Understanding USMCA Duties

The United States–Mexico–Canada Agreement (USMCA) represents a major modernization of North American trade rules, replacing the North American Free Trade Agreement (NAFTA) in 2020. One of the most important aspects of USMCA for businesses involved in cross-border trade is how duties are applied to goods originating within the agreement’s territory. Correctly determining USMCA eligibility and duty treatment can yield substantial cost savings, while errors can result in denied preferential treatment, customs penalties, and additional duties.

USMCA duties are generally reduced or eliminated for goods that meet the agreement’s origin requirements, which are determined based on rules of origin and Regional Content Value (RCV) calculations. Understanding how USMCA duties are calculated and applied is therefore critical for importers, exporters, and supply chain managers.

Below are key considerations for understanding USMCA duties.

1. Eligibility for Preferential Duty Treatment

To benefit from USMCA’s preferential duty rates, goods must be classified as originating under the agreement. This determination relies on specific rules of origin, which define how much of a product’s content must come from the U.S., Mexico, or Canada.


Goods that qualify as originating are eligible for duty-free or reduced-duty treatment, while non-originating goods are subject to standard Most Favored Nation (MFN) tariffs. Importers must carefully assess materials, production processes, and sourcing to determine eligibility.

2. Rules of Origin

USMCA rules of origin vary by product category and are critical in determining duties. For example, automotive goods face particularly stringent rules, requiring a high percentage of regional content, specific labor value content, and steel and aluminum sourcing requirements.

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Other products, such as textiles, agricultural goods, or industrial equipment, have different thresholds and may also require specific tariff-shift or value-content calculations. Correctly applying these rules ensures that duty benefits are claimed accurately and defensibly.

3. Regional Content Value (RCV) Calculations

RCV measures the percentage of a product’s value that originates in USMCA countries and is central to determining duty eligibility. There are several calculation methods, including Build-Up, Build-Down, and Net Cost methods.

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Accurate RCV calculations require tracing materials, labor, and certain production costs to ensure they meet the minimum threshold. Errors or insufficient documentation can result in denial of duty-free treatment and potential customs scrutiny.

4. Certification and Documentation Requirements

USMCA requires importers and exporters to provide a certification of origin. This document can be prepared by the exporter, importer, or producer and must describe the goods, provide the origin criteria used, and be retained for at least five years.

Customs authorities in all three countries have the right to request and verify certifications. Proper documentation is therefore essential not only to claim duty benefits but also to withstand audits or inquiries.

5. Impact on Supply Chain and Compliance

USMCA duties influence supply chain planning, sourcing decisions, and cost management. Businesses must integrate rules of origin and RCV requirements into procurement strategies and maintain accurate records of materials, production processes, and suppliers.

Non-compliance can lead to retroactive duties, fines, and increased scrutiny of future imports. Companies that proactively manage compliance and maintain robust documentation can maximize duty savings while mitigating risk.

Conclusion

USMCA duties offer significant opportunities for businesses to reduce import costs within North America, but they require careful attention to origin rules, regional content calculations, and documentation requirements. By understanding eligibility criteria, calculating RCV accurately, and maintaining comprehensive records, companies can claim preferential duty treatment with confidence. Proper planning and compliance not only unlock financial benefits but also strengthen supply chain resilience and facilitate smooth cross-border trade under the USMCA framework.