United States-Mexico-Canada Agreement (USMCA)

Country / jurisdiction: Mexico · Year: 2020 · Status: In force · Level: International · Type: Voluntary

The United States-Mexico-Canada Agreement (USMCA) came into force in 2020 in replacement to the 1994 North American Free Trade Agreement (NAFTA). It is meant to boost North America’s trade and economic growth.

The USMCA eliminates import tariffs for producers who use sufficient amounts of North American parts or materials. Local content requirements differ quite significantly from sector to sector. In the context of energy sector, local content requirements are notably established as follows:

Chapters 25 – 27

Non-crude petroleum oils and oils produced through direct-blending as originating so long the non-originating material constitutes no more than 25% by volume of the good qualify for preferential tariff treatment

Crude petroleum oils and crude oils qualify for preferential tariff treatment so long any diluent is limited to 40% of the volume of the good

Gas and oil trade is facilitated, with the elimination of proportionality rule which in the original NAFTA agreement mandated a fixed share of energy exports from Canada to the United States from

Automatic export approvals at preferential tariff treatment for natural gas exports from USA to Mexico and Canada

Chapters 72 - 83

Specific varying minimum regional value content apply for preferential tariff treatment, e.g. 70% for selected steel products, 50% for nuclear reactors, boilers, batteries and most machinery parts.

In the framework of the 2022 US Inflation Reduction Act, clean energy technologies imported from USMCA countries, and satisfying a different local content requirements may be granted additional support (e.g. investment, consumer or production tax incentives). The local content requirements in the USMCA differ from those specified in the IRA.

Official source: https://www.trade.gov/usmca