The U.S.-Mexico-Canada Agreement (USMCA) takes effect today, replacing the North American Free Trade Agreement (NAFTA). Originally dubbed NAFTA 2.0, the USMCA is meant to update its predecessor agreement and maintain substantially free trade between the parties. However, it enters into force amid the COVID-19 global pandemic and temporary travel restrictions imposed by the United States on March 20, which will last through July 21 unless they are further extended. The USMCA “modernizes” the NAFTA by, among other things, including new rules of origin, provisions on worker rights and the environment, and digital trade, while deleting certain investor-state dispute settlement provisions. Importantly, effective today via an interim final rule, the new USMCA rules of origin replace existing U.S. Customs and Border Protection (CBP) regulations—comments on the new interim rules are being accepted through August 31, 2020.
Background
NAFTA replaced the U.S.-Canada bilateral free trade agreement, which was signed in 1988, entering into force over a quarter-century ago on January 1, 1994. Trump has called it “the worst trade deal ever,” and renegotiating the agreement became a priority for his administration. The Office of the U.S. Trade Representative (USTR) informed Congress of the president’s intent to renegotiate NAFTA in May 2017. The NAFTA 2.0 talks kicked off in August 2017, with the USMCA negotiations concluding in September 2018. Mexico became the first to ratify it, in June 2019. In December 2019, the parties agreed to some tweaks in order to satisfy concerns among Democrats in Congress over labor and environmental standards, ultimately clearing the path for President Trump to agree to the USMCA at the end of January 2020 (Public Law 116-113, 134 Stat. 11). Canada’s Parliament ratified the agreement in March 2020.
Rules of Origin
Claims for preferential tariff treatment under the USMCA may be made as of today. The NAFTA provisions in 19 CFR part 181 and General Note 12 of the Harmonized Tariff Schedule of the United States (HTSUS) continue to apply to goods entered for consumption, or withdrawn from warehouse for consumption, prior to July 1, 2020. The new interim USMCA rules of origin are detailed in a 62-page Federal Register notice. CBP is adding a new part 182 to title 19 of the CFR to establish the USMCA preferential tariff treatment and other customs-related provisions, and it plans to publish subsequent interim final rules to flesh out implementing regulations in part 182. As expected, the rules include de minimis, regional value content, transshipment, and other guidance. The Appendix to Annex 4-B of Chapter 4 of the USMCA includes rules of origin applicable to automotive goods, which include passenger vehicles, light trucks, heavy trucks, or other vehicles. Appendix A to part 182 sets forth the myriad definitions and rules of origin related to such automotive goods, which include regional value content requirements, steel and aluminum purchase requirements, and a labor value content requirement.
Comments Due August 31, 2020
CBP is accepting comments on the new rules of origin. Any such comments must be received by August 31, 2020. Please contact us if you need help submitting written comments or have any questions about the USMCA.