Key Takeaways
- USMCA replaced NAFTA on July 1, 2020. The implementation act was signed in January 2020, and the agreement itself took effect that summer, updating North American trade rules across autos, agriculture, labor, and digital trade.
- For duty drawback, the restrictions carried over. USMCA kept NAFTA’s core limitation: drawback on goods exported to Canada or Mexico is generally capped at the lesser of the duties paid to the United States or the duties paid to Canada or Mexico.
- Duty-free entry is why the cap bites. Qualifying goods enter Canada and Mexico duty free under USMCA, which often makes the lower figure zero and can eliminate drawback on manufactured exports to those markets.
- Same-condition exports are the big exception. Goods exported unused and in the same condition are not subject to the lesser-of limit, so distributors re-exporting unchanged goods to Canada and Mexico can still recover in full.
- The agreement was not renewed at its 2026 review, but it remains in force. The three countries met on July 1, 2026, the United States declined to renew on current terms, and negotiations continue while the existing rules, including the drawback provisions, stay in effect.
NAFTA, or North American Free Trade Agreement has been the agreement set into place to promote fair trade between three counties. This was also implemented to encourage activity among North America’s three major economic powers; Northern America, Canada and Mexico.
With this act in place,the agreement eliminated most tariffs on trade between the three countries particularly on items such as agriculture, textiles, and automobiles. These were gradually phased out between 1994 and 2008.
When President Trump came into power, he noted that the NAFTA agreement held a long overdue and much needed change up as they were unfair trade practices in the way of American life. At that time President Trump announced new trade deals all across the board such as the U.S.-Mexico Trade Agreement that would maintain duty-free access for agricultural goods on both sides of the border and eliminate non-tariff barriers while encouraging more agricultural trade between Mexico and the U.S.
Following shortly after the U.S.-Mexico Trade Agreement implementation, Canada followed suit and also agreed to the same terms in a deal to completely replace NAFTA as we know it and turn this into The United States-Mexico-Canada Agreement or USMCA as we now have come to know it.
With the USMCA in place, it marked the first time that fair trade would truly be implemented to “help workers, farmers, ranchers. and businesses to give them a higher standard of trade that would result in freer markets, fairer trade, and robust economic growth in the region. It was also said that it would strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call Northern America home.”
This agreement was officially signed and set into place by President Donald J. Trump on January 29, 2020. For a lot of companies either lying in the U.S. or subject to tariffs due to importing and exporting the Norther American borders. it is very important that USMCA is in place to protect their trade and make the process as fair as possible across all fields.
Although the move from NAFTA to USMCA still remains murky waters for some companies looking to obtain drawback refunds, here at CITTA Brokerage, this has remained one of our clearest and highest priorities on our daily agenda to keep up with. That means that if you still want greater clarification as to the difference, we are more than happy to set some time aside to speak to you not only in regards to USMCA, but also to respond to any questions you have surrounding drawback as a whole.
Frequently Asked Questions
Not much. USMCA carried NAFTA’s drawback restrictions forward largely intact. The lesser-of limitation still applies to most claims on goods exported to Canada or Mexico, same-condition exports remain fully eligible, and substitution claims still cannot use exports to either country. For drawback purposes, the transition changed less than the name did.
It caps drawback on goods exported to Canada or Mexico at the lower of two figures: the duties paid when the goods entered the United States, or the duties paid when they entered Canada or Mexico. Because qualifying goods enter those markets duty free under USMCA, the lower figure is often zero.
Yes. Goods exported in the same condition they arrived in, meaning unused merchandise claims with direct identification, qualify for full drawback with no lesser-of cap. The limit mostly bites on manufactured goods, which is why sorting a program’s exports by destination and claim type matters so much.
