1. NAFTA Documentation August 21, 2008 Presented by: Robert Stein –Director of Entry Services

2. NAFTA Goods must qualify before they are granted duty free treatment under NAFTA Once goods qualify a PROPERLY completed NAFTA certificate must be created Penalties for improper NAFTA claims are $10,000 per occurrence. This is per import or export transaction, not per NAFTA certificate ALWAYS consult with an expert before claiming NAFTA

3. NAFTA – Proper qualification Proper qualification means: Classifying your finished goods. Looking up the rules of origin in the HTSUS. Creating a bill of materials for your product. Determining country of origin for each item on the BOM. * Classifying each item on the bill of materials. * Entering the value for each item on the BOM. Determining if your goods qualify based on the rules of origin using the information on the BOM. Once they qualify, using the information on the BOM to determine how they qualify.

4. NAFTA – Preference Criterion “A” You must use the proper “preference criterion” to assure a valid form 434 (Certificate of Origin) Preference Criterion A – Wholly obtained or produced in the USA, Canada, or Mexico. Probably should not be used on finished goods. The smallest amount of non-territorial inputs will disqualify a product from this criterion. Typically applies to live animals, mineral and forest products as well as most agricultural goods. Applies to scrap created in a NAFTA country as a result of a production process such as machining, drawing, stamping, etc, regardless of the origin of the raw material.

5. NAFTA – Preference Criterion “B” Preference Criterion B – Goods made entirely in a NAFTA country and the rules of origin have been satisfied. Goods must contain foreign inputs or inputs of unknown origin. Goods satisfy the Annex 401 rules that may include tariff shift, regional value content, or both. Goods containing less than 7% of non-originating goods that do not meet the rules in Annex 401 (rules of origin) still qualify for NAFTA under the De minimis provision.

6. NAFTA – Preference Criterion “C” Preference Criterion C – Goods produced entirely in the territories of one or more NAFTA countries of exclusively originating materials. No foreign or unknown components can be directly used in production. Each item used to make the finished good qualifies for NAFTA by itself. You must be able to prove the NAFTA eligibility of each component.

7. NAFTA – Preference Criterion “D” Preference Criterion D: Unassembled or Disassembled Goods, Parts Because of certain classification rules, some merchandise will never undergo a sufficient tariff shift from processing in North America. One example of this is where the tariff schedule classifies parts with the complete article. As a result, the imported parts have the same classification as the assembled article. Another example is where a complete but disassembled article is imported. Customs classifies such articles as if they were assembled. No tariff shift will take place because of the assembly process. In these cases, the NAFTA rules permit the producer or exporter to certify the good provided it has a RVC of 50% by the net cost method or 60% by the transaction value method.

8. NAFTA – Preference Criteria “E” & “F” Preference criterion E – This is applicable to certain electronic and computer goods and does not require processing or value added. This is a very specific criteria and should be claimed with great care. Preference criterion F - relates to certain agricultural commodities that are subject to quantitative import restrictions. Under this rule, if the goods are originating under preference criterion A, B or C, the quantitative restriction is inapplicable.

9. NAFTA NAFTA Certificate of Origin is a legal document. Ideally it should be signed by an officer of the company. If not signed by an officer it should be signed by someone with intimate knowledge of the product and process and is authorized to legally bind the company. It should be stored with the BOM and all paperwork used to confirm qualification of goods. Should NOT be completed by you simply because your client demands it. C of O’s completed by vendors should be reviewed for accuracy and validity. Invalid or suspect C of O’s should not be accepted without further confirmation.

10. NAFTA – Focused Assessment Focused Assessment program is used by Customs to gauge compliance with specific programs and regulations. Starts with a “Pre-Assessment Survey” (PAS) of the importer’s internal controls for NAFTA and evaluating the results. Customs looks for “Red Flags” Category 1 – Indicates potential problems that can probably be addressed by the importer. Category 2 – More likely to necessitate exporter involvement and may need to be addressed outside of FA.

11. NAFTA – Focused Assessment Red Flags Category 1 (examples) Importer has insufficiently documented, poorly defined, or no internal controls for accurately declaring NAFTA preferences. Importer offers unreasonable explanations to Customs. Importer fails to cooperate or respond to Customs. Importer has high turnover of people in key positions. One importer representative dominates NAFTA preference claims procedures and record keeping without monitoring or management oversight. The importer and NAFTA producer are related. Specific issues are identified in the profile.

