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USMCA ORIGIN: ANALYTICAL RULES

PLANNING FOR TRUMP TARIFFS

While President Trump has instituted a pause on his tariffs implemented through executive orders on March 6 and April 2, 2025, many Canadian businesses may be unaware that this reprieve  only extends to Canadian exports that qualify for preferential treatment under the United States Mexico Canada Agreement (“USMCA”). 

Accordingly, Canadian businesses need to place a premium on understanding and properly applying USMCA origin status.

This is the first of a two-part series on how one can claim USMCA preferential tariff treatment and focuses on the substantive origin analysis, following which the “formal” certification requirements must be met.

The Basics of USMCA Origin Analysis

Canadian businesses need to confirm that their goods being exported to the US are originating goods under Article 4.2 of the USMCA.  Unfortunately, determining the "origin of goods" really requires a masterclass in tariff classification, and a thorough understanding of how the USMCA product-specific rules of origin work – usually requiring professional legal advice to make final and proper determinations.

At a high-level, for any good produced from materials that do not originate in a USMCA country in the first place (“non-originating materials”), each non-originating material must satisfy the applicable tariff shift rule of origin for the Subject Good to qualify as originating under Article 4.2(b) of the USMCA.

Where a tariff shift rule cannot be satisfied, and even where it has been satisfied, other special regional content value (“RVC”) rules can apply, focussing on whether the USMCA content of the goods meet certain thresholds (e.g., 60% under the Transaction Value Method, or 50% under the Net Cost Method).  Other rules, like the De Minimis Rules, can also come into play.

Tariff Classification At Its Root

As alluded to, the process of performing a USMCA origin analysis is heavily reliant on tariff classification.  As a first step, a business must determine the tariff classification of the good they are seeking to attribute USMCA origin status to (e.g., the "Subject Good"), as it will dictate the rule of origin applicable to the particular good.  A usual second step is to consider each non-originating material used in the production of the Subject Good, and classify that at the heading or subheading level, before determining if the applicable tariff shifts have occurred.  Other methodologies may also be dictated based on the Subject Good itself, and the circumstances of its production.

Plainly, origin analysis requires in-depth knowledge of the General Rules for the Interpretation of the Harmonized System, along with the various section, chapter, and subheading notes under the Customs Tariff, and trade professionals are usually required to assist.

Takeaways

Determining whether one’s goods qualify for USMCA preferential treatment is a complex task.  Businesses must conduct a substantive origin analysis of their goods, following which the “formal” certifications requirements under the USMCA must be met.  Experienced Trade Lawyers can help businesses with this process. 

For help with a USMCA origin analysis, click here.

Download a PDF copy of this Blog here.