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FAQ: U.S. - NAFTA Free Trade Agreement (FTA)

What issues are commonly misunderstood about the NAFTA?

What exactly does "wholly obtained or produced" mean?

How are products qualified for special tariff treatment under the NAFTA?

How are complicated, multi-part products qualified under NAFTA?

What are the changes to Mexico's maquiladora regimen implemented January 1, 2001?

Where can I find more information on the NAFTA or on how to qualify products?

What issues are commonly misunderstood about the NAFTA?

The NAFTA establishes special preferential tariff treatment for goods “originating” in and traded among NAFTA countries. However, the NAFTA Certificate of Origin is not a required entry document for shipments between the United States and Mexico or Canada and should only be prepared if the product qualifies under the NAFTA Rules of Origin for preferential tariff treatment. The exporter must first determine if the product qualifies and whether a Certificate of Origin is needed.

Completion of a NAFTA Certificate of Origin is an affirmation that the party signing the document has determined that the goods covered by the certificate are “originating”, as defined in the NAFTA. Preparation of this certificate imposes certain legal rights, obligations and liabilities on the party signing the document and should be based on a careful inquiry into the terms of the NAFTA as they apply to each product.

One of the most difficult issues exporters face when exporting to one of the NAFTA countries is determining whether the product can be considered an “originating good”. Origin is not determined by where the product begins its export journey. The term “originating” means qualifying under the rules of origin set out in Chapter Four of the NAFTA. The NAFTA Certificate of Origin must be completed in order to receive preferential tariff treatment upon entry of the goods into the importing country.

Many U.S. companies are unfamiliar with the agreement and mistakenly believe that products produced in the United States, Canada, or Mexico qualify for NAFTA treatment. Most firms are unaware that they need to determine whether there are any foreign parts, components, or raw materials used to manufacture their final product.

U.S. companies must obtain or confirm the appropriate Schedule B or Harmonized Tariff Classification Number for their product(s) in order to reference the rules of origin that govern the allowable percentage of foreign components. The classification number is also used by shippers in reporting export shipments, by governments in compiling official trade statistics, and by customs authorities in determining the relevant import duties to be paid. Analysis of the NAFTA Rules of origin can be found on the TIC website.

What exactly does "wholly obtained or produced" mean?

Preference Criteria tell Customs and the importer how the goods qualified as originating. It is impossible to choose an origin criterion without first reading and fully understanding the rules of origin frequently referred to as Article 401 of the NAFTA and Annex 401. There are six preference criteria: A through F.

Criterion A corresponds to goods wholly obtained or produced entirely in Canada, Mexico or the United States. "Obtained" does not mean "purchased," but is simply used to acknowledge that production is not the only way goods are created.

When qualifying products and determining the preference criterion, many exporters have difficulty answering the question of whether their product has been wholly or totally produced in a NAFTA territory.

For the purpose of NAFTA, “wholly obtained or produced” means that the goods contain no foreign parts, components or raw materials. Some examples of products wholly obtained or produced entirely in the territory of one or more of the countries are mineral goods; vegetable goods; live animals; and goods obtained through hunting, trapping, or fishing. Additional information concerning preference criteria and a complete list of goods considered to be wholly obtained or produced in one of the NAFTA countries is available on the TIC website.

How are products qualified for special tariff treatment under the NAFTA?

Under NAFTA, U.S., Mexican, and Canadian tariffs on “originating” goods are gradually being phased out. Originating goods are those that meet the appropriate NAFTA Rule of Origin. In order to obtain preferential tariff treatment on these products, exporters must complete a NAFTA Certificate of Origin.

The following process can be used as a guide to determine if your product qualifies and how to fill out a certificate of origin:

1. Check with the production manager [or the supplier(s) of the product] about any foreign components, parts, or raw materials used to manufacture the product.

2. If there are foreign components, parts, or raw materials, visit the Census website (or call 301-763-3484 or 3259) and obtain the Schedule B number for the foreign component and the end product.

3. Check with the Trade Information Center (TIC) to see if there are any duties on the end product. If there are no duties, it is not necessary to complete the NAFTA Certificate of Origin. If the duties using NAFTA Preference are less than the usual duties applied under Most-Favored Nation (MFN) status (which is equivalent to U.S. Normal Trade Relations), complete a NAFTA Certificate of Origin after determining your product qualifies.

4. Read or review the NAFTA Rules of Origin in Annex 401 (as updates in General Note 12(t) of the US Harmonized Tariff Schedule).

5. Look up the specific rule of origin for the product (the Rules of Origin are listed according to the tariff classification number) and apply the rule to the product to determine whether it meets the requirement. Use the Schedule B numbers obtained in Step 2 above. The TIC can help you interpret the Rules.

6. If the product does not meet the specific Rules of Origin, it does not qualify for preferential tariff treatment and the Certificate of Origin should not be completed.

7. If the product meets the specific Rules of Origin, complete a NAFTA Certificate of Origin. The TIC can assist you in interpreting the Preference Criteria and other information needed on the Certificate.

How are complicated, multi-part products qualified under NAFTA?

U.S. manufactured products are often composed of many inputs or components. For such products, it may be necessary to obtain an advance customs ruling from the customs authority in the importing country. Advance rulings are issued on a wide range of NAFTA-related issues, including whether an imported good qualifies as an originating good; whether a specific regional value-content requirement or tariff classification change requirement is met; and whether the proposed marking of a good satisfies country of origin marking requirements.

For Mexican or Canadian Customs contact information, call the Trade Information Center at 1-800-USA-TRADE.

What are the changes to Mexico's maquiladora regimen implemented January 1, 2001?

Under NAFTA, Mexico can no longer waive import duties for non-NAFTA products that are processed in Mexico and exported to a NAFTA partner. The new regulations stipulate that, as of 2001, a maquiladora company that exports its final product to the United States or Canada will have to pay the Mexican government, within 60 days of export, import duties for the product's non-NAFTA inputs.

The changes to the law affecting the import of materials, components and supplies for the maquiladora industry grant U.S. companies competitive advantage over non-NAFTA suppliers.

U.S. companies are encouraged to learn about the rules affecting the maquiladora industry and to comply with the necessary requirements to become potential suppliers, including the preparation of the NAFTA Certificates of Origin that would grant them the benefit of exporting their products duty-free into Mexico.

Where can I find more information on the NAFTA or on how to qualify products?

The text of the NAFTA agreement can be found at the bottom of the main NAFTA page under “Additional NAFTA Resources” or on the following website:

http://www.sice.oas.org/trade/nafta/naftatce.asp


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