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From NAFTA to USMCA/CUSMA - What Now? – Frequently Asked Questions [PART TWO]

The United States-Canada-Mexico Agreement (USMCA/CUSMA) was signed on November 30th, 2018, and will eventually replace NAFTA. There are many things that USMCA/CUSMA will change, from country of origin rules, labour provisions, to digital trade.

In our recent webinar, From NAFTA to USMCA/CUSMA – What Now?, our attendees had numerous questions regarding different aspects of this new trade deal. In this two-part series, we will look at the frequently asked questions during our webinar that were addressed by our panelists. You can find part one here.

22. You mentioned that USMCA requires that motor vehicle producers source 70% of their steel and aluminum from North America. Does it have to be originating, or can I just source it from North America and be compliant?
A: By using the word “source” the Agreement is inferring that the good is considered originating from within that NAFTA territory.

23.  As a follow up to the question above, what about forklifts? Does this apply to them as well?
A: Forklifts classified under 8427 are not considered motor vehicles or heavy trucks under USMCA.

24. What is the difference between the USMCA and CETA in terms of the automotive sector?
A: The rules of origin are completely different between the two agreements. The USMCA has stricter North American content requirements. Both agreements have specific requirements and goods needs to be qualified independently of each other, depending on if it is sourced or produced in a CETA country or in a USMCA country.

25. How would a North American item be transhipped between USMCA partners? 
A: The transshipment clause in the agreement under Article 4.18 is a standard clause that is placed within all Free Trade Agreements that Canada signs. Understandably, the USMCA countries should not have a transshipment issue due to their geography. However, this is a preventative clause used to ensure that there is no attempt made to circumvent the intentions of the Agreement.  An example may be goods entering a market in a non-USMCA country, such as China, which are then shipped to Canada. These goods would not qualify due to the transshipment.

26. Have the rules changed much other than Automotive and Dairy?
A: Automotive and dairy are two of the product groups that have had major changes. Agriculture and Chemical goods have also gone through major changes. There is a possibility of other minor changes to specific rules of origin for other goods.

27. With regards to quotas, will they be managed using an over/under access model (i.e. duty-free until the quota threshold is reached)?
A: Yes, the USMCA agreement will still have a Tariff Rate Quota (TRQ) mechanism within it and has listed the allowable aggregate quantities for each TRQ category, by year, within Annex 2-B of the agreement. There is also another quota system for textile goods, known as Tariff Preference Level (TPL), however, the TPL does not use an over/under access model.

28. With regards specifically to automotive quotas, will it be managed using an over/under access model (i.e. duty free until quota threshold is reached)?
A: No, automotive quotas will be handled differently from the way dairy quotas will be handled. You will need to manage the percentages and where the goods are originating from by using the Bill of Material as reference.

29. Does the USMCA agreement contain any text regarding the requirement for NAFTA qualification using Net Cost RVC when more than 85% of the producer’s goods are sold to a related party?
A: This clause is not present in the Agreement

30. Due to the changes in rules of origin under USMCA, do we know which HS codes will be affected? Is it specific to a certain sector? 
A: Automotive, dairy, agriculture, and chemical goods are the product groups that have had major changes. There is a possibility of other minor changes to specific rules of origin for other goods, however those would have to be discovered on a case-by-case basis. Unfortunately, there is no concordance table for rules of origin changes.

31. Is there anything in the USMCA regarding tooling for automotive? For context, we are a tooling provider and our equipment is used for part of the production of auto parts, however, our tooling is part of the production. 
A: Tooling is a cost that must be considered in the value of a vehicle. It is considered a production cost and can also be considered a royalty cost, depending on the situation. 

32. It was mentioned that the exporter must show that the routing driver will be taking the materials being shipped, but the exporter is not given this information from the freight carrier. Is this the responsibility of the freight carrier?
A: This will only need to be provided on request from Customs in order to prove direct shipment. It can be provided for by any party privy to this knowledge.

33. In terms of Annex 403.1 for traced value and traced value currency in NAFTA, will this change for the USMCA?
A: Traced value has not been included in the Agreement.

34. Where can we obtain the USMCA Certificate template?
A: Farrow has developed a certification of origin form for importers to use. You can find the USMCA form here, and the CUSMA form here.

35. I work for a customs metal fabrication company, are these new rules saying that I must provide the mill certificates and a letter from the company providing me with the metals that need to be shipped with the customs papers?
A: You wouldn’t need to provide the mill certificates up front. However, if they are used to assist in the certification of a good, the mill certificates must be kept on file and available should Customs audit the certification.

36. Does the North American content percentages apply to non-automotive commodities, such as truck-mounted steel and or aluminum bodies?
A: It depends on how they are classified, where they fall under the parts commodity list, and the rules that follow. If they fall within the automotive content for parts, then they would be subject to the percentages. If they do not, then they will fall under the regular USMCA criteria.

37. As an importer of U.S. steel, I am wondering what changes have been made to the programs of drawbacks and exemptions regarding SIMA.
A: The provisions for duty drawback remain largely the same. There are no changes for steel products.

38. Under NAFTA, outside of automotive and agriculture, a lot of items are qualified under NAFTA with 60% transaction value or 50% net cost value. How does that change under USMCA?
A: For the most part, the Regional Value Content requirements are still 60% and 50%. However, there are certain cases, such as 35.01, where there is a 65%/50% requirement. Or 8518.90, where there is a 30%/25% requirement. The percentage of requirements will vary from classification to classification.

39. Is Annex 5-A available online?
A: Yes, please see the following link. Specifically, this link

40. Under the new agreement, an importer security filing (ISF) must now be filled out for units coming in by ship to the U.S. Who fills this out, the importer of record or our customs broker?
A: The Agreement did not specify anything regarding the ISF filing. As of now, the CBP has not mentioned any changes to the way the ISF will be filed. Currently, the ISF is the responsibility of the party causing the goods to arrive within the limits of a U.S. port. However, this may change closer to the implementation of the USMCA.

41. Can you explain the new origin criteria "B" again, in terms of the new details in regards to the processing of non-originating materials?
A: Origin criteria B is for goods with non-originating components that have undergone a change via tariff shift or an RVC requirement.

Origin criteria D is further detailed. There are special provisions with regards to this criteria, in order to qualify under D.

The goods cannot be classified in Chapters 61 through 63, must be produced entirely in the territory of USMCA, the part must be classified in the same subheading as the finished good or be imported in an unassembled/disassembled state but is classified as an assembled good as per the General Interpretive Rule 2(a), and RVC requirements must be met.

To summarize this clause, if the finished product is not classified in Chapters 61 to 63, and does not meet the specific classification rule of origin because the non-originating component is classified in the same subheading as the finished product or because it is imported in an unassembled state, and the regional value content requirements are met, then the good may qualify for USMCA under origin criteria D. An example would be the classification of a bicycle unassembled under Heading 87.12.

42. How will the labor content requirement be reported and/or verified?
A: All three country’s Customs organizations will conduct audits and verifications on USMCA qualified goods, to ensure that labour content requirements have been abided by. Under USMCA, all three parties have partnered to aid each other in conducting verification audits of USMCA certifiers within their own countries.

43. If we want specific information on where the agreement has changed significantly, to whom should we direct our inquiries?
A. Please direct all inquiries to compliance.consulting@farrow.com

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