New Analysis: CBP Takes First Step Towards Full USMCA Implementation

Entry into Force Now Likely by Summer 2020
In an April 20, 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). This signals the transition from the North American Free Trade Agreement (NAFTA) to the USMCA.

The USMCA is on track for a possible Summer 2020 entry into force. For many industries, changes from the NAFTA to the USMCA should prompt a review of strategic supply chain decisions.

In this alert, we highlight and analyze a number of key provisions from these CBP Instructions, especially those that depart from comparable NAFTA requirements. This includes significant provisions in the new automotive and textile rules.

Whether your company is operating in the US, selling into the US, or buying from the US marketplace, these instructions should be viewed as a “heads up” that the USMCA now appears to be on track to come into force sometime this summer.

CBP notes that its instructions are informational and designed to provide early guidance on the new USMCA requirements. An updated version of these instructions likely will be released prior to the date the USMCA enters into force.

Readers of these alerts will know that the team at Arent Fox LLP has closely monitored the USMCA negotiations and we are especially well-positioned to provide immediate and strategic advice to company executives.

General Topics

Entry Into Force Not Addressed

The first question on everyone’s mind that remains unanswered by these CBP Instructions is regarding the date of the USMCA’s entry into force. Entry into force will be announced soon but should occur sometime in 2020, most likely July 1.

Legal Significance of CBP Instructions

CBP has made it clear that the USMCA uniform and domestic regulations, as well as amendments to the Harmonized Tariff Schedule of the US (HTSUS) establishing the new USMCA rules of origin could change the requirements set forth 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 entry into force date likely to be a little more than three months away, it is imperative that North American companies become familiar 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 to the 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 (RVC) tests based on transaction value and net cost. Basic principles, such as proscriptions on transshipment that will prevent qualification, will continue in the USMCA.

At the same time, there are fundamental changes in the USMCA affecting qualification, certification, and correction procedures. In addition, there are significant changes and new requirements targeting the automotive and textile industries.

Bottom Line: These CBP instructions should be viewed by companies as the Administration’s guidance on the USMCA until formal regulations and procedures are promulgated. In this interim, the regulatory environment will be fluid.

Key New Customs Provisions of General Applicability 

MPF Refunds Will Not Be Made on Post-Importation 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 importation and MPF fees are paid, but a subsequent post-importation claim was 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.

The 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 analyzed – one for qualifying 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 the USMCA Benefits

Tariff preference claims will be made using a new program indicator (SPI), “S,” in the Automated Commercial Environment (ACE). 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 labor value content (LVC) certification and the steel and aluminum requirements.

Similar to NAFTA, an importer will not be subject to penalties for making an incorrect USMCA claim that a good qualifies if the importer 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 from the NAFTA is that, along with exporters and producers, an importer will now be able to complete a certificate of origin based on the producer’s information, including documents that demonstrate from where the goods are originating.

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.

Who Can Make a USMCA Certification?

Recordkeeping Requirements

Many of the recordkeeping requirements are similar to the NAFTA, but the USMCA updates the requirements to more readily allow electronic recordkeeping.

CBP Instructions for USMCA Recordkeeping

De Minimis Threshold Increased to Ten Percent.

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 Are 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 authorizes CBP to initiate the verification to the importer, in addition to the exporter or producer who completed the certification of origin with notice to the importer, as in the NAFTA.

Due to the new liability on the importer, reasonable care must be exercised by the importer.

Bottom Line: Along with the complexities and associated costs introduced by the USMCA, importers must exercise reasonable care with regard to their USMCA transactions to reduce risk of penalties.

Origin Verification Procedures: Similarities to the NAFTA in the USMCA

New Automotive Origin Rules

The USMCA automotive rules of origin present significant changes from the NAFTA, including increased domestic content requirements and the introduction of new qualification criteria (e.g. super-core, LVC, steel, and aluminum purchase requirements, and an alternative staging regime).

Arent Fox will be publishing additional insight on these automotive rules in future alerts.

New Automotive Origin Rules for the USMCA

New Textile and Apparel Rules

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 a number of exceptions to these general rules of origin for textile and apparel products. Some of these rules, as clarified in the CBP Instructions, are provided below.

New Textile and Apparel Rules for the USMCA

It’s clear that the USMCA is on track for a possible summer 2020 entry into force. As we have noted above, the changes from the NAFTA to the USMCA, for many industries, should prompt the review of strategic supply chain decisions.


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