U.S. – Mexico – Canada(USMCA) Summary and FAQs

U.S. – Mexico – Canada (USMCA) Highlights

• Automotive trade – revise rules to require additional North American content
• Raise the de minimus rules in Canada and Mexico to facilitate e-trade
• Eliminate the unique NAFTA country of origin marking rules
• Eliminate and replace the NAFTA Certificate of Origin
• Provide additional intellectual property enforcement and protection
• Facilitate and protect digital trade, including prohibiting duties on digital products (ebooks, music).

U.S. – Mexico – Canada (USMCA) Unchanged Provisions

• Repairs/ alterations remain duty free (HS 98.02)
• No MPF on originating goods
• No change to drawback restrictions (substitution drawback)

U.S. – Mexico – Canada (USMCA) Frequently Asked Questions:

Q: What is the U.S.-Mexico-Canada Agreement (USMCA)?

A: The U.S. – Mexico – Canada Agreement (USMCA) is a trade agreement between the three named countries.  When implemented, it will replace the North American Free Trade Agreement (NAFTA).

Please note: in Canada, this agreement is referred to as the Canada – United States – Mexico Agreement (CUSMA); in Mexico, this agreement is referred to as Tratado entre México, Estados Unidos y Canadá (T-MEC).  All three names refer to the same trade agreement.

Q: When will the U.S.-Mexico-Canada Agreement (USMCA) be implemented?

A: The USMCA entered into force on July 1, 2020. For merchandise entered into commerce on or before June 30, 2020, NAFTA rules will continue to apply.

Q: Is there a required certificate of origin/form for the U.S.-Mexico-Canada Agreement (USMCA)?

A: The U.S. – Mexico – Canada Agreement (USMCA) does not require a specific certificate of origin as does the North American Free Trade Agreement.  While CBP Form 434 is not mandatory under the USMCA, we recommend utilizing the USMCA Certificate of Origin to ensure compliance.

A claim for preferential treatment under the USMCA should contain nine minimum data elements.  These data elements are set out in the USMCA’s Annex 5-A (Minimum Data Elements).  The data elements must indicate that the good claiming preferential treatment originates and meets the requirements of USMCA Chapter 5.  This information may be provided on an invoice or any other document. The information must describe the originating good in sufficient detail to enable its identification and meet the requirements as set out in the Uniform Regulations. If the value of the importation is less than $1000USD, then the USMCA certificate of origin is not necessary but still recommended.

A certificate of origin can be completed by the exporter, producer or importer. The individual must be knowledgeable and authorized to complete it.  The certificate of origin can be completed and submitted electronically.  An electronic or digital signature is permitted. 

An importer claiming preferential treatment shall maintain records for five years from the date of importation.

For more information see Chapter 5 Origin Procedures, Article 5.2 and Annex 5-A.

Q: Can we simply change the titles of all our NAFTA certificates to be titled USMCA instead?

A: Unfortunately, it is not that simple. You must requalify all goods under the rules of origin of the new Agreement. As well, the format of the certification has changed and the NAFTA certificate format does not satisfy the certification of origin minimum data elements set forth in Annex 5-A of the Agreement.

Q: What is the difference between the terms “origin criteria” and “preference criteria” on the new certificate of origin?

A: Preference criteria was the terminology used in the NAFTA Agreement.  Origin criteria is the term used under USMCA.  The concept is the same, but the criteria have been slightly modified.  See Article 4.2 of the Agreement for details.

Q: How long will the U.S.-Mexico-Canada Agreement (USMCA) remain in force?

A: The U.S. – Mexico – Canada Agreement (USMCA) tentatively expires in 16 years, unless renewed or revised. In addition, the USMCA requires a “joint review” six years after entry-into-force.  At this joint review, the Parties will review the operation of this Agreement, review any recommendations for action submitted by a Party, and decide on any appropriate actions.

For more information, see USMCA, Article 34.7: “Review and Term Extension”.

Q: Are there changes to the Rules of Origin?

