As the USMCA’s entry into force nears, U.S. importers and exporters who have been making NAFTA claims or issuing NAFTA Certificates of Origin should become familiar with the provisions that will remain essentially the same under the USMCA as well as with the modifications that the USMCA will make to the prior NAFTA requirements. The following table provides a side-by-side comparison of some of the key provisions in the NAFTA and the USMCA.

 

 

NAFTA

 

USMCA

Certificate of Origin

Under the NAFTA, a Certificate of Origin on Form 434 (single shipment or blanket) must be completed by the exporter or producer and in the possession of the U.S. importer before a claim for preferential tariff treatment is made. Exporters or producers that complete a Certificate of Origin must notify all parties to whom it was given of any change that could affect is accuracy or validity within thirty (30) days of discovery.

Certification of Origin

No specific Certificate of Origin form or format is required; however, the importer, exporter or producer must provide a certification (i.e., on the commercial invoice or document accompanying the shipment) with the following data:

·       Certifier name (exporter, producer, or importer)
·       Certifier address
·       Exporter name and address
·       Producer name and address
·       Importer name and address
·       Product description
·       Origin criteria
·       Blanket period covered
·       Authorized signature and date

De Minimis Rule (Non-Textile Products)

With certain exceptions, a product that contains non-NAFTA-originating materials (and that does not satisfy the applicable NAFTA rule of origin for the good) may still qualify for duty-free treatment under the NAFTA if the value of the non-originating content does not exceed 7% of the value of the finished good.

De Minimis Rule (Non-Textile Products)

USMCA increased the de minimis threshold to 10%. Therefore, with certain exceptions, a good containing non-originating materials may still qualify for duty-free treatment if the value of the non-originating materials does not exceed 10% of the transaction value or total cost of the finished good.

De Minimis Rule (Textile Products)

A textile or wearing apparel good classified in Chapters 50 through 60 (or heading 9619) that is not USMCA-originating good because certain non-originating materials used in the production of the good do not undergo an applicable tariff classification change as noted in Annex I or GN 11, shall still qualify for USMCA benefits if the total weight of all those non-originating materials is not more than 7% of the total weight of the good. This de minimis rule also applies to textile and apparel goods classified in Chapters 61 through 63.

De Minimis Rule (Textile Products)

A textile or wearing apparel good classified in Chapters 50 through 60 (or heading 9619) that is not USMCA-originating good because certain non-originating materials used in the production of the good do not undergo an applicable tariff classification change as noted in Annex I or GN 11, shall still qualify for USMCA benefits if the total weight of all those non-originating materials is not more than 10% of the total weight of the good. Within the overall 10% de minimis limit, the total weight of elastomeric content may not exceed 7%. This de minimis rule also applies to textile and apparel goods classified in Chapters 61 through 63.

De Minimis Threshold for Low-Value Goods

 The NAFTA thresholds within which low-value goods may enter each NAFTA country duty-free are:

·       Canada: $20 for taxes, $40 for customs.
·       Mexico: $50 for taxes, $100 for customs.
·       United States: $800.

De Minimis Threshold for Low-Value Goods

The USMCA raised the thresholds within with low-value goods could enter Canada and Mexico duty-free:

·       Canada: $40 for taxes, $150 for customs.
·       Mexico: $50 for taxes, $117 for customs.
·       United States: Remains $800.

Rules of Origin Generally

A good is considered NAFTA-originating if it, with certain exceptions—

·       Is wholly obtained/produced in the NAFTA region;
·       Meets a specific origin rule of tariff shift, regional value content (RVC) or a combination of the two;
·       Is produced in the NAFTA region wholly from originating materials;
·       Is an unassembled good or good classified with its parts that does not meet the specific rule of origin but does satisfy certain RVC rules.

Rules of Origin Generally

The NAFTA rules remain largely unchanged, and a good will be considered originating if it, with certain exceptions:

·       Is wholly obtained/produced in the USMCA region;
·       Meets a specific origin rule of tariff shift, RVC or a combination of the two;
·       Is produced in the USMCA region wholly from originating materials;
·       Is an unassembled good or good classified with its parts that does not meet the specific rule of origin but does satisfy certain RVC rules.

Textile and Apparel Rules of Origin

A “fiber forward” rule of origin applies to yarns, which means that the fiber must originate in the NAFTA territory, and the yarn must be spun or extruded in the NAFTA territory.

A “yarn forward” rule of origin, with certain exceptions, applies to textile fabrics and apparel under NAFTA, which means that the yarn must be spun or extruded and finished in the NAFTA territory.

There are exceptions to these rules.

Textile and Apparel Rules of Origin

Like the NAFTA, yarn follows the fiber-forward rule of origin, and most fabrics and textile apparel follow a yarn-forward rule of origin.

