Under USMCA, Canada Rolls With 'New NAFTA'

Before the United States-Mexico-Canada Agreement took effect at midnight Wednesday, Energy Transportation Group in Quebec had spent months working to ensure that its trucks will continue to move freight between Canada and the U.S. without a hitch.

"I don't foresee any changes. If the trucks keep rolling, everyone will be all right," Energy CEO Shawn Girard told FreightWaves.

The trade pact came into force on Canada Day, the country's national holiday and normally a slow day for freight. However, wait times at the Ambassador Bridge, the single busiest border crossing for trucks, averaged as much as six minutes higher for vehicles entering the U.S during the morning. 

Trucks moved most of the nearly $174 billion in cross-border trade between the U.S. and Canada from January to April, and USMCA is coming into force as both countries attempt to dig out from the COVID-19 pandemic.

While USMCA opens the door for more dairy trade and e-commerce, the biggest change is in the sheer volume of small changes that effectively update the North American Free Trade Agreement (NAFTA). Many of those changes only got published in June.

"There will be a number of truckers who get stuck at the border because of this," predicted Canadian trade lawyer Cyndee Todgham Cherniak.  

In Canada, USMCA is commonly referred to as "the new NAFTA." It broadly preserves free trade relationship with the U.S., with certain concessions.

"If NAFTA had been ending, that would have been horrible," Cherniak said

But Cherniak said USMCA is far from ideal. Her biggest complaint is what she characterizes as a larger administrative burden under USMCA.

U.S. trade lawyer John Peterson agreed that USMCA brings new complications for U.S.-Canada trade, particularly with rules-of-origin requirements for automakers. But he contended that USMCA broadly represents a much-needed modernization to NAFTA.

"In a lot of ways, it's a better agreement," Peterson said, pointing to greater transparency in the publication of customs rules. 

But Peterson recommended everyone involved in cross-border trade make sure they are operating within USMCA regulations.

"A trucking company will want to make sure that the shippers are providing documents that are needed to cross the border under USMCA," Peterson said.

Girard agreed that carriers should be extra diligent.

"Make sure you have all your I's dotted and T's crossed," Girard said. "If something goes wrong, it can affect the whole trip if a driver ends up waiting three or four hours at the border.

A boost for e-commerce?

Many of USMCA's changes from NAFTA are small, relaxed duties, and taxes for small shipments could boost some cross-border trade lanes.

USMCA raises the duty-free limit for shipments to C$150 (US$110). Shipments to Canada are now tax-exempt up to C$40 from C$20. 

Those changes likely will encourage more cross-border e-commerce from the U.S. to Canada. Curiously, they don't apply to the U.S. Postal Service and Canada Post, to the benefit of major parcel carriers UPS, FedEx and DHL.

"It creates a structural advantage for everyone at the expense of the post," said Alex Yancher, CEO of Passport Shipping, a cross-border e-commerce logistics company based in San Francisco.

Steven Page, the president of Stalco, a third-party logistics provider specializing in cross-border fulfillment, doubted that USMCA will lead to a surge in e-commerce. He pointed to the relatively low C$40 tax-free limit.

"It's a horrible experience for the consumer having to deal with paying that tax on a delivery," Page said.