USMCA Set to Replace NAFTA on July 1st – Are You Ready?
By Margaret Lange
If you have been taking advantage of duty-free entry on your imported goods from Canada or Mexico by claiming NAFTA, now is the time to review the USMCA specific rules of origin for your products and assess your supply chain. The U.S. Trade Representative (USTR) announced that the new USMCA will enter into force on July 1, 2020. Once the USMCA is entered into force, analysis or certification conducted under NAFTA rules will no longer apply to entered goods. Even if the originating rules did not change for your commodity, you must solicit your supply chain to certify USMCA qualification.
The USMCA agreement includes many changes, both minor and significant, including market access for U.S. dairy products into Canada, increased intellectual property protections, dispute resolution, new environmental standards, changes to the value thresholds for duty assessment on low-value imports, and a first-ever sunset clause. However, for many traders, the biggest impact will be the changes to the rules of origin and the certification process.
Rules of Origin
Although there were little to no changes to the rules of origin for most commodities, the USMCA includes significant originating rule changes for certain commodities including automobiles, auto parts and textiles. Producers, Importers and exporters must carefully review the specific Rules of Origin (Chapter 4) under the USMCA for their specific industry and/or commodity. It is important not to assume that if a good qualified under NAFTA that it will automatically qualify under USMCA.
Importers and exporters of Autos and Auto parts will have to reassess their supply chain to ensure that the product is able to meet the new originating rules. Under USMCA, finished vehicles will have to meet the increased Regional Value Content (RVC) for passenger vehicles/light trucks that will increase from 62.5% to 66% on July 1, 2020 and 75% by 2023, and heavy trucks will increase from 60% to 70% in 7 years from implementation. Auto production must include the new Labor Value Content (LVC) of 40% for autos and 45% for light trucks to include an average production labor wage of $16 per hour. In addition, any steel or aluminum content must be 70% originating and be melted and poured in the region. Auto parts producers will need to determine if their product is a Core, Principal, or Complementary Part, as each has a different originating content requirement. Auto parts are specifically defined in the Appendix to Chapter 4 of the agreement.
Apparel imports will continue to qualify based on existing fiber, yarn or fabric forward rules; however, some requirements changed including a de minimis increase from 7% to 10% of total weight; the visible lining rule was removed; and sewing thread, narrow elastic fabric, pocket bags and coated fabrics must originate. Additionally, the Tariff Preference Level (TPL) program, which provides duty free entry for certain non-originating goods, was restructured and rebalanced.
Again, producers, importers and exporters must carefully review the specific rules for their commodity, as even minor changes may cause products to fail to qualify for duty free treatment under USMCA.
Certification and Supplier Solicitations
The certificate of origin that was required under the NAFTA (CBP form 434) is not required, or applicable, under the USMCA. Any blanket NAFTA certificate of Origin for the 2020 calendar year will be invalid as of July 1, 2020. Importers will need to conduct a new analysis of their supply chain and solicit suppliers to validate products under the specific USMCA product rule of origin. Even if the rule of origin did not change, a new certification confirming qualification must be obtained.
To receive reduced or duty free treatment under USMCA, an importer must make a statement on the import documentation and have a valid certification of origin in its possession to substantiate the claim. Upon request from CBP, the importer must provide CBP a copy of the certificate of origin and any other required substantiating documentation. The certification can be in any format but must include the nine (9) criteria as defined in the USMCA, Chapter 5, Annex 5-A; Minimum Data Elements.
The Certificate of Origin criteria includes:
- Completed by: Importer, Exporter or Producer
- Certifier’s name, title, address and contact information
- Exporter’s name, address and contact info, if different than “certifier”
- Producer’s name, address and contact info, if different from “certifier”
- Importer’s name, address and contact info, if known
- Description and HTS Tariff Classification
- Originating Criteria
- Blanket Period
- Authorized Signature and Date with certifying statement (see Annex 5-A)
Supplier solicitation conducted to qualify products under the NAFTA will not apply with the implementation of USMCA. Even if the commodity rule of origin did not change, the certifying party must review their supply chain and solicit suppliers to certify that products qualify as originating under USMCA.
CBP will conduct verifications of USMCA claims made by importers. The recordkeeping section of the USMCA requires substantiating records to be maintained for five (5) years including the certificates of origin and all records related to value calculations (RVC), Labor calculations (LVC) and use of Steel and Aluminum. Good recordkeeping will be critical to providing the required documentation upon a CBP request. CBPs verification process may be in the form of a written request (Customs form CF28) or a questionnaire seeking information and documentation from the importer, exporter or producer of the good. Additionally, CBP may conduct a verification through a visit to the premises of the exporter or producer of the good. During a site visit, CBP will verify origination by observing the production process.
The process to conduct the necessary analysis and certification requires dedicated time and resources, so it is important for all importers, producers and exporters to put priority on this process now and be ready July 1st. Work closely with your Import Broker to ensure that you have provided them with the needed information to make proper entry.
Access the full text of the agreement and additional program resources: