July 9, 2020
New USMCA Is Not the Old NAFTA: New Rules in Play for Importers
The United States-Mexico-Canada trade agreement known as USMCA has officially become a reality after two years in the works. While many of the main regulations from the now-defunct NAFTA have carried over to USMCA, there have been several key changes. Below are some of the key highlights.
Certification of Origin
One of the biggest changes from NAFTA to USMCA is the allowance of an importer to make a claim for preferential tariff treatment based on certification of origin. Previously under NAFTA, only the exporter or producer was allowed to provide certification.
If an importer certifies the origin of the good, they must have documents on hand at the time of filing to demonstrate that the good is originating in North America.
Unlike NAFTA, USMCA no longer requires an official form to be filled out. Instead, the agreement requires nine data elements to be present on either the invoice or a separate document:
- Importer, Exporter, or Producer Certification of Origin
- Certifier Name
- Exporter Name
- Producer Name
- Importer Name
- Description and HS Classification of the Good
- Origin Criteria
- Blanket Period (if applicable)
- Authorized Signature and Date
Additionally, the certificate of origin must include this statement:
I certify that the goods described in this document qualify as originating and the information contained in this document is true and accurate. I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification.
Customs officials within all three countries are allowing a 12-month window for post-importation claims as companies transition from NAFTA to USMCA.
De minimis, or the value at which goods are free of duties or taxes, will remain at $800 USD or less for US imports.
Mexico will continue to provide a $50 USD tax-free de minimis but has introduced new rules for duty-free treatment on imports with a commercial value of up to $117 USD. So, if the total value of an import is under $50, there would be no tax and no duty. However, if the total value of an import is between $50 USD and $117 USD, then it would be taxed, but duty-free.
Similarly, Canada will raise its de minimis tax level for the first time in decades, from $20 CAD to $40 CAD. Imports valued at under $40 CAD, would be tax- and duty-free. If the total value of the import is between $40 CAD and $150 CAD, it will remain duty-free, but it would be taxed.
Apparel and Textile Requirements
The USMCA introduced new rules that apparel companies need to meet on sewing thread, elastic, and pocket bag fabric; these details are found in the USMCA rules of origin in chapters 61 and 62.
Beginning January 1, 2022, apparel items containing elastic (fabrics of subheading 5806.20 or heading 6002) must originate within a USMCA country.
As of July 1, 2021, sewing thread (classified in headings 5204, 5401, or 5508—or yarn of heading 5402 used as sewing thread) must be USMCA-originating.
For apparel with pockets, the pocket bag fabric must also be USMCA-originating as of January 1, 2022. However, that date changes to January 1, 2023 for apparel made of blue denim fabric, classified in subheadings 5209.42, 5211.42, 5212.24, and 5514.30.
In addition, US Customs and Border Protection has outlined several other processes required for a textile or apparel to qualify for preferential tariff treatment under USMCA. Detailed information can be found in the implementation guidelines published by CBP.
One of the biggest changes from NAFTA to USMCA is the new requirements for automobiles. For instance, with regard to labor, requirements now stipulate that 40-45 percent of an automobile’s content must be made by workers earning at least $16 USD per hour.
In terms of origin content, new motor vehicles must now be 75% North American-origin content, up from NAFTA’s 62.5% for autos, light trucks, engines, and transmissions. For all other vehicles and parts, that number drops to 60%.
Passenger vehicles, light trucks, or heavy trucks are only considered originating in the United States, Mexico, or Canada if at least 70 percent of the steel and/or aluminium is of North American origin.
Duration of Agreement
USMCA will remain in effect for 16 years, with a check-in review period beginning in the sixth year of the term. Under NAFTA, there was no expiration date.
To learn more about how USMCA could impact trade activity in North America, talk with a Flexport customs expert.