1. Which Harmonized Number should appear in Block 6 of the NAFTA Certificate of Origin: the US, Canadian or Mexican tariff number?

   The numbers should be the same in all tariffs at the 6-digit level, but if they are different, the producer should determine if the number provided by the buyer is acceptable. If it is, then use the Harmonized System (H.S.) number.

   The prudent exporter/producer should obtain a ruling when there is a H.S. number difference between countries. Canada now requires that invoices indicate the full 10 digits of the Canadian tariff schedule.

2. May Customs Brokers sign certificates?

   Yes, if they possess a valid power of attorney from the party who would otherwise complete the certificate (exporter/producer). A customs broker may not prepare a certificate based on a power of attorney from the importer. The importer is not authorized to sign the certificate.

3. How do I know if my good is subject to an RVC (regional value content) requirement?

   If your good is wholly obtained or produced in a NAFTA country (all materials traced to earth, preference criteria “A”), or is produced entirely in the NAFTA territory exclusively from originating materials (preference criteria “C”), it is not subject to RVC requirements.

   If the good meets the specific rule of origin (preference criteria “B”), the specific rule of origin in General Note 12 will indicate whether or not the good is subject to an RVC requirement.

4. Can more than one preference criterion apply? Can persons preparing the certificate choose the preference criterion they like best?

   It is possible for a product to fit into preference criteria “A”, “B” and “C”. The party may use any preference criterion that allows qualification.

5. How important is the Harmonized System number? Do I need to know that number before I can determine if our goods qualify under NAFTA?

   The benefits of NAFTA, for most products, are based on either Tariff-Shift or Value-Content Rules. Since determining the specific rule of origin applicable to a product is according to the Harmonized System, it is imperative the correct classification number be determined. If you have the wrong classification number, you will choose the wrong rule of origin, fill out the NAFTA Certificate of Origin incorrectly, and the importer will incorrectly claim the goods are eligible for NAFTA.

   Many rules of origin require classification of the bill of materials to determine qualification under NAFTA. Understanding the Harmonized System of tariff classification is a critical prerequisite for applying the rules of origin.

6. Our Freight forwarder determined our classification number. Can we hold the freight forwarder responsible for an incorrect classification number?

   No, the exporter of record is responsible for determining qualification under NAFTA, including the correct classification. Relying on a freight forwarder to classify a product is very risky.

   In order to properly determine the classification of a product, you need detailed knowledge of that product. That may require that you involve an engineer or production manager while you are reviewing the legal notes at the beginning of chapters and sections of the tariff to determine proper classification.

7. I am a documentation clerk at my company. Should I sign the NAFTA Certificate of Origin?

   The person who signs the NAFTA Certificate of Origin must be knowledgeable and responsible and have authority to commit the exporter. Customs authorities will question certification by clerks and others who are neither knowledgeable nor authorized to represent the exporter.

   There are penalties associated with incorrect completion of the NAFTA Certificate of Origin. The person signing the NAFTA Certificate must understand their liability. Export companies must realize that a person completing the certificate without proper training and understanding of the qualification process established by the NAFTA Rules of Origin is subject to criminal and civil penalties. Therefore, they should carefully decide which person should their NAFTA Certificates of Origin.

8. Does our product qualify for NAFTA if made in the United States?

   Not automatically. The product must meet NAFTA rules of origin to qualify. There is a clear distinction in “origin of goods” versus “originating in a North American country.”

   Rules of origin are designed to ensure NAFTA benefits are accorded only to goods produced in the North American region, not goods made wholly or in a large part in other countries.

   The rules of origin specify that goods originate in North America if they are wholly North American. Goods containing non-regional materials are also considered to be North American if the non-regional materials are sufficiently transformed in the NAFTA region so as to undergo a specified change in tariff classification.

9. How long do I have to keep records on NAFTA shipment?

   Records are to be kept for a minimum of five years after the date the Certificate was signed or for periods longer than five years if specified. Article 505 of the NAFTA Agreement specifies that along with the Certificate of Origin, other records required to be kept for five years are:

   1. The purchase of, cost of, value of, and payment for the good that is exported from its territory,

   2. The purchase of, cost of, value of, and payment for all materials, including indirect materials, used in the production of the good that is exported from its territory, and

   3. The production of the good in the form in which the good is exported from its territory.

10. What should an exporter in the United States do if, after completing and signing a Certificate of Origin, they have reason to believe that the certificate contains information that is not correct?

Within 30 calendar days of finding this error, the exporter must notify in writing all persons to whom the certificate was given of any change that could affect the accuracy or validity of the certificate.

When I first heard this question, I really thought it was a trick question. Kind of like, “Who is buried in Grants tomb?” Isn’t the answer obvious? Of the four main payment options, the letter of credit (LC) is definitely the winner when it comes to high cost.

In today’s revenue driven environment, companies are looking for ways to improve profitability by driving down costs whenever possible. Everyone in the business world today feels the pressure to reduce or eliminate all unnecessary expenses. Letter of credit fees are a likely target, especially if you are using LCs on imports from long-time customers with whom you have established an excellent working relationship.

However, sometimes things aren’t what they seem to be at first glance. If you are importing merchandise from the Far East on a letter of credit basis, you can rest assured that the vendor is using that letter of credit to obtain favorable financing from their bank. This is an extremely common practice in Asia.

So before making any changes to your current importing process, let’s take a look at what’s going on behind the scenes.

A vendor may need pre-export financing in order to purchase the raw materials to manufacture the goods that you want to buy. When they approach their bank for financing, the bank works up a credit assessment. They determine how likely it is that the vendor will repay the loan, and then they set the rate for the loan accordingly. This rate is one of those costs that is a big component when the vendor determines its pricing.

However, if the vendor can provide a letter of credit as collateral, the rate of financing will be very different. If the letter of credit issued in their favor is from a well-known, highly rated bank, the vendor’s bank knows that their risk in providing pre-export financing has just dropped dramatically. That will result in a lower interest rate. The vendor can pass this cost saving on to its customers through lower pricing.

By eliminating the LC, you may find that you save on banking charges, but you incur higher unit prices from your vendor.

Proceed with caution if you are contemplating the possibility of removing the LC from the transaction. You will need to do some groundwork first.

Contact your bank, and tell them what you are planning to do. Have a long conversation with your vendor to find out just how this is going to affect their pricing. They will obviously need to work with their bank to determine new interest rates and new pricing.

Once you have all the information, you can do the cost/saving comparison. As surprising as it may seem, using an LC probably will be cheaper.

Banks in Asia are very adept at accepting letters of credit as collateral on pre-export financing loans. However, I can’t say the same for banks in the U.S.

If an exporter located in the U.S. approaches their bank for a loan and offers a letter of credit as collateral, I wouldn’t be surprised to hear that the bank rejected the LC as collateral. It’s just not a common banking practice in the U.S., and most domestic bankers don’t feel comfortable using them as collateral.

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