USMCA Changes Will Benefit Companies in Many Sectors; FTZ Treatment Likely to Differ from NAFTA

While most of the focus on the U.S.-Mexico-Canada Agreement has been on the changes to the auto rules of origin and enforcement measures aimed at Mexico, Crowell & Moring lawyers explained that importers and exporters of textiles and chemicals also can take advantage of rules that changed from NAFTA for inclusion in the updated agreement.

Maria Vanikiotis, an associate in Crowell & Moring's New York office, noted during a June 10 webinar, that under NAFTA, a good produced in a foreign-trade zone with non-originating goods was not considered NAFTA-compliant, and how that will work under USMCA is “still under review” by CBP.

But National Association of Foreign-Trade Zones President Erik Autor said that while the USMCA implementing bill is silent on how goods exiting a FTZ into U.S. commerce should be treated, the fact that the prohibition under NAFTA is repealed when the USMCA takes over July 1 means the restriction is gone. If a good manufactured in an FTZ meets the rules of origin, it should count, just as if it was coming from Canada.

Autor said there is language in the agreement itself that makes it clear that FTZs are part of the geographic territory of the U.S., and goods that are manufactured in the territory qualify for the rule of origin. “This is something we had advocated for, for almost three years now,” he said in a telephone interview June 11. “We have no reason to believe this won’t be implemented.”

The only ambiguity, he said, is that the NAFTZ wrote to CBP noting the change, “and stating that we are looking forward to CBP on implementing this,” and hasn't yet received a response. But he believes that if the administration wants to preserve the restriction, it would have to do so through a technical corrections bill to the implementing legislation. The technical corrections bill that is pending addresses merchandise processing fees, but not FTZs.

“I guess we’re waiting until the fat lady sings” on a technical correction, to be 100% sure FTZ treatment has changed, he said.

The speakers noted that in NAFTA, there were 30 pages laying out the rules of origin for chemical chapters 28 to 30. Now there are three.

Petroleum producers will also benefit, as the additives that make it possible to transport tar sands will no longer be barred, and as long as the additives are no more than 40% of the content, the petroleum will be considered originating.

Textiles and apparel didn't have as much liberalization as the industry had hoped -- though visible linings no longer have to be North American -- and attorney Frances Hadfield said some additional knitted fabrics in headings 6003-6006 will now have to come from North America.