Introduction

On 30 September 2018, with 30 minutes to spare, US Trade Representative (USTR) Robert Lighthizer met the United States' self-imposed deadline and formally sent to Congress the agreed text of the US-Mexico-Canada Agreement (USMCA).

Over the past few weeks, the three countries had to resolve a number of contentious issues which remained. For better or worse, these have now been addressed or deferred. The result is the USMCA, an agreement slated to replace the 24-year-old North American Free Trade Agreement (NAFTA) with what the parties have called "a 21st century, high-standard agreement". While the USMCA text has answered many questions, a number of issues will need to be fleshed out during the implementation phase.

Now that the negotiations are over and the USTR has published the text of the agreement, the ratification process moves into the legislative arena, where deadlines are uncertain and subject to political calendars. Under the Trade Promotion Authority, the earliest that President Trump can sign the agreement is 29 November 2018. While there is no legal obligation to sign on this date, Trump has expressed an interest in ratifying the agreement during the term of the outgoing Mexican President Enrique Pena Nieto. The new Mexican president will be sworn in on 1 December 2018, leaving a short window of time for signature.

The signing of the agreement will set into motion a series of procedural events that must occur before the agreement can be ratified. On completion of all internal procedural requirements, the parties must notify each other, with the USMCA entering into force on the first day of the third month following the last notification. The various USMCA side letters, such as the US-Canada and US-Mexico automotive side letters, need not go through the ratification process and will take effect upon the parties signing. The higher regional value content (RVC) requirements established in the USMCA for automotive vehicles cannot enter into force before 1 January 2020.

Key provisions of USMCA

Duties As expected, the USMCA provides that, with certain exceptions:

  • originating goods from the three signatory countries will be duty free;
  • existing customs duties cannot be increased; and
  • new duties cannot be adopted on any originating good.

In addition, the USMCA maintains a series of duty-free entry provisions comparable with some of the US Chapter 98 provisions, including provisions for the temporary admission of certain goods and the duty-free entry of commercial samples and articles exported for repair.

Rules of origin The USMCA maintains the NAFTA criteria for originating goods – namely:

  • goods must be wholly obtained or produced;
  • the product-specific rules of origin (eg, tariff shift, RVC and specific processing requirements);
  • goods must be produced exclusively from originating materials; and
  • the unassembled parts rule.

In addition, the Chapter on Rules of Origin:

  • retains the NAFTA transaction value and net cost methods for calculating RVC;
  • preserves rules relating to intermediate materials, indirect materials, accumulation and fungible goods;
  • increases the de minimis exception to 10%, subject to exceptions for certain products;
  • sets out a special rule for sets classified pursuant to GRI 3, a provision allowing for a set that meets certain criteria to be classified in a single tariff number for duty purposes. Under the special origin rule, a set is originating only if each good in the set is originating and both the set and the goods meet the other applicable requirements (with the exception that a set may be originating if the value of all non-originating goods does not exceed 7% of the set's value of the set);
  • provides that the 'shipped directly' requirement continues to apply;
  • defines 'non-qualifying operations' to include mere dilution or production or pricing practices whose object is to circumvent the rules of origin;
  • increases the automotive regional value content rule to require that 75% of auto content be made in North America; and
  • imposes a new labour value content rule, requiring that 40% to 45% of auto content be made by workers earning at least $16 per hour.

Origin procedures Unlike the NAFTA, an importer may make a claim for preferential treatment based on a certification of origin completed by the exporter, producer or importer. The certification need not follow a prescribed format, but the USMCA provides the minimum data elements to be included in the certification. Origin certifications may be provided on an invoice or any other document and may be completed and submitted in an electronic manner with an electronic or digital signature; however, as with NAFTA, the importer must have a valid certification of origin in its possession when the preference claim is made.

Also similar to NAFTA, the USMCA:

  • retains the exporter and producer record-keeping obligations for parties to a transaction that have issued certificates of origin; and
  • preserves Customs' ability to conduct verifications of claims for preferential treatment through written requests, verification visits and any other procedure as may be decided by the parties.

Under the USMCA, an importer must also maintain all records necessary to demonstrate that the good is originating if the claim is based on an importer-completed certification.

For further information on this topic please contact Teresa Polino, John Gurley, David R Hamill or David Salkeld at Arent Fox LLP by telephone (+1 202 857 6000) or email (teresa.polino@arentfox.com, john.gurley@arentfox.com, david.hamill@arentfox.com or david.salkeld@arentfox.com). The Arent Fox LLP website can be accessed at www.arentfox.com.

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