On Monday, April 20, 2020, U.S. Customs and Border Protection (CBP) issued interim instructions for implementation of the U.S.-Mexico-Canada Agreement (USMCA).* The instructions provide guidance regarding preferential tariff claims under the USMCA. The Agreement, once it enters into force, provides for the immediate or staged elimination of trade barriers for goods originating in one of the three countries. The instructions provide guidance regarding rules of origin (including for automotive goods), regional value content (RCV) calculation methods, de minimis rules, transshipment, eligibility for textiles and apparel, making preference claims, and certification and recordkeeping rules and requirements.
The instructions provide a rules of origin definition to determine whether a good qualifies as an “originating good” under the USMCA, such that it is eligible for preferential tariff treatment. Under USMCA a good is “originating” in the United States, Mexico, or Canada when:
a) The good is wholly obtained or produced entirely in the territory of one or more of the Parties, as defined in Article 4.3 of the Agreement;
b) The good is produced entirely in the territory of one or more of the Parties using non-originating materials provided the good satisfies all applicable requirements of product- specific rules of origin;
c) The good is produced entirely in the territory of one or more of the Parties exclusively from originating materials; or
d) Except for a good provided for in Chapter 61 to 63, HTSUS:
the good is produced entirely in the territory of one or more of the Parties, is classified with its materials or satisfies the “unassembled goods” requirement, and meets a regional value content threshold of not less than 60% if the transaction value method is used or not less than 50% if the net cost method is used (not including RVC for autos); and
e) The good satisfies all other applicable origin requirements.
The instructions provide two Regional Value Content (RVC) calculation methods – the transaction value method and the net cost method. For most goods, and with certain exceptions, the USMCA provides for a 10 percent de minimis threshold, meaning that a good is considered an originating good if the value of any non-originating materials used to produce the good do not exceed 10 percent of either the transaction value of the good or the total cost of the good.
USMCA includes substantial new rules governing the rules of origin for automotive goods. The agreement increase the RVC rule for automotive goods by requiring that 75 percent of auto content be made in North America. At least 70 percent of an auto producer’s use of steel and aluminum must also originate in North America. The interim instructions further explain the alternative staging regime included in USMCA that implements the new auto goods rules. It provides that a passenger vehicle or light truck may be considered originating until the later of January 1, 2025 or five years after entry into force of the agreement. To be eligible for the alternative staging regime, the passenger vehicle or light truck must be numerous requirements, including a RVC that is not lower than 62.5 percent (using the net cost calculation method) and must be 75 percent by the later of January 1, 2025 or five years after entry into force of the agreement. Appendix 1 of the interim instructions includes certification procedures for automotive goods.
The instructions indicate that the U.S. Department of Labor will issue separate regulations regarding certain components of the labor value content requirements.
When the USMCA will enter into force, and officially replace the 1994 North American Free Trade Agreement (NAFTA) between the three countries, remains unclear. The USMCA was signed into law on January 29, 2020, and was ratified on March 13, 2020. Currently, the Administration plans for the agreement enter into force on June 1, 2020. However, a number of parties in all three countries, including a group of U.S. senators, is calling for a delayed entry into force of the agreement in light of the COVID-19 pandemic.
* The interim instructions are advisory only. They are not final, not legally binding, and are subject to further revision.