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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.

Full post as published by Customs Law on January 22, 2011 (boomark / email).