By Bruce Leeds, Senior Counsel, Braumiller Law Group
As is well known the US has imposed duties of 25% on imports from Canada and Mexico. This means that those imports will take the regular duty plus 25%. For example, a switchgear assembly classified under 8537.10.91 made in Canada or Mexico will take a duty of 2.7% plus the special tariff of 25% for a total rate of 27.7% of the value.
But wait – what about imports from Canada and Mexico that are eligible for duty free treatment under the US-Mexico-Canada (USMCA) free trade agreement? There is the good news. Eligible imports under the USMCA take no duty. Thus, in the example above the switchgear assembly would be totally duty free if it qualified for USMCA.
So – why not claim USMCA benefits for imports from Canada and Mexico instead of paying the 25%?
When it comes to tariff classification and eligibility for duty free treatment, the USMCA has some detailed qualifications. General Note 11 to the Harmonized Tariff Schedule contains the requirements for eligibility under the USMCA. General Note 11 is 138 pages long. The note details – sometimes on an individual HTS subheading basis – the rules for determining whether an item qualifies for duty free treatment under the USMCA. An item may need to satisfy a Tariff-Shift rule, a Regional Value Content rule or a combination of Tariff Shift and Regional Value Content rules.
Determining whether an imported article meets the applicable USMCA rule of origin may require a detailed bill of materials with the origin of each individual part or material. It may also include a value breakdown of the cost of materials, labor and overhead that went into the imported item, Finally, the USMCA requires a USMCA Certification signed by the producer, exporter or importer. Without a properly signed individual or blanket USMCA Certification, the imported article will not qualify for USMCA benefits and the normal duty and special 25% duty will apply. Even an item that is duty-free under its normal HTS classification will still take the 25% duty.
As an example, let’s take Acme Corporation, which regularly imports from Canada. Acme has not claimed USMCA benefits for its Canadian imports because the imported items were either duty free under their regular tariff classification or carried a very low duty rate, Now Acme is faced with paying an additional 25% duty on everything. Acme’s management learned of USMCA and figured “We will just do that!” Acme then instructed its customs broker to declare all Canadian imports duty free under USMCA. Acme’s broker asked “do you have any USMCA Certifications for these imports?” Acme responded “No problem – this stuff is all made in Canada. We have even been to the factory and seen some of the items manufactured.”
US Customs Center for Excellence and Expertise (CEE) noticed that Acme Corporation was suddenly claiming USMCA benefits for its imports from Canada. The CEE sent Acme a CBP Form 28 Request for Information asking for copies of the USMCA Certifications for the imported items. The CEE also asked for bills of material and manufacturers affidavits for the imported items. The CEE further requested the Canadian Border Services Agency (CBSA) to visit the producer in Canada to verify the production. The CBSA did so and responded to the CEE that many of the items shipped to Acme were actually made in China and either partially assembled or simply packaged by the Canadian company.
So – what did this mean to Acme Corporation? The USMCA treaty allows the parties (US, Mexico and Canada) to impose penalties. Acme would be faced with paying the 25% special duty on all imports after the effective date of that duty. Acme could also be eligible for a penalty for falsely claiming USMCA benefits. Further, Acme may have to retroactively pay China 301 duties on items imported from Canada that were actually made in China.
This little fable is meant to show that US companies importing from Canada and Mexico need to be very cautious in claiming USMCA benefits. There are some very complex rules to follow and certifications to be obtained and the consequences can be severe for not doing these things. Importing duty free under USMCA may look attractive but could turn ugly very quickly.
