USMCA Rules of Origin and USMCA Compliance

Maximizing the benefits of USMCA requires a clear understanding of its rules of origin and strict compliance with its regulations. Companies that overlook key requirements risk delays, unexpected duty costs, and costly penalties—while those who follow the rules can better optimize costs and maintain supply chain efficiency.

What is USMCA? 

USMCA (the U.S. – Mexico – Canada Agreement) is a free trade agreement that replaced NAFTA on July 1st, 2020. USMCA, or NAFTA 2.0 as it’s sometimes known here in the U.S., is meant to promote trade between the U.S., Canada and Mexico, offering substantial duty savings on qualifying goods moving between these countries. 

As China Plus One and nearshoring, or friendshoring strategies become more common, many companies have turned to Mexico and the USMCA to diversify their product sourcing while saving on duty costs. Whether your products are made or assembled in the U.S., Mexico, or Canada, or you are considering a USMCA country for your production, careful scrutiny of the USMCA rules of origin and compliance with the agreement’s regulations is critical to ensuring your company realizes the expected benefits of a USMCA sourcing strategy.

Non-compliant use of the program can result in delays, unexpected duty costs, and expensive fines and penalties. So, how do you know what qualifies? And how can an importer avoid the common pitfalls that get them into trouble with U.S. Customs and Border Protection (CBP)? Let’s look at the key elements of a compliant USMCA program.

USMCA Rules of Origin

First, let’s consider the USMCA rules of origin that determine whether a product qualifies for preferential duties under the agreement. Here are the key origin rules to remember: 

1. 1. A product can qualify for USMCA if it is obtained or produced entirely from materials sourced from the U.S., or Mexico, or Canada. For example, a chair that is manufactured in Mexico from components that are all made in Mexico, too.
   2. A product can qualify for USMCA if it is made with non-USMCA materials but undergoes a significant transformation that meets the origin criteria in Annex 4-B of the USMCA agreement. For example, you might import wheat from China into a factory in Mexico that converts it into pasta. Because there is the required tariff shift from the wheat to the pasta, the pasta qualifies for USMCA. 
   3. A product can qualify for USMCA if it meets the Regional Value Content (RVC) rules by containing a minimum percentage of U.S., Mexico and Canada materials. For example, if you produce a pencil in Mexico and the eraser has a country of origin of Canada, the eraser can contribute to the originating status of the product because it’s made in a USMCA country. 
   4. If the product is an automobile or auto part, 75% of the content must come from the U.S., Mexico and Canada, 40-45% of the vehicle’s content must come from high-wage labor (at least $16/hour), and 70% of a vehicle’s steel and aluminum must be North American, for the product to qualify for USMCA. 
   5. If the product is a textile or apparel, yarn-forward rules must be met for the product to qualify. 
   6. Under de minimis rules, a product can still qualify for USMCA if up to 10% of its value comes from non-USMCA materials (except for certain industries).

USMCA Compliance

All three North America countries place a strong emphasis on compliance with USMCA, and enforcement is sometimes a joint operation between the Customs services of multiple countries. Taking compliance seriously, while ensuring your product complies with the rules of origin, will clear the path to a smooth supply chain operation and predictable landed costs. Here are the key elements of USMCA compliance:

1. 1. Forced Labor: All three countries are working to actively combat the use of forced labor in supply chains, be sure your company has policies and practices in place that ensure Forced Labor compliance in all three countries. 
   2. Certification Requirements: a specific certificate format is no longer required, but a Certification of Origin or origin statement (for example, a statement on the Commercial Invoice) must be provided by the exporter, producer, or importer at the time of entry. It must contain nine data elements: the type of company making the claim, the identity of the party certifying the claim, exporter company information, producer company information, importer company information, a description of the product and its 6 digit HS code, the origin criteria claimed (see above list), the blanket period for the origin claim (if a blanket certificate is used), and an authorized signature and date. The certification must include a statement that the product meets the requirements of the USMCA. Required wording can be found at cbp.gov.
   3. Blanket Certificates: To reduce the documentation burden for frequent shipments of the same product, blanket certificates of origin can be used when the 9 data elements for a product will be the same across multiple shipments. The blanket period for the origin claim must appear on the certificate, and the blanket certificates must be updated on a yearly basis.
   4. Recordkeeping: Companies must maintain all documentation related to USMCA claims for at least five years in the U.S., and six years in Mexico and Canada.
   5. Product Tracing: As more data becomes available to Customs organizations in all USMCA countries, it’s critical that importers are able to trace their product’s components to confirm they are accurately reporting their country of origin. Be especially wary of foreign factories operating in a USMCA country, using tracing software to confirm the origin of your product’s components.

USMCA Compliance: Key Points to Remember

Ensuring compliance with USMCA is essential for businesses looking to benefit from duty-free or reduced-tariff trade within North America. Here’s what you need to focus on: 

1. 1. Rules of Origin Compliance – Understand and apply the rules of origin to ensure your products qualify for USMCA.  
   2. Trace Your Component Materials – If you rely heavily on non-North American components, your products might not qualify. Trace the components using bills of material, supplier documentation and tracing tools to be sure your goods qualify for USMCA. 
   3. Recordkeeping – Make sure you can easily find your USMCA records, including the legwork you did to qualify your goods under USMCA, for at least five years. 
   4. Only Certify What You Know: Only complete and sign the certificate of origin or origin statement if you are certain of the facts in the document. Never create an origin document on behalf of the exporter or producer unless you have a documented understanding of the origin of the product and all of its components. 
   5. Trusted Advisors – Collaborate closely with your Customs broker, forwarder, trade consultant or other trusted advisor to ensure USMCA compliance.
   6. Internal Audits & Reviews – Be ready for an audit. Customs in all three countries can audit your USMCA claims and request documentation. Incorrect claims may lead to duty repayment (with interest), fines, and/or penalties. To avoid enforcement action and penalties, conduct internal audits and reviews on a regular basis and collaborate across your business to close any gaps found.
   7. What if the general duty rate for my product is 0%? Should I still apply to USMCA? USMCA exempts U.S. imports from the merchandise processing fee (MPF), so it might be worth applying USMCA if you’re confident your product qualifies. 

The Future of USMCA

Given recent events in the U.S., some importers are reconsidering Canada or Mexico as source locations. While the new 25% tariffs on both countries have been paused until March of 2025, some feel the risks of future trade actions are too high, especially given the Executive Order that directs U.S. government agencies to investigate how USMCA has impacted American workers and businesses to determine whether the U.S. should remain in the agreement, or make changes to it. That review should be completed by April of 2025. 

There are certainly no guarantees that USMCA and its trade preference benefits will remain in place, and no one knows for sure whether there will be future changes to the agreement or to the duty benefits that are in place today. Still, Mexico, in particular, remains a widely accepted solution as companies look to diversify their supply base.

How can I get started?

To consider whether the USMCA agreement can save your company on duty costs, take time to carefully consider whether your product compliantly qualifies under one of the origin rules we reviewed and carefully document your analysis. If your product does qualify, be sure to provide the CBP required data elements when making a claim and keep all records for 5 years.

Get compliance help from experts, like Dimerco Express, and consider whether other FTA’s and duty mitigation strategies might also save your company duty costs, too. Follow the steps in this blog to help assure your company mitigates compliance risk and takes advantage of every compliant duty savings opportunity.  

If you’re ready to explore USMCA opportunities or need expert advice on ensuring compliance, contact Dimerco today to start a discussion. Our global trade experts are here to help you simplify compliance, reduce costs, and optimize your supply chain.