16. The North American Free Trade Agreement (NAFTA)

 

16. The North American Free Trade Agreement (NAFTA) 

The provisions of the North American Free Trade Agreement (NAFTA) were adopted by  the United States with enactment of the North American Free Trade Agreement Implementation  Act of 1993 (107 Stat. 2057, P.L. 103-182). Nineteen Code of Federal Regulation (19 CFR)  Parts 10, 12, 123, 134, 162, 174, 177, and 178 were amended, and new parts 102 and 181 of the  CBP Regulations were developed to implement NAFTA’s duty provisions.

NAFTA phased out tariffs on almost all “originating” goods traded between Canada  and the United States by January 1, 2003, and provides for an additional 5-year phase-out period  on certain sensitive commodities traded between Mexico and the United States. 

Article 401 of NAFTA eliminates both tariffs and the merchandise processing fees for  goods that “originate.” Transshipping goods through Mexico or Canada that were made in  another country, or performing only minor processing or packaging operations on them in North  America, will not invoke preferential NAFTA duty rates. 

The term “originate” means those goods that meet the requirements of NAFTA Article  401. Article 401 defines “originate” in four ways: 

1. Goods wholly obtained or produced entirely in the NAFTA region (these contain  no foreign inputs); 

2. Goods produced entirely in the NAFTA region exclusively from originating  materials (these contain foreign materials that have been previously manufactured  into originating materials); 

3. Goods meeting an Annex 401 specific rule of origin such as a prescribed change  in tariff classification, regional value content requirement; and in extremely  limited instances, 

4. Unassembled goods and goods classified with their parts, which do not meet the  tariff-shift rule but contain 60 percent regional value content using the 

transaction-value method, or 50 percent using the net-cost method. 

Annex 401 of NAFTA is codified in General Note 12(t) of the Harmonized Tariff  Schedule of the United States and is available at www.cbp.gov/nafta/rulesorg.htm

Entry Procedures 

For NAFTA, as with other preferential trade programs, it is the importer’s responsibility  to claim the benefits. In the United States, a NAFTA claim is made as follows: 

• NON-COMMERCIAL (PERSONAL) IMPORTATIONS 

For a non-commercial importation of NAFTA goods, a NAFTA claim may be  made in the United States without a certificate of origin or statement. 

• COMMERCIAL IMPORTATIONS, LOW-VALUE 

In order to claim preferential tariff treatment on a commercial shipment of  NAFTA goods valued at US $2,500 or less, the entry packet must include the 19  CFR 181.22(d) statement certifying that the goods “originate” 

(www.cbp.gov/nafta/docs/us/181sec1-1.html#181.21).

• COMMERCIAL IMPORTATIONS, OTHER 

The importer must have a valid NAFTA certificate of origin, signed by the exporter or his agent, when claiming preferential tariff treatment on a 

commercial shipment of NAFTA goods valued at more than US $2,500. 

• POST-IMPORTATION CLAIMS 

Importers who may not have a valid NAFTA certificate of origin, or who are  unsure whether their goods “originate,” or who otherwise choose not to make a  NAFTA claim at the time of entry summary have up to one year from the date of  importation to make a post-importation claim. 

Exporter’s Certificate Of Origin 

NAFTA Article 502 requires that an importer’s NAFTA claim be based on the exporter’s  certificate of origin. This may be CBP Form 434, the Canadian B-232, or the Mexican  Certificado de Origen. When making a NAFTA claim in the United States, the importer must  have one of these three certificates of origin or a CBP-approved, privately printed or alternate  certificate of origin. For a single shipment, the certificate of origin shall be annotated with the  invoice number or other distinguishing marks. For multiple shipments of identical goods, the  certificate shall be annotated with a blanket period of up to 12 months. 

NAFTA Certificates Of Origin And NAFTA Claims Are Optional 

The exporter or producer is never obligated to provide a certificate of origin to a  customer. However, since the importer may not claim NAFTA preferential tariff treatment  without one, it is in the exporter or producer’s interest to provide it. By providing a certificate of  origin, the producer is attesting that: 

1. The goods originate, 

2. He has the substantiating production and accounting documentation, and  3. He will make it available to the customs authorities upon request. 

Country of Origin for Marking and Duty Purposes 

For goods processed in Canada, Mexico or the United States, NAFTA codified the  concept of “substantial transformation,” the process by which a good’s country of origin is  determined for marking and duty purposes. Even though a good may be sufficiently processed in  Canada, Mexico or the United States to be marked with that country of origin, it may not be  sufficiently manufactured to “originate” under the rules of origin for NAFTA tariff treatment  purposes (Harmonized Tariff Schedule of the United States, General Note 12(t)). With certain  limited exceptions, only originating goods benefit from NAFTA preferential treatment. For  additional marking information, please see NAFTA: A Guide to Customs Procedures, available at  www.cbp.gov/nafta/nafta_new.htm or 19 CFR 102 at www.gpoaccess.gov/cfr/index.html. 

Special Provisions For Sensitive Sectors 

The NAFTA Annex 401-origin criteria ensure that most textile- and apparel-related  production occur in North America. The basic rule of origin for textiles and apparel is commonly  referred to as “yarn forward.” This means that the yarn used to form the fabric must be spun in  the NAFTA territory, and all subsequent processing must take place in North America. Textiles and apparel of man-made filament fibers have an even more restrictive “fiber-forward” rule.  Some apparel goods must additionally meet a “visible-lining rule,” meaning that certain linings  must be woven or knit in North America. 

Transshipment 

 Goods that are entitled to NAFTA preferential duty rates by virtue of their originating  status will lose that status if they leave customs control outside of North America or undergo any  operation outside of North America other than unloading, reloading, or any other operation  necessary to preserve them in good condition or to transport the goods to Canada, Mexico or the  United States. 

Repair Or Alteration 

Goods may be exported from one NAFTA country to another for repair or alteration and  returned free of duty regardless of the origin of the goods. This provision does not apply to  alterations that are part of a manufacturing process. 

Territory 

With respect to the United States, the customs territory includes the 50 states, the District  of Columbia, Puerto Rico and the foreign trade zones located therein. 

Additional NAFTA information can be obtained in NAFTA: A Guide to Customs Procedures, available on line at www.cbp.gov/nafta/nafta_new.htm or from the Code of Federal  Regulations at www.cbp.gov/nafta/resource.htm.