 NAFTA Verification Audit Highlights  Mexican Foreign Trade Rule Changes Customs Highlights

Increased NAFTA Verification Audits Authority to Conduct Audits Under 19 U.S.C any person who imported or knowingly caused the importation of merchandise into the customs territory of the U.S., exported merchandise, or knowingly caused the exportation of merchandise to a NAFTA country; must provide the records required by law or regulation to the U.S. CBP with a reasonable time after demand.

Claiming NAFTA Preferential Treatment 1. Make a written declaration based on a valid certificate of origin 2. Possess a valid certificate of origin at the time of the declaration 3. Maintain documentation in the U.S., including the certificate of origin, relating to the imported good 4. Provide the certificate of origin to U.S. Customs on request 5. Promptly make a corrected declaration when requested

NAFTA Verifications NAFTA verifications generally begin with the issuance by CBP of a Form 28 requesting specific information to verify the NAFTA claim If the response to the Form 28 is incomplete, insufficient, or raises a “red flag”, then a Form 29 is usually issued also. NAFTA verifications can be as simple as providing explanations and documentation to a Form 28 or as complicated as including all NAFTA products for 5 years

Red Flags (1/5) Importer has insufficiently documented, poorly defined, or no internal controls for accurately declaring NAFTA preferences Importer does not interact with broker on NAFTA issues Importer relies on one employee to handle NAFTA Importer customs staff lacks knowledge of NAFTA

Red Flags (2/5) Importer offers unreasonable explanations to CBP Previous negative determinations on the same merchandise Importer fails to cooperate with CBP Significant variance between the importer’s data and custom’s data

Red Flags (3/5) Customs shows history of problems with NAFTA claims One importer representative dominates NAFTA preference claims without management oversight There is no monitoring of the Classification procedure or records process that serve as the basis for NAFTA claims

Red Flags (4/5) There is a sharp increase of NAFTA imports from a prior period The importer and the NAFTA producer are related The importer’s reliance on the information certified in the certificate of origin is not reasonable The CO is incorrectly prepared

Red Flags (5/5) The blanket CO is signed subsequent to the beginning of the blanket period claimed The exporter preparing the CO is not the producer of the goods There are changes in classifications from one time frame to another for a considerable portion of an importer’s imports

Examples of Best Practices (1/4) The importer’s internal controls over NAFTA claims: Are in writing Include procedures for monitoring & feedback Are monitored by management One manager is ultimately responsible for control of the import department. That manager has knowledge of the Customs matters and the power to ensure that internal control procedures are established & followed

Examples of Best Practices (2/4) Importer conducts & documents periodic reviews of NAFTA, and uses the results to make corrections to entries and changes to the import operations as appropriate The importer’s internal controls involve a verification process to determine the merchandise qualifies for NAFTA Internal controls ensure that COs & related documents are kept for 5 years

Examples of Best Practices (3/4) Importer has procedures in place to furnish Customs copies of applicable certificates of origin when requested The importer performs an annual review of specific rules of origin to remain current with NAFTA regulations

Examples of Best Practices (4/4) The importer has procedures to obtain COs from all NAFTA suppliers prior to initial import date of any of the merchandise covered by the CO Importer maintains a NAFTA database or listing of imported merchandise that would readily identify transactions that claim NAFTA preference