12. NAFTA – Examples of Best Practices The importer’s internal controls over NAFTA claims: Are in writing, Include procedures for monitoring and feedback, and Are monitored by management. One manager is ultimately responsible for control of the Import Department, including NAFTA eligible merchandise. That manager has knowledge of Customs matters and the power to ensure that internal control procedures for imports are established and followed by all importer departments. Written internal control procedures assign NAFTA duties to a position rather than a person.

13. NAFTA – Examples of Best Practices Importer has good interdepartmental communication about NAFTA matters. Importer conducts and documents periodic reviews of NAFTA, and uses the results to make corrections. The importer’s internal controls contain prudent business practices that are meant to ensure that the importer can reasonably rely on certification provided by the exporter. The importer’s internal controls involve a verification process to determine that the imported merchandise qualifies for NAFTA.

14. NAFTA – Examples of Best Practices Importer has procedures in place to furnish Customs copies of applicable certificates of origin when requested. The importer visits the plant in the NAFTA country where the products are produced. The importer performs and annual review of specific rules of origin that apply to imported merchandise to remain current with any changes to NAFTA requirements.

15. NAFTA Qualification Workshop Ceiling Fan with 150 Watt Motor

16. Ceiling Fan with 150 watt motor – 8414.59 ComponentSupplierOriginTariff (non-territorial) Value Nuts & Bolts U.S. (C) Wiring Mexico (C) Housing Canada (B) Motor U.S. (B) Rubber Gaskets Mexico (C) Nut U.S. (C) Washers U.S. (C) This ceiling fan can be certified under criterion (C). Each input qualifies by itself under NAFTA using (B) or (C) criteria. At least one input is not wholly of territorial origin.

17. Ceiling Fan with 150 watt motor – 8414.59 ComponentSupplierOriginTariff (non-territorial) Value Nuts & Bolts China7318 Wiring Germany7408 Housing Korea7326 Motor Japan8501 Rubber Gaskets Taiwan4016 Nut China7318 Washers India7318 Rule 30B(A) of the Annex 401 requires a shift to 8414.59 through 8414.80 from any other heading. Since each input is classified outside of 8414 the fan complies with rule 30B(A).

18. Ceiling Fan with 150 watt motor – 8414.59 ComponentSupplierOriginTariff (non-territorial) Value Nuts & Bolts China7318 Wiring Germany7408 Housing Korea8414 Motor Japan8501 Rubber Gaskets Taiwan4016 Nut China7318 Washers India7318 Rule 30B(A) of the Annex 401 requires a shift to 8414.59 through 8414.80 from any other heading. Now that the housing is classified under 8414 the fan no longer meets the tariff shift requirements required by rule 30B(A).

19. Ceiling Fan with 150 watt motor – 8414.59 ComponentSupplierOriginTariff (non-territorial) Value Nuts & Bolts China7318.25 Wiring Mexico9.00 Housing Korea8414.9010.00 Motor Canada30.00 Rubber Gaskets US.25 Nut Mexico.25 Washers US.25 Does this qualify for NAFTA?

20. Regional Value Content Calculation Value of non-originating materials$10.25 Value of originating materials$39.75 Total material cost$50.00 Selling price of fan$75.00 RVC calculation is (75-10.25)/75 X 100 = 86.33% (transaction value) The fan qualifies for NAFTA under rule 30B(B) where a regional value content requirement of 60% must be met using transaction value.

21. Ceiling Fan with 150 watt motor – 8414.59 ComponentSupplierOriginTariff (non-territorial) Value Nuts & Bolts China7318.25 Wiring Germany74089.00 Housing Korea8414.9010.00 Motor Malaysia850130.00 Rubber Gaskets Taiwan4016.25 Nut China7318.25 Washers India7318.25 Does this qualify for NAFTA?

22. Regional Value Content Calculation Value of non-originating materials$50.00 Value of originating materials$0.00 Total material cost$50.00 Selling price of fan$75.00 RVC calculation is (75-50.00)/75 X 100 = 33.33% (transaction value) The fan does not qualify for NAFTA under rule 30B(B) where a regional value content requirement of 60% must be met using transaction value or under rule 30B(A).

23. Utilize your tools Go to the CBP web site (www.cbp.gov) and download the “informed compliance publications”www.cbp.gov Consult with your Customs broker and Freight Forwarder Obtain binding rulings when possible