Saturday, January 22, 2011

By Request: It's OK to Say "No NAFTA"

So far, I have not done very well at following my resolution to post more often in 2011. So, I will respond to a specific request for a post. This request comes from someone who has quite reasonably decided not to issue meaningless NAFTA certificates in the ordinary course.

What is a meaningless NAFTA certificate? One that provides little or no duty savings to the importer. Generally, that means where the product involved is unconditionally duty free into the other NAFTA countries. If it is already duty-free, the added benefits of a NAFTA claim are either zero or small. When compared to the administrative cost of chasing supplier certificates of origin, record keeping, and responding to possible verifications, it is perfectly rational for a producer to decide not to provide certificates for duty-free products.

Typically, producers who do that hit two objections. The first is easily dismissed. It is not true that originating goods must be the subject of a NAFTA CO to enter any of the NAFTA countries. It is just not true. Think about for a minute. What if the goods were actually non-originating for NAFTA purposes, but still of US origin? Those goods could be sent to Mexico and Canada, where they would be subject to the prevailing non-NAFTA rate of duty applicable to US goods. If a producer opts not to certify goods, they are, for all intents and purposes, non-originating goods and will be treated as such. Duty gets paid, in the US MPF gets paid, and life goes on. When customers understand that, they may agree that they do not need a CO. After all, it increases their record keeping obligation, the risk of audits, and other legal obligations.

The second objection is more substantive. It may well be that customers need a CO not to support a claim but to accumulate originating content for the regional value content of  their finished goods. That is a real concern and producers need to decide how to handle that as a matter of customer service.

Last thing, and this is only tangentially related, there is no NAFTA rate of duty for US goods returned. This comes up periodically and I have discussed it previously. Look at the column 1 special rate of duty in the HTSUS. There are two NAFTA claims available: MX and CA. If goods are sent to Canada and returned to the US without being advanced in value or improved in condition, the should come back under HTSUS heading 9801. This is a shame as 9801 has additional record keeping requirements. There should be a general NAFTA claim that also applies to US goods. Unfortunately, there is not. If you are assigning the origin based on the country of shipment and a NAFTA CO that says US, you might be doing it wrong. If the goods are processed in Canada or Mexico, the NAFTA preference override might apply.

Side Note: I am not a sports guy. I generally do not care. But, when the bandwagon picks up steam and civic pride is on the line, I jump on. So: Go Bears.


FIFL said...

Ok, so here's a question I was asked the other day, and I didn't know the answer... you do not have a Free Trade Program indicator (SPI) for a specific HTS because it's FREE; doesn't that HTS also deserve the opportunity to be MPF free as well?

Larry said...

You still get to make the claim with the CA or MX SPI to get the MPF exception.

Jim Dickeson said...


Yes, I completely agree. Whether NAFTA, 9801 (from a NAFTA country or otherwise), 9802, for any duty minimization provisions, one has to weigh the documentation and scrutiny hoops to jump through against the potential savings.

FIFL, that goes for MPF as well. I was once involved in a 9802 program for a computer company (a reduction in dutiable value by the value of U.S. components assembled into the finished product). The duty savings evaporated when WTO members agreed to eliminate duties on most computer products some years ago. And that $485 max MPF savings didn't justify continuing the hassles of maintaining the 9802 program.

Jim Dickeson
Import Export Geeks
Import Export Compliance Training

David Trumbull said...

In my industry (textiles) we find customers with the mistaken notion that ALL shipments from the U.S. to Canada require a NAFTA Certificate of Origin. We try to explain that the NAFTA Certificate is only for entries claiming the NAFTA benefit, not so everything shipped to a NAFTA partner.

Larry said...

David, thanks for the comment. Feel free to point folks to this post as support for the no-NAFTA position. Hope I can help.

Anonymous said...

What if it is a dutiable item but I still don't want to make a NAFTA duty exemption claim I only want to claim the free MPF. Can I still do this as you state above?

Larry said...

Anonymous, duty and MPF are part of the same package. If you do not have a CO to prove up the claim for duty preference you also cannot escape the MPF.