Understanding NAFTA Rules of Origin and Customs Bonds
NAFTA Rules of Origin
• Article 401 of the Agreement determines the eligibility of the good
• Establish which goods originate under the agreement and prevent goods from other countries from obtaining the NAFTA benefits by merely passing through Canada, the U.S. or Mexico
• They are specific to the HS classification of the goods
• It is possible that goods that are articles of North America for marking, statistical or other purposes would not “originate” under NAFTA
• Article 401 is where we find the preference criterion that determines which criterion should be used
• ACCUMULATION The accumulation provision allows the producer or exporter of goods to choose to include as part of the goods’ regional value content any regional value added by suppliers of non-originating materials used to produce the final goods.
• DE MINIMIS: Although requiring a change in tariff classification is a very simple principle, it requires that all non-originating materials undergo the required change.
• What if a very low percentage of materials cannot undergo the tariff change, thus preventing the goods from originating?
• The NAFTA Agreement contains a de minimis provision that allows goods to qualify as originating, as long as such non-originating materials are not more than a certain percentage (7% in most cases) of the transaction value of the goods.
• FUNGIBLE: These are goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical.
• When a producer mixes non-originating and originating fungible goods, the physical identification of the originating goods is impossible.
• The NAFTA does not make the producer specifically identify each good, but allows the producer to determine based on any standard inventory methods set out in the NAFTA regulations.
• Last in First Out (LIFO) and First In First Out (FIFO) inventory methods are used.
Customs Bonds
There are two types of Surety Bonds for Customs Consumption Entries:
- Single Entry Bond for an Importer or Broker
When completed for single transactions, the bond covers only one import entry. - Continuous Bond for an Importer or Broker
Continuous bonds will normally cover all import transactions at every U.S. Port.
SPECIALITY CUSTOM BOND
Drawback Payment Refunds Bond
This bond allows an importer to obtain a refund of 99% of the duties paid on imported goods upon providing proof these goods were exported.
Bond allows the importer to immediately collect refund of customs duties paid before customs makes a determination as to the validity of the claim
International Carrier Bond
This bond ensures operators properly manifest all goods and passengers they carry, pay for the overtime services of Customs officers and comply with all regulations related to the clearance of their vehicles.
Temporary Import Bond (TIB).
TIB merchandise may be entered (under certain conditions) duty free if goods are in the U.S. on a temporary basis.
Instead of paying duty the importer posts a bond for twice the amount of duties and taxes.
If goods do not leave the U.S. within the specified time (or destroyed) the bond is cashed by U.S. Customs
Immediate Export Bond (I.E.)
Issued immediately upon the goods being refused entry into the USA.
Used to export merchandise from THE SAME PORT OF ORIGIN
Guarantee that the goods will be exported.
In-Transit Bond (IT Bond):
A bond that allows a shipment to be transported or warehoused under U.S. Customs supervision until it is formally entered into the customs territory of the U.S. and duty is paid, or until it is exported from the U.S.
Bond is issued per transaction
Transportation and Exportation Bond (T&E)
T&E bonds are issued for products which are being transported through the U.S. to be exported.
Used to move AND EXPORT merchandise at another port, other than port of origin.
Example: Truck shipment from Canada to Mexico.
Foreign Trade Zone Operator
Bond allows operator to set up and administer a “Foreign Trade Zone” to allow goods to enter Duty free and to be processed.
Foreign-Trade Zone is a specially designated area, in or adjacent to a U.S. Customs Port Of Entry, which is considered to be outside the Customs Territory of the U.S.
What cannot be done within a FTZ?
Activities against the public safety of the USA.
All manufacturing is reviewed in terms of government policy and economic effect.
Cannot manufacture: alcoholic beverages, perfumes containing alcohol, tobacco products, firearms or sugar.
To get goods admitted into FTZ …
Application is made on CF 214
– Commercial Invoice
– Evidence of Right to make Entry
US Customs reviews entry and Port director issues a to allow the goods admission.
ADVANTAGES OF FTZ
- Inverted Tariff Relief:
Imported goods into a FTZ are at a higher duty rate than the finished good.
- No Time Constraints on Storage: Can be stored indefinitely.
- Duty Deferral: Duty is only paid when the goods enter the US or a NAFTA Country
- Duty Elimination: Goods can be imported into a FTZ and then exported without payment of duties
- Savings of Merchandise Processing Fee (MPF)
Who is eligible to join the C-TPAT program?
1. U.S. Importers of record
Companies in the U.S. that are either the importer of record and/or the consignee, regardless of the cargo’s value or the type of cargo.
2. U.S./Canada Highway Carriers
The C-TPAT program is a requirement for the FAST (Free And Secure Trade) program.
3. U.S./Mexico Highway Carriers.
4. Rail Carriers.
5. Sea Carriers.
6. Air Carriers.
7. U.S. Marine Port Authority/Terminal Operators.
8. U.S. Air Freight Consolidators, Ocean Transportation Intermediaries and Non-Vessel Operation Common Carriers (“NVOCC”).
9. Mexican Manufacturers.
10. Canadian Manufacturers
11. Certain Invited Foreign Manufacturers.
12. Licensed U.S. Customers Brokers.
NOT ELEGIBLE
- Third Party Warehouses.
- Container Freight Stations (Bonded or Not).
- American Carriers that neither cross the Mexican nor the Canadian border.
- Consolidator/stuffing facilities
- Foreign Manufacturing facilities.
CSI: CSI, short for “Container Security Initiative,” is a program that was started by the U.S. Customs Service in early 2002.
CSI puts teams of Customs professionals in ports around the world to target containers that may pose a risk for terrorism.
CSI, a reciprocal program, offers its participant countries the opportunity to send their customs officers to major U.S. ports to target ocean-going, containerized cargo to be exported to their countries.
Japan and Canada currently station their customs personnel in some U.S. ports as part of the CSI program.
“To Prevent and Deter Terrorist Use of Maritime Containers While Facilitating the Movement of Legitimate Trade.”
WHY IS THERE RISK TO SEA-GOING CONTAINERS?
Al Qaeda and ISIS have stated that one of its goals is to destroy U.S. economic interests.
Containerized shipping is a major vulnerability, and the global economy depends upon it.
Over 200 million cargo containers move between major seaports each year.
90% of world cargo moves by container.
In many nations such as the United Kingdom (U.K.), Japan and South Korea, over 90% of trade volume arrives or leaves by sea.
In the U.S., almost half of incoming trade (by value) arrives by ship.
INTENTION OF CSI Intensify targeting and screen containers at ports worldwide, before those containers are loaded and sent to their final destinations.
Include national security factors in targeting.
Provide additional outreach to U.S. industry for cooperation, idea generation, and data collection.
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FCC: Value taken from commercial invoice.
VFD: VFCC x Exchange Rate
CD: VFD x Rate of Customs Duty (field 33)
VFT: VFD + CD
GST: VFT x Rate of GST (field 35)
TDTP: Total Duties + Total GST (field 47 + field 50)
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