Mexico in last-dash scramble ahead of USMCA implementation

Mexican firms are rushing to comply with the USMCA free trade agreement that will come into effect on July 1 

A final raft of legislation to harmonize existing laws with the treaty between the US, Canada and Mexico is still pending and an all-important set of uniform rules on implementation is lacking an official Spanish translation.

“A lot of people are scrambling, kind of trying to get ready for this,” said Adrienne Braumiller, founding partner at Dallas-based Braumiller Law Group. “I think it really was somewhat of a shock to a lot of companies that the US, Mexico and Canada really were wanting to propel the timing of this agreement.”

The Canadian parliament was the last to ratify the treaty in one of the last actions taken by the body before closing as part of the COVID-19 lockdown in mid-March. Even though Canada’s ratification ostensibly started the countdown to July 1, some delay was widely expected.

“Many people were thinking that it wouldn’t be until Jan. 1, 2021, [that this] would be the earliest that we would see the USMCA go into effect. But unfortunately, July 1 is really when we have to begin,” said Braumiller at a webinar on Tuesday hosted by legal research website Lexology.

Due to the coronavirus crisis, most Mexican manufactures only began to re-open in June and many are still struggling to implement new health safety protocols, with precious little time to transition to USMCA, or T-Mec, as it is called in Mexico.

For some elements of the new certification process, there will be a six-month window where compliance enforcement will have some latitude to make allowances for firms working towards compliance, Braumiller added.

Mexican perspective

Industry in Mexico is still largely unprepared with just a week to go before USMCA becomes reality, said Brenda Cordova, a lawyer with the Braumiller Law Group’s Mexico City office, also speaking in the event.

The Mexican legislature was originally set to debate and pass a broad package of legislation to harmonize the country’s laws with the treaty during an emergency session expected to start on Wednesday. The lawmakers then changed plans on Monday, agreeing to a crammed two-day session on June 29-30. 

Getting this done by July, Cordova said, “will be a major challenge."

As such, even if the laws are all passed, companies will have almost no time to read and adapt to adjustments before USMCA takes effect. 

Furthermore, the uniform rules released across the treaty zone in English on June 3, have yet to be released in Spanish.

The Mexican government has promised to have this out no later than July 1 and Cordova sees this causing difficulties for many firms.  

Cordova urged importers and exporters in Mexico to carefully review the full treaty (not the uniform rules) on the Mexican government’s website (here). 

The USMCA in English is available here, while the treaty implementation act can be found in English here. 

“[The T-Mec in Spanish] should be the same one as the USMCA or [the Canadian English version] CUSMA,” said Cordova. However, some colleagues are already finding apparent conflicts in the various versions, she added.   

They have seen “something different in one of the specific rules of origin, where in one of the English versions, it seemed to qualify, and in the Spanish version it didn’t, or it was somewhat contradictory, or it just doesn’t make sense.”

“In Mexico, this has caused a lot of confusion and concerns for industry because the government has been very straightforward in saying that starting in July, Nafta will not apply anymore,” said Cordova. 

The new rules will have broad impacts on the critical supply chains running between the three nations, with many parts crossing borders on multiple occasions before reaching a final destination for sale. 

“There are some companies that have merchandise in Mexico that have been imported for specific periods of time, and having the new treaty [start] on July 1 is right in the middle of their temporary [importation period],” Cordova said.  

Another example is the need to update tariff clarification codes on different products, an area where Mexico needs to convert its 8-digit system to work with the 10-digit codes in the US and Canada, a task that seems impossible with just days to go, according to Cordova.

Key impacts

“The bottom line is there will be a large impact on cross-border trade,” said Braumiller, “The question is are you ready?” 

Braumiller stressed that impacts on the automotive sector will the biggest, noting there are three new certifications that automakers need to adapt to using, including new content requirements that have to be met for finished goods.

“On top of that, there is a labor value content requirement certification,” said Braumiller. “That is something that’s brand new, as well as a steel and aluminum threshold certifications. Three different certifications for automotive, that’s really a major change.”

Other areas of impact include expanding intellectual property laws, giving creators the same rights they have in their domestic territory across the whole treaty zone, said Braumiller, who added that there is a 75-year limit on copyright protection across the zone.