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The North American Free Trade Agreement (NAFTA) is a voluntary program. Importers and exporters within Canada, Mexico and the United States may opt to participate and, as a result, avoid duties on most goods traded within North America.

It is the exporter who is responsible for validating that a good qualifies for participation under the program. (NAFTA uses the word “originating.”) If a good is eligible, the exporter generates a NAFTA country of origin certificate. Should an exporter or a producer who chooses to participate generate an incorrect certificate, the law will hold the exporter and any participating producer accountable for the misstatement.

It comes as a surprise to some that an exporter and a producer have no legal obligation to participate in NAFTA. That is to say, NAFTA does not require an exporter to issue a NAFTA country of origin certificate if they choose not to participate in the program.

To be sure, exporters may be compelled commercially to participate. Customers have a knack for being persuasive. Clearly, an importer would like to avoid any unnecessary duty payments.

As a U.S. exporter, how do you determine the duty status of a product? It starts, of course, with knowing the harmonized code for your product and then referencing the Canadian and Mexican tariffs.

Let us look at an example and assume we are exporters of wooden framed exterior windows and doors classified under heading 4418 of the harmonized system. In the United States we refer to our import tariff, the HTS, which can be found at the U.S. International Trade Commission (ITC) website or via links on the Customs and Border Protection website. We learn that the import duties on windows will be 3.2% and doors will be 4.8%.

We can reference the Canadian tariff, available at the Canada Border Services Agency website. We find that, although the subheadings remain the same, the 10-digit Canadian classifications are slightly different. Window frames are dutiable at 6% while windows are dutiable at 8%. Doors of all kinds are duty free.

The Mexican tariff is available through the Ministry of the Economy’s website through a program called Siavi2. Siavi2 requires a minimum knowledge of Spanish. There are alternative sources to the Mexican tariff. I have found the APECtariff.org website to be helpful for referencing the Mexican tariff.

Regardless of the site you use you will discover that all products classified under heading 4418 are dutiable at 20%.

In the above example, the exporter would likely choose to participate in NAFTA because most of their goods are subject to duties, except for one instance.

Importing of doors into Canada is already duty free. In that instance the exporter may choose not go through the arduous process of originating the doors and choose not to issue a NAFTA country of origin certificate.

Good point! The United States and Mexico charge user fees upon import. Mexico charges 0.8% while the United States charges 0.21% (minimum $25 and maximum $485). NAFTA qualifying goods imported into the U.S. and Mexico are exempted from these fees. Canada does not charge user fees.

In our above example, an exporter to Canada may still choose to opt out of NAFTA participation as there is no additional benefit to the importer.

Certainly. Companies that understand the administrative burden of maintaining a NAFTA program may make the choice that it is too expensive to participate.

Some companies find that even though their goods qualify, they barely meet the rules. These companies believe the costs and risks of non-compliance exceed the benefits of participation.

Other companies choose to opt out for another very good reason: their products simply do not qualify under the NAFTA. That is to say, they should not have opted in the first place.

By Richard Vitas Palaikis II email | bio

Have you considered conducting business internationally by exporting merchandise from the United States? If so, there are many factors you should take under consideration prior to engaging in an export transaction to ensure that the venture is a success rather than a failure.

Since international trade transactions have become quite involved in today’s world, this article is the first in a series that will outline the steps that should be taken to successfully establish an export strategy.

Step 1: Determining Your Company’s Export Readiness

The first step to exporting involves determining your company’s export readiness. Since the international trade environment as we know it today is always in a constant state of change, it is vital that corporate officer's discuss their corporations' export readiness prior to engaging in export transactions.

You should consider the following questions carefully before proceeding:

Does your company have a product that has been successfully marketed within the domestic marketplace?
Does your company have an international export plan with predefined goals and strategies, or is your company in the process of creating an international export plan?
Does your company have the production capacity necessary to sustain the domestic marketplace as well as the export market?
Does your company have the financial resources to sustain marketing operations within the domestic marketplace as well as in the export market?
Does your company have the necessary human resources dedicated to developing and maintaining an appropriate export market strategy?
Does your company have the necessary human resources dedicated to providing adequate customer service to the domestic marketplace as well as the export market?
Does your company have the necessary knowledge of foreign import regulations, food safety standards and cultural preferences to effectively modify product packaging and labeling?
Does your company have the necessary human resources that possess knowledge of international shipping procedures and regulations?
Does your company have the necessary human resources that possess knowledge of international payment mechanisms such as Letters of Credit?

Should you not be able to completely answer any of the questions presented above, you should consider conducting the research necessary to do so. Obtaining the appropriate information can mean the difference between success and failure!

My next article will focus on the export market strategy as well as the various resources that may be able to provide assistance.

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