USMCA Filings Expected to Surge, but Some Products Not Covered and Audits May Climb Later

However, not all goods that have entered without the "S" marker are able to qualify, as some goods have no rule of origin to demonstrate.

This won't be a problem for oil and gas pulled out of the ground, or even processed into gasoline, diesel or jet fuel in either Canada or Mexico. Anything that is wholly originating in one of the countries can easily qualify for duty-free entry.

Sandler Travis Managing Partner Lenny Feldman said, "So for those companies where the product is wholly grown, harvested, mined, produced in that way, in Mexico or Canada, it's really just a matter of your producer and saying, 'Can I have a blanket certificate that states that?' And you can have your certificate done within the next hour, for example, and then you would do a blanket certificate that covers the year."

Barnes Richardson Partner David Forgue said he understands why Canadian oil coming through pipelines was not generally putting in the paperwork for USMCA up until now. Only 24% of Canadian oil claimed USMCA status last year. "The whole accounting for things in pipelines looks relatively painful," Forgue said, and given that the tariff is just 5 or 10 cents a barrel, or for tar sands, nothing, there was not much incentive to bother. (Oil is selling for roughly $60 a barrel).

But some manufactured goods that were duty-free until Trump's International Emergency Economic Powers Act actions are not covered by General Note 11, which lays out the ways to qualify for USMCA entry.

Forgue explained. Many manufactured goods from Mexico or Canada are able to qualify through a tariff shift -- you imported components and did enough work in assembly that you moved from one four-digit heading to another. That's "a super broad rule," he said, but those headings still need to be named in the text.

Still, even if the item faces no most favored nation duty -- like computers -- and there is nothing in the "special" rate of duty column next to that subheading, that doesn't mean the HTS is silent on how to qualify. The code says that a computer can qualify through a tariff shift, unless the previous tariffs were subheadings 8471.41 through 8471.50. (Only 18% of Chapter 84 entries from Mexico claimed the preference, which is the second-highest chapter by value of Mexican exports in 2024).

Given that there have been many CBP rulings that goods that meet Mexican marking rules also owe Section 301 duties for their Chinese components, it may be that some of the Mexican electronics cannot qualify through tariff shift.

"That subset where you could have origin of Mexico for marking purposes but China for 301 purposes those, I don’t suspect, were ever going to qualify for USMCA," Forgue said. "That transmission of that assembly of Chinese goods to Mexico, and then to the U.S., to try to get non-Chinese origin is a big part of why the U.S. is picking this fight with Mexico."

Forgue and Feldman agreed that if all you have to do to qualify is show a tariff shift, obtaining the documentation that you could provide to CBP if you are later questioned should be relatively simple.

"That’s the sort of thing they more or less should have on hand," Forgue said.

However, some categories have far more complex rules, such as autos, auto parts, heavy trucks and their parts. For those, and other categories, there are regional value content requirements. Most vehicles and their parts from Mexico and Canada claim the preference -- 84% of Mexican exports in the chapter, and 90% from Canada.

Feldman said, "I dare say that most products coming over from Mexico, at some point, an analysis, at least a preliminary analysis, should have already been conducted." For goods that were unconditionally duty-free, however, and there had never been an evaluation, "it might take a week or two to do the homework to see if it does qualify under the rule, because it never was really explored in the past."

Forgue said he has had consultations with clients in the past about what they would have to do to claim the benefit, and they chose to pay the merchandise processing fee and not go through USMCA. "I suspect there are people who are now going to effectuate that advice," he said.

He said that for heading 9801, which covers repaired goods and goods returned to the U.S., many companies didn't bother to claim USMCA. For Canada, that was a top five category in imports by value in 2024, and only 2% claimed the preference. If the goods were originally manufactured in the NAFTA era, and the rules of origin changed under USMCA, they still won't be able to.

Forgue said that sometimes suppliers don't share the dollar figures you need, but said that in the automotive sector, however, suppliers tend to cooperate fully, because OEMs vastly prefer to contract with companies that can help them meet the overall vehicle RVC.

According to a report on North American trade in the automotive sector in 2023 from the Office of the U.S. Trade Representative, 20% of auto parts exported to the U.S. from Canada or Mexico didn't claim USMCA benefits. Of those that did, a later CBP audit found 27% did'not actually qualify.

That would seem to suggest that with a much heavier incentive to claim the benefit, CBP could have a much larger universe of audits to do that could come up as erroneous claims.

However, Forgue said that might not necessarily be so.

The fact that OEMs pressure their suppliers to claim USMCA "might increase the sort of fringe claims being made." Moreover, he said, after audits found that a quarter of parts didn't qualify, more of those companies may have made changes to get into compliance, either through increasing the value added in the country, or improving documentation, since CBP could have denied benefits to firms that did really have enough domestic activity to qualify, but their documents couldn't show that.

"The thing you always tell clients, it’s not what’s true, it’s what you can prove," Forgue said. "I don’t know that I expect to see a big jump in non-compliance," he said.

How long the USMCA carve-out lasts also will affect CBP's future audit burden. If, as Trump says now, it applies for slightly less than a month, there won't be a major change. But, if, as the trade wars continue, FTA compliance continues to provide exemptions to tariffs, that's a different matter. John Leonard, former deputy executive assistant commissioner at CBP's Trade Office, implemented the switch from NAFTA to USMCA in 2020.

"Everything with trade, with CBP, in a sense, is an honor system, because CBP can't look at everything. There's just far too many shipments, right? So we have to use risk management. So what importers need to be careful of is, is, don't have an attitude like, oh, it's low, low probability I'll be looked at. You never know," he said. And if CBP later asks questions, company officials should be thinking: "How do I certify that? And am I prepared for a request for information, or even an audit?"

CBP decides where to look closer based on risk -- but entering products that previously didn't claim USMCA would be one risk factor, he said.

While Leonard said that most traders are compliant, and large companies have entire departments to ensure compliance, "Anytime that a new enforcement process or regime comes into place, the first thing that CBP always thinks is, okay, who's going to try to game this thing now? What schemes could importers do to try to evade it?"

He said, with the amount of money at stake so huge, "the potential absolutely exists" for more fraud. "I mean, 25% versus zero tariff is massive. It completely wipes out your profit."

A customs expert who asked to speak on background, because her employer does not generally authorize interviews, said the strain on CBP's auditing function will depend on the new volume that claims the preference and for how long, and how complex the rule of origin is for those goods.

"I would say that there is likely to be an across-the-board enforcement action." She noted that the leadership of CBP came up on the law enforcement side, not the trade side, and she thinks they'll focus strongly on executing White House directives. She said you can shift resources into auditing, but said she didn't know whether it would be difficult to hire.

Forgue was more pessimistic about CBP's ability to attract the professionals who can examine these technical matters.

"It seems like if the way they intend to do this is going on [over more time], and doing heavy-duty audits, it seems like they’re going to need a lot more people," he said. But, he said, he thinks, given the DOGE environment in the federal government, "It seems like they’re more likely to lose them."

He said he doesn't know whether staff at DHS will be fully protected from reductions in force. "Do they mean people on the border with guns on their hips, or CPAs in Baltimore?"

But even if they don't let people go, the morale problems may lead to more voluntary exits, he noted.

Still, he said, increased scrutiny of USMCA preferences may not require more bodies, given that many flaws in entries can be uncovered by a well-written CF-28. He said that a company, if it cannot explain why it made an origin claim, and uncovers flaws in its sourcing claims, can make a disclosure going back five years, and pay the tariffs for that period with interest.