What is the USMCA?

The United States-Mexico-Canada Agreement (USMCA) is a trade agreement between the United States, Mexico, and Canada that replaced NAFTA (a past trade agreement) on July 1, 2020. Though it has a variety of intricacies, its basic purpose is to facilitate less expensive and easier transportation of goods and services between the borders of the North American countries.

Why is the USMCA important?

Since its creation, the USMCA has been an important vehicle for companies as a means for reduced costs and complexities when conducting business between the United States, Canada, and Mexico. With the rise of new tariffs under the Trump administration, the USMCA has become even more important, as compliance with the USMCA provides certain exemptions and opportunities for reconciliation from the tariffs.

By adhering to the USMCA, businesses can reduce the risk of their goods being subject to the new tariffs. Currently, President Trump has established an executive order under the IEEPA placing 25% tariffs on all non-USMCA-compliant goods from Canada and Mexico, citing his belief that the two countries are failing to stop the flow of fentanyl and undocumented immigrants into the country. As a part of this order, non-USMCA-compliant energy and potash from Canada and Mexico face 10% tariffs. Even if the fentanyl/migration IEEPA orders are terminated, non-USMCA-compliant goods will still face a 12% tariff.[1] Furthermore, President Trump has recently raised tariffs on steel and aluminum not compliant with the USMCA from 25% to 50%.

Though this is the current state of tariff rates, President Trump sent letters to Canada and Mexico on July 10^th and 12^th , respectively, threatening to increase rates. For Canada, President Trump has threatened increasing tariffs to 35% by August 1^st, in part because of current trade barriers and his belief that Canada has continued to allow fentanyl to flow into the United States. Similarly, President Trump has threatened increasing Mexico’s tariffs to 30% by August 1^st, referencing the country’s “failure to stop the Cartels” and other trade barriers. However, even with these letters, there has been no legal documentation released that has implemented these potential changes, and negotiations between the countries may result in such threats never being implemented. It is also uncertain whether these newly threatened rates would replace the current 25% tariff rates or are something different. The letters are similarly unclear as to whether goods that comply with the USCMA will continue to be exempt from tariff rates, with a Trump administration official telling NPR that these new rates would “most likely” not apply to goods that comply with the USMCA, but that “no final decisions” have been made.

Even given the current murky waters, North American businesses still have a significant incentive to comply with the USMCA whenever possible, in order to mitigate the impact present tariffs may otherwise have on their operations, and because it remains “likely” that USMCA-compliant goods will avoid the threatened future tariffs set by the president. Additionally, even if a business’s goods are deemed to not comply with the USMCA, the USMCA permits reconciliation, where businesses can apply for post-import correction to the original status of goods. With the rise of tariffs, this may become more popular as another avenue for businesses to mitigate adverse effects on their operations.

Key Provisions of the USMCA

Given all of the current tariff exemptions for USMCA-compliant products (and the likely continued exemptions even if the newly threatened tariffs go into effect), USMCA compliance is highly desirable for North American businesses. Though the USMCA has many industry-specific rules and regulations, there are some key general provisions that are worth noting.

Rules of Origin

In order for a business to comply with the USMCA, its import and export of goods and services must follow certain rules of origin, found in Chapters 4 and 5 of the USMCA. Though these rules can vary based on industry and sector, some key examples of these rules of origin are as follows:

• A product can qualify under the USMCA if it is obtained or produced completely from materials sourced from the United States, Canada, or Mexico.
• A product can qualify if it is made with non-United States/Mexico/Canada materials, yet goes through a major transformation when in the United States, Mexico, or Canada (with specific details in Annex 4-B of the USMCA).
• A product can qualify if it meets the Regional Value Content rules by consisting of a minimum percentage of United States, Mexico, and Canada materials.
• An automobile or automobile part can qualify if 75% of its content comes from the three countries, 40-45% of its content comes from high-wage labor ($16/hour or more), and 70% of the product’s steel and aluminum comes from the three countries.
• A textile or apparel product can qualify if the yarn used to form the fabric originates in one of the three countries.[2]
• For most industries, a product can still qualify if up to 10% of its value comes from non-USMCA material (de minimus exception).

Certificate of Origin

Along with following the rules of origin, a North American business must provide a Certificate of Origin or origin statement with the product at the time of its entry into the borders of the participating countries. Such a certificate must state that the product meets the requirements of the USMCA, and consist of nine data elements:

• The type of company making the claim.
• The identity of the party certifying the claim.
• The exporter company information.
• The producer company information.
• The importer company information.
• A description of the product and its six-digit Harmonized System code (a global product classification system).[3]
• The rule of origin claimed as the basis for qualification under the USMCA.
• If a blanket certificate is used, the blanket period for the origin claim. A blanket certificate can be used when the nine data elements for a product will be the same across multiple shipments.
• An authorized signature and date.

Documentation Retention

Another key provision for North American businesses is the documentation retention requirement. In the United States, companies must maintain all documentation regarding USMCA claims for a minimum of 5 years, and in Canada and Mexico, for a minimum of 6 years.

Again, the USMCA is a lengthy, complex agreement full of intricacies for various industries, so companies should be diligent about making sure they are following all relevant provisions and requirements. However, the above three key provisions provide baseline knowledge for USMCA compliance.

What’s Next for the USMCA?

Compliance with the USMCA is a constantly changing landscape that requires businesses to stay alert and agile. There is always the possibility that President Trump removes the USMCA exemptions with his new tariffs threatened to go into effect on August 1^st, as his initial tariff announcement in March had no such exemption. Furthermore, the USMCA was scheduled for a joint review between the nations on July 1, 2026, though the Mexican government has expressed a desire to move the review up to as early as this September, in order to reduce the uncertainty from the tariffs that is currently impacting their economy. Regardless of the timing for this review, its purpose is to address the potential extension of the agreement past its current 2036 expiration date.[4] Both President Trump and Prime Minister Carney of Canada have expressed a desire to change some parts of the USMCA, further indicating the need for businesses to be wary of the potential for change in this realm. In fact, Commerce Secretary Howard Lutnick stated that the President will “absolutely” renegotiate the USMCA at the joint review, in order to bolster what President Trump sees as protections for American goods.

Conclusion

For businesses engaged in cross-border supply chains in North America, USMCA compliance is a key mechanism to avoiding potential adverse effects of the challenging tariff and trade climate with the current administration. With the constantly changing tariff landscape, as well as the upcoming review of the USMCA, North American businesses should diligently stay on top of the latest news surrounding these issues in order to be prepared for any revisions to the USMCA and its applicability that may arise.

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[1] The White House, Fact Sheet: President Donald J. Trump Declares National Emergency to Increase our Competitive Edge, Protect our Sovereignty, and Strengthen our National and Economic Security, The White House (April 2, 2025), https://www.whitehouse.gov/fact-sheets/2025/04/fact-sheet-president-donald-j-trump-declares-national-emergency-to-increase-our-competitive-edge-protect-our-sovereignty-and-strengthen-our-national-and-economic-security/ (last visited July 24, 2025).

[2] U.S. Customs and Border Protection, Textile and Apparel Product, U.S. Customs and Border Protection (Feb. 18, 2025), https://www.cbp.gov/trade/nafta/guide-customs-procedures/provisions-specific-sectors/textiles#:~:text=Rules%20of%20Origin,-.The%20NAFTA%20provisions&text=The%20basic%20origin%20rule%20for,originate%20in%20a%20NAFTA%20country (last visited July 24, 2025).

[3] International Trade Administration, Harmonized System (HS) Codes, International Trade Administration, U.S. Department of Commerce, https://www.trade.gov/harmonized-system-hs-codes (last visited July 24, 2025).

[4] Congressional Research Service, U.S.-Mexico-Canada (USMCA) Trade Agreement In Focus, Congress.gov (Dec. 6, 2024), https://www.congress.gov/crs_external_products/IF/PDF/IF10997/IF10997.24.pdf (last visited July 24, 2025).