A: For the most part, the Rules of Origin under USMCA remain the same as under NAFTA.  However, as this is a new Agreement and changes did occur, it is recommended that the qualifying goods are reverified prior to any preferential treatment claim. 

Q: Where can I find the link to the new Rules of Origin under USMCA?

A: The USMCA Specific Rules of Origin can be found within Article 4 of the Agreement.

Q: Do we know which HS codes will be affected by changes to the Rules of Origin?

A: Automotive, dairy, agriculture, and chemical goods are the product groups that have had major changes. There are some new requirements for textile apparel goods; see the Appendix at the end of this document for details. There is a possibility of other minor changes to specific rules of origin for other goods, however those would have to be reviewed on a case-by-case basis.

Q: What is the definition of textile or apparel goods under USMCA?

A: The USMCA defines a textile and apparel good as “textile or apparel good classified in HS subheading 4202.12, 4202.22, 4202.32, or 4202.92 (luggage, handbags and similar articles with an outer surface of textile materials), heading 50.04 through 50.07, 51.04 through 51.13, 52.04 through 52.12, 53.03 through 53.11, Chapter 54 through 63, heading 66.01 (umbrellas) or heading 70.19 (yarns and fabrics of glass fiber), subheading 9404.90 (articles of bedding and similar furnishing), or heading 96.19 (babies diapers and other sanitary textile articles).”

Q: How will the transition from NAFTA to USMCA work?

A: NAFTA rules will remain in effect until the USMCA enters into force.

For automotive products under headings 87.01 through 87.08, there is a transitional period for up to three years, and alternative staging regime options for up to five years. Additional compliance guidance for the USMCA’s automotive rules of origin is pending. For more information see USMCA Ch. 4 – Rules of Origin.

For all other commodities, USMCA rules will replace NAFTA rules on the date the Agreement enters into force – July 1, 2020.

There will be a new Special Program Indicator (SPI) (S) for USMCA claims. NAFTA’s SPI Indicator (CA) will be accepted for claims on merchandise that are entered prior to the USMCA’s entry into force.

Q: What is the role of the Department of Labor in USMCA implementation and enforcement?

A: CBP is coordinating with the U.S. Department of Labor on the verification process of USMCA claims on automotive goods. The rules of origin for such goods include the new criterion of Labor Value Content, which requires that a specified percentage of a vehicle’s value be derived from manufacturing facilities that pay an average wage of at least $16 USD per hour.   

The U.S. Department of Labor will assess the wage practices of the manufacturing facilities involved in the production of such vehicles and their components. This information will be used in CBP’s calculation of Labor Value Content. Additional guidance on compliance with this new requirement is pending.

Q: Are there any changes that the textile industry should be aware of?

A: Revised tariff shift rules maintain the basic concepts established under NAFTA with a few modifications. These rules allow manufacturers to use textile inputs not generally available in North America (such as rayon fibers and visible lining fabric).

The USMCA modifies the chapter rules for goods classified in HTS chapters 61 and 62.

The USMCA increases the de minimis percentage of non-originating inputs allowed in qualifying goods from 7 to 10 percent (within the overall 10% cap, the total weight of elastomeric content may not exceed 7%).

Other changes under the USMCA require that sewing thread, pocketing fabric, narrow elastic bands, and coated fabric used in the production of apparel be made in North America in order for those products to be treated as originating (under the current NAFTA, these items can be sourced from outside the region – USMCA ensures these secondary components originate within the region). 

The USMCA establishes a Textiles chapter for North American trade, including textile-specific verification and customs cooperation provisions that provide new tools for strengthening customs enforcement and preventing fraud.

The USMCA reduces some TPLs for US imports from Canada and Mexico while substantially increasing TPLs for US exports to Canada of apparel and other finished textile goods.

Q: Will Certificates of Eligibility be required for exporting textile items (that is, clothing which does not originate under the USMCA) to the U.S. or Mexico?

