Are you ready for the USMCA? Customs-related takeaways on key changes from NAFTA

The US-Mexico-Canada Agreement (USMCA), enshrined in US law as Public Law No. 116-113, will go into effect shortly, on Wednesday, July 1, 2020, replacing the North American Free Trade Agreement (NAFTA). To transition from NAFTA, US importers and importers of record (IOR) may need to make a number of substantive adjustments to their supply chain if they have not started to so do already, and companies or customs brokers filing import documentation with Customs & Border Protection (CBP) will need to take into account procedural changes as well. The USMCA will have a significant impact on the automotive industry, and as such, the US Trade Representative (USTR) has been accepting proposals for alternative staging regime for producers of passenger vehicles or light trucks.^[1]

By way of background, to claim USMCA duty advantages, imported goods must still originate in Canada, the United States or Mexico according to the traditional framework for determining “origin,” but some of the specific rules have changed. The USTR published the uniform regulations concerning rules of origin (ROO)^[2] and origin procedures,^[3] but these have yet to be implemented into the Code of Federal Regulations.

Unique product-specific tariff-shift rules

To determine origin, the USMCA has developed unique product-specific tariff-shift rules of origin, and Regional Value Content (RVC) requirements have been adjusted as well. For example, for automotive goods, the RVC has shifted from 62.5 percent to 75 percent of the value of the imported good. Also, the country-of-origin marking rules (previously used for country-of-origin determinations for both marking as well as the application of specific duty rates under NAFTA for originating goods) will remain as provided in accordance with 19 C.F.R. Part 102, but for USMCA goods, generally will be used only for marking purposes.  The country of origin marking rules should generally align with the USMCA product-specific ROO, but, under the USMCA, an originating good that does not qualify to be marked as a good of Mexico or Canada still may receive preferential tariff treatment.

In the June 29, 2020 Presidential Proclamation proclaiming the preferential duty rates under the USMCA, by which the specific rules of origin for USMCA are formally established, the following is stated:

(1)  In order to provide generally for the preferential tariff treatment being accorded under the USMCA, to set forth rules for determining whether goods imported into the customs territory of the United States are eligible for preferential tariff treatment under the USMCA, to provide tariff-rate quotas with respect to certain originating goods of Canada, and to provide certain other treatment to originating goods for purposes of the USMCA, the HTS is modified as set forth in Annex I of Publication 5060 of the Commission, entitled “Modifications to the Harmonized Tariff Schedule of the United States to Implement the United States-Mexico-Canada Agreement” (Publication 5060).  Publication 5060 is incorporated by reference into this proclamation.^[4]

Rules of particular note for automotive goods

Also, of particular note, affecting the eligibility of automotive goods for preferential duty rates under the USMCA are two additional requirements that importers must certify that they have met. First, there is a new metric, Labor Value Content (LVC) which has been created to ensure a level playing field of manufacturers across the free trade area and requires that a certain percentage of the imported good be manufactured in facilities that pay at least US$16 an hour. Second, there is the requirement that 70 percent of the vehicle producer’s overall annual purchases of steel and aluminum must be sourced from North America.

As these are affirmative certifications that are required at entry or when making the USMCA claim, importers must be careful to use reasonable care to ensure the accuracy of such certification when presented to CBP.

Practical processes

As to the practical processes for entering goods into the US deemed eligible for duty preferences under USMCA, an importer of record will want to use the Special Program Indicator (SPI) of “S” on the entry summary (CBP Form 7501 or other entry documentation). Alternatively, SPI “S+” will be available once the USTR and CBP provides more guidance on its use. USMCA preferences may be claimed not only on consumption entries (entry type 01), but also reconciliation (entry type 09) with certain special handling requirements. Reconciliation allows importers to import goods with certain elements of the entry transaction, such as declared value, still outstanding, while continuing to exercise reasonable care. Once flagged for reconciliation any outstanding issues, eg, declared values, at a later date, the reconciliation entry will be the only means to file a USMCA claim for the goods covered by original entry transaction.

And now: the reduced rates

All importers have been waiting for information about the reduced duty rates for each imported good.  These will be included in the Harmonized Tariff Schedule of the United States (HTSUS) (the USMCA will be published in General Note 11 of the HTSUS). Additionally, Merchandise Processing Fees (MPF) may be waived if claiming the USMCA at the time of entry, but not as a post-importation claim.^[5]

DLA Piper has experience in navigating free trade agreements and CBP rules and regulations. If you have any questions regarding the USMCA or eligibility of your imported goods for USMCA reduced duty rates, please contact the authors.

^[1] _{See https://www.federalregister.gov/documents/2020/04/21/2020-08405/procedures-for-the-submission-of-petitions-by-north-american-producers-of-passenger-vehicles-or}

^[2] _{https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/UniformRegulationsRulesofOrigin.pdf}

^[3] _{https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/UniformRegulations.pdf}

^[4] _{See full Presidential Proclamation at https://www.whitehouse.gov/presidential-actions/proclamation-take-certain-actions-united-states-mexico-canada-agreement-implementation-act-purposes/}

^[5] _{See also Presidential Proclamation referenced in footnote above.}