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CBP Still Considering How to Enforce New USMCA Rules of Origin, Smith Says

LATHRUP VILLAGE, Mich. -- CBP is still wrapping its head around how it would enforce labor wage content requirements for automobiles under the renegotiated NAFTA, said Brenda Smith, executive assistant commissioner of CBP’s Office of Trade, at the Automotive Industry Action Group Customs Town Hall on Nov. 7.

Under the U.S.-Mexico-Canada Agreement, qualifying vehicles must have 40-45 percent of their value content made by workers that make at least $16 per hour. Smith says she is still trying to understand the impact of this requirement on CBP, as well as on the automotive industry. She expects interagency conversations to continue with the Department of Labor, who “are the ones with the subject matter expertise.” CBP, on the other hand, knows how to audit and connect the requirement to supply chains and valuation, and the agency is focused on hiring additional auditors to enforce USMCA’s new requirements when and if it’s implemented.

Another one of those new requirements that could prove tricky for the trade community is the requirement that qualifying vehicles have 70 percent of their steel and aluminum originate in NAFTA countries, Smith said. CBP will be conducting a “pretty significant outreach and education effort,” both internally with its import specialists and with the private sector, to make sure the new requirements are understood, Smith said. The agency is also working with its counterparts in Canada and Mexico to make sure all are on the same page, and that one answer is being provided across all three customs administrations.

CBP is already preparing to accept the new Special Program Indicator (SPI) for USMCA, and make the required changes to ACE when the agreement eventually becomes effective, Smith said. Overall, the transition from NAFTA to USCMA will be a “challenging environment,” she said.

Meanwhile, as CBP prepares to begin implementation of USMCA, it is finally putting the finishing touches on the drawback overhaul mandated by the Trade Facilitation and Trade Enforcement Act of 2015. A couple pieces of the implementation process have “not gone as smoothly as we would have liked,” including a new process for accelerated payment. CBP hopes that accelerated payment issues resolved by the beginning of the new year, and should have most other outstanding issues resolved close to the one-year anniversary of mandatory TFTEA drawback, in February 2020.

Despite the hiccups, TFTEA drawback has resulted in a “significant expansion” in claims filed, Smith said. In fiscal year 2019, 27,000 claims were filed, an increase of 65 percent over the previous fiscal year. The bulk of those claims – over 21,000 – were filed under the TFTEA drawback rules, she said. Overall, the value associated with drawback claims rose 12 percent from FY 2018 to FY 2019, Smith said.

Smith also discussed CBP’s broader 21st century customs framework. One area that CBP is looking to modernize is its enforcement processes, which need “a considerable about of streamlining,” she said. The penalty process is a “back and forth” that “can take years,” and there’s “not a lot of deterrent ability coming out of those enforcement actions, unless the penalty is really, really big,” Smith said. “What we’re trying to do is to send a message to those that haven’t invested in compliance, that you need to be compliant, you need to help us secure and keep trade safe,” she said.