7.3 United States-Mexico-Canada Agreement (USMCA)

7.3 United States-Mexico-Canada Agreement (USMCA)

Core Regulatory Tenet: USMCA codified in HTSUS General Note 11 & 19 CFR Part 182 (effective July 1, 2020) | Four Origin Criteria: A (wholly obtained), B (tariff shift/RVC), C (originating materials), D (unassembled/parts) | RVC Transaction Value: ((TV - VNM)/TV) × 100; Net Cost: ((NC - VNM)/NC) × 100 | Automotive sector: 75% RVC, 70% steel/aluminum, 40–45% Labor Value Content at $16/hr | No government form; 9 mandatory data elements | Post-importation duty refunds under 19 U.S.C. § 1520(d) within strictly 1 year of importation.

USMCA Regulatory Framework and Transition from NAFTA

On July 1, 2020, the United States-Mexico-Canada Agreement (USMCA) entered into force, superseding the North American Free Trade Agreement (NAFTA) that had governed continental trade since 1994. Codified in the Harmonized Tariff Schedule of the United States under General Note 11 (GN 11) and implemented administratively within Title 19 of the Code of Federal Regulations (19 CFR Part 182), the USMCA modernized origin disciplines, tightened regional supply chains, and established groundbreaking labor and environmental standards.

Key structural shifts from legacy NAFTA include:

• Elimination of Prescribed Forms: The familiar government-printed Certificate of Origin (CBP Form 434) was officially abolished. Certifications under USMCA may be prepared informally on commercial invoices or company documentation, provided 9 mandatory data elements are present.
• Importer Certification Authority: Certifications of origin may now be completed and submitted directly by the importer, in addition to the traditional authority granted to exporters and producers.
• Stricter Automotive Rules: Automotive Regional Value Content (RVC) thresholds increased from NAFTA's 62.5% to 75%, paired with mandatory North American steel and aluminum purchasing quotas and a novel Labor Value Content (LVC) requirement.

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The Four Primary Origin Criteria: General Note 11(b)

Under General Note 11(b), imported goods qualify as "originating goods" eligible for preferential tariff treatment under USMCA if they satisfy one of four distinct statutory criteria:

Criterion A (GN 11(b)(i)): Wholly Obtained or Produced

The good is wholly obtained or produced entirely in the territory of one or more of the USMCA parties (United States, Canada, Mexico). This criterion is strictly reserved for commodities that contain zero foreign or non-originating inputs, such as:

• Mineral goods extracted from the soil, seabed, or beneath the seabed of a party;
• Vegetable goods harvested or gathered in a party;
• Live animals born and raised entirely in a party, and goods derived from such animals;
• Goods obtained from hunting, trapping, or fishing in a party;
• Waste and scrap derived from production in a party, used exclusively for recovery of raw materials.

Criterion B (GN 11(b)(ii)): Specific Tariff Shift and Regional Value Content

The good is produced entirely in the territory of one or more of the parties using non-originating materials, provided each non-originating material satisfies the specific product-specific rules of origin set forth in General Note 11(n) (Annex 4-B). Criterion B represents the commercial backbone of USMCA and relies on:

• Tariff Shifts: Requiring non-originating foreign materials to undergo a designated change in tariff classification (change in chapter, heading, or subheading);
• Regional Value Content (RVC): Requiring the good to satisfy a minimum percentage of North American content; or
• Co-Requirements: Requiring both a specified tariff shift and an RVC threshold simultaneously.

Criterion C (GN 11(b)(iii)): Produced Exclusively from Originating Materials

The good is produced entirely in the territory of one or more of the parties exclusively from originating materials. Unlike Criterion A (which requires goods to be naturally occurring or raw harvests), Criterion C applies to manufactured industrial goods where every component and raw material has already acquired originating status under Criteria A, B, or C prior to final production.

Criterion D (GN 11(b)(iv)): Unassembled Goods and Parts Provisions

The good is produced entirely in the territory of one or more of the parties, but one or more non-originating materials fail to satisfy the required tariff shift under General Note 11(n) because:

1. The good was imported into a party in an unassembled or disassembled state and classified as an assembled complete article pursuant to General Rule of Interpretation 2(a); or
2. The tariff heading or subheading covers both the finished article and its parts eo nomine, and does not provide for a distinct tariff shift for parts;

Provided that the good satisfies the applicable Regional Value Content (RVC) requirement specified in GN 11(n). Criterion D explicitly excludes textile and apparel articles of HTSUS Chapters 61 through 63.

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Regional Value Content (RVC) Calculation Methods

When a specific rule of origin in General Note 11(n) requires an RVC threshold, General Note 11(c) provides two distinct mathematical calculation methods: the Transaction Value Method and the Net Cost Method.

1. Transaction Value (TV) Method (GN 11(c)(i))

The Transaction Value method bases RVC on the adjusted commercial sales price of the finished good:

$\mathbf{RVC} = \left( \frac{\text{TV} - \text{VNM}}{\text{TV}} \right) \times 100$

Where:

• TV (Transaction Value): The price actually paid or payable for the good, adjusted to an FOB (Free on Board) basis in accordance with customs valuation rules under 19 U.S.C. § 1401a.
• VNM (Value of Non-Originating Materials): The customs value of non-originating materials imported from outside North America and used in the production of the good, including shipping, freight, and insurance costs to the producer's plant.

2. Net Cost (NC) Method (GN 11(c)(ii))

The Net Cost method isolates actual manufacturing expenses by deducting commercial overhead costs from total production expenses:

$\mathbf{RVC} = \left( \frac{\text{NC} - \text{VNM}}{\text{NC}} \right) \times 100$

$\text{Net Cost (NC)} = \text{Total Cost} - \text{Excluded Costs}$

Under General Note 11(c)(iv), Excluded Costs that must be subtracted from Total Cost include:

1. Sales Promotion, Marketing, and After-Sales Service Costs;
2. Royalties and License Fees;
3. Shipping and Packing Costs; and
4. Non-Allowable Interest Costs (interest rates exceeding official benchmark rates by more than 700 basis points).

Mandatory Application of the Net Cost Method

While producers may generally elect either the TV or NC method, the Net Cost method is mandatory for:

• Automotive goods (passenger vehicles, light trucks, heavy trucks, and core automotive parts);
• Certain footwear and headgear;
• Circumstances where there is no transaction value, or where transaction value is unacceptable due to related-party pricing under 19 U.S.C. § 1401a(b)(2).

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Automotive Sector Disciplines and Labor Value Content (LVC)

The automotive rules under USMCA are the most stringent origin requirements ever incorporated into a trade treaty. To qualify for duty-free entry, passenger vehicles and light trucks must satisfy four cumulative disciplines:

1. 75% Regional Value Content: The net cost RVC threshold for vehicles and "core parts" (engines, transmissions, body/chassis, axles, suspension, steering, and lithium-ion batteries) phased up from NAFTA's 62.5% to 75% (70% for heavy trucks).
2. Steel and Aluminum Purchasing Requirement: At least 70% of a vehicle producer's annual corporate purchases of steel and aluminum (by value) must originate in the USMCA region.
3. Steel Smelted and Poured Mandate: Seven years post-entry into force (by 2027), all originating steel must be "melted and poured" within North America.
4. Labor Value Content (LVC): A groundbreaking requirement mandating that at least 40% (for passenger cars) or 45% (for light and heavy trucks) of the total production value must be produced by workers earning an average wage of at least $16 USD per hour. LVC is calculated across three sub-components:
   • High-Wage Material and Manufacturing Expenditures (at least 25% for cars);
   • High-Wage Technology Expenditures (R&D and software engineering, up to 10%);
   • High-Wage Assembly Plant Operation (a qualified engine, transmission, or assembly facility, up to 5%).

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The De Minimis Rule (General Note 11(e))

In complex manufacturing, a finished product may contain minor foreign components that fail to undergo the required tariff shift. General Note 11(e) provides an essential relief mechanism:

DE MINIMIS THRESHOLD (GN 11(e)(i)): A good shall be considered originating if the value of all non-originating materials used in production that fail to undergo the required tariff shift does not exceed 10 percent of the transaction value (or total cost) of the good.

Special Rules for Textiles and Apparel (GN 11(e)(ii))

For textile and apparel goods classified in HTSUS Chapters 50 through 63, the de minimis threshold is calculated based on weight rather than value:

• Non-originating fibers or yarns in the component determining tariff classification may not exceed 10 percent by weight of that component.
• Elastomeric Yarn Restriction: Notwithstanding the 10% weight allowance, all elastomeric yarns (spandex/elastane) used in the component conferring classification must be 100% originating in North America.

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Certification of Origin Requirements (19 CFR Part 182)

Under USMCA Chapter 5 and 19 CFR Part 182, the former NAFTA Certificate of Origin (CBP Form 434) is obsolete. No official government form is prescribed. A certification of origin may be submitted in any commercial format (on commercial invoices, packing lists, or company letterhead) or electronically, provided it contains the 9 Mandatory Minimum Data Elements set forth in USMCA Annex 5-A:

Statutory Certification Statement

The certification must include the exact statutory declaration: "I certify that the goods described in this document qualify as originating and the information contained in this document is true and accurate. I assume responsibility for proving such representations and agree to maintain and present upon request or to make available during a verification visit, documentation necessary to support this certification."

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Recordkeeping and Post-Importation Duty Refunds: 19 U.S.C. § 1520(d)

5-Year Recordkeeping Requirement (19 U.S.C. § 1508)

Under Section 508 of the Tariff Act of 1930 (19 U.S.C. § 1508) and 19 CFR 182.21, any importer, exporter, or producer who signs a USMCA certification or claims preferential tariff treatment must maintain all commercial and manufacturing records proving originating status for strictly five years from the date of importation (or date of certification). Records must be furnished to CBP upon request.

Post-Importation Duty Refund Claims: 19 U.S.C. § 1520(d)

Frequently, an importer enters originating merchandise under Column 1 General duty rates because a valid USMCA certification was not available in hand at the time of entry summary. Section 520(d) of the Tariff Act of 1930 (19 U.S.C. § 1520(d)) and 19 CFR 182.31 provide a vital post-importation refund remedy:

$\text{1520(d) Window} = \text{Strictly within 1 Year from the Legal Date of Importation}$

Key procedural rules for 1520(d) claims tested on the CBLE:

• One-Year Jurisdictional Deadline: The petition must be filed within exactly one calendar year from the date of importation (not the entry date or liquidation date). This deadline cannot be extended.
• Mandatory Submissions: Must include a written statement asserting the preference, a copy of the valid USMCA Certification of Origin, and an accounting of overpaid duties.
• Full Refund of Duty and MPF: Upon allowance, CBP reliquidates the entry, refunding all overpaid customs duties and the Merchandise Processing Fee (MPF), because originating USMCA goods are exempt from MPF under 19 CFR 24.23(c)(3).
• Protest Rights: If CBP denies a 1520(d) petition, the denial is an enumerated protestable decision under 19 U.S.C. § 1514(a)(7), subject to an administrative protest on CBP Form 19 within 180 calendar days.