The USMCA Changes the Preference Rules for Several Products

SEATTLE (Scrap Monster): The United States – Mexico- Canada (USMCA) Free Trade Agreement, scheduled pending ratification by all three countries to supersede NAFTA on January 1, 2020, includes some significant changes in Rules of Origin. In addition to the well-publicized changes for automobiles and auto parts, there are new rules for certain steel products covered by HTS Chapter 73. Commodities affected include pipe and tube (other than seamless) (HTS 7305-7306), pipe fittings (7307), structures and parts of structures (7308), wire, rope, cable, barbed wire, cloth, grill, netting and fencing (7312-7314), chain (7315), nails (7317), and screws, bolts and nuts (7318).

The changes will limit the heading changes that would qualify a product for preferential treatment, and/or increase the Regional Value Content (RVC) required for that treatment. The changes will be phased in, depending on product either two years or three years after entry into force of the Agreement. This is intended to allow manufacturers time to modify procedures where desired or possible to retain preferential qualification. Current NAFTA rules will continue to apply until the phase in dates.

The primary changes will alter current rules which allow a change in classification from Chapter 72 articles to Chapter 73 articles to constitute sufficient processing for preference in all cases. For many products that tariff shift will no longer be sufficient unless at least 70% by weight of the inputs from specified provisions of Chapter 72 and 73 are considered originating products, or the required RVC amount (ranging from 50% to 75% depending on product and method of calculation) is met.

The new rules are very specific, changing from product to product both in the provisions covered by tariff shift rules and in the required RVC amounts. For example, the four six-digit headings in HTS 7308 (the only heading with a two year rather than three year phase in period) have similar but slightly differing rules, specifically regarding the required RVC content.

The rules changes are designed to increase the originating content level of the specified steel products by requiring higher amounts of originating products or increased regional value inputs. The use of RVC requirements is not new, and exists under the current NAFTA rules for several of the other products in chapter 73. The expansion of the RVC requirement to additional products, and the addition of the 70% by weight originating requirement as an alternative, will require producers seeking to qualify their goods for tariff preferences to undertake increased recordkeeping and accounting activities, and to be prepared to defend preference claims using those procedures.

The specific rules remain subject to legal review and authentication, and of course final ratification by the three governments. The new rules are contained in Annex 4-B to Chapter 4, Rules of Origin, of the Agreement.

There are some significant changes in the administrative provisions covering origin. The NAFTA Certificate will no longer be required (but may be used); certifications of origin may be provided on invoices or other documents, and need only provide the required information without having a specified format. Importers may now provide certifications, so long as certain requirements are met. There are also some changes to de minimis levels, the methods for calculating RVC, accumulation, treatment of recoverable materials, and certain other requirements.

Courtesy: AIIS