United States: Gone But Not Forgotten: The Continuing Importance Of NAFTA Compliance

The North American Free Trade Agreement (NAFTA) may have been replaced effective July 1, 2020 by the United States-Mexico-Canada Agreement (USMCA), but the rules of NAFTA remain alive and well in the halls of the enforcement agencies on both sides of the border.

Mexican Customs, through its Tax Services Administration (SAT), continues actively to verify not only USMCA origin claims, but is still pursuing NAFTA verifications going back up to five years. There remain nearly two years of US exports to Mexico (and US imports from Mexico or Canada) that remain open to verification under NAFTA. (Not to mention that the usual Customs statute of limitations of five years does not begin to run for claims of fraud until discovery of the fraud.)

Although the text of NAFTA has disappeared from the usual United States Trade Representative (USTR) and US Customs and Border Protection (CBP) website pages where it was once readily available, producers and exporters from the US sending goods to Mexico (or vice versa) who issued NAFTA certificates of origin need to be prepared to respond quickly if the authorities from SAT send a verification request.

Requests from SAT concerning NAFTA are continuing at a steady pace and we expect this to continue for at least the next two years until the five-year anniversary of July 1, 2020, when NAFTA was replaced by USMCA.

The information requested for a verification of origin is detailed, and SAT is known to be very strict about time deadlines. The party who issued the certificate in the US or Mexico must reply to the SAT questionnaire and include all the supporting documentation (bills of material, purchase orders, invoices, bills of lading, etc.) within 30 days, or it will receive a notice of intent to deny benefits, at which point just 30 more days remain to file that complete response. Further extensions are not granted, and an insufficient response will leave the Mexican importer liable for unpaid duties plus surcharges, penalties and interest. Mexican importers who relied upon certificates issued by US parties will, in turn, hold them accountable.

Those responding to such SAT verification questionnaires also should not assume that their responses can simply be dropped in the mail or given to a courier for delivery to Mexico City. To assure a successful SAT filing the best practice is to submit the complete filing at SAT headquarters in Mexico City – with the required translations into Spanish.

Additionally, like NAFTA, the USMCA permits the importing country's customs authority to conduct on-site verification of origin questionnaire responses. Thus, an exporter who has received a questionnaire should anticipate the possibility of a visit from officers of the foreign customs authority to the premises of the exporter or producer. Verification visits can last up to two weeks, during which the foreign customs agents have the right to examine records supporting the origin claim, and to examine the facilities used in the production of the goods.

Producers in the US, exporters to Mexico and importers into Mexico should ask themselves: Does our company or our US supplier who issued our NAFTA certificates have the necessary certainty that they were correctly completed and that the supporting records remain readily available to be able to reply quickly when asked by SAT? The same should be asked in reverse for imports into the US from Mexico, and the same questions obviously apply equally to certificates issued under the USMCA/T-MEC.

The timelines to act in this area are so short and strictly enforced that it reminds us of the old adage "an ounce of prevention is worth a pound of cure." The Sheppard Mullin international trade team can help you do the necessary NAFTA/USMCA check-up, and avoid a frantic last minute fire drill, by reviewing and confirming that your certificates have been issued accurately and that all the supporting evidence and documents are in order.

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.