NAFTA Exports From Canada: not such a clear-cut process

Dotting your i’s and crossing your teas!

Imagine that you’re a local producer of lemon-flavored iced tea and business is brisk. Looking to take your product to the next level, you decide to export it to the United States. Given that your iced tea is made in Canada, you have reason to believe it should be duty-free under the North American Free Trade Agreement (NAFTA)—despite the fact you used lemons from Chile, fancy sugar brought in from Thailand and bottled water imported from Italy.

First the good news: in this particular scenario there has been enough of a transformation of the product to qualify for duty-free entry to the United States under NAFTA guidelines.

Now, for the not-so-good news and the really important part: never assume all goods made in Canada automatically qualify for NAFTA.

Key points to consider

The secret to successfully navigating through highly complex agreements, like NAFTA, is knowing where to start. Here are some key points to consider before you begin:

• Determine the correct HS tariff classification for your goods
• Make sure your goods meet the requirements of the specific rules of origin (Annex 401)
• Carefully read all other pertinent information provided

For some goods it is sufficient to have undergone a transformation. In contrast, others may require a percentage of the value to comply with what NAFTA defines as “originating.”

What does “originating” mean?

• As an example, consider an industrial robot built from parts manufactured in China. Specifically, even though the assembly and engineering development work has all been done in Canada, at least 60% of the regional value content must be made up of originating goods or services.

Some things are better left to the experts

Thinking of having the shipping clerk fill out the NAFTA certificate? Probably not a wise idea, as a good deal of product knowledge is needed to properly complete this document.

• Depending on the terms of sale, it is the exporter’s  responsibility to be compliant when completing these certificates…and small errors can result in big fines.

What’s more, exporters who are careless with their paperwork may receive a dreaded Request for Information letter from U.S. Customs and Border Protection. This document usually precedes a NAFTA audit and requires the exporter to provide a complete breakdown of all components and related costs, including a bill of materials list. Not much fun, right?

That’s why before you export anything, always check with your Customs Broker to find out the proper classification of your goods; whether they qualify under NAFTA; and any applicable customs duties in the U.S. Moreover, make sure your NAFTA certificate is properly completed and indicates the correct criteria for your goods.

Finally, don’t forget to schedule a yearly review of all your suppliers. Sources often change if a supplier is found with lower pricing—which means the country of origin for any products, components or parts they supply you with may also change. In other words, don’t assume that if you are purchasing materials from a Canadian supplier that they necessarily originate in Canada!