On June 3, 2020, the Office of the US Trade Representative (USTR) published an interim version of the Uniform Regulations concerning the interpretation, application, and administration of key provisions of the US-Mexico-Canada Agreement (USMCA), including the Agreement's rules of origin for automotive goods.1 Among other issues, the Uniform Regulations address the scope and application of the USMCA's requirement that a passenger vehicle, light truck, or heavy truck is "originating" (and thus eligible for duty-free treatment) only if, during the previous calendar year or a comparable timeframe, at least 70% of the vehicle producer's North American purchases of steel and aluminum qualified as "originating" under the USMCA.2 This requirement, set forth in Article 6 of the USMCA Automotive Appendix, will take effect immediately upon the Agreement's entry into force on July 1, 2020 (though an additional requirement for steel products to be "melted and poured" in the USMCA region will not take effect until July 1, 2027). The Uniform Regulations provide important details regarding the scope of the steel and aluminum purchase requirement and the methods that vehicle producers may use to demonstrate compliance, which were largely unaddressed in the USMCA text. The relevant provisions of the Uniform Regulations are analyzed below.
The Uniform Regulations clarify the specific steel and aluminum products, and the types of "purchases" by vehicle producers, that are subject to the purchase requirements set forth in Article 6:
The Uniform Regulations set forth the permissible methods for calculating whether a vehicle producer's purchases of steel and aluminum satisfy the requirements of USMCA Article 6. Specifically, the Regulations address (1) the methods for calculating the value of steel and aluminum purchases; (2) the time periods over which such purchases may be aggregated; and (3) the categories of vehicles for which purchases may be aggregated.
In addition, the Uniform Regulations clarify that a producer may choose different time periods for purposes of its steel and aluminum calculations.12 For example, a producer may choose to calculate its steel purchases based on the previous calendar year while calculating its aluminum purchases based on its previous fiscal year, in order to comply with the requirements of Article 6.
(a) All motor vehicles produced in one or more plants in the territory of one or more USMCA countries;
(b) All motor vehicles exported to the territory of one or more USMCA countries;
(c) All motor vehicles in a category set out in subsection 16(1) of the Uniform Regulations that are produced in one or more plants in the territory of one or more USMCA countries; or
(d) All motor vehicles in a category set out in subsection 16(1) exported to the territory of one or more USMCA countries.
Subsection 16(1) of the Uniform Regulations, which pertains to the calculation and averaging of regional value content (RVC), describes several categories of vehicles, including vehicles within "the same model line" or "the same class" produced in the USMCA territory.14 A "model line" is defined as a group of vehicles "having the same platform or model name" whereas a "class" is defined more broadly (for example, "passenger vehicles of subheading 8703.21 through 8703.90" constitute a class, as do "light trucks of subheading 8704.21 or 8704.31[.]")15
Thus, while the Uniform Regulations permit a producer to perform a single calculation to determine the value of the steel and aluminum it has purchased for use in the production of all vehicles it manufactures in the USMCA region, they also provide flexibility by allowing a producer to perform separate calculations for each model line or class of vehicles it produces.
The Uniform Regulations do not elaborate significantly on the USMCA's requirement that, beginning seven years after the Agreement's entry into force, steel will only be considered "originating" under Article 6 where "all steel manufacturing processes…occur in one or more of the Parties, except for metallurgical processes involving the refinement of steel additives."16 The provision of the Uniform Regulations addressing this issue largely repeats the corresponding USMCA provision, though it provides some additional clarity by listing the HS codes associated with certain raw materials that are exempt from the melted and poured requirement, as follows: (1) iron ore or reduced, processed, or pelletized iron ore of heading 26.01; (2) pig iron of heading 72.01; (4) raw alloys of heading 72.02; or (5) steel scrap of heading 72.04.17 The Regulations confirm that the melted and poured requirement will take effect "beginning on July 1, 2027."
The introduction of a steel and aluminum purchase requirement is a change from the NAFTA that will have important implications for the steel, aluminum, and automotive industries both in and outside of North America. The Uniform Regulations provide significant clarifications on how this requirement will operate in practice, but given their complexity, gathering the necessary information to demonstrate compliance will likely be a time-consuming process. For this reason, the Uniform Regulations provide a six-month grace period for vehicle producers to demonstrate compliance with Article 6 and other aspects of the USMCA's automotive rules of origin. Specifically, they provide that "for the period from July 1, 2020 to December 31, 2020, additional time will be provided to producers, exporters, and importers of [automotive goods] to respond to requests seeking information, including documents in support of a certification of origin[.]" 18 This will include "permitting flexibility with respect to the timing necessary to secure such documentation during this period." Thus, while the steel and aluminum requirement will take effect immediately upon the USMCA's entry into force on July 1, vehicle producers will have additional time to review the Uniform Regulations, determine the calculation method that best suits their business needs, and gather the necessary documentation to demonstrate compliance.
The Uniform Regulations can be viewed here.
1 Available at https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/uniform-regulations.
2 Appendix to Annex 4B, Article 6.
3 Section 17(2).
4 Section 17(4).
5 Section 17(6)(b).
6 Section 17(6)(a).
7 Section 17(6)(b).
8 Appendix to Annex 4B, Article 6.2.
9 Section 17(8).
10 Section 17(11).
11 Section 17(11).
12 Section 17(10).
13 Section 17(9).
14 The full list of vehicle categories set out in Section 16(1) is as follows:
(a) the same model line of motor vehicles in the same class of vehicles produced in the same plant in the territory of a USMCA country;
(b) the same class of motor vehicles produced in the same plant in the territory of a USMCA country;
(c) the same model line or same class of motor vehicles produced in the territory of a USMCA country;
(d) all vehicles produced in one or more plants in the territory of a Party that are exported to the territory of one or more of the other USMCA countries: or
(e) any other category as the USMCA countries may decide.
15 Section 12(1).
16 Appendix to Annex 4B, Footnote 74.
17 Section 17(5)(b).
18 Uniform Regulations Regarding the Interpretation, Application, and Administration of Chapter 5 (Origin Procedures) at p.5, available at https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/UniformRegulations.pdf.