Update on U.S.-Mexico-Canada
Agreement (USMCA) US Customs Interim
Implementing Instruction

April 27, 2020

Implementation of the long awaited USMCA is inching closer to fruition, but we are not there yet!

Where are We in the Process?

The agreement provides that the USMCA will take effect on the first day of the third month after all three countries have given their notice of readiness to comply with its new measures.

Canada’s Parliament passed its version of the USMCA (CUSMA) on March 13, 2020, and both Canada and Mexico notified the United States on April 2, 2020 that they have finished their ratification process and are now ready to implement the revised North American trade agreement. Neither Canada nor Mexico has yet, however, published their implementing regulations, which will guide Canadian and Mexican importers as well as U.S. exporters in what they will need to do to claim eligibility under the new agreement.

On Friday, April 24, U.S. Trade Representative announced the readiness of the United States to participate in the revised trade pact. This means that implementation of the new agreement is now slated to take effect on July 1, 2020.

U.S. lawmakers have asked the USTR to delay the implementation of the USMCA rules of origin for automobile and truck eligibility to give automakers time to adjust in light of the COVID-19 crisis. Mexico’s government also recently requested the United States and Canada grant its automotive industry extra time to adapt its supply chains for autos and trucks. The Mexican auto lobby AMIA said that 90 days is not enough time for carmakers to adapt supply chains to meet the rules of origin requirements in the USMCA by the July 1 date and urged authorities to postpone implementation until January 2021.

US Customs Publishes USMCA Interim Implementing Instructions

CBP has posted a 64-page guide that provides additional detail and instruction for compliance with the rules of origin that includes chapters on automotive and textiles rules of origin under the USMCA. The instructions are available here

To support the USMCA implementation, CBP is in the process of revising section 182 of the Customs Regulations (19 CFR 182) to include USMCA Uniform Regulations, Domestic Regulations and the Appendix. The Harmonized Code will be amended to include General Note 11 on USMCA rules of origin. NAFTA is currently provided for in General Note 12 of the HTSUS. The interim implementing instructions are subject to change pending issuance of GN 11 and 19 CFR 182. Until the USMCA enters into force, NAFTA remains in effect.

In the recent CSMS #42429822 of April 20, 2020, CBP has advised the trade community of the release of “interim implementing instructions.” These interim instructions are intended to provide information and early guidance on CBP’s new regulations, including claiming preferential treatment for goods. Message 42429822 lists the following websites for further information:

US CBP Published Frequently Asked Questions

CBP’s interim implementing instructions includes a number of FAQ’s including:

Is there a required certificate of origin/form for the USMCA?

The USMCA does not require a specific certificate of origin as does NAFTA. CBP Form 434 is not mandatory under the USMCA.

A claim for preferential treatment under the USMCA should contain nine minimum data elements. These data elements are set out in the USMCA’s Annex 5-A (Minimum Data Elements). The data elements must indicate that the goods claiming preferential treatment originate and meet the requirements of USMCA Chapter 5. This information may be provided on an invoice or any other document. The information must describe the originating goods in sufficient detail to enable their identification and meet the requirements as set out in the Uniform Regulations. For more information see Chapter 5 Origin Procedures, Article 5.2 and Annex 5-A. Additional guidance materials will be published by CBP in advance of the USMCA’s entry into force.

How will the transition from NAFTA to USMCA work?

NAFTA rules will remain in effect until the USMCA enters into force. For automotive products under headings 87.01 through 87.08, there is a transitional period for up to three years and alternative staging regime options (coordinated by the U.S. Trade Representative) for up to five years. Additional compliance guidance for the USMCA’s automotive rules of origin is pending. For more information see USMCA Ch. 4 – Rules of Origin. For all other commodities, USMCA rules will replace NAFTA rules on the date the agreement enters into force. There will be a new Special Program Indicator (SPI) for USMCA claims. NAFTA’s SPI Indicator will be accepted for claims on merchandise that are entered prior to the USMCA’s entry into force.

