USMCA is Now in Force – Did You Do Your Homework?
By Margaret Lange
Now that the NAFTA has been replaced with the USMCA, CUSMA, or T-MEC, depending on the country of import, you should have already done your homework to ensure that your products will receive the benefits of duty free preference.
Most of the rules have not changed, and originating goods will retain duty free status; however, Importers, Exporters, and Producers should have already developed and implemented a plan of action to review product qualification under USMCA. Additionally, you must be able to substantiate any claim upon a verification request from U.S. Customs and Border Protection (CBP) or the customs services of Canada or Mexico.
The best approach would be to start from scratch and conduct a new and comprehensive review of all products. The review should include sourcing, purchasing, product development and/or engineering, compliance, accounting and suppliers. Keeping good records of your analysis and substantiation will be critical for complying with that verification request.
First Things First
Did you review all products, parts, and inputs and verify that they are classified correctly and that the country of origin and value are accurate? This is an important first step, as you do not want to base USMCA originating determinations on bad or missing information.
Product Classification: Where “tariff shift” is part of the rule of origin, proper Harmonized Tariff Schedule (HTS) or Schedule B classification is critical in determining if products properly tariff shift under the specific USMCA rule.
Country of Origin: Tariff Shift and Regional Value Content (RVC) reviews are based on determining if the “non-originating” (foreign) materials and components meet the particular rule of origin. This process cannot be completed without knowing the true country of origin of all parts and component inputs.
Value: Origin rules that are based on RVC absolutely require accurate values of each component, part or material; both regional and foreign.
Review the bill of material (BOM), product specs and product databases and make sure all this information is correct and up to date before you move to the next step.
Requalify Under USMCA Rules
Now that your product info has been verified, have you put a process in place to determine if your product qualifies under USMCA? Do your homework; don’t assume that if it qualified under NAFTA that it automatically qualifies under USMCA. Originating rules for most products have not changed; however, some origin rules have been simplified while others are now significantly more complicated.
Rule of Origin: Similar to NAFTA, products are determined to be originating based on the four standard rules provided in Chapter 4, Article 4.2. Where there are non-originating parts or materials, the Product Specific Rules of Origin (Annex 4-B, Section B) must be applied and are based on either a Tariff Shift or Regional Value Content (RVC) rule, or both. For the automotive industry, you must also consider Labor Value Content (LVC) and other factors including steel, aluminum and glass content.
The resulting determination will be based on accurate product information including HTS#, country of origin, value and costs.
Review both the NAFTA rule and the USMCA rule: Even slight changes to originating rules may cause products that qualified under NAFTA to not qualify under USMCA and vice versa. If the rule of origin has not changed, then your qualification process will be the same. However, read the rules carefully paying special attention to punctuation and terms that either include or exclude certain inputs.
Consider the De Minimis Rule: The De Minimis rule increased from 7% to 10% under USMCA. Review the value of non-originating materials and apply the De Minimis rule as set out in Chapter 4, Article 4.12, in which a good is originating if the value of all non-originating materials is not more than 10%. This might cause products to qualify under USMCA, where they did not under NAFTA.
Sets, Kits or Composite Goods: If you are importing sets, kits or composite goods, thoroughly review and apply the originating rules as set out in Chapter 4, Article 4.17.
Recertify under USMCA
As of July 1, 2020, any certification of origin completed under NAFTA has ceased to apply and is no longer accepted for duty free entry. A USMCA certificate of origin is required to be “on hand” at the time of claiming duty free treatment under the USMCA. Most claims are made at the time of entry. However, if a certificate of origin is not “on hand” at the time of entry, Importers can pay full duty, and make a USMCA claim up to one year from the entry date, and receive a refund of duties paid. In a post entry claim, Importers will have to provide a USMCA Certificate of Origin with the claim.
Supplier Solicitation: Even if the originating rule did not change from NAFTA to USMCA, the certifying party must still solicit suppliers of component parts and materials in order to certify that the imported or exported final product qualifies as originating under USMCA. Reach out to all suppliers and request new certification under USMCA. This certificate can be a blanket certification.
USMCA Certificate of Origin: There is no prescribed format for the certification of origin; however, Chapter 5, Annex 5-A provides the required Minimum Data Elements for certification. Develop a template that includes all required data elements and create certificates for all eligible products. This can be on a per shipment basis or an annual blanket certification. As an importer into the U.S., you can provide a certificate of origin that has been certified by the exporter, producer or by you as the importer. Whichever you choose, you as the Importer of Record (IOR) are responsible for exercising Reasonable Care when submitting documentation to CBP. Make sure you can substantiate any information provided on the certificate of origin.
Unfortunately, you’re not done yet. Now that you have your products reviewed for qualification and a certification process in place, you have to maintain the program. If you haven’t already, develop company policies, work instructions, recordkeeping procedures, and provide or seek training for staff on the USMCA requirements. Make sure all relevant staff have a good understanding, not only of the benefits, but also of the compliance and documentation requirements. Develop an internal audit procedure to confirm compliance and ensure that proper records are maintained and can be pulled upon a verification request from customs officials from the U.S., Canada or Mexico.
To ensure compliance and proper application of the requirements under the USMCA, engage with your Broker, a Trade Consultant or a Trade Lawyer. CBP has also created a center specifically for USMCA, and they have created a USMCA Question Bot, where you can ask questions live.
M.E. Dey & Co. can provide assistance through our Consulting Services.