Recent Trade & Tariff Perspectives

August 24, 2022  |  Monica DeMars  Senior Compliance Manager

The United States-Mexico-Canada Agreement–Two Years Later: What Changes are Affecting Your Business?

On July 1, 2020, the historical United States–Mexico–Canada Agreement (USMCA) entered into force (EIF). This agreement replaced the North American Free Trade Agreement (NAFTA), originally signed in 1994. This agreement is also known as the Canada-United States-Mexico agreement (CUSMA) in Canada or T-MEC, the Mexico-United States-Canada Agreement, in Mexico. Based on eligibility, these agreements facilitate the flow of commerce throughout North America.

There are several changes from NAFTA to USMCA to keep in mind, including certificate of origin requirements and qualification of goods. It is imperative to have your supporting documentation easily available for reference and to provide to U.S. Customs and Border Protection (CBP) as needed. The record retention policy requirement is for a period of not less than 5 years from the date of importation of the goods.

Listen to this week's Trade & Tariff Perspective:

Certificate of Origin

While the USMCA does not require a specific format to certify origin, there are nine data elements that must be available on your commercial documents or on a Certificate of Origin. Another change with USMCA is that the origin can now be certified by the importer, exporter, or producer of the goods, while NAFTA only permitted the exporter or producer to certify. Per USMCA Annex 5-A, the following data elements are required on the certificate of origin:

1. Importer, exporter, or producer who completes the Certificate of Origin
2. Certifier
3. Exporter
4. Producer
5. Importer
6. Description and Harmonized Tariff Schedule classification of the good(s)
7. Origin criteria
8. Blanket period (if applicable)
9. Authorized signature and date

Phased-in requirements

The implementation of USMCA also included a few phased-in periods for certain commodities, including textiles and automotive products, under the Rules of Origin that could be affecting your business now. Some highlights for textile products include, but are not limited to:

Effective January 1, 2022, (i.e., 18 months after EIF):

• Garments of Chapters 61 and 62 containing narrow fabrics (elastic) of subheading 5806.20 or heading 60.02 are originating only if such fabrics are both formed from yarn formed and finished in the territory of one or more of the parties.
• Most garments of Chapters 61 and 62 that contain pockets will only originate if the pocket bag fabric is formed and finished from yarns wholly formed in the territory. This requirement will not become effective for apparel made of blue denim until 30 months from EIF, which is January 1, 2023.

Regional Value Content (RVC) for passenger vehicles, light trucks, and parts under Article 3: Rules of origin notwithstanding the Product-Specific Rules of Origin in Annex 4-B include, but are not limited to, phased in percentages as follows:

• The RVC requirement increases from 72 to 75 percent under the net cost method by July 1, 2023
• The RVC requirement increases from 82 to 85 percent under the transaction value method beginning July 1, 2023
• The RVC requirement for parts listed in Table C increase from 64 to 65 percent under the net cost method and from 74 to 75 percent under the transaction value method

How you settle disputes is important

USMCA Chapter 31 expands the mechanisms available for disputes to be addressed within the regions. Two years into this agreement, three panels have been created to address disputes over Canada’s allocation of dairy quotas, the United States’ decision on safeguard tariffs on imported solar cells from Canada, and the interpretation of the Automotive Rules of Origin (ROO) for vehicles. Comparatively, in NAFTA only three disputes were successfully negotiated in the 26 years the agreement was in place.

On December 20, 2021, it was determined that Canada's allocation of dairy quota was not consistent with the USMCA rules. In the case of the solar products, on July 7, 2022, the United States and Canada issued a Memorandum of Understanding to settle their dispute which ultimately removed the safeguard tariffs from Canadian origin solar products.

Currently underway is the dispute panel on the interpretation of the ROO for vehicles. The item of contention is how the calculation of the RVC for the core parts of a vehicle is met. As with any determination, it is imperative that all parties make the calculation in the same way to come to the same end result. The panel is expected to give an initial report by October 12 and its final report by November 10, 2022.

Potential issues on the horizon

Canada is moving forward to enter a dispute settlement process under Chapter 10 of CUSMA to challenge the U.S. Department of Commerce’s antidumping and countervailing duty orders on certain softwood lumber products from Canada.

Energy policies in Mexico are under scrutiny from the United States and Canada as of late. On July 20, 2022, the United States requested consultations under the USMCA over Mexico's Energy Policies. Under USMCA Article 31.6.1, if the parties do not resolve the matter through consultations within 75 days of the United States request, the United States may request the establishment of a panel.

Next steps

Now is the time to review your USMCA compliance program. Here are a few questions to get you started.

• When it comes to record keeping, do you have records to demonstrate proper analysis of the rules of origin?
• Can you support industry specific requirements outlined in USMCA Rules of origin for automotive, textiles, and other commodities?
• Does your internal audit process cover auditing changes from NAFTA to USMCA?
• Have you properly documented and meet the minimum requirements for the USMCA certification of origin?

C.H. Robinson can help review your USMCA compliance program and the qualification of your goods, as well as help train you on import compliance or USMCA. Connect with one of our trade policy experts to learn more.

Resources

• The United States–Mexico–Canada Agreement (USMCA) | U.S. Customs and Border Protection (cbp.gov)
• Certification of Origin Template | U.S. Customs and Border Protection (cbp.gov)
• Origin Procedures.pdf (ustr.gov)
• Rules of Origin.pdf (ustr.gov)
• Dispute Settlement-USMCA Chapter 31

Our information is compiled from a number of sources that to the best of our knowledge are accurate and correct. It is always the intent of our company to present accurate information. C.H. Robinson accepts no liability or responsibility for the information published herein.