In this edition of Trade Matters we focus on the North American Free Trade Agreement (NAFTA) and Certificates of Origin that are prepared and certified by Canadian exporters. This article is also important for Canadian companies who act as the importer of record into the United States and are declaring the NAFTA preferential duty rate.
If your company is issuing an exporter’s NAFTA certificate of origin, ask yourself the following questions:
- Have you reviewed the specific rule of origin provided in Annex 401 of the NAFTA that applies to the product being exported?
- Have you classified all parts of unknown origin that were used in the production of the exported product?
- Has a certificate or other information been obtained from all domestic and foreign vendors certifying the parts qualify as originating under NAFTA?
Under NAFTA, the exporter or producer is responsible for establishing that the good being exported qualifies as originating under NAFTA. Qualification is determined in accordance with the Specific Rules of Origin in Annex 401 of the NAFTA, which provides the specific rule or the specific set of rules that apply to a particular heading, subheading or tariff item. Note that a requirement of a change in tariff classification applies only to the non-originating materials in the good being exported.
By completing a certificate of origin, the exporter certifies that the required research has been performed and that supporting documents are on file.
Important things to remember:
- It is the exporter’s responsibility to determine the origin of the goods
- The person signing the certificate should:
– Be entitled to sign legally binding documents on behalf of the exporter
– Have full knowledge of the origin of the goods
– Have access to the books and records to substantiate the claim.
An exporter that is not the producer of the goods must either:
- Obtain written confirmation from the producer (other than a certificate of origin) confirming the good qualifies as originating
- Obtain a properly completed certificate of origin from the producer
- Substantiate that the goods satisfy the NAFTA rule of origin (based on the exporter’s knowledge).
Exporters should not sign a certificate of origin if:
- It has been determined the goods do not qualify as originating
- The specific rule of origin has not been applied
- It cannot be substantiated that the goods satisfy the specific rule of origin.
When a producer provides an exporter with a certificate of origin, it is still the exporter’s responsibility to ensure that a valid certificate that covers the actual exported goods is completed and signed. The certificate of origin should not include known goods of non-NAFTA origin.
Exporters that certify goods as originating under NAFTA should implement certain processes. The following information should be kept on file to substantiate a NAFTA claim:
- A bill of material used to produce the good that identifies all parts as either originating or non-originating (goods produced or purchased in the territory are not necessarily considered originating under NAFTA)
- The tariff classification of all non-originating materials (the tariff shift requirement applies only to non-originating materials)
- Names and addresses of suppliers
- The transaction value of the good being exported
- The value of the materials
- A narrative description of the production process
- The production cost for the goods.
Completing a certificate of origin imposes certain legal rights, obligations and liabilities on the party signing the document; therefore, completion must be taken seriously and should be based on careful inquiry into the terms and requirements of the specific rules of origin.
When certifying goods under the NAFTA, documented procedures should be implemented and followed. Failure to follow any of the above processes or maintain proper records on the origin of the certified goods could result in a denial of the goods’ preferential tariff treatment.
This article originally appeared in KPMG’s “Trade Matters: Winter 2011 Edition, Canada.” This edition also included:
- New Incoterms® for 2011
- National Trade Compliance Priorities List Updated
- In Brief
– Duty Relief Extended for Original Designer Apparel
– Customs Tariff Changes Coming
– AMPS Regime – Phase II Takes Effect
– EU Security Data – Electronic Submission Required
Access the edition here.
KPMG’s Trade & Customs professionals can help your company with these or any other customs-related matters that may affect your business. We can help you manage your customs compliance obligations as well as help ensure that you are not missing refund opportunities.
For more information on any of these subjects, or any trade or customs issue, please contact one of KPMG’s Trade & Customs professionals:
National Practice Leader
KPMG LLP, the audit, tax, and advisory firm, a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have over 140,000 professionals, including more than 7,900 partners, in 146 countries.