Which industries will have the most impact from the changes from NAFTA to the USMCA?

The USMCA contains new criteria for the rules of origin for automotive and automotive part imports. These new criteria include increases in the regional value content, new North American steel and aluminum procurement requirements, and labor value content. These new criteria will require additional attention by importers to ensure compliance. For more information see USMCA Ch. 4 – Rules of Origin . Other impacted industry groups include manufactured goods, textile and apparel, and agricultural good sectors.

USTR has also announced the procedures for the submission of petitions by North American producers of passenger vehicles or light trucks to use the alternative staging regime for the USMCA rules of origin for automotive goods, available here. The agreement already includes a standard staging regime available to all vehicle producers, but it also allows vehicle producers to request an alternative staging regime that would permit a longer period of transition to help ensure that future production is able to meet the new rules. The Federal Register Notice identifies the information a vehicle producer must include in its alternative staging proposal, as well as procedures for submission. To be assured of consideration, a vehicle producer must submit a petition with a draft alternative staging plan no later than July 1, 2020, and a vehicle producer must submit a petition with its final alternative staging plan no later than August 31, 2020.

Are there any changes that the textile industry should be aware of?

The USMCA modifies the chapter rules for goods classified in HTS chapters 61 and 62. However, the revised tariff shift rules maintain the basic concepts established under NAFTA with a few modifications.

These rules allow manufacturers to use textile inputs not generally available in North America (such as rayon fibers and visible lining fabric). Other changes under the USMCA require that sewing thread, pocketing fabric, narrow elastic bands, and coated fabric used in the production of apparel be made in North America in order for those products to be treated as originating (under the current NAFTA, these items can be sourced from outside the region – USMCA ensures these secondary components originate within the region). 

The USMCA increases the de minimis percentage of non-originating inputs allowed in qualifying goods from 7% to 10% (within the overall 10% cap, the total weight of elastomeric content may not exceed 7%).

The USMCA establishes a textiles chapter for North American trade (see Article 6 Textiles and Apparel), including textile-specific verification and customs cooperation provisions that provide new tools for strengthening customs enforcement and preventing fraud.

The USMCA reduces some TPLs for US imports from Canada and Mexico while substantially increasing TPLs for US exports to Canada of apparel and other finished textile goods.

What are the new criteria for imported automobiles and automotive parts?

The USMCA requires new criteria for automotive goods that are not present in NAFTA, including:

  • Increased Regional Value Content from 62.5% to 75%, increased in stages over a period three years.
  • Labor Value Content (40-45% percent of the value of the imported automobile must be sourced from manufacturing facilities where workers earn at least $16 USD per hour. The U.S. Department of Labor will be performing the assessment of manufacturing facility eligibility, with CBP determining value of the parts, the overall automobile, and the overall Labor Value Content determination.
  • Steel and Aluminum (At least 70% of a vehicle producer’s annual steel and aluminum procurement must originate from North America). CBP will issue compliance guidance in advance of implementation. For more information select USMCA Ch. 4 – Rules of Origin.

What Should the Trade Community do to Comply with the New USMCA Rules and Requirements?

Pending release of the final implementation regulations, U.S. importers and exporters are strongly advised to review USMCA Ch. 4 – Rules of Origin and the product specific rules that are in ANNEX 4-B and verify any specific changes in their rules of origin. During this interim period U.S. importers and exporters should verify with their Canadian and Mexican counterparts how the new rules regarding changes to the certificate of origin process found in Article 5  Origin Procedures will be addressed in time for the new implementation date of July 1, 2020.

For further information about these and other Customs matters, contact George R. Tuttle, III at geo@tuttlelaw.com or 415-254-5986.

 

The information in this article is general in nature and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence and may not be considered as such.

Copyright © 2020 by Tuttle Law Offices. 
All rights reserved. 

Information has been obtained from sources believed to be reliable.  However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

 

 

 

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