How to Dance Your Way Through the New US – M – C – A

After nearly 25 years, on July 1, 2020, the North American Free Trade Agreement (NAFTA) will be officially replaced by the US-Mexico-Canada Agreement (USMCA).

With the implementation of the USMCA just around the corner, it is more important than ever to make sure you and your supply chain are ready for the upcoming changes. These modifications will include: New Customs regulations being issued prior to implementation (under 19 CFR 182); a new Special Program Indicator of “S” on your 7501; updates to general note 11 of the Harmonized Tariff Schedule of the United States (HTSUS); and more.

U.S. Customs and Border Protection (CBP) published the final implementation instructions in the Federal Register on July 1, 2020.

Prior to the publication of the final implementation instructions, CBP expected the trade community to read and review the language within the official agreement in order determine if your importations will qualify as an originating good under the USMCA. Here are links to the original documents should you wish to review them:

CBP has launched an internal USMCA Coordination Center; this entity was created to ensure, organize, and guide the implementation of the USMCA for CBP and the trade community. As part of its preparation efforts, CBP has created a USMCA informational webpage on its site, where it will post relevant compliance guidance, announcements, points of contact, and/or FAQs. The International Trade Administration (ITA) has also created a webpage containing resources related to the USMCA, which is accessible to the public.

What Should You Expect to Change When USMCA Becomes Effective?

If you are you confused by the name of this agreement, then you are certainly not alone! Each of the 3 countries involved in this deal refers to it by a different name, which has caused a bit of confusion for people. The official names include:

  • Canada – the Canada-United States-Mexico Agreement, or CUSMA
  • Mexico – the Tratado entre México, Estados Unidos y Canadá, or T-MEC
  • United States – the United States-Mexico-Canada-Agreement, or USMCA

 

Rules of Origin Forms

One of the biggest changes between NAFTA and the USMCA is that the USMCA does not require a specific certificate of origin form. Instead, the new agreement requires nine specific data elements, which can be presented in any format. The minimum data elements are as follows:

  • Importer, Exporter, or Producer Certification of Origin: Provide a description of the product, including the 6-digit HTS classification code. The description should be sufficient to relate it to the good covered by the certification; and if the certification of origin covers a single shipment of a good, indicate the invoice number related to the exportation (if known). Indicate whether the certifier is the exporter, producer, or importer. If an importer is producing the certification, they must insist on doing their own origin analysis to be certain the goods qualify. Importers should look for an exporter or producer’s certification.
  • Certifier: Provide the certifier’s name, title, address (including country), telephone number, and email address.
  • Exporter: Provide the exporter’s name, address (including country), e-mail address, and telephone number (if different from the certifier). This information is not required if the producer is completing the certification of origin and does not know the identity of the exporter. The address of the exporter shall be the place of export of the good in a Party’s territory.
  • Producer: Provide the producer’s name, address (including country), e-mail address, and telephone number (if different from the certifier or exporter); if there are multiple producers, state “Various” or provide a list of producers. A person who wishes for this information to remain confidential may indicate that it is “available upon request by the importing authorities”. The address of a producer shall be the place of production of the good in a Party’s territory.
  • Importer: Provide the importer’s name, address, e-mail address, and telephone number (if known). The address of the importer shall be in a Party’s territory.
  • Description and HTS Classification of the Good: This document is for advance informational and advisory purposes only. It is not final and is subject to further revision.  It is not intended to have legal or binding effect.  Any decisions a reader makes based on this draft document are made with the understanding that the information in this document is advisory only and may change. The reader is responsible for monitoring the CBP website to ensure awareness of the status of any revisions to this document.
  • Origin Criteria: Specify the origin criteria under which the good qualifies, as set out in Article 4.2 (Originating Goods).
  • Blanket Period: Include the period if the certification covers multiple shipments of identical goods for a specified period of up to 12 months, as set out in Article 5.2.
  • Authorized Signature and Date: The certification of origin must be signed and dated by the certifier and must be accompanied by the following statement: “I certify that the goods described in this document qualify as originating and the information contained in this document is true and accurate. I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification.” Digital or electronic signatures will be accepted.

For additional information on these data elements, please refer to Chapter 5 (Origin Procedures), Article 5.2 (Claims for Preferential Tariff Treatment) and Annex 5-A (Minimum Data Elements) of the USMCA.

Another important change to note is that NAFTA Form 434 (Certificate of Origin) will not be accepted by U.S. Customs effective July 1. As of now, CBP has not announced plans for a transition period from Form 434 to a new form. However, to help avoid confusion, CBP Form 434 will no longer be accepted for claims of preferential treatment under the USMCA.

