With the end of the year quickly approaching, now is an excellent time for North American importers and exporters to review and update their blanket NAFTA Certificates of Origin.

Since this is an annual project for those companies who create, collect and/or maintain blanket certificates, it is worthwhile reviewing the key areas to protect importers from potential financial repercussions.  As with many annual projects, one tends to lose track of the steps involved or even where to start.  Speaking from my own experience this weekend, you could compare this to putting up Christmas lights…Where did you store them? Which string do you start with?  Do you need to change any bulbs or alter the design?  How will you affix them to your house to make sure they stay up?  Are they still going to work?  Personally I’m convinced that a naughty elf is at work in the summer messing up my system, or maybe I just can’t remember what I did twelve months before!

Here are some best practices that you should consider while getting your 2012 NAFTA certificates in order.

Correctly Completed Certificates

For companies reviewing NAFTA Certificates of Origin (NCO’s) from their North American vendors, the first step is to ensure that at face value, the certificate has proper coding and is fully completed.  While this might sound like common sense you would be surprised how many certificates are missing information or contain unacceptable data (for instance, indicating a dollar value in the Net Cost column).  In order to assure accuracy of the data you need to have sufficient knowledge regarding the completion of the document, the basics of which are usually found on the second page of the NCO (NAFTA Certificate of Origin).  For further information you can also refer to our previous article that covers some of the more common mistakes  (5 Top Mistakes When Completing a NAFTA Certificate of Origin).  If you are unsure about your knowledge and ability to perform this step, enlist the services of a customs broker to perform the review on your behalf.  Pacific Customs Brokers offers a variety of services to cover verification, collection, review and maintenance of NAFTA Certificates of Origin.

NAFTA Eligibility

A problem in the review process is verifying that the goods listed on the NCO are indeed eligible for NAFTA.  For importers this can be a huge challenge as they are relying on their foreign vendor to determine how their products qualify.  Remember, this isn’t just another document that is simply completed with trade data and a signature; there is a detailed process to determine if the goods qualify for NAFTA certification.  Here are some things you can do:

-        Check the certificate to determine who signed the document.  Generally a more senior employee will have exercised a higher level of care and due diligence.

-        Probe to discover if they use any amount of raw materials sourced from outside North America.  If so, ask the person who signed the certificate how they determined NAFTA qualification.  The response will be a good indicator of how carefully they conducted their review.  Tip:  Both U.S. and Canada Customs use the same strategy when conducting an audit.

-        You may also want to read the NAFTA De Minimis regulations and Specific Rules of Origin for the tariff classifications covering the respective products.  In some industries, there may be goods that are excluded from NAFTA if certain foreign materials are used.  It may worthwhile to be aware of these just in case your vendor has not researched it.

-        If there is any degree of uncertainty regarding their NAFTA knowledge, you may wish to suggest that they enlist the services of a customs broker or customs consultant to help them conduct a thorough review.  This step is highly recommended if they export large quantities within North America and have never undergone a formal qualification.

Some other compliance tips relating to NAFTA…

Review Each Customs Entry

Whenever NAFTA is claimed on a 7501 (U.S. customs entry) or B3 (Canadian entry) a valid NCO must be on file for those products.  Establish a process of checking every entry particularly if you are frequently importing new products.  This can be an area of concern if NAFTA is a topic only reviewed at the end of each year.  For instance, does your NAFTA management process have a procedure in place to obtain updated blanket NCO’s if you purchase new products part way through the calendar year?

Blanket or Individual NCO’s?

Decide whether to use blanket certificates of origin, which cover a 365 day period, or individual certificates (one time use).  For infrequent purchases it may be easier to have a vendor provide an NCO for each shipment.

NAFTA Maintenance

Have a system for tracking and maintaining these documents.  In Canada, import documents must be maintained for six years plus the current year (five years for the U.S.).  If you are chosen for a NAFTA verification audit by Customs authorities, could you locate your certificates and supporting documentation?

Increase Your Knowledge

We strongly suggest that you attend a NAFTA workshop or seminar to increase or refresh your knowledge, particularly if you manage many NCO’s, or manufacture and sell to North American companies.  Pacific Customs Brokers facilitates two NAFTA workshops a year – in November and January. Sign up today for the next NAFTA workshop to be held on January 19, 2012.

Use these practices to create or improve your NAFTA management process.  Penalties and potential duty charges may be significant if errors are found and neither customs’ agency will accept ignorance as an excuse (AMPS & the NAFTA Certificate of Origin)

If you need further information or have questions concerning this topic, please feel free to contact us.