The Pesky Problem of Preference Criteria

Those who are responsible for NAFTA compliance are very familiar with the NAFTA Certificate of Origin and the Preference Criteria to be recorded in Field 7.  The criteria are used to indicate to the importer as well as to the customs authorities in the country of importation exactly how the goods qualify as originating. Under the NAFTA, there are six possible preference criteria with preference criterion B being the most common. When Customs sees a B in Field 7, it knows that the finished good contains non-originating material and that the good qualifies as originating because the non-originating materials made a qualifying change in tariff classification as a result of production in North America and, if applicable, the finished good satisfies the Regional Value Content requirement.

That is all simple enough under NAFTA. But, under the subsequent free trade agreements, no one ever specified a coding system for the preference criteria. As far as I am concerned, the lack of a uniform coding methodology is a travesty. Nevertheless, U.S. Customs and Border Protection's instructions on the implementation of the various agreements require that the certifying party specify how the good came to be originating.

Apparently, Customs has found this to be a bit of a problem as well. I gather that based on the fact that Customs just issued a reminder to the trade that FTA claims need to specify the basis for the origin determination. In that message, Customs also provided examples. Here is the text of the message free of copyright and in glorious courier font:


For importations into the United States under a free trade agreement (FTA), when a producer, exporter or importer issues an FTA certification of origin (a.k.a. Implementation Instructions, Attachment A), the “Preference Criterion” field should indicate how the good originates (meets the terms of the agreement) with the greatest specificity possible.

EXAMPLE

For example, with respect to an importation of lead sheet under the Peru TPA classified in HTSUS 7804.11.00, the “Preference Criterion” field of the certification of origin* should indicate how the good originates, as follows:

•           If the good is wholly obtained:

HTSUS General Note 32(b)(i) or alternatively, Peru TPA Article 4.1(1)(a)

•           If the good is produced entirely in Peru and all non-originating materials undergo the required tariff shift (and/or regional value content) specified in the corresponding specific rule of origin:

HTSUS General Note 32(n)78.2**  or alternatively, Peru TPA Annex 4.1, Chapter 78, Item 2

•           If the good is produced entirely in a Peru exclusively from originating materials:

HTSUS General Note 32(b)(iii) or Peru TPA Article 4.1(1)(c)

This methodology should be used for all “tariff-shift” FTAs*** unless the Agreement, Regulations, or other officially published material provides for an alternate method. (e.g. The NAFTA provides for criterion “A,” “B and “C”.)

If no rule of origin is met, FTA preference cannot be claimed.

*   The Peru TPA certification of origin is available at http://www.cbp.gov/linkhandler/cgov/trade/- trade_programs/international_agreements/free_trade/peru/a.ctt/a.pdf and the certifications of origin for our other FTAs are available on www.cbp.gov by searching the country name and selecting the corresponding SmartLink.

**  The General Note citation is preferable for ease of use and because it is periodically modified to incorporate World Customs Organization updates to the Harmonized System nomenclature.

***  The FTAs that employ a tariff-shift methodology to confer origination are: NAFTA, Chile FTA, Singapore FTA, Australia FTA, CAFTA-DR, Peru TPA, Colombia TPA, and Panama TPA.

Questions may be directed to fta@dhs.gov.

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