What’s Changing with USMCA’s Rules of Origin

Trade Talk Blog • November 16, 2021

n July 6, 2021, US Customs and Border Protection (CBP), in collaboration with the US Department of the Treasury, released the notice for the USMCA Implementing Regulations Related to the Marking Rules, Tariff-rate Quotas, and Other USMCA Provisions interim final rule. This Proposed Rule suggests regulation changes that aim to standardize non-preferential origin determinations.

With the newly Proposed Rule by the US Customs and Border Protection (CBP), the Country of Origin of US imports from Canada and Mexico for non-preferential purposes will be affected. So, if you export goods from Canada to the US, read on to understand more about the anticipated changes.

The need for the Proposed Rule

Currently, Part 102 of the Customs Regulations provides the rules for determining the Country of Origin of imported goods under the United States – Mexico – Canada Free Trade Agreement. The Rules of Origin for goods imported from other countries and are not wholly manufactured, produced, or grown within a single country are provided in Part 134 of Customs Regulations. Because they are standardized, Part 102 Rules are simple and reliable when determining Country of Origin.

CBP uses one of two methods to determine the Country of Origin. The first involves whether the further work or material added to an article in a subsequent country has created a new and different article with a distinctive name, character, or use. The second method used is the tariff shift rules provided for in Part 102 of the Customs Regulations.

While these methods were devised to create the same origin determinations, they have sometimes resulted in two different non-preferential countries of origin for goods imported into the US. This means that if you import non-textile and apparel products to the US from Canada and Mexico, you are subject to two different non-preferential origin determinations. One is for marking, and the other is used to determine the Country of Origin for other non-preferential purposes.

Since its introduction in 1994, the rules of Part 102 of the Customs Regulations provided a standardized method for determining the Country of Origin of goods imported from Canada or Mexico for customs purposes. But now, there is a need to expand the scope of these rules to provide continuity for importers.

What does the Proposed Rule entail?

CBP has indicated that the substantial transformation rule is confusing and, in many cases, is applied on a case-by-case basis or relies primarily on past administrative rulings. They further say that it often involves subjective judgements, which has resulted in a lack of predictability and a degree of uncertainty for the Trade Community.

The Proposed Rule entails that the scope of Part 102 Rules be expanded, in order to eliminate the need to declare two different countries of origin for the same goods. The substantial transformation standard will be applied consistently to all goods imported from Canada or Mexico under the USMCA.

What will the Proposed Rule mean for your export business?

If the Proposed Rule is passed and implemented, Part 102 Rules will be used to determine both non-preferential Country of Origin and the Section 301 Tariff. As a Canadian exporter to the United States, this could affect past rulings on your previous exports. Stay tuned as we share updates about the Proposed Rule and other interim final rules for USMCA regulations, which will be published in the Federal Register.

For more information about the possible impact of the Proposed Rule on your exports to the US under USMCA, contact our Global Trade Services (GTS) team today.