The end of year legislative package will include certain fixes for USMCA, including the restoration of Merchandise Processing Fee (MPF) refunds for post-entry fillings. The MPF previously was not refunded unless your USMCA claim was made at time of entry. Now it will be refundable if making a post entry claim such as a Protest or Post Summary Correction (PSC).
In addition to this, tariff treatment for goods manufactured in foreign-trade zones (FTZ) will return to the way they were handled under NAFTA. FTZs advocated to be able to use USMCA rule of origin to avoid tariffs on imported inputs. Pertinent tariffs—where applicable—will be due on the goods that exited these zones since July 1.
The Miscellaneous Tariff Bill and Generalized System of Preferences benefits programs renewals were not included in the legislative packages, meaning these programs will expire at the end of the day on Dec. 31.
How this will affect FTZs
Under NAFTA, when shipping goods made in a U.S. FTZ to Canada or Mexico, FTZs have had to pay duties equal to the difference of the duty rate in the U.S. and the country to which the goods were shipped (CA or MX). For NAFTA qualified goods, this meant that the full U.S. duty rate had to be paid on the goods when withdrawn for export to Canada or Mexico. This is because the duty rate in the destination country was always “FREE” or zero and any U.S. duty rate minus zero is the original U.S. duty rate.
The original intent of this provision was to prevent “double dipping” on duty free provisions, but it made it more difficult for U.S. manufacturers in an FTZ to compete with other U.S. manufacturers and even with other manufacturers in Canada or Mexico.
When USMCA was written, this provision was not included. This may have been intentional, or it may simply have been an oversight. USMCA has been in effect since July of 2020, and manufacturing zones have not had to pay the duties on exports to Canada or Mexico as they had to under NAFTA.
With the passing of this technical corrections bill, the NAFTA conditions for FTZs have been restored to USMCA. Now, not only must FTZs pay the difference of the two duty rates to CBP for future shipments to Canada or Mexico, but they must now go back to July of this year and calculate and repay the duty owed on shipments they may have already made to Canada and Mexico under USMCA (plus interest) or face penalties.
For further questions on the matter, please reach out to your Mohawk Global representative.