·       Visible Linings: Fabric used for visible linings in certain apparel, such as suits, coats, and skirts (apparel classified in Chapters 61 and 62 (knit and woven apparel)) may be sourced from outside of the United States, Mexico, and Canada.
·       Narrow Elastic Fabric: Narrow elastic fabric of subheading 5806.20 or heading 6002 may be sourced from anywhere. However, effective 18 months after the date of entry into force of the agreement, apparel containing narrow elastic fabrics of subheading 5806.20 or heading 6002 will be considered originating only if such fabrics are both formed and finished from yarn in the USMCA territory. The apparel article must also satisfy the tariff shift requirement(s) that apply(ies) to the good.
·       Sewing Thread: Sewing thread of headings 5204, 5401 or 5508, or yarn of heading 5402 used as sewing thread may be sourced from anywhere. However, effective 12 months after the date of entry into force of the agreement, apparel containing sewing thread of headings 5204, 5401 or 5508, or yarn of heading 5402 used as sewing thread shall be considered originating only if such sewing thread is both formed and finished in the USMCA territory.
·       Pocket Bag Fabric: Pocket bag fabric may be sourced from anywhere. However, effective 18 months after the date of entry into force of the agreement, if an apparel or other finished product, contains a pocket or pockets, the pocket bag fabric must be both formed and finished in one or more of the Parties from yarn that was wholly formed in one or more of the Parties. The component must also satisfy the tariff change requirement(s) that apply to the good. For apparel made of blue denim fabric of subheadings 5209.42, 5211.42, 5212.24, and 5514.30, the pocket bag fabric rule is effective 30 months from the date of entry into force of the agreement.
·       Coated Fabrics: Coated or laminated fabrics used in the assembly of a textile article of Chapter 63 are exempt from the USMCA rules of origin. However, effective 18 months after the date of entry into force of the agreement, a good of Chapter 63 made of fabric classified in 5903, is considered to be originating only if all the fabrics used in the production of the fabrics of heading 5903 are formed and finished in the USMCA territory.
·       Rayon Fibers: Rayon fibers, other than lyocell or acetate, of heading 5503 or 5405, and rayon filaments, other than lyocell or acetate, of heading 5502, 5504, or 5507, may be of any origin when used in a good classified in Chapter 50 through 63, provided that the good otherwise meets the applicable product specific rule.

There are exceptions to these rules.

Automotive Rules of Origin

 

Automobiles must contain 62.5% RVC using the net cost method for the car or truck to qualify for preferential treatment. Auto parts must meet a 60% RVC using the net cost method.

Automotive Rules of Origin

 

The USMCA contains three (3) rules, all of which must be met to qualify for preferential treatment:

 

·       Vehicle RVC requirements (75% RVC for light vehicles and light trucks, and a 70% RVC threshold for heavy trucks with transition and phase-in periods);

 

·       RVC thresholds for certain parts (core parts must meet a 75% RVC, principal parts must meet 62.5% RVC, and complementary parts must meet a 62% RVC with a 1% increase over each of three years capping at 65%); and,

 

·       A new labor value content rule (40–45% of the content of an automobile must be made by workers earning at least $16 per hour—passenger vehicles require 40% and pickup trucks require 45%).

 

Accumulation

A producer can use the costs incurred by any NAFTA-country producer of associated materials and treat them as its own (e.g., materials, labor, production-associated expenses, etc.), and—

·       All non-originating materials must undergo required tariff shift (if a tariff shift rule applies); and,
·       The finished product must satisfy RVC (using Net Cost method) if a RVC rule applies.

Accumulation

 

USMCA provides revised language for accumulation:

·       A good is originating if it is produced in the USMCA territory by one or more producers, provided that it satisfies all applicable origin requirements;
·       An originating good or material that is produced in the USMCA territory is considered as originating in the territory of another Party when it is used as a material in the production of a good there; and
·       Production undertaken on a non-originating material in one or more of the Parties contributes to the originating status of the good, regardless of whether that production was sufficient to confer originating status to the material itself.

Sets, Kits and Composite Goods

Goods imported in sets and classified as such per GRI 3(b) will be considered originating if each item in the set it originating and the both the set and goods meet all other NAFTA rules of origin; however, if the value of non-originating articles in the set does not exceed 7% of the total value of the set, it will still qualify for USMCA preferential tariff treatment.

Sets, Kits and Composite Goods

 Goods imported in sets and classified as such per GRI 3 will be considered originating only if each good in the set is originating, and both the set and the goods meet all other applicable requirements, or the total value of the non- originating goods in the set does not exceed 10% of the value of the set and the goods meet all other applicable requirements.

Special Program Indicator (SPI)

The SPI for NAFTA claims is “CA” for imports from Canada, and “MX” for imports from Mexico.

Special Program Indicator (SPI)

 The SPI for USMCA is “S.”

Merchandise Processing Fee (MPF)

 NAFTA-originating goods are exempt from the MPF if the claim for preferential tariff treatment is made at the time of entry.

