USMCA Guidance Unveiled
The US-Mexico-Canada Agreement became effective on July 1, 2020, replacing trade rules that had been established under the North American Free Trade Agreement for over 25 years. Major differences between the USMCA and NAFTA were briefly set out in an earlier posting. For businesses involved in North American trade, there are several procedural and other considerations worth highlighting as well.
Rules of Origin. Rules of origin provisions were set out by the U.S. Customs and Border Protection in the interim final rule published on July 1, 2020. These provisions are, in large part, the same as those utilized under NAFTA, save for changes affecting certain industries, notably the automotive and textile sectors. In addition, the de minimis threshold for non-originating goods has been increased to 10%.
Country of Origin Marking Rules. The country of origin marking rules which governed NAFTA transactions have now been eliminated. Based on implementing instructions issued by CBP on June 30, 2020, goods imported from Canada or Mexico will be marked in accordance with the non-preferential marking rules contained in Part 134 of the customs regulations. These rules call for the country of origin to be the country in which the goods were last “substantially transformed”, rather than following the tariff-shift requirements under NAFTA.
Certificates of Origin. Under NAFTA, importers were required to rely on certificates of origin furnished by the exporter. Those certificates had to conform with the format contained in U.S. Customs Form 434. The USMCA now allows for importers and producers to complete a certificate of origin based on “information, including documents, that demonstrate that the good is originating.” In addition, certificates of origin need not comply with any specific format as long as they contain the minimum elements required under the USMCA (Annex 5-A). Sample certification forms are available online from numerous logistics and courier services, and the information can even be included, for example, on commercial invoices rather than separate certificates. No certification is required if the import (or series of imports) does not exceed $2,500 in value upon entry into the U.S.
Impact on Sales Contracts. The certification changes allow for greater flexibility in meeting the preferential eligibility requirements. However, the responsibility for providing the certification or supporting documentation will be open for negotiation between buyers and sellers. That responsibility will need to be addressed in sales and supply agreements between North American parties going forward. In the meantime, parties will also want to revisit and update indemnity and other contract provisions which currently specify NAFTA compliance since those rules, and any NAFTA advance rulings, are irrelevant for future transactions.
Is USMCA Compliance Worthwhile? The USMCA is not the exclusive set of rules under which goods may be imported into the U.S. from Mexico or Canada. Is USMCA compliance worth the effort if goods can otherwise be imported tariff free under the Most-Favored Nations tariff? The answer may very well be “yes”. Goods which are imported into the U.S. under the USMCA will avoid payment of the U.S. merchandise processing fee so long as the claim for preferential treatment is made at the time of import.
Trade under the USMCA will continue to be a work in progress with regulatory additions and changes on the way, so stakeholders will need to be on the lookout for further guidance.