USMCA Revision May Impact Retail Industry

The upcoming revision of the United States-Mexico-Canada Agreement’s (USMCA) is expected to introduce both opportunities and challenges for the retail sector, significantly impacting cross-border trade, e-commerce, and supply chain dynamics, according to a report by The National Law Review (NLR).

Rules of Origin: Small Shifts, Major Waves

One of the key areas under renegotiation is the USMCA rules of origin, which determine the eligibility of imported goods for preferential tax treatment (duty free). Even minor adjustments to these rules could disrupt established sourcing relationships and necessitate costly supply chain adjustments. 

“Even slight changes to the USMCA rules of origin could significantly impact these established relationships and force costly supply chain or system changes,” reads the report. 

The proposed revisions aim to reinforce these rules to ensure that the benefits of USMCA are directed towards products genuinely made in the United States and North America. This could impact the growing presence of Chinese products in Mexico across various industries, including manufacturing, automotive and retail.  Brands like Shein and Temu in Mexico have already encountered challenges with the National Association of Supermarkets and Department Stores (ANTAD) and faced multiple lawsuits in the United States. 

As e-commerce continues to expand and reshape cross-border trade, the NLR anticipates the inclusion of a new chapter addressing these matters. In 2016, global e-commerce sales reached US$2 trillion (MX$33.2 trillion), with North America accounting for US$423 billion, exceeding the total value of all US exports to Canada in that year, according to UPS. 

Concerns Over Duty-Free Import Threshold Increase

The US government aims to raise the de minimis level (the value below which imports can enter without duty) to streamline cross-border e-commerce sales, seeking consistency across all three countries. However, existing discrepancies in thresholds among Canada, Mexico, and the United States pose challenges for retailers, according to the NLR. 

According to the Forced Labor Law Report 2024 by Morgan Lewis, imposing restrictions on the de minimis threshold for imports could significantly impact the operations of numerous shippers and retailers, particularly online. While adjusting the threshold could generate revenue for other government programs, it would require additional funding for enforcement.

Additionally, concerns about forced labor in supply chains have prompted calls for enhanced oversight and enforcement. In November, US Senators called for enhanced oversight and enforcement against Chinese companies potentially evading US laws against forced labor, emphasizing the importance of enforcing trade agreements like the USMCA, which authorize monitoring of trading partners' supply chains, including audits of apparel factories.