Updated: The Free Trade Agreement between Canada - US - Mexico, also known as CUSMA/USMCA/T-MEC has been implemented. Please visit our NAFTA 2.0 series for more information.
As a business you have measured the pros and cons of the North American Free Trade Agreement (NAFTA). You have asked yourself what is the purpose of NAFTA for your business goals and you are ready to maximize your Free Trade Agreement (FTA) benefits. This is an excellent time for North American importers and exporters to review and update their blanket NAFTA Certificates of Origin.
Since this is an annual project for those companies who create, collect and/or maintain blanket certificates, it is worth reviewing the pros and cons of NAFTA to your business and the key areas to protect you as an importer from potential financial repercussions.
As with many annual projects, one tends to lose track of the steps involved or even where to start. You could compare this to putting up Christmas lights? Where did you store them? Which string do you start with? Do you need to change any bulbs or alter the design? How will you affix them to your house to make sure they stay up? Are they still going to work? Personally I'm convinced that a naughty elf is at work in the summer messing up my system, or maybe I just can't remember what I did twelve months before.
Here are some best practices that you should consider while getting your NAFTA Certificates of Origin in order.
Best NAFTA Practices
1. Ensure Certificates Are Accurately Completed
For companies reviewing NAFTA Certificates of Origin (NCO) from their North American vendors, the first step is to ensure the certificate has proper coding and is fully completed. While this might sound like common sense you would be surprised how many certificates are missing information or contain unacceptable data (for instance, indicating a dollar value in the Net Cost column). In order to assure accuracy of the data you need to have sufficient knowledge regarding the completion of the document, the basics of which are usually found on the second page of the NAFTA Certificate of Origin.
If you are unsure about your knowledge and ability to perform this step, enlist the services of a Customs Broker to perform the review on your behalf. Pacific Customs Brokers offers a variety of services to cover verification, collection, review and maintenance of NAFTA Certificates of Origin.
- FTA Concierge Services - For clients with time constraints, we offer convenient FTA Concierge Services. We can solicit FTA certificates directly from your exporters allowing you to do what you do best, run your business.
- Tariff Classification Consulting - We offer expert analysis for clients seeking guidance on tariff classification. You may know the ins and outs of your business, but we know the intricacies of trade and always look out for our clients.
2. Determine Your Goods Are NAFTA Eligible
A problem in the review process is verifying that the goods listed on the NAFTA Certificates of Origin are indeed eligible for NAFTA. For importers this can be a huge challenge as they are relying on their foreign vendor to determine how their products qualify. Remember, this isn't just another document simply completed with trade data and a signature; there is a detailed process to determine if the goods qualify for NAFTA certification. Here are some things you can do:
- Check the certificate to determine who signed the document. Generally a more senior employee will have exercised a higher level of care and due diligence.
- Probe to discover if they use any amount of raw materials sourced from outside North America. If so, ask the person who signed the certificate how they determined NAFTA qualification. The response will be a good indicator of how carefully they conducted their review.
Tip: Both U.S. and Canada Customs use the same strategy when conducting a Customs audit.
- You may also want to read the NAFTA De Minimis regulations and Specific Rules of Origin for the tariff classifications covering the respective products. In some industries, there may be goods that are excluded from NAFTA if certain foreign materials are used. It may worthwhile to be aware of these just in case your vendor has not researched it.
- If there is any degree of uncertainty regarding their NAFTA knowledge, you may wish to suggest they enlist the services of a Customs Broker or Customs consultant to help them conduct a thorough review. This step is highly recommended if they export large quantities within North America and have never undergone a formal qualification.
3. Review Each Customs Entry
Whenever NAFTA is claimed on a 7501 (U.S. Customs entry) or B3 (Canadian Customs entry) a valid NCO must be on file for those products. Establish a process of checking every entry, particularly if you are frequently importing new products. This can be an area of concern if NAFTA is a topic only reviewed at the end of each year. For instance, does your NAFTA management process have a procedure in place to obtain updated blanket NCOs if you purchase new products part way through the calendar year?
4. Select Between Blanket Or Individual NCOs
Decide whether to use blanket certificates of origin, which cover a 365 day period, or individual certificates (one-time use). For infrequent purchases it may be easier to have a vendor provide an NCO for each shipment.
5. Devise A NAFTA Maintenance Program
If you are chosen for a NAFTA verification audit by Customs authorities, can you locate your certificates and supporting documentation? Have a system for tracking and maintaining these documents. In Canada, import documents must be maintained for six years plus the current year (five years for the U.S.).
6. Build Your NAFTA Know-How
What are the pros and cons of NAFTA plans? Penalties and potential duty charges may be significant if errors are found and neither Customs agency will accept ignorance as an excuse. If you manage many NCOs, or manufacture and sell to North American companies, we strongly suggest you visit the PCB Learning Center to learn more about NAFTA and other FTA's. You have the choice of in-class seminars and on-demand videos to learn about international trade. The information and practices you learn from these classes will improve your NAFTA management process.
PCB Learning Center
Manage Your Processes
Pacific Customs Brokers offers a wide range of FTA related services and resources. Download a FTA services flyer here or find details below. For inquiries or more information about how we can help you with your NAFTA requirements, please contact us.