Recent tariffs imposed by the U.S. and Canada offer exemptions for CUSMA-compliant goods. As the U.S., Canada and Mexico prepare to review their free-trade agreement, importers should ensure compliance with CUSMA rules and stay apprised of potential changes that could affect future trade dynamics.
Recent tariffs introduced by the U.S. and Canadian governments include exemptions for goods that comply with the Canada-United States-Mexico Agreement (CUSMA).
Compliant goods are those that meet the free-trade agreement’s rules of origin. Importers looking to take advantage of these exemptions will need to attest to the product’s originating status by filing a certificate of origin. Under the CUSMA, the certificate must contain certain information but there is no required form.
Estimates vary substantially on how many goods exchanged between the countries are considered CUSMA-compliant. This is likely, at least in part, because some importers and exporters sending goods between the three countries have not taken advantage of preferential treatment due to historically negligible or zero-rate domestic tariffs.
With the higher tariffs and new exemptions, more importers will be looking to take advantage of the preferential CUSMA treatment. Meanwhile, scrutiny around compliance is expected to increase, so additional due diligence is required to prevent importation issues or unexpected tariffs.
Here is a look at CUSMA’s rules of origin and how businesses can make the most of current tariff exemptions amid ongoing trade uncertainty.
According to the agreement’s rules of origin, all goods that are wholly obtained from Canada, the U.S. or Mexico are considered CUSMA-compliant—as are goods produced in the aforementioned countries from materials which are considered compliant.
Common examples of goods qualifying for CUSMA under this preference criterion include fruits and vegetables grown in Mexico and minerals mined in Canada.
For goods whose inputs involving materials not considered CUSMA-compliant, the product-specific rules of origin must be considered.
For example, if a company imports electronic parts from China and Thailand to fabricate manufacturing equipment in the U.S., whether the manufacturing equipment is CUSMA-compliant will need to be considered. These rules fall into three categories:
Regional value content (RVC) refers to the percentage of a product's either transactional value or net cost that originates within a certain geographic region. With exceptions for certain categories, a good is considered CUSMA-compliant when:
Transaction value refers to the presumptive method of valuing goods for customs purposes. It considers the price paid or payable for the goods when the goods are sold for export with certain adjustments.
Conversely, net cost is total cost of the good minus costs for sales promotion, marketing, after-sales service, shipping and packing, royalties and non-allowable interest costs.
For customs purposes, goods are classified into categories depending on the type of good and, in some cases, its intended usage.
Each category receives a code based on the Harmonized Commodity Description and Coding System, more commonly referred to as the Harmonized System (HS). Countries may establish their own codes for domestic purposes.
A good can be considered CUSMA-compliant where the HS code of the final product differs from the HS code of its non-originating components (as prescribed by the good’s specific rule of origin).
Certain goods are required to undergo a specified process in Canada, the U.S. or Mexico to be considered originating. For example, mineral fuels will be considered CUSMA-compliant if the chemical reaction required for their fabrication occurs in one of the signatory countries.
A good is considered CUSMA-compliant if the value of all materials used in its production which do not originate from one of the signatory countries—and do not undergo an applicable change in tariff classification—is not more than 10 per cent of either the transaction value of the good (less international shipping costs) or the total cost of the good. This is subject to some exemptions.
This rule prevents goods from being considered non-compliant for negligible non-originating inputs.
Automotive goods are subject to additional requirements to be considered CUSMA-compliant, including:
CUSMA came into effect on July 1, 2020, replacing the prior North American Free Trade Agreement (NAFTA). CUSMA lowered trade barriers—mainly tariffs—between the three signatories, addressed policy concerns like labour rights and provided a dispute-resolution mechanism for perceived violations of the agreement.
Joint review of CUSMA is set for 2026. As part of the review process, the three countries will decide whether the deal will expire in 2036 or be extended.
At present, it appears likely some amount of renegotiation will occur—particularly as U.S.-Canada tariff tensions continue. Any renegotiation, coupled with the changing trade relationship between the signatory countries, creates uncertainty for the future of the deal and for current tariff exemptions.
