By: Jim Holbein, Of Counsel, Braumiller Law Group

USMCA entry into force

The United States-Mexico-Canada Agreement (USMCA) entered into force on July 1, 2020.  The new agreement is similar to NAFTA in many respects, and the commitments that pertain specifically to machinery, equipment and computers in Chapter 84 have not changed very much, with the exception of the rules of origin calculations for motor vehicles and parts, which impacts several categories of goods in Chapter 84.  In addition, there are more chapters involving Customs matters than under NAFTA, which also impacts how Chapter 84 goods are treated.

Chapter 84 Product Coverage:

Chapter 84 covers machinery, apparatus, and equipment.  It has broader coverage than most chapters of the HTS and is the subject of frequent changes at the international level to due rapid technology change.  No major changes have been made as to the coverage of machinery in the market access chapter, but the qualifying products under the rules of origin and certification of origin are now more complicated than under NAFTA.

HTS Subheading Basic Product Coverage
8401 Nuclear Reactors
8402 – 8406 Boilers, Generators, steam turbines,
8407 – 8409 Internal combustion engines (see Auto ROO and content rules)
8410 – 8412 Hydraulic turbines, turbojets and gas turbines and other engines
8413 Water Pumps
8414 – 8415 Compressors and air pumps, air conditioning machines
8416 – 8419 Furnaces, industrial furnaces and incinerators, refrigerators, freezers, heat pumps, machinery for treatment of materials by changing temperature
8420 Calendaring and rolling machines
8421 Centrifuges and other filtering and purifying machinery
8422 Dishwashing and bottling machines
8423 Weighing Machines
8424 Spraying machines
8425 Pulley tackle and hoists, winches, jacks
8426 Cranes, fork-lift and work trucks, aerial work platforms, elevators, escalators, conveyors
8429 – 8431 Bulldozers, graders, mechanical shovels and parts
8432 – 8438 Agricultural, horticultural or forestry machinery and parts
8439 – 8441 Machinery for making pulp and paper, bookbinding
8442 – 8443 Printing machinery, apparatus and equipment
8444 – 8449 Machinery to manufacture textiles, fabrics and apparel
8450 – 8453 Machines for washing, drying, sewing textiles and leather
8454 – 8455 Machinery for metal foundries
8456 – 8566 Machine tools of all types and parts
8467 – 8468 Hand tools and soldering tools
8470 – 8473 Calculating machines, automatic data processing machines (computers) and other office machines and parts
8474 Machinery for working with minerals
8475 Machines for assembling lamps, tubes and working glass
8476 Vending machines
8477 Machinery for working rubber or plastics
8478 Machinery for making up tobacco
8479 Basket category of other machines
8480 Molding boxes (industrial uses with metals, glass, rubber…)
8481 Taps, cocks, valves – Appliances for boilers and tanks
8482 Ball or roller bearings
8483 Transmission and other shafts (for vehicles and other uses)
8484 Gaskets
8485 omitted
8486 Machines and apparatus for manufacture of semiconductors
8487 Other machinery (propellers and blades)

USMCA Preference Criteria

A good is “originating” if it is:

      1. wholly obtained or produced entirely in the USMCA territory, of wholly obtained or produced goods as defined in Article 4.3
      2. produced entirely in the USMCA territory using non-originating materials provided the good satisfies all applicable requirements of Annex 4 B (Product Specific Rules of Origin)
      3. produced entirely in the territory of one or more of the Parties exclusively from originating materials
      4. Except for a good provided for in Chapter 61 or 63 of the HTS:

(i) produced entirely in the territory of one or more of the Parties;

(ii) one or more of the non-originating materials provided for as parts under the Harmonized System used in the production of the good cannot satisfy the requirements set out in Annex 4-B (Product-Specific Rules of Origin) because both the good and its materials are classified in the same subheading or same heading that is not further subdivided into subheadings or, the good was imported into the territory of a Party in an unassembled or a disassembled form but was classified as an assembled good pursuant to rule 2(a) of the General Rules of Interpretation of the Harmonized System; and

(iii) the regional value content of the good, determined in accordance with Article 4.5 (Regional Value Content), is not less than 60 percent if the transaction value method is used, or not less than 50 percent if the net cost method is used;

and the good satisfies all other applicable requirements of this Chapter.

The general rule for goods of Chapter 84 to originate in the USMCA territory requires a change in tariff subheading or a change from any other heading, provided there is a regional value content of not less than:

(a) 60 percent where the transaction value method is used; or

(b) 50 percent where the net cost method is used.

ADP MachinesNote that there are special rules of origin in Table 2.10.1 for automatic data processing (ADP) machines, in Subheading 8471, known as computers to the public, and those rules supersede the general rule.

Automotive rules of origin require higher levels of North American content than in NAFTA, to attract production and sourcing in North America. The governments hope to strengthen the North American production platform, reducing red tape and increasing the use of North American parts, steel, and aluminum.  The auto sector has been a model for free trade since the original Auto Pact between the U.S. and Canada, signed in 1965.  More robust rules of origin for the auto sector will help keep the benefits of the agreement in North America and diminish incentives to make investment and sourcing decisions based on the availability of low-cost labor. Specifically, the new agreement includes:

  • An increase in the regional value content threshold for cars from 62.5% to 75%;
  • Stronger regional value content requirements for core car parts, such as engines and transmissions;
  • 70% North American steel and aluminum requirements; and
  • A new labor value content provision requiring that 40% of value of a passenger car (45% for a light truck) be made of materials, parts and labor (including final assembly) produced or carried out by workers in a plant where the average hourly wage is at least US$16.

Conclusion

All three of the government Parties to the USMCA are dealing with the new certification or origin requirements that differ from NAFTA substantially.  There is no set form for the certificate, a major change in itself.  In addition, origin claims may depend on the value added in the assembly process and how it is calculated.  Audits are likely as the agreement is fully implemented, and the new rules on customs administration and trade facilitation are implemented through the Uniform Customs regulations, (see:   https://content.govdelivery.com/bulletins/gd/USDHSCBP-2936ab7?wgt_ref=USDHSCBP_WIDGET_2

Companies dealing in products provided for in Chapter 84 will need to pay close attention to the valuation rules and calculations in order to ensure compliance in the heightened scrutiny as the agreement supplants the NAFTA.