Thursday, December 21, 2006

It's NAFTA Time: Free Gifts!

Here, have a NAFTA CO.

The start of a new year is always exciting for the folks responsible for maintaining NAFTA compliance. Same goes for all the other new free trade agreements. That is because everyone is scrambling to get NAFTA certificates of origin from suppliers. Or, you might be one of those unfortunate people getting your arm twisted by a customer who wants a NAFTA CO yesterday.

Here are a couple tips. At the end of this post, I'll give you a free tool to help. I promise.

Tip Number 1: Tell Your Broker What is Going On

Most NAFTA COs will expire December 31. If you are an importer who is used to claiming NAFTA status for your merchandise and don't have a replacement CO, you can't make the claim on January 1. Remember, NAFTA works on the assumption that you have a valid CO in your hand at the time of the claim. The other FTAs are a little different in this regard, but just go with me here. So, if you don't let your broker know that Acme Tools of Tijuana did not give you a new CO (or that you changed suppliers to Acme Tools of Beijing), your broker might go merrily along making claims. Each of those claims is a violation.

The right thing to do is provide your broker with a a list of products covered by COs and a list of those previously covered but no longer certified. The broker can them make appropriate claims. As suppliers get their act together and give you COs, you can go back and make a post-entry NAFTA claim within one year of the date of importation.

Tip Number 2: There Are No Shortcuts

There is no "rule of thumb," or "default rule" that says if you have 50% North American content, your goods qualify. Some rules do not care in the slightest what the regional value added is. Some rules are based entirely on the tariff classification of materials and the finished article. These are the tariff shift rules. And among tariff shift rules for similar goods, the required shift may be different.

Each and every time you do the analysis, flip open your HTS to the NAFTA notes and confirm your rule of origin.

Tip Number 3: A=Audit

Simply put, preference criterion A is almost always wrong. This rule of origin requires not a single atom of material in the product comes from outside of North America. If you are in the mineral or agricultural industries, look at preference A because it might apply. For everyone else, move to preference B.

More important, if you receive a CO with A as the preference criterion, question it. If you bought coal or corn, it may be right.

Tip Number 4: Use the Form

The NAFTA CO is a well designed form. It communicates exactly what the customs authorities of the importing country needs to know. Not coincidentally, it also tells your customers what they want to know for their own analysis (except for traced values). So use it, even for domestic transactions. The fact that it lists an importer and exporter does not matter for domestic transactions. Treat "importer" as buyer and "exporter" as seller. You can even mark up the form if you want. That is fine. The form will not be used to support a claim in Canada or Mexico if it shows an "importer" and "exporter" both in the U.S.

While we are talking about the form, note that there are instructions on the back. They are actually pretty good. If you are just getting started, that is a useful place to look. If your customer faxed or e-mailed only the front, click the link at the top of this post for a full form.

Tip Number 5: Click Here

The link in the heading above leads to a short article and a checklist on the Barnes/Richardson web site that can be used to help complete or review NAFTA COs. The article is handy although I think the new forms permit dates in the American mm/dd/yy format. How's that for cultural imperialism?

Happy NAFTA-fest to all and to all a good night.

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