North American Free Trade Agreement (NAFTA)
North American Free Trade Agreement (NAFTA)
The North American Free Trade Agreement (NAFTA), which was enacted in 1994 and created a free trade zone for Mexico, Canada, and the United States, is the most important feature in the U.S.-Mexico bilateral commercial relationship. As of January 1, 2008, all tariffs and quotas were eliminated on U.S. exports to Mexico and Canada under the North American Free Trade Agreement (NAFTA).
Mexico is the United States’ third largest trading partner and second largest export market for U.S. products. In 2018, Mexico was our third-largest trading partner (after Canada and China) and second-largest export market. Two-way trade in goods and services totaled USD 678 billion, and this trade directly and indirectly supports millions of U.S. jobs. The United States sold USD 265 billion of U.S. products to Mexico in 2018 and USD 34 billion in services, for a total of USD 299 billion in U.S. sales to Mexico. Mexico is the first or second-largest export destination for 27 U.S. states.
NAFTA provides coverage to services except for aviation transport, maritime, and basic telecommunications. The agreement also provides intellectual property rights protection in a variety of areas including patent, trademark, and copyrighted material. The government procurement provisions of the NAFTA apply not only to goods but to contracts for services and construction at the federal level. Additionally, U.S. investors are guaranteed equal treatment to domestic investors in Mexico and Canada.
NAFTA allows your company to ship qualifying goods to customers in Canada and Mexico duty free. Goods can qualify in several ways under NAFTA’s rules of origin.This might be due to the products being wholly obtained or produced in a NAFTA party or because according to the product’s rule of origin there is sufficient amount of work and materials required in a NAFTA party to make the product become what it is when its exported.
Rules of Origin
The rules of origin (ROO) may be found in the final text of the FTA. Occasionally, a particular ROO may be revised. For the most updated version of the ROOs consult the Harmonized Tariff Schedule of the United States, General Notes — General Note 33.
In addition to the above rules of origin, there may be other ways to qualify your product:
- Accumulation may allow the producer to reduce the value of the non-originating materials used in the production of the good.
- De Minimis allows the exporter to disregard a very small percentage of non-originating materials the do no meet a tariff shift rule.
- Direct Shipment are goods which must be shipped directly from one FTA party to another FTA party.
- Fungible Goods and Materials refers to goods or materials (components) that are interchangeable for commercial purposes and whose properties are essentially identical.
- Indirect Materials are goods used in the production, testing or inspection of a good but not physically incorporated into the good.
Once you have determined that your product qualifies for NAFTA, read below section for how to declare that the product qualifies for preferential tariff treatment.
NAