Basics by Free Trade Agreement: NAFTA
What issues are commonly misunderstood about the NAFTA?
The NAFTA establishes special preferential tariff treatment for goods “originating” in and traded among NAFTA countries. However, the NAFTA Certificate of Origin is not a required entry document for shipments between the United States and Mexico or Canada and should only be prepared if the product qualifies under the NAFTA Rules of Origin for preferential tariff treatment. The exporter must first determine if the product qualifies and whether a Certificate of Origin is needed.
Completion of a NAFTA Certificate of Origin is an affirmation that the party signing the document has determined that the goods covered by the certificate are “originating”, as defined in the NAFTA. Preparation of this certificate imposes certain legal rights, obligations and liabilities on the party signing the document and should be based on a careful inquiry into the terms of the NAFTA as they apply to each product.
One of the most difficult issues exporters face when exporting to one of the NAFTA countries is determining whether the product can be considered an “originating good”. Origin is not determined by where the product begins its export journey. The term “originating” means qualifying under the rules of origin set out in Chapter Four of the NAFTA. The NAFTA Certificate of Origin must be completed in order to receive preferential tariff treatment upon entry of the goods into the importing country.
Many U.S. companies are unfamiliar with the agreement and mistakenly believe that products produced in the United States, Canada, or Mexico qualify for NAFTA treatment. Most firms are unaware that they need to determine whether there are any foreign parts, components, or raw materials used to manufacture their final product.
U.S. companies must obtain or confirm the appropriate Schedule B or Harmonized Tariff Classification Number for their product(s) in order to reference the rules of origin that govern the allowable percentage of foreign components. The classification number is also used by shippers in reporting export shipments, by governments in compiling official trade statistics, and by customs authorities in determining the relevant import duties to be paid.
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