Merchandise Processing Fee (MPF)

 The same NAFTA rule applies, and USMCA-originating goods are exempt from MPF if the claim for preferential tariff treatment is made at the time of entry.

Post-Importation Claims

If a claim for preference was not made at the time of importation and the goods qualify as originating, NAFTA permits importers to make a post-importation preference claim to request a refund of excess duties; however, MPF paid on entries, for which a post-importation claim for preference under the NAFTA is made, will not be refunded.

Post-Importation Claims

 The same NAFTA rule applies: If a claim for preference was not made at the time of importation and the goods qualify as originating, USMCA permits importers to make a post-importation preference claim to request a refund of excess duties; however, MPF paid on entries, for which a post-importation claim for preference under the USMCA is made, will not be refunded.

Correction of NAFTA Claims

If errors in the Certificate of Origin are discovered, the exporter/producer must notify all parties involved within 30 days of discovery. If the error disqualifies goods from preferential treatment, the importer will not be subject to penalties under 19 USC 1592 if it takes take corrective action within 30 days of discovery + pays the duties and MPF owing.

Correction of USMCA Claims

 The same NAFTA applies: If errors in the Certificate of Origin are discovered, the exporter/producer must notify all parties involved within 30 days of discovery. An importer will not be subject to penalties under 19 USC 1592 for making an incorrect claim that a good qualifies as a USMCA originating good if the importer makes a corrected declaration within 30 days of discovery and pays any duties and MPF owed with respect to that good.

Recordkeeping

Records (i.e., Certificate of Origin and supporting records) must be kept for five (5) years from the date of entry. Customs can audit up and down certificate trail, and the failure to maintain records can lead to the assessment of penalties.

Recordkeeping

The USMCA employs the same recordkeeping requirements as the NAFTA, but note that USMCA does not require a specific form or format for the certification.

Section 232 Tariffs

US maintained the right to impose tariffs under Section 232 of the Trade Expansion Act of 1962, on the grounds of national security.

Section 232 Tariffs

USMCA maintains the US’ right to impose tariffs under Section 232.

Dispute Resolution

NAFTA contains extra-judicial mechanisms for investor state disputes (ISDS) (Chapter 11), antidumping and countervailing duty disputes (Chapter 19), and country-to-country disputes (Chapter 20).

Dispute Resolution

USMCA maintains the same extra-judicial mechanisms for ISDS between the U.S. and Mexico, but eliminated ISDS between Canada and the United States. The USMCA also maintains the same country-to-country disputes and AD/CVD duty dispute mechanism as the NAFTA.

Sunset Provision

NAFTA contains no sunset provision, but a Free Trade Commission was established to review the working of the NAFTA on an annual basis; however, the Commission rarely met.

Sunset Provision

USMCA includes a sunset provision that forces new negotiations after six years and could lead to termination of the agreement in 16 years unless the six-year joint review concludes with an extension of 16 years from the 6-year review. If the parties do not agree to an extension upon the conclusion of the 6-year joint review, they will meet annually to decide on an extension until the 16th year when, failing extensions, the agreement will terminate.

Intellectual Property Rights Protection

NAFTA was the first trade agreement to provide specific IPR protections. It granted National Treatment to the nationals of the other Parties with respect to IPR. Copyright life of author plus 50 years; trademarks at least 10 years and renewable in 10-year periods; patents for at least 20 years from the date of filing or 17 years from the date of grant and other protections.

Intellectual Property Rights Protection

USMCA retains National Treatment to nationals of the other Parties and other NAFTA core protections for copyrights (expanded to 70 years); patents, including exclusivity periods for test data, trade secrets, trademarks, and geographical indications. Includes prohibition on circumvention of technological protection measure and criminal and civil penalties for trade secret theft and cybertheft, and safe harbor provisions on Internet Service Provider liability.

Anti-Corruption

NAFTA contains no anti-corruption provisions.

Anti-Corruption

Chapter 27 of the USMCA, based largely on the US Foreign Corrupt Practices Act and the Canadian Corruption of Foreign Public Officials Act, requires each Party to adopt standards that prohibit:

·       Public officials from soliciting or accepting bribes;
·       Bribery of public officials; and,
·       Aiding or abetting any such offenses.

The Parties must also adopt standards to protect whistleblowers that report violations to competent authorities.

Commerce Data Flows and Data Localization

NAFTA contains no provisions addressing this issue.

Commerce Data Flows and Data Localization

USMCA contains new digital trade provisions, including prohibiting customs duties on electronically transmitted products and limits on source code disclosure requirements. It also contains broad provisions on cross-border data flows and restrictions on data localization requirements.

 

Miller Proctor Law PLLC will continue to track the implementation and entry into force of the USMCA. If you have any questions relating to the NAFTA requirements, the USMCA or other international trade-related issues, please contact Melissa Proctor (melissa@millerproctorlaw.com) or Peggy Chaplin Louie (peggy@millerproctorlaw.com) at Miller Proctor Law PLLC (https://millerproctorlaw.com ).