Many Canadian businesses are not receiving properly completed NAFTA certificates of origin. The purpose of a NAFTA certificate of origin is to provide the Canada Border Services Agency (CBSA) with information so that the CBSA may determine that the goods being imported into Canada are entitled to NAFTA beneficial duty-free treatment.
Of the NAFTA certificates of origin I have reviewed recently, I have discovered the same errors repeated in a number of cases. In all cases, the NAFTA certificates of origin were improperly completed by exporters in the United States (there are more imports into Canada from the USA than from Mexico). I should note that Canadian exporters make the same mistakes on certificates of origin provided to U.S. importers. The top mistakes are:
- a certificate of origin is provided when goods are shipped from China: The good for which the NAFTA certificate of origin is provided must be directly imported from the United States or Mexico (if imported into Canada). A U.S.-made good that is shipped from the United States is not entitled to NAFTA treatment. U.S.-made goods lose their NAFTA preference when transshipped through a third country;
- improperly indicating that the exporter is the "producer": Many U.S. exporters improperly answer 'Yes" in the "Producer" column of the certificate of origin when they are a distributor or a person other than the manufacturer of the goods;
- improperly using Preference
Criteria "A": Preference Criterion "A"
is used when a good is wholly obtained or produced in one or more
of the NAFTA countries. Preference Criterion "A" is used
when the fruits are grown on a tree in the NAFTA country or made
from wood from a tree grown in the NAFTA country. However,
Preference Criterion "A" does not apply when one molecule
of the good is made from foreign material or possibly foreign
material.
Preference Criterion "B" is used when the good is produced entirely in a NAFTA country and satisfies a specific rule of origin (e.g., undergoes the necessary tariff shift and or regional value content test).
Preference Criterion "C" is used when a good is produced entirely in the territory exclusively from originating materials. This Preference Criterion is used when you have a raw material, an intermediate product and a final product.
For example, Raw material: U.S. grown cotton fibre
Intermediate product: red yarn made from U.S. raw materials and red dye from China (which is considered to be originating in the USA due to specific rules of origin for yarn)
Final product: red cotton fabric: woven in the USA from the originating red yarn; and - improperly stating the origin is the "USA" when the goods are foreign and not entitled to NAFTA duty-free treatment: The exporter must determine if the good originates under the NAFTA rules of origin. It is important for manufacturers/producers to make a list/bill of materials detailing all of the inputs into the final good. Then the manufacturer/producer should obtain information from its suppliers of inputs to ensure that intermediate goods meet NAFTA requirements. Exporters of goods must maintain adequate documentation relating to the inputs (either certificates of origin or manufacturer affidavits for all raw materials/inputs).
If a good was produced in a non-NAFTA country (e.g., China) and is shipped to Canada from the United States, the good does not originate under NAFTA.
The above list is not all inclusive. Incorrect tariff classifications are also very common.
If the NAFTA certificate of origin does not accompany the goods, NAFTA duty free treatment may be denied. If the information of the certificate of origin is incorrect, the CBSA may impose AMPS penalties.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