Even if the rule of origin for the good under USMCA is the same as it was under NAFTA, and all of USMCA’s required data elements are present on Form 434, the goods will still need to be recertified with the nine required elements (provided above) under USMCA. Unfortunately, CBP has yet to offer a version of the USMCA Certificate of Origin form. However, for those interested in viewing this information, the Canada Border Service Agency has provided a sample Certificate of Origin letter via its website.

To see if the rules of origin have changed, companies must research all HTS classifications for products that are exported or imported to/from Canada and Mexico. Why? Because it is important for companies to review this information for two reasons:  to become proficient in qualifying their goods, and/or to determine if anything has changed. Although many classifications may remain unchanged, you must still go through the exercise to enable you to provide a certificate for your company that currently exports to Canada or Mexico, or a company with whom you do business. Plus, your business partners will surely ask for a new certification so they can qualify their own exports.

 

Using the Regional Value Content (RVC) Calculation Methods

For most goods, the agreement provides for two Regional Value Content (RVC) calculation methods.  The below is a detailed breakdown of the math:

  1. Transaction Value Method: RVC = (TV – VNM)/TV x 100
  • RVC: regional value content, expressed as a percentage
  • TV: transaction value of the good, adjusted to exclude any costs incurred in the international shipment of the good
  • VNM: value of non-originating materials, including materials of undetermined origin used by the producer in the production of the good
  1. Net Cost Method: RVC = (NC –VNM)/NC x 100
  • RVC: regional value content, expressed as a percentage
  • NC: net cost of the good
  • VNM: value of non-originating materials including materials of undetermined origin used by the producer in the production of the good.

Additional Notes:

  • Generally, the regional value content of the good must not be less than 60% under TVM, or not less than 50% if the NCM is used, but there are exceptions:
  • Automotive Goods have their own special rules under Appendix 1.
  • Textiles and Apparel items have their own special rules under Chapter 6 of the USMCA. These specifically cover a textile or apparel good classified in Chapters 50 through 60 or heading 9619, and textile or apparel goods of Chapters 61 through 63.

 

De Minimis Provision (Non-Textiles)

The USMCA has a 10% de minimis provision for most goods, including goods subject to RVC requirements, with certain exceptions for goods classified in Chapters 1 through 27, as well as some textile and apparel goods.

Under the de minimis rule, a good qualifies as an originating good if the value of all non-originating materials used in the production of the good, which do not undergo an applicable change in tariff classification set out in GN 11 (which is pending), is not more than 10% of either:

  • The transaction value of the good adjusted to exclude any costs incurred in the international shipment of the good; or
  • The total cost of the good; if the good is also subject to an RVC requirement, the value of de minimis materials is included in the total value of the non-originating materials

A good that is otherwise subject to an RVC requirement is not required to satisfy the condition if the value of all non-originating materials used in the production of the good is not more than 10% of the transaction value of the good, adjusted to exclude any costs incurred in the international shipment of the good, or the total cost of the good, provided that the good satisfies all other applicable requirements.

 

Major Shifts in Automotive Trade

There are major changes to automotive trade; the USMCA is expected to be increasing the RVC from 62.5% to 75% over 3 years. In addition to the product-specific rules of origin in the automotive appendix or other requirements in the automotive appendix, a passenger vehicle, light truck, or heavy truck is originating only if at least 70% of steel and aluminum that originates in North America.

Another marked change for the automotive industry includes prescribed wage rates for each territory. For information regarding wage rates, we recommend reviewing APPENDIX I – Automotive Rules of Origin and Procedures, which can be found on page 12 of the interim implementing instructions.

The USTR also published a Federal Register Notice regarding Alternative Staging Regimes for Automotive Imports (85 FRN 22238) on April 21, 2020.

 

Learning the US – M – C – A Takes a Village, People!

Did you get a headache at the mere thought of all the changes coming your way, such as requalifying all your goods? Join the club!

This information might feel a bit overwhelming at first, but it is important to remember that these implementing instructions have not yet been finalized by CBP. Although we highly recommend you gain an understanding of the upcoming changes now, we strongly encourage you to also monitor CBP’s website for updates on the above information.

Shapiro will follow this implementation and will update our customers when the regulations are published. Please reach out to compliance@shapiro.com for assistance.

If you have additional questions, comments and concerns for CBP, you can also contact the Trade Agreements Division directly at (202) 945-7228, or via email, fta@cbp.dhs.gov