce import duties on qualifying goods. Consider an automotive parts importer that sources engines from Mexico. 

Under standard tariffs, a 5% duty applies. If the company meets USMCA’s regional value content threshold, the duty is reduced to 0%. Thus, with an annual import volume of $20 million, the company would pay $1 million in duties without USMCA. By qualifying under USMCA, that duty cost drops to zero, resulting in a total annual savings of $1 million. This cost avoidance can be significant, especially for high-volume importers or industries with high duty rates.

4. Common Challenges in USMCA Compliance

Effectively managing compliance under the USMCA framework can present significant operational and administrative challenges, especially for businesses handling large volumes of qualifying transactions. 

Key challenges include complexity in high volume transaction management. Businesses often struggle to accurately track and validate origin criteria for hundreds or even thousands of products. Ensuring each transaction qualifies for duty-free treatment under USMCA requires meticulous attention to product customs classification, as well as manufacturing information (i.e. bills of material) and the applicable rules of origin.

There are also administrative burdens and resource constraints. The absence of a standardized certificate of origin under USMCA places additional administrative responsibilities on importers and exporters. Organizations must maintain comprehensive documentation, meticulously record HS codes, supplier details, and precise origin statements—often stretching internal resources thin.

Moreover, supplier coordination challenges can lead to delays and shipping headaches. Ensuring suppliers understand and adhere to USMCA-specific rules can be a daunting task. Companies must actively engage suppliers to consistently meet compliance standards, necessitating additional oversight, education, and communication.

Effectively addressing these challenges requires a structured compliance program backed by expertise, digital solutions, and clear communication strategies.

5. Implementing USMCA

To maximize USMCA benefits, companies should adopt a structured approach that begins by reviewing import data to identify products eligible for preferential treatment. This should be followed by a financial impact assessment to quantify potential duty savings. Aligning procurement, finance, and compliance teams is critical to ensure cross-functional collaboration throughout implementation. Companies are encouraged to pilot the program with a small group of suppliers to refine processes before scaling. Ongoing monitoring, periodic audits, and adjustments are essential to maintaining compliance and adapting to regulatory changes.

Many companies already leverage USMCA but often operate without structured processes or a solid management program, increasing their compliance risks. In the current environment, it is recommended that businesses review bottlenecks in their USMCA operations and implement a strong management program to avoid potential penalties and safeguard their duty savings. 

Investing in digital tools helps streamline origin verification and documentation, ensuring compliance with USMCA requirements while reducing administrative burdens. A resilient duty savings program, supported by ongoing training and risk assessments, further strengthens an organization’s ability to mitigate duties and maintain long-term cost savings.

6. Final Questions for Your Business

Have you assessed whether your company is maximizing USMCA savings? Do you have a structured compliance program in place to prevent penalties? If not, it’s time to take action.  

Need expert guidance?

Unsure if your USMCA strategy is optimized? DOJÖ Consulting Group specializes in turning trade program management into a competitive advantage. Schedule here a complimentary review today to identify immediate opportunities.