NAFTA Country of Origin Certificate: Not Just Another Form
9/12/2005
by John Goodrich | Format for Print

Much has been written about the North American Free Trade Agreement (NAFTA) and how to decipher the complex rules associated with the program. Rest assured, this is not another one of those articles. I will not be dragging you through the intricacies of tariff shift and regional value content. This article, rather, will explore your company’s business processes and controls relative to NAFTA.

Why is this worthy of an article? It seems that some companies believe NAFTA is just one more shipping form to be delivered to their demanding customers. These companies allow their shipping clerks or sales associates to complete the form with limited understanding, training, supervision or controls.

If this comment resembles your company, read on.

The NAFTA program is like a birthday cake. It has many layers and is topped off by the icing of a country of origin certificate. Of course, birthday cakes are only baked for birthdays. Sometimes, as we get older, we choose not to celebrate our birthdays.

I apologize for this Forest-Gump-style analogy but encourage you to continue reading despite the overly sweet simplification.

Is it your birthday or are you just eating icing for the fun of it?

In other words, does your product qualify for duty-free treatment under the NAFTA rules? It seems that some companies believe that every day is their birthday, and they complete certificates even when they are not applicable.

First of all, only products manufactured or produced in the territories of the United States, Canada and Mexico qualify under the NAFTA. Secondly the products may not travel to any other country beyond the U.S., Canada and Mexico for any further manufacturing or processing.

The NAFTA treaty uses the term “originate” to define when goods qualify for duty-free treatment. This is an unfortunate choice of language as it sounds much like the term “country-of-origin.”

It is possible for a product to be manufactured or produced in the NAFTA territories and be considered country of origin U.S., Canada or Mexico but still not originate or qualify for duty free status under the NAFTA.

To learn if your product qualifies or originates under the NAFTA, you will need to know its harmonized tariff classification. The rules for origination are detailed by classification in Annex 401 to the NAFTA. This annex is found at the beginning of the Harmonized Tariff Schedule within General Note 12 to that tariff.

As promised I will not go into the details of interpreting those rules. Susan Senger has previously written an informative series of articles on this topic, which you can find at the IBT website.

If it is your birthday, do you have to celebrate it?

No. NAFTA is a voluntary program. Nothing in the agreement requires an exporter to participate or to issue a country of origin certificate to his/her buyer even if the product qualifies for the program.

An exporter can choose to opt out of NAFTA for any number of reasons.

Some exporters are surprised to discover that their products are not subject to duty in Canada or are subject to nominal duty rates. The duty benefit is less than the cost of properly administering a NAFTA origination process. As a result they choose not to issue NAFTA certificates. It should be noted that such shipments would then be subject to merchandise processing fees upon import into the territories of the parties.

If you choose to bake a birthday cake, document your recipe.

Every NAFTA program should have documented policies and procedures. This “recipe” for NAFTA should include:

• Detailed procedures for qualifying products for NAFTA.
• Authority to make NAFTA determinations.
• Authority for issuing NAFTA certificates.
• Ramifications for employees who circumvent the procedures.
• Procedures for maintaining records.

Again, I defer you to the previous IBT articles to determine which flavor of cake you choose to bake, whether it be A, B, C, D1, D2 or F.

Bake the cake.

It is not enough to simply have a recipe. You must go through a process to determine if your products are eligible for duty free status under the NAFTA. Depending on your product or your production methods, you may have to originate each shipment. If you are fortunate to have a consistent manufacturing process, you may be able to originate your products on an annual basis.

Whatever your company’s recipe, most exporters find they need to do the following:

• Obtain country of origin certificates from materials suppliers.
• Obtain country of origin certificates from finished goods suppliers.
• Obtain access to company bills of materials or ingredients lists.

Ice the cake.

Finally we get to the fun part. If you have properly originated your products, completing the NAFTA country of origin certificate is a straightforward process.

Take a picture of the cake before the party.

That is to say, all of this origination work should have been done long before you ship your products. Ideally, you should have qualified your products prior to marketing them as NAFTA eligible.

After all of the work you have gone through, make sure you take pictures, too. The NAFTA requires you to maintain a copy of your certificates, your origination records, and all other business records supporting your origination process for five years.

NAFTA also requires you to inform parties to whom you have sent copies of the certificate of any adjustments you make to the form. This is easily done when you have retained detailed records.

Hey, John, I thought you were an import baker, not an export baker!

So you noticed, did you? You may be surprised to discover that the NAFTA is incorporated into Customs regulations and the import tariff. As a result, users of NAFTA—including the exporter issuing the certificate—are subject to Customs and Border Protection’s regulatory oversight. Exporters who incorrectly use NAFTA could end up putting their import programs at risk.

Go to baking school!

If you believe your company has been doing nothing but making icing without baking a cake, go back to school. Doing nothing but completing NAFTA certificates may seem simple, and you may not have been caught yet, but it will eventually give your compliance program indigestion in the long run. NAFTA courses are offered nationally through IBT.

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