While USMCA would adopt more restrictive automotive rules of origin than NAFTA, it proposes to relax regional value content (RVC) and tariff-shift requirements for items including slot machines and outdoor equipment, Andrew Doornaert, a managing director in KPMG’s Trade and Customs Practice, said during a USMCA webinar conducted by his firm on Tuesday.
Doornaert named gaming machines classified under Harmonized Tariff Schedule (HTS) Subheading 9504.30.00 (other games, operated by coins, banknotes, bank cards, tokens or by any other means of payment, other than automatic bowling alley equipment, parts and accessories thereof; video) as one example of a product for which USMCA proposes to loosen the rule of origin.
In order to qualify for NAFTA tariff benefits, the current pact allows tariff shifts into subheadings 9503.00 through 9505.90 from any other chapter.
USMCA proposes to allow tariff shifts into the same range of subheadings, but from any other subheading, including another subheading within that group, as opposed to subheadings only from other chapters, according to a briefing slide prepared by Doornaert.
Furthermore, USMCA proposes to relax the RVC for goods under this subheading.
NAFTA requires 60 percent of products of the subheading to originate in North America if the transaction value method is used and 50 percent if the net cost method is used. But USMCA would lower those thresholds to 45 percent and 35 percent, respectively.
Another product, outdoor equipment classified in HTS Subheading 8429.59.10 (self-propelled backhoes, shovels, clamshells and draglines not with a 360-degree revolving superstructure), would drop its RVC option under USMCA but would gain more tariff-shift flexibility, according to Doornaert.
For this subheading’s tariff-shift, NAFTA allows shifts into headings 84.28-84.30 from any heading outside that group, except from heading 84.31. USMCA would allow changes to subheadings 8428.10-8430.69 from any other heading, including another subheading within that group.
“Companies should review the new specific rules of origin on a product-by-product basis because the rules could allow greater flexibility or be more restrictive in incorporating non-originating materials,” Doornaert said in an email Wednesday.
Customs and international trade attorney Lewis Leibowitz, who owns a private law practice in Washington, D.C., said it doesn’t appear that NAFTA’s rules of origin, by and large, are undergoing extensive changes through USMCA.
“The way trade agreements generally work is the squeaky wheel gets the grease, so if somebody had a real exciting issue and they pushed it hard, it might’ve gotten addressed,” he said. “Otherwise, they don’t change. So I think that the number of origin determinations that changed substantially is probably pretty small.”
But Leibowitz noted that rules of origin are undergoing deep changes in the automotive sector.
Though USMCA would adopt these and other changes within NAFTA’s current rules of origin, the basic rules of origin of the 1994 agreement would remain intact, Doornaert said during the webcast.
Like NAFTA, USMCA would still provide tariff preferences for goods wholly obtained or produced in North America; goods that qualify for product-specific rules of origin under tariff shifts, RVC requirements or specific processing requirements; and goods produced exclusively from originating materials, Doornaert said.
“I see it more as a way to facilitate modern trade,” Lori Fox, American Global Logistics vice president of customs brokerage services, said of USMCA during an interview Tuesday. “It’s not really changing NAFTA; it’s really adding to NAFTA and raising the bar.”
In addition to some new rules of origin and other provisions, USMCA contains several provisions to modernize the nuts-and-bolts customs procedures between the three NAFTA parties.
While USMCA relaxes rules of origin in certain areas, it tightens them in others.
Cassidy Levy Kent customs and international trade attorney David Sanders pointed out USMCA’s creation of an entirely new rule of origin for the specific HTS subheading of 8507.60 (lithium-ion batteries) if such batteries are used as the primary source of electrical power for propulsion of an electric passenger vehicle or light truck.
The new rule of origin permits a tariff-shift from any other subheading, except for battery cells under HTS Subheading 8507.90. The rule also requires no change in tariff classification if 85 percent RVC can be calculated using the transaction value method or 75 percent if the net cost method is employed.
USMCA also proposes to generally raise the RVC for finished automobiles from 62.5 percent to 75 percent.
USMCA’s Rules of Origin Chapter is 234 pages. At this early stage, it’s difficult to comprehensively judge whether the agreement, on the whole, is trade-liberalizing or trade-restrictive, Leibowitz said.
But based on his review so far, Leibowitz said, “USMCA is not a radical departure from the old NAFTA, despite what some may say about it.”
The Trump administration has trumpeted toughness on trade as a core goal, slapping steel and aluminum tariffs on countries around the world, including measures that remain in effect against the United States’ NAFTA partners.
Threatening several times to exit the pact, President Donald Trump has repeatedly said NAFTA is unfair and that any update to the deal would be much fairer to U.S. workers.
“Some of the rules and specific requirements — changes to those have been proposed and negotiated, and that’s part of the result of the administration’s effort to update NAFTA,” Sanders said. But “it’s not a whole new reinvented agreement.”