Many companies are revisiting their approach to duty exemption compliance under the United States-Mexico-Canada Agreement after the Trump administration paused a 25% tariff on such goods earlier this month.
Previously, some businesses found that pursuing USMCA treatment was cost prohibitive. Now, those same companies may be able to actualize much larger savings, said William Jansen, director of customs brokerage and account management for ecommerce at Seko Logistics.
The Trump administration’s monthlong pause of 25% tariffs for goods covered by the trade deal provides reprieve to roughly half of imports from Mexico and nearly 40% of those from Canada until April 2, per a CNBC report citing a White House official.
Several produce categories, as well as rubber and plastics, are among the goods completely free of duties during the pause. Meanwhile, others like dairy products and certain fabrics are subject to a lower rate. Leather goods and wood products are among the imports not included.
As the clock ticks closer to April 2, more companies are reviewing their product mixes to determine if they can attain USMCA compliance and ease their tariff burden in the short term.
“If they have not, now is the time to sharpen pencils and complete the USMCA analysis to see whether USMCA origin and duty free status is available,” said Jonathan Todd, vice chair of the transportation and logistics practice group at law firm Benesch Friedlander Coplan & Aronoff. “If it is available, then that's certainly [the] path forward.”
Meeting compliance requirements
USMCA compliance requires internal analysis rather than an application process. Depending on the complexity of a company’s supply chain, the exercise can be as simple as attaining a country of origin certification from a supplier, according to Alexander Schaefer, a partner in the international trade group at Crowell & Moring.
However, many goods that are produced using multiple inputs can require a more complicated process necessitating the documentation of a change in a product’s tariff heading.
For example, if a company imports titanium to a factory in Mexico and then reworks the metal into components used to manufacture an auto part, a company would be able to shift the tariff heading to comply with the USMCA.
These so-called tariff shifts are necessitated by the USMCA’s regional value content requirements to qualify for duty-free treatment, said Kelsey Christensen, an international trade attorney at Clark Hill. These requirements call for a certain amount of a finished product to be made with inputs and labor from either the U.S., Canada or Mexico.
The regional value content requirements vary by product type. As an example, 75% of the value of a car part needs to be made from inputs that are sourced in the U.S., Canada or Mexico. Additionally, roughly half of the value of labor that goes into making a car part has to be made by workers earning at least $16 per hour, Christensen said.
Of course, the complexity of a product’s makeup and its intended end use can add difficulty, said Kevin Doucette, director of trade policy and security at C.H. Robinson.
CBP enforcement
Companies can perform per-shipment compliance analysis and documentation or establish a blanket certification covering a calendar year, said Angela Gamalski, a partner in law firm Honigman’s regulatory department.
U.S. Customs and Border Protection reviews compliance by audit rather than on a shipment-by-shipment basis, according to Schaefer, although companies can seek advanced approval from customs. Companies may need to provide CBP with a country of origin certification as well as additional documentation pertaining to tariff shifts and other aspects of their internal compliance analysis.
More companies are pursuing USMCA compliance, according to Mike Short, president of global forwarding at C.H. Robinson. The transportation company noticed an uptick in requests related to the process from customers even prior to the pause announced this month.
“Now, with the amendments in place, this trend is only growing,” Short said.
