As of July 1st, the North American Free Trade Agreement (NAFTA) will no longer exist as the US-Mexico-Canada Agreement (USMCA) comes into effect—except for some automotive products for which there is a three-year transitional period. Many elements of NAFTA were retained in the new agreement; however, there are critical distinctions in USMCA.
The Office of the US Trade Representative published the final implementing regulations on June 3rd, covering the interpretation, application, and administration for the rules of origin, textiles, and customs and trade facilitation. Importers’ goods that qualified under NAFTA may also be eligible for USMCA; however, there are subtle changes that may impact those determinations. How qualifications are determined within the textile, automotive, petroleum, and chemical industries, as well as other commodities, have significant nuances—which means importers cannot assume their goods qualify under USMCA, even if they were NAFTA eligible.
Some crucial changes within USMCA:
- USMCA does not currently provide for a merchandise processing fee (MPF) refund for post-entry claims; however, a bill was introduced to remedy that on June 5th. Under the current regulation, an importer who fails to claim preferential tariff treatment at the time of entry, will not be able to recoup their MPF through a post summary correction or reconciliation later.
- Unlike NAFTA, importers may now complete a certificate of origin based on information provided by the producer. CBP is not mandating a standard format for certificates of origin as long as they contain all of the required data elements. A best practice is to have the certification in hand before making a claim.
- Beginning July 1st, old NAFTA certificates will not be accepted (Deringer customers should reference the note below).
- De minimis threshold for USMCA increased from NAFTA’s 7% to 10% of FOB value, or 10% or less of the total cost for non-originating material that does not undergo a required tariff shift. The de minimis for textiles and apparel is different.
- Changes were made to the rules of origin for a spectrum of goods (e.g., manufactured goods, textiles and apparel, agricultural goods); however, there were significant changes within the automotive sector concerning eligibility based on regional value content.
- NAFTA marking rules are no longer in place except for certain agricultural products.
- A “joint review” of USMCA will be conducted every six years after implementation, and the agreement will terminate after sixteen years unless each party wishes to continue.
- There were changes to access for agricultural products, including US dairy in the Canadian market.
How should importers prepare for USMCA:
- Importers should carefully review their imported goods to ensure they understand the new rules of origin and can verify that they qualify under the new agreement.
- Binding rulings acquired showing rules of origin determination under NAFTA will be invalid, and a new binding ruling will be required for USMCA.
- In some cases, importers may find additional opportunities for goods to qualify under USMCA; therefore, we suggest doing a comprehensive review of your imported goods.
- Importers and exporters should have a recordkeeping system for all trade documents, but origin-related records should be easily accessible and include costed bills of materials. Under the new rules, CBP can request accounting records electronically via a questionnaire, whereas under NAFTA, it was permissible only if an onsite visit had occurred first.
- Compliance programs and documentation should be updated, including standard operating procedures (SOPs), work guides, and any required special programming, such as EDI.
In a June 1st webinar, US Customs and Border Protection (CBP) relayed that they plan to act with enforcement discretion in regards to USMCA rules of origin; however, reasonable care is still the importer’s responsibility. Importers may consult CBP’s USMCA web page, which includes an FAQ and will soon provide informational videos, or the full agreement available on the US Trade Representative’s site. Customers are encouraged to reach out to Deringer’s Compliance Department with questions.
Deringer Customers: Please ensure that you have completed an authorization to transition from NAFTA to USMCA. Additionally, if you have a blanket certificate on file with us, you will need to complete a new USMCA blanket certificate. Those who prefer to submit a certificate with each transaction can find a pdf version of a USMCA Certificate on the Forms page of our website.