Transitioning from NAFTA to USMCA

Published on

May 4, 2020

Overview of Provisions and Impact on PMMI Members’ North American Supply Chains

USMCA is scheduled for entry into force on 1 July 2020, two months from today. While there are new provisions in the new USMCA (including on certificates of origin, auto rules of origin, intellectual property, digital trade, labor, environment, ban on forced labor, dispute settlement, etc.), we have captured below provisions/elements that may be of primary interest to PMMI members. Below is a summary of what to expect in terms of what will stay the same, and what changes will be implemented. In the United States, Customs and Border Protection (CBP) recently published its interim implementation instructions and more guidance is expected in coming months.

Element	Under NAFTA	Under USMCA
Tariffs	No change. Equipment and machinery of 8422 and 8438 continue to move MFN duty-free into Canada and the United States. Many tariff lines for imports of food processing/packaging equipment into Mexico range from MFN duty-free to as high as 15%. All lines not already MFN duty-free are eligible for duty-free preferential access so long as NAFTA/USMCA rules of origin are met.
Taxes	No change. US Merchandise Processing Fee and harbor fee are not charged on imports from Mexico or Canada into the United States. Mexico’s VAT still applies but NAFTA/USMCA-compliant goods are exempt from Customs Processing Fee. Canada’s GST fees still apply.
NAFTA preferential rules of origin (ROO)	No change in preferential ROO on food processing/packaging equipment, including for goods that are claiming tariff-free preferences into Mexico.
NAFTA certificate of origin (COO)	For goods claiming NAFTA preference, standardized NAFTA COO (Form 434) required NAFTA COO not required for shipments valued under $1,000.	For goods that are claiming USMCA preference, standardized COO will no longer be required, and replaced with certification requirements. Certification must be in the importer’s possession at time of entry. Importer will need to provide certain minimum information to benefit from preferential access under USMCA and can be provided using informal documentation, such as commercial invoice, and can be completed by importer, exporter, or producer. Minimum data elements include: Whether certifier is producer, exporter or importer Name, title and contact info of certifier & other parties to transaction HTS number (at least 6 digits) Origin criteria under which article qualifies If for single shipment, invoice number If for blanket period, period covered Signature & certification of certifying party (e-signatures accepted) Certification may not be required for shipments valued under $2,500.
NAFTA country of origin marking rules	Separate marking rules will no longer be required under USMCA although likely no substantive impact to PMMI members.
NAFTA country of origin marking rules	Two sets of origin rules were in place in the United States under NAFTA (country of origin marking rules as well as preferential rules of origin to determine if product was eligible for duty-free access). These two sets of rules did not always align for some sectors, but for PMMI members, there did not seem to be an issue.	Marking rules no longer required under USMCA. As such, a good does not need to first qualify to be marked as a good of the US, Canada, or Mexico in order to receive preferential tariff treatment under USMCA.
De Minimis threshold for origin determinations	7%: Non-qualifying content that may be does not have to be factored into ROO determinations.	Increased to 10%: Non-qualifying content that that does not have to be factored into ROO determinations.
De Minimis threshold for low value shipments	Some changes: Under certain threshold amounts, formal entries and payment of tariffs or taxes are not required. While some changes under USMCA, new provisions likely will not benefit PMMI members significantly unless they are sending low-value shipments of parts.
De Minimis threshold for low value shipments	For imports into the US, imports valued <= $800 For imports into Canada, imports valued <= CAN$20 for tariffs and taxes	For imports into the US, imports valued <= $800 For imports into Canada, imports valued <= CAN$150 for tariffs and <= CAN$40 for taxes For imports into Mexico, imports valued <= $117 for tariffs and <= $50 for taxes
Protection of Intellectual Property	Intellectual property provisions minimal/not included.	New provisions under USMCA to enhance intellectual property protections.
Review of agreement	There are no provisions regarding “expiration date” of NAFTA.	“Sunset” provisions allow for USMCA to potentially expire in 16 years unless the agreement is affirmatively renewed or revised. Sunset reviews are scheduled every six years. While this allows for revisions, updates, corrections to the agreement, it also creates some uncertainty as to the longevity of the agreement.