A: Certificates of Eligibility will be required for exports of clothing and textile goods that are eligible for tariff preference level treatment under USMCA upon entry into the U.S. or Mexico.

Q: Which industries will have the most impact from the changes from NAFTA to the USMCA?

A: The USMCA contains new criteria for the Rules of Origin for automotive and automotive part imports.  These new criteria include increases in the regional value content, new North American steel and aluminum procurement requirements, and labor value content.  These new criteria will require additional attention by importers to ensure compliance.  For more information see USMCA Ch. 4 – Rules of Origin

Other impacted industry groups include manufactured goods, textile and apparel, and agricultural good sectors.  Additional information is available via the International Trade Commission.

United States-Mexico-Canada Agreement: Likely Impact on the U.S. Economy and Specific Industry Sectors; ITC Publication No. 4889; Investigation No. TPA 105-003

Q: What commodities do the Tariff Rate Quotas (TRQs) impact?

A: The USMCA includes provisions to exclude a certain quantity of Mexican and Canadian automobiles and automobile parts from any Section 232 trade remedy actions. For more information see USMCA Side Letters at the links below:

• Mexico: https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/MX-US_Side_Letter_on_232.pdf;
• Canada: https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/CA-US_Side_Letter_on_232_Process.pdf

For agricultural goods, the USMCA maintains NAFTA’s zero-tariff treatment and includes adjustments to tariff-rate quota volumes to provide greater U.S. access to Canadian dairy, poultry, and egg markets.

For more information see USMCA Ch. 3 – Agriculture

Q: What are the new criteria for imported automobiles and automotive parts?

A: The USMCA requires new criteria for automotive goods that are not present in NAFTA, including:

• Increased Regional Value Content from 62.5% to 75%, increased in stages over a period three years.
• Labor Value Content (40-45% percent of the value of the imported automobile must be sourced from manufacturing facilities where workers earn at least $16 USD per hour.  The U.S. Department of Labor will be performing the assessment of manufacturing facility eligibility, with CBP determining value of the parts, the overall automobile, and the overall Labor Value Content determination.
• Steel and Aluminum (At least 70% of a vehicle producer’s annual steel and aluminum procurement must originate from North America).

CBP will issue compliance guidance in advance of implementation.  For more information select USMCA Ch. 4 – Rules of Origin.

Q: How will verifications and audits of automotive goods take place?

A: CBP will verify compliance of the USMCA’s automotive rules of origin.  CBP will work with the U.S. Department of Labor on the calculation of Labor Value Content.

CBP is a participant on the Committee on Trade In Automotive Goods Under Section 202a of the USMCA Implementation Act to finalize processes under the USMCA for automotive goods.

Additional guidance will be distributed in advance of implementation.

Q: Will USMCA change any enforcement mechanisms?

A: The USMCA contains new provisions to combat AD/CVD evasion, commitments to interdict transshipped IPR infringing goods, prohibitions on the importation of goods sourced from forced labor, and requirements to prevent illegal taking of wild flora and fauna (including timber).

New enforcement tools will expand confidential trade data sharing; increase joint analysis, investigations and operations; and facilitate facility verification visits to assess production capacity.

For more information see USMCA Ch. 7 – “Customs Administration and Trade Facilitation”

Q: How will CBP enforce the new Environmental and Labor requirements in USMCA?

A: Many of the provisions of the USMCA are awaiting final implementation guidance from the U.S. Trade Representative or are under development. 

Q: If I paid duty and my good qualifies for preferential treatment, how long do I have to file a refund?

A: Any post summary correction must be filed within one year of the date of importation.    An importer must provide a statement that the good was originating at the time of importation and provide a copy of the certificate of origin.  However, MPF paid on entries, for which a post-importation claim for preference under the USMCA is made, will not be refunded.

Q: What are the transit and transshipment requirements under USMCA?

