In a 20 April 2020 message to the trade community, US Customs and Border Protection (CBP) released the long-awaited United States-Mexico-Canada Agreement (USMCA) Interim Implementing Instructions (CBP instructions). These instructions signal the transition from the North American Free Trade Agreement (NAFTA) to the USMCA.
For many industries, the change from the NAFTA to the USMCA should prompt a review of strategic supply chain decisions.
This article analyses key provisions of the CBP instructions – especially those that depart from comparable NAFTA requirements. This includes significant provisions in the new automotive and textile rules.
For companies operating in the United States, selling into the United States or buying from the US marketplace, these instructions should be viewed as an indication that the USMCA is now on track for a possible Summer 2020 entry into force.
CBP notes that its instructions are informational and designed to provide early guidance on the new USMCA requirements. An updated version of these instructions will likely be released before the USMCA enters into force
Entry into force not addressed
The first question on everyone's mind, which remains unanswered by the CBP instructions, is when will the USMCA enter into force? Entry into force will be announced soon but should occur sometime in 2020, most likely 1 July.
Legal significance of CBP instructions
CBP has made it clear that the USMCA uniform and domestic regulations, as well as amendments to the US Harmonised Tariff Schedule establishing the new USMCA rules of origin, could change the requirements set out in the CBP instructions. According to CBP, "the instructions are for advance informational and advisory purposes only. They are not final and are subject to further revision. They are not intended to have legal or binding effect".
With the USMCA likely entering into force soon, North American companies should familiarise themselves with the CBP instructions. Some provisions are early indicators of significant changes from the NAFTA, such as the restriction on providing merchandise processing fee (MPF) refunds when filing the USMCA reconciliation entries.
Relationship with NAFTA
Until the USMCA enters into force, the NAFTA requirements remain in effect.
Fortunately, many of the NAFTA customs and origin rules and principles will carry over to the USMCA. However, in some instances, the USMCA will change the NAFTA rules. For example, the USMCA rules of origin will continue to use many of the NAFTA qualification concepts, such as tariff shift and regional value content tests based on transaction value and net cost. Basic principles, such as proscriptions on trans-shipment that will prevent qualification, will continue in the USMCA.
At the same time, the USMCA introduces fundamental changes affecting qualification, certification and correction procedures. In addition, significant changes and new requirements target the automotive and textile industries.
Companies should view the CBP instructions as the administration's guidance on the USMCA until formal regulations and procedures are promulgated. In the interim, the regulatory environment will be fluid.
Key new customs provisions of general applicability
MPF refunds will not be made on post-import claims
In a departure from the NAFTA, under the CBP instructions, if a claim for preferential tariff treatment is not made at the time of import and MPF fees are paid, but a subsequent post-importation claim is made, MPF refunds will not be allowed.
This issue will receive considerable scrutiny in the coming months. For many companies, this could result in substantial new expenses.
NAFTA marking rules limitations
Under the USMCA rules of origin, a major difference from the NAFTA is that the USMCA will eliminate provisions relating to the NAFTA marking rules for duty purposes.
This means that when the USMCA enters into force, there will no longer be two sets of rules to be analysed – one to qualify the good and the other to determine which country of origin should be used for marking purposes.
The CBP instructions are unclear regarding whether the NAFTA marking rules can be used for non-duty purposes.
New process for claiming and correcting USMCA benefits
Tariff preference claims will be made using a new programme indicator (SPI) – 'S' in the Automated Commercial Environment. A filer will use the SPI to indicate a USMCA claim to certify that the goods comply with the rules of origin and recordkeeping requirements, including the labour value content (LVC) certification and the steel and aluminium requirements.
Similar to NAFTA, an importer will not be subject to penalties for making an incorrect USMCA claim that a good qualifies if it makes a corrected declaration within 30 days of discovery and pays any duties and MPF owed.
Who can make a USMCA certification?
A notable change in the USMCA is that, along with exporters and producers, importers will now be able to complete a certificate of origin based on the producer's information, including documents that demonstrate from where the goods originate.
An importer may submit an importer, exporter or producer certification. The importer is responsible for exercising reasonable care concerning the accuracy of all documentation submitted to CBP, including the accuracy of any claim for the USMCA eligibility.
Importers should be careful of self-certifying to reduce the risk of penalties.(1)
Recordkeeping requirements
Many of the recordkeeping requirements are similar to the NAFTA, but the USMCA updates the requirements to more readily allow electronic recordkeeping.(2)
De minimis threshold increased to 10%
The NAFTA de minimis rule provides for a 7% threshold. The USMCA increases this threshold to 10% with certain important exceptions, such as for textiles. Additional details on textiles are below.
Origin verification procedures similar to NAFTA
Similar to the NAFTA, the USMCA permits CBP to verify whether a good entered with a claim for preferential tariff treatment qualifies as originating. However, the USMCA authorises CBP to initiate the verification to the importer, in addition to the exporter or producer which completed the certification of origin with notice to the importer, as in the NAFTA.
Along with the complexities and associated costs introduced by the USMCA, importers must exercise reasonable care with regard to their USMCA transactions to reduce the risk of penalties.(3)
The USMCA automotive rules of origin present significant changes from the NAFTA, including increased domestic content requirements and the introduction of new qualification criteria (eg, super-core, LVC, steel and aluminium purchase requirements and an alternative staging regime).(4)
Similar to the rules under the NAFTA, the USMCA textile and apparel rules of origin are generally based on the 'yarn forward' rule. However, there are numerous exceptions to these general rules of origin for textile and apparel products.(5)
The USMCA is on track for a possible Summer 2020 entry into force. As noted above, for many industries, the change from the NAFTA to the USMCA should prompt a review of strategic supply chain decisions.
Endnotes
(1) Further information on who can make a USMCA certification is available here.
(2) Further information on CBP's instructions for USMCA recordkeeping is available here.
(3) Further information on the origin verification procedures and the USMCA's similarities with NAFTA is available here.
(4) Further information on the new USMCA automotive origin rules is available here.
(5) Further information on the new USMCA textile and apparel rules is available here.
