Now that the United States-Mexico-Canada Agreement (USMCA) has been in effect for nearly a month, the footwear industry is digging its heels into what it means to fully implement the pact.
Anne Woelke, product manager for free trade agreements at Thomson Reuters, and Matt Priest, president and CEO of the Footwear Distributors & Retailers Association (FDRA), discussed USMCA’s impact on sourcing during an FDRA Sourcing Summit webinar Thursday.
Woelke said U.S. Customs & Border Protection (CBP) has been issuing clarifications and documentation in areas that importers needed, such as accumulation, which is “a lot more lax than we’ve seen in historical agreements.” Accumulation, she said, is the ability to take a non-originating good and count a portion of it as originating.
“Historically, the burden of proof was quite steep,” Woelke said. “The supporting documentation was a lot more restrictive than it is under USMCA. You basically just need a statement with either the value of originating or non-originating material” to determine qualification.
One area that is still causing some confusion is the certificate of origin that is required for importers to be granted duty-free status on goods. She noted that CBP has said it will soon offer an application template, which importers and exporters are eagerly awaiting.
“But what is really required and what the definitions are is still pretty vague, so I do see some changes coming once they do drop their template,” Woelke said. “Some companies are sort of stuck in limbo right now. They’re still having to run some NAFTA qualification to maximize their refunds, while at the same time set up a brand-new program and qualify goods all over again in the middle of the year under this new agreement.”
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USMCA replaced the 26-year-old North American Free Trade Agreement as of July 1 in what some viewed as a rushed election-year move, Priest said, leaving some holes for importers to figure out, instead of waiting until all clarifications and documentations were in place.
Woelke said the rules and regulations for the footwear industry compared to automotive, for example, remained fairly static.
There were new labor provisions in USMCA, particularly regarding Mexican factory inspections and collective bargaining rights, Priest noted, which Woelke said are “going to make goods a little more costly.”
“The cost of labor is going to go up, and it’s [not] all of the labor, it’s just a fraction of it, but that’s still going to impact manufacturers,” she said. “Especially with what’s going on with COVID, the bottom line is a big deal. People are still trying to get their customer base interested in their goods and out shopping for their items.”
Priest said from FDRA’s perspective, NAFTA was a success in that it created jobs and offered a long-term, duty-free way for the three North American trading partners to conduct business. He hopes USMCA will do the same, but said the implementation struggles “are why we need a permanent agreement.”
She said the full impact of USMCA on sourcing probably won’t be felt for a year or longer.
“I don’t think it’s going to be a smooth transition,” Woelke added. “CBP has even stated they are going to be pretty lax for six months. What happens after that is a bit of an unknown. I don’t think people were quite ready for this agreement to go into effect on July 1.”