Northern American Free Trade Agreement (NAFTA)

Concept
To create the largest free trade zone in the world, the agreement includes Canada, Mexico and United States of America. The agreement will increase North American production by encouraging foreign companies to locate in North America and encouraging "domestic" companies to purchase from other North American companies.

Effective date
NAFTA replaced the Canada - U.S. Free Trade Agreement and came into effect January 1, 1994.

Benefit
All goods of US origin imported into Canada and all goods of Canadian origin imported into US became duty free on January 1, 1998. Most goods of Mexican or US/Mexican origin imported into Canada and all goods of US or Canadian origin imported into Mexico will be duty free by January 1, 2001.

Concerns
NAFTA Certificates of Origin must be maintained for approximately 7 years after the date of final accounting for Customs. These certificates must be properly completed. The documentary evidence, which supports the certificate, must also be maintained for approximately 7 years.

Common errors

  • Origin criterion A is frequently misused. A means goods which are wholly produced or obtained in the territory. In other words, the fish were caught from the sea, the trees were cut, the wheat was grown, the minerals were mined and the oil was pumped in the territory. Very few products qualify for A. Crushed rock quarried in Ontario, Canada and loaded in a bulk carrier with no packaging definitely qualifies for A.
  • There is insufficient information on the certificate of origin to determine the proper origin or preference criterion. Exporter must refer to the rules of origin. Most exporters do not have the rules of origin.
  • The tariff item shown on the certificate of origin must be the same as the tariff item used to clear the goods. The tariff classification is central to the determination of whether or not goods qualify for preferential treatment. A change in tariff may result in goods no longer qualifying.
  • Many people assume that their goods will qualify as long as they have value added of at least 50%. The value-added rules only apply in very few cases. Most rules in the NAFTA agreement are based on tariff change. In other words, there must be sufficient processing performed to ensure a significant transformation of materials to an end product.