USMCA Uniform Regulations Clarify Scope and Application of Steel and Aluminum Purchase Requirements for Passenger Vehicles, Light Trucks, and Heavy Trucks

On June 3, 2020, the Office of the US Trade Representative (USTR) published an interim version of the Uniform Regulations concerning the interpretation, application, and administration of key provisions of the US-Mexico-Canada Agreement (USMCA), including the Agreement's rules of origin for automotive goods.¹ Among other issues, the Uniform Regulations address the scope and application of the USMCA's requirement that a passenger vehicle, light truck, or heavy truck is "originating" (and thus eligible for duty-free treatment) only if, during the previous calendar year or a comparable timeframe, at least 70% of the vehicle producer's North American purchases of steel and aluminum qualified as "originating" under the USMCA.² This requirement, set forth in Article 6 of the USMCA Automotive Appendix, will take effect immediately upon the Agreement's entry into force on July 1, 2020 (though an additional requirement for steel products to be "melted and poured" in the USMCA region will not take effect until July 1, 2027). The Uniform Regulations provide important details regarding the scope of the steel and aluminum purchase requirement and the methods that vehicle producers may use to demonstrate compliance, which were largely unaddressed in the USMCA text. The relevant provisions of the Uniform Regulations are analyzed below.

Scope

The Uniform Regulations clarify the specific steel and aluminum products, and the types of "purchases" by vehicle producers, that are subject to the purchase requirements set forth in Article 6:

• Covered steel and aluminum products. Whereas the USMCA text did not identify the specific products that constitute "steel" and "aluminum" for purposes of Article 6, the Uniform Regulations provide a list of such products and their associated six-digit Harmonized System (HS) subheadings. The subject steel products, identified in "Table S" of the Uniform Regulations, include (1) certain flat-rolled products (both hot- and cold-rolled) under HS headings 7208-7212 and 7225-7226; (2) certain bars and rods under headings 7213-7214 and 7227-7228; (3) certain tubes, pipes, and hollow profiles under heading 7306; (4) major, secondary, and structural body panel stampings that form the "body in white" under subheading 8708.29; and (5) stamped frame components that form the chassis frame under subheading 8708.99. The subject aluminum products include (1) unwrought aluminum (heading 76.01); (2) aluminum waste and scrap (76.02); (3) bars, rods, and profiles (76.04); (3) wire (76.05); (4) plates, sheets, and strip (76.06); (5) tubes and pipes (76.08); (6) major, secondary, and structural body panel stampings that form the "body in white" (8708.29); and (7) stamped frame components that form the chassis frame (8708.99). The Uniform Regulations further clarify the requirements for covered body panel stampings and stamped frame components, stating that only the value of the steel or aluminum listed in Table S that is used in the production of the part will be taken into consideration (rather than the entire value of the part).³ A copy of Table S is attached for reference.
• Covered purchases. The USMCA text indicated that the steel and aluminum purchase requirement would apply to all of "the vehicle producer's purchases of [steel and aluminum]…in the territories of the Parties," but the Uniform Regulations clarify that the requirement applies only to steel and aluminum "purchased for use in the production of passenger vehicles, light trucks or heavy trucks" (emphasis added).⁴ The requirement therefore does not apply to steel and aluminum purchased for other uses, such as the production of other vehicles, tools, dies, or molds. Additionally, and despite the USMCA's language indicating that Article 6 applies only to "purchases" of steel and aluminum, the Uniform Regulations envision that covered steel and aluminum products that are manufactured by the vehicle producer for its own use (i.e., "self-produced" products) may also be counted in a vehicle producer's calculations under Article 6, as discussed in greater detail below.⁵

Calculation Methodologies

The Uniform Regulations set forth the permissible methods for calculating whether a vehicle producer's purchases of steel and aluminum satisfy the requirements of USMCA Article 6. Specifically, the Regulations address (1) the methods for calculating the value of steel and aluminum purchases; (2) the time periods over which such purchases may be aggregated; and (3) the categories of vehicles for which purchases may be aggregated.

• Value of purchases. Where steel or aluminum is "imported or acquired" in the territory of a USMCA country, the value of such purchases may be based on: (1) the price paid or payable by the producer in the USMCA country where the producer is located; (2) the net cost of the material at the time of importation; or (3) the transaction value of the material at the time of importation. ⁶ For steel or aluminum that is "self-produced," the value must include (1) all costs incurred in the production of materials, which includes general expenses, and (2) an amount equivalent to the profit added in the normal course of trade, or equal to the profit that is usually reflected in the sale of goods of the same class or kind as the self-produced material that is being valued.⁷
• Time Period. The USMCA provides that, for purposes of determining compliance with Article 6, a producer may calculate the value of its purchases over (1) the previous fiscal year of the producer; (2) the previous calendar year; (3) the quarter or month to date in which the vehicle is exported; (4) theproducer's fiscal year to date in which the vehicle is exported; or (5) the calendar year to date in which the vehicle is exported.⁸ The Uniform Regulations clarify that, where one of the latter three methods is used, the calculation may be based on the producer's estimated purchases for the applicable period.⁹ However, where estimates are used, the producer must conduct an analysis at the end of its fiscal year of the actual purchases made over the period with respect to the production of the relevant vehicle.¹⁰ If the producer determines based on this analysis that the relevant vehicle does not satisfy the steel or aluminum requirement on the basis of the actual purchases, the producer must "immediately inform any person to whom the producer has provided a certification of origin for the vehicle, or a written statement that the vehicle is an originating good, that the vehicle is a non-originating good."¹¹

In addition, the Uniform Regulations clarify that a producer may choose different time periods for purposes of its steel and aluminum calculations.¹² For example, a producer may choose to calculate its steel purchases based on the previous calendar year while calculating its aluminum purchases based on its previous fiscal year, in order to comply with the requirements of Article 6.

• Basis for Calculation (Categories of Vehicles). As noted above, the Uniform Regulations clarify that the requirement set forth in Article 6 applies only to steel and aluminum "purchased for use in the production of passenger vehicles, light trucks or heavy trucks." However, the Regulations permit a vehicle producer to base its calculations on only a subset of the vehicles it produces (e.g., by performing separate calculations for passenger vehicles and light trucks) if it so chooses. Specifically, a vehicle producer may calculate its steel and aluminum purchases on the basis of:¹³

(a) All motor vehicles produced in one or more plants in the territory of one or more USMCA countries;

(b) All motor vehicles exported to the territory of one or more USMCA countries;

(c) All motor vehicles in a category set out in subsection 16(1) of the Uniform Regulations that are produced in one or more plants in the territory of one or more USMCA countries; or

(d) All motor vehicles in a category set out in subsection 16(1) exported to the territory of one or more USMCA countries.

Subsection 16(1) of the Uniform Regulations, which pertains to the calculation and averaging of regional value content (RVC), describes several categories of vehicles, including vehicles within "the same model line" or "the same class" produced in the USMCA territory.¹⁴ A "model line" is defined as a group of vehicles "having the same platform or model name" whereas a "class" is defined more broadly (for example, "passenger vehicles of subheading 8703.21 through 8703.90" constitute a class, as do "light trucks of subheading 8704.21 or 8704.31[.]")¹⁵

Thus, while the Uniform Regulations permit a producer to perform a single calculation to determine the value of the steel and aluminum it has purchased for use in the production of all vehicles it manufactures in the USMCA region, they also provide flexibility by allowing a producer to perform separate calculations for each model line or class of vehicles it produces.

"Melted and poured" requirement

The Uniform Regulations do not elaborate significantly on the USMCA's requirement that, beginning seven years after the Agreement's entry into force, steel will only be considered "originating" under Article 6 where "all steel manufacturing processes…occur in one or more of the Parties, except for metallurgical processes involving the refinement of steel additives."¹⁶ The provision of the Uniform Regulations addressing this issue largely repeats the corresponding USMCA provision, though it provides some additional clarity by listing the HS codes associated with certain raw materials that are exempt from the melted and poured requirement, as follows: (1) iron ore or reduced, processed, or pelletized iron ore of heading 26.01; (2) pig iron of heading 72.01; (4) raw alloys of heading 72.02; or (5) steel scrap of heading 72.04.¹⁷ The Regulations confirm that the melted and poured requirement will take effect "beginning on July 1, 2027."

Outlook

The introduction of a steel and aluminum purchase requirement is a change from the NAFTA that will have important implications for the steel, aluminum, and automotive industries both in and outside of North America. The Uniform Regulations provide significant clarifications on how this requirement will operate in practice, but given their complexity, gathering the necessary information to demonstrate compliance will likely be a time-consuming process. For this reason, the Uniform Regulations provide a six-month grace period for vehicle producers to demonstrate compliance with Article 6 and other aspects of the USMCA's automotive rules of origin. Specifically, they provide that "for the period from July 1, 2020 to December 31, 2020, additional time will be provided to producers, exporters, and importers of [automotive goods] to respond to requests seeking information, including documents in support of a certification of origin[.]" ¹⁸ This will include "permitting flexibility with respect to the timing necessary to secure such documentation during this period." Thus, while the steel and aluminum requirement will take effect immediately upon the USMCA's entry into force on July 1, vehicle producers will have additional time to review the Uniform Regulations, determine the calculation method that best suits their business needs, and gather the necessary documentation to demonstrate compliance.

The Uniform Regulations can be viewed here.

_{1 Available at https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/uniform-regulations.
2 Appendix to Annex 4B, Article 6.
3 Section 17(2).
4 Section 17(4).
5 Section 17(6)(b).
6 Section 17(6)(a).
7 Section 17(6)(b).
8 Appendix to Annex 4B, Article 6.2.
9 Section 17(8).
10 Section 17(11).
11 Section 17(11).
12 Section 17(10).
13 Section 17(9).
14 The full list of vehicle categories set out in Section 16(1) is as follows:
(a) the same model line of motor vehicles in the same class of vehicles produced in the same plant in the territory of a USMCA country;
(b) the same class of motor vehicles produced in the same plant in the territory of a USMCA country;
(c) the same model line or same class of motor vehicles produced in the territory of a USMCA country;
(d) all vehicles produced in one or more plants in the territory of a Party that are exported to the territory of one or more of the other USMCA countries: or
(e) any other category as the USMCA countries may decide.
15 Section 12(1).
16 Appendix to Annex 4B, Footnote 74.
17 Section 17(5)(b).
18 Uniform Regulations Regarding the Interpretation, Application, and Administration of Chapter 5 (Origin Procedures) at p.5, available at https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/UniformRegulations.pdf.}

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2020 White & Case LLP