A: An originating good retains its originating status if the item has been transported within Canada, U.S. or Mexico.    If the originating good is transported outside of the territories of the parties, then the good must remain under customs control and cannot undergo an operation, other than unloading, reloading, separation from a bulk shipment, storing, labeling, or marking required by the importing party; or any other operation necessary to preserve it in good condition or to transport the good to the territory of the importing party. 

The transshipment conditions are contained in Article 4.18 of Chapter 4 of the USMCA and the associated documentation requirements are contained in Article 5.4(3) of Chapter 5 of the USMCA.

APPENDIX – TEXTILE APPAREL GOODS

Primary rules

• Fiber – fiber forward
• Yarn – fiber forward
• Knit fabric – fiber forward
• Woven fabric – yarn forward
• Apparel – yarn forward
• Textile Articles – yarn forward

VISIBLE LINING RULE – ELIMINATED

Under NAFTA the visible lining for certain coats, jackets, suits and skirts must be knit or woven within the NAFTA region.  This will no longer be a requirement under USMCA.

SEWING THREAD – NEW REQUIREMENT

HS headings 52.04, 54.01, 54.02, 55.08

• Must be formed and finished within the USMCA region
• Comes into effect 12 months (July 1, 2021) after entry into force

POCKET BAG FABRIC – NEW REQUIREMENT

‘Yarn forward’ requirement.  i.e. The yarn and fabric must be formed in the USMCA region

• Effective 18 months (January 1, 2022) after entry into force for all other apparel
• Effective 30 months ((January 1, 2023) after entry into force for blue denim apparel

NARROW ELASTIC – NEW REQUIREMENT

Woven fabrics containing elastomeric yarns (HS 5806.20) or knit fabrics containing elastomeric yarns (heading 60.02) used in apparel (ch 61 or 62) must be knit or woven within the USMCA territory.

• The yarn itself can be of any origin
• Comes into effect 18 months (January 1, 2022) after entry into force

VISIBLY COATED FABRIC IN TEXTILE ARTICLES– NEW REQUIREMENT

Goods of Ch 63, except HS 63.05, 6306.12, 6306.22 and 6307.90 (except surgical drapes and national flags)

• Goods in this rule containing any amount of visibly coated fabrics of heading 59.03
• Fabrics must be formed and finished within the Parties (all layers)

• Comes into effect 18 months (January 1, 2022) after entry into force

RAYON FIBRE & FILAMENT – NEW FLEXIBILITY

• Rayon filament other than lyocell or acetate, of headings 54.03 or 54.05 can be of any origin
• Rayon fiber other than lyocell or acetate, of headings 55.02, 55.04, 55.07 can be of any origin
• Effective immediately upon entry into force

DE MINIMIS – CH 61-63

• 7% by weight for elastomeric yarn in the component that determines tariff classification (% is relative to the total weight of good)
• 10% by weight of other fiber/yarn in the component that determines tariff classification (% is relative to the total weight of the component that determines classification)

SETS – GRI 3

New limitation on foreign content contained in goods imported as sets put up for retail sale

• No more than 10% of the value of the set can be from foreign content

SHORT SUPPLY

There were no changes made to the list and there are no expedited procedures to add or remove items

TARIFF PREFERENCE LEVELS (TPL)

TPLs are maintained under USMCA, however the quota levels have changed according to the following chart:

Preferential Tariff Treatment for Non-Originating Apparel

Preferential Tariff Treatment for Non-Originating Cotton or Man-Made Fiber Fabrics and Made-Up Goods

Under the USMCA, if an originating good contains non-originating material found in the chapter rules (sewing thread, pocket bag fabric, narrow elastic), then it would qualify under TPL.   Under the NAFTA rules, the same originating good would have been NAFTA eligible, not TPL.

MERCHANDISE PROCESSING FEES (US IMPORTS ONLY)

USMCA eliminates the MPF on all TPL goods entering the US

The USMCA Agreement, Final Text

https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between

The information provided in this FAQ document and its appendices are considered to be true and correct at time of publication.  Changes to the treaty party’s policies after the time of publication may occur.