USMCA To Take Effect July 1, 2020

May 2020

Damon V. Pike, International Tax Principal, Customs & International Trade Services |
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).
Prior to the announcement, U.S. Customs & Border Protection (CBP) released a set of interim implementing instructions, which can be read here. 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.
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.
The published USTR notice can be read here. For more information, please contact a BDO Customs and International Trade Services professional.