The United States-Canada-Mexico Agreement (USMCA) has ushered in a new era of trade cooperation among North American nations. Building upon the successes of its predecessor, NAFTA, USMCA presents significant opportunities for manufacturers in the region to enhance their supply chains. In this blog post, we will explore the benefits of leveraging USMCA to strengthen supply chains for North American manufacturers, focusing on logistics advantages, cost savings through the elimination of duties, and the importance of supply chain compliance.
Cost Savings through Duty Elimination
USMCA’s #1 benefit: the world’s gold standard trade agreement brings about significant cost savings for North American manufacturers through the elimination or reduction of duties on qualifying goods. By removing trade barriers and implementing favorable rules of origin, manufacturers can import and export goods within the USMCA region without facing steep tariffs. The hope is that manufacturers can reinvest these cost savings into research and development, innovation, and expanding their operations, fostering long-term growth and sustainability – which enhances the competitiveness of the North American market.
Proximity to Suppliers and Customers
One of the key advantages of USMCA for manufacturers is the proximity to suppliers and customers within the region. With shorter distances and reduced transportation time, manufacturers can benefit from faster response times, reduced lead times, and increased flexibility. Proximity to suppliers enables closer collaboration, efficient inventory management, and easier quality control. Moreover, being close to customers facilitates faster deliveries, better customer service, and greater responsiveness to market demands, enabling manufacturers to stay competitive and flexible in a rapidly evolving business landscape.
Nearshoring and Predictable Logistics Processes
USMCA provides manufacturers with an incentive to nearshore their operations within North America. By relocating production closer to home, manufacturers can capitalize on the advantages of reduced supply chain complexity and improved control. Nearshoring helps mitigate risks associated with distant sourcing, such as geopolitical instability, fluctuating exchange rates, and extended transportation times. It also allows manufacturers to establish more predictable logistics processes, resulting in better inventory management, reduced lead times, and enhanced overall operational efficiency, while taking advantage of elimination of duties for covered goods.
Be Certain. Be Compliant.
While USMCA offers numerous benefits, manufacturers must ensure compliance with the agreement's rules of origin to fully leverage its advantages. To claim USMCA preferential treatment, it is crucial to know the origin of every component in the supply chain. Manufacturers must maintain comprehensive records, track and trace the origin of each component, and implement robust compliance processes. Failing to meet the strict origin requirements could result in penalties and loss of preferential treatment. Therefore, manufacturers should establish clear visibility into their supply chains, work closely with suppliers, and conduct regular audits to ensure compliance with USMCA regulations.
USMCA presents a unique opportunity for North American manufacturers to strengthen their supply chains and enhance their competitiveness. By leveraging the benefits of proximity to suppliers and customers, nearshoring, predictable logistics processes, and cost savings through duty elimination, manufacturers can optimize their operations and drive growth. However, compliance with the agreement's rules of origin is of utmost importance. Manufacturers must diligently understand their supply chains, ensure the traceability of components, and maintain compliance with USMCA regulations. By strategically harnessing the potential of USMCA, manufacturers can navigate the evolving global trade landscape, foster regional collaboration, and position themselves for sustained success in North America and beyond.
Are you doing business in North America, and not yet using USMCA, or have questions about it? Let's chat!