USMCA Implementation: Enforcement, MPF, Reconciliation, Vehicles, and More
Drawback. According to U.S. Customs and Border Protection, the USMCA generally retains the drawback restrictions that existed under NAFTA but does include some changes. However, CBP stated July 1 that the trade community should not file any USMCA drawback claims at this time and that it will issue another message once it has deployed the technical changes to the Automated Commercial Environment allowing claim acceptance.
In the meantime, filers should continue to file NAFTA drawback claims under the NAFTA requirements. CBP notes that filers will not be allowed to commingle USMCA and NAFTA imports on the same drawback claim and that the date of entry, not the date of claim, will determine which agreement controls.
Enforcement. In its USMCA implementing instructions, CBP states that during the first six months after the USMCA’s entry into force it will focus on supporting companies’ efforts to fully comply with USMCA requirements and may show restraint in enforcement. CBP states that importers are required to exercise reasonable care when making a claim under USMCA, including ensuring they are in possession of a complete and valid certification of origin at the time a claim is made and meeting all recordkeeping obligations. However, CBP acknowledges that companies will need time to adjust to the new requirements, particularly those relating to the preferential tariff treatment of goods, and to make the business process changes necessary to achieve full compliance. As a result, CBP will take into account the difficulties importers may face in complying with the new rules as long as they are making satisfactory progress toward compliance and a good faith effort to comply with the rules to the extent of their ability.
Labor. The Department of Labor states that it has empaneled an interagency labor committee for monitoring and enforcement that will receive and review submissions under the USMCA labor chapter and rapid response labor mechanism, which allows for enforcement actions against individual factories that fail to comply with critical labor provisions. The DOL has also established three labor attaché positions at the U.S. embassy in Mexico City who will coordinate compliance and collaborate with the Mexican government to help ensure implementation of labor legislation that country passed in 2019. Further, the DOL plans to invest $180 million over the next four years with non-governmental recipients to support USMCA implementation, including by focusing on efforts to reduce child labor, forced labor, and human trafficking.
MPF. CBP states that although the USMCA eliminates the assessment of the merchandise processing fee on qualifying goods from Canada and Mexico, the USMCA Implementation Act excluded the refund of MPFs under 19 USC 1520(d) post-importation claims for USMCA preferential treatment. As a result, unless and until that law is amended, refunds for MPFs are excluded from USMCA post-importation claims, including those filed via reconciliation.
A July 7 letter from dozens of trade groups asked Senate Finance and House Ways and Means committee leaders to “timely fix” this “drafting error” in the statutory language, warning that if left intact it “will result in the payment of millions of dollars of fees on imports into the United States.” In anticipation of such a potential change, CBP said importers may wish to flag USMCA entries for the possibility of MPF refunds for a post-importation USMCA claim because the agency will provide for refunds consistent with any legislative changes to 19 USC 1520(d).
Reconciliation. CBP has modified its reconciliation prototype test to include the flagging for filing of post-importation preferential treatment claims arising under the USMCA. As a result, anytime within one year after the date of importation, importers may file USMCA post-importation claims for refunds of certain duties assessed on goods that both qualify for preferential tariff treatment under the USMCA and were entered or withdrawn from warehouse for consumption on or after July 1. As was the case with NAFTA, filing a reconciliation entry summary (entry type 09) for USMCA is not mandatory but is the exclusive means to file a 1520(d) claim once the entry summary is flagged.
As of July 1 filers may no longer to flag entry summaries for NAFTA post-importation claims under 19 USC 1520(d) for reconciliation. However, entry summaries flagged for NAFTA 520(d) claims prior to July 1 may continue to be reconciled.
Rules of Origin. CBP has amended its regulations to implement the rules of origin provisions for preferential tariff treatment under the USMCA. These regulations, which are being issued as an interim final rule, include general rules of origin as well as provisions on treatment of recovered materials used to make remanufactured goods; de minimis content; sets of goods, kits, or composite goods; regional value content; materials; accumulation; transshipment; non-qualifying operations; and automotive goods.
Comments on this rule are due by Aug. 31. CBP states that it expects to publish additional regulations by July 1, 2021, to set forth any remaining USMCA implementing regulations and request comments on them.
Sugar. The Office of the U.S. Trade Representative has announced that the tariff-rate quota for sugar-containing products of Canada that was established by the USMCA will be administered using export certificates. As a result, beginning July 1 and in any subsequent calendar year (unless otherwise specified), no SCP that is the product of Canada will be permitted entry under the in-quota tariff rate established for imports of SCPs from Canada unless at the time of entry the person entering the SCP makes a declaration to CBP in the prescribed form and manner that a valid export certificate (to be issued by the government of Canada) is in effect.
In addition, USTR states that the calendar year 2020 in-quota quantity of the TRQ for refined sugar from Canada has been increased by 36,287 metric tons raw value pursuant to the USMCA. This amount may be supplied on a first come, first served basis and no certificate for quota eligibility is required. Refined sugar imported pursuant to this notice may be made from non-originating raw sugar, but only refined sugar with a sucrose content (by weight in the dry state) corresponding to a reading of 99.5 degrees polarity or more will be permitted.
Trucking. The International Trade Commission has adopted interim rules amending amend its rules of practice and procedure to implement provisions of the USMCA Implementation Act regarding investigations of U.S.-Mexico cross-border long-haul trucking services. Comments on these rules are due by Aug. 10.
According to the ITC, the USMCA sets out a process by which the U.S. may limit grants of authority to persons of Mexico to undertake cross-border long-haul trucking services where necessary to address material harm or threat of material harm to U.S. suppliers, operators, or drivers of cross-border long-haul trucking services. The ITC is tasked with investigating and determining whether such harm is occurring or threatened and recommending remedies to the president. These interim rules set forth the procedures for such investigations, including who may file a petition or request an investigation, the holding of hearings and publication of notices, the timelines for investigations and determinations, and the issuance of final reports.
Vehicles. The USMCA Implementation Act provides that to receive preferential tariff treatment under the USMCA a producer of a covered vehicle must file a certification that the production of that vehicle meets the high-wage components of the labor value content requirements. The Department of Labor, in consultation with CBP, may check this certification for omissions or errors and verify whether a covered vehicle is in compliance.
DOL has now issued as an interim final rule regulations establishing procedures for producers to follow concerning the high-wage components of the LVC requirements. Any entity seeking preferential tariff treatment when importing covered vehicles into the U.S. must comply with these regulations, including for plants located in Mexico and Canada that are used to satisfy the high-wage components of the LVC requirements.
For example, a minimum percentage of the cost of the vehicle must be composed of vehicle assembly labor and/or parts and materials from a North American plant or facility with a production wage rate or average hourly base wage rate of at least US$16 per hour. This rule explains how producers must calculate the average hourly base wage rate, including what kind of work must be included in the calculation and how to treat certain workers for purposes of the calculation.