De Minimis, Continued Section 232 Tariffs Among USMCA Concerns Raised by USTR Advisory Groups

The de minimis footnote within the U.S.-Mexico-Canada Agreement is cause for "serious concerns" for the Customs Matters and Trade Facilitation Industry Trade Advisory Committee (ITAC 12), the committee said in an addendum to its report on the trade deal. The addendum, which is dated Oct. 24 but was released by the Office of the U.S. Trade Representative this week, is among multiple reports updated after Canada agreed to join the deal between the U.S. and Mexico. While the main advisory committee offered some light criticism in its support of the deal (see 1811060023), individual ITACs included some more pointed concerns.

The USMCA footnote 3 to Article 7.8(f) allows that "a Party may impose a reciprocal amount that is lower for shipments from another Party if the amount provided for under that other Party’s domestic law is lower than that of the Party." That seems to leave open the potential that the U.S., which has an $800 de minimis level, may lower its de minimis for the other USMCA members. Mexico and Canada agreed to raise their de minimis levels, though still staying well below $800, something that seemed to rankle the USTR and led to the footnote (see 1810190043). There's already an ongoing industry effort to beat back the footnote (see 1811060010).

The footnote should be "deleted as part of the legal review process" because it "does not meaningfully clarify any right or obligation of any party," said John McGovern, chairman of ITAC 12 and global trade compliance manager of MKS Instruments, in the addendum. Any reduction to the de minimis level would "stifle" the growing e-commerce industry and such changes would require support from the U.S. Congress, ITAC 12 said. The advisory committee "does not support the reduction of the USD $800 de minimis level as leverage for future increases in either Mexican or Canadian de minimis values," it said. "Mexico and Canada actually would probably welcome a reduction of the U.S. level, as it would remove any pressure to raise their own low levels. So, the rationale for footnote 3 is highly questionable."

The Automotive Equipment and Capital Goods ITAC (ITAC 2) expressed disappointment that the Section 232 tariffs on steel and aluminum remain but noted encouragement for the momentum produced by the USMCA talks, it said in its addendum. Considering the "adverse impacts" of the tariffs, "plus the actions being taken to prevent circumvention by other parties, we strongly recommend that the administration lift the Section 232 tariffs imposed on imports from Canada and Mexico as soon as possible," said the ITAC, which is led by Charles Uthus, vice president of international policy at the American Automotive Policy Council.

ITAC 2 is also opposed to the use of quotas for USMCA members, it said. "We urge that Canada and Mexico are fully exempt from the tariffs without quotas," it said. "Quotas present challenges and uncertainty for consuming industries -- particularly for planning automotive production cycles. While our first strong preference is full exemption of Canada and Mexico, it is our understanding that there are discussions about setting up steel and aluminum quotas with Canada and Mexico. If that is the direction taken, then we strongly recommend establishment of quotas that are set at a level well above the U.S. import levels last year. In this way, the concern of a spike in imports from Canada and Mexico can be addressed, while minimizing the damage any limitation has on steel and aluminum consuming industries."

Concerns for Section 232 tariffs on autos and auto parts remain, but ITAC 2 said it's pleased by the side letters with Mexico and Canada that provide some mitigation if such tariffs are imposed. "Although the side letters do not fully exempt the imposition of potential Section 232 tariffs, they do limit the scope of the tariffs through a cap on imports of passenger vehicles and automotive parts that would be exempt from a potential imposition of tariffs stemming from the Section 232 Auto investigation, and fully exempt light-trucks," it said. Still, "our general support for the side letters should not be interpreted as support for the imposition of Section 232 tariffs on autos and auto parts."

The administration also missed an opportunity by not modifying the drawback provisions of NAFTA, ITAC 2 said. There was some hope that the NAFTA talks would result in an end to the drawback limits (see 1705100034). "Mexico and Canada have found ways to minimize these restrictions using regimes that target duty-rate reductions for inputs used in specific export industries, thus putting U.S. exporters at a disadvantage," it said. "The ITAC-2 industry representatives recommend that the restrictive duty drawback provisions in the Agreement be modified consistent with most other U.S. trade agreements."

The Small and Minority Business ITAC (ITAC 9) also complained of the lack of revised drawback provisions in its addendum. The de minimis value requirement for a certificate of origin should also be updated, it said. "While formal entry requirements are waived for express shipments of $2,500 or less, it is our understanding that a certificate of origin is still required for any shipments -- including express shipments -- valued over $1,000, and not $2,500 as per our NAFTA 2.0 recommendations," said ITAC 9's acting chair, Kimberly Benson, president of Zenaida Global.