USMCA To Take Effect July 1, 2020

On April 24, 2020, U.S. Trade Representative Robert Lighthizer notified Congress that Canada and Mexico have taken measures necessary to comply with their commitments under the United States–Mexico–Canada Agreement (USMCA), and that the agreement will enter into force on July 1, 2020. USMCA will replace the 26-year-old North American Free Trade Agreement (NAFTA). Read the published USTR notice.
 
Prior to the announcement, U.S. Customs & Border Protection (CBP) released a set of interim implementing instructions. These instructions are meant to provide guidance on claiming the benefits of USMCA while CBP and other federal agencies complete the process of updating the current regulations to reflect differences between NAFTA and USMCA.
 
While USMCA retains most of NAFTA’s rules, several changes to the specific rules of origin are notable - particularly with respect to those for automotive goods. “Tariff shift” rules still apply, but tracing of non-originating value throughout vehicle production has been eliminated. USMCA also adds a new labor value content rule requiring that 40%-45% of auto content be produced by workers earning at least USD $16.00 per hour. In addition, the regional value content threshold is increasing from 62.5% to 75%. Finally, at least 70% of a vehicle producer’s steel and aluminum purchases must originate in North America.

 

What should companies do?

All North American producers should be aware of the changes between NAFTA and USMCA so that current qualification procedures are updated to facilitate compliance and secure duty savings by July 1, 2020.

Current NAFTA participants should be preparing for the new USMCA coming into effect on July 1^st by reviewing the changes to the Rules of Origin and applying them to the products they trade within North America.  As with NAFTA, USMCA allows duty-free entry, i.e., cash savings, for imports of goods that qualify – with stiff penalties for importers which do not document their compliance.  With phased-in higher Regional Value Content requirements, new steel and aluminum content requirements, and new Labor Value Content requirements for the automotive industry, companies should also look to their supply chain to understand where their imported products “originate” (country of origin) and whether any long-term changes should be made. 
 
In addition, companies should designate internal cross-functional teams between logistics/procurement, tax, finance/accounting, and legal to manage these changes.  Moreover, companies should have open lines of communication with their suppliers and customers to manage the “ripple effects” that are sure to come.
 
If you’re interested in learning more, please fill out the contact form and a member of our Customs and International Trade Services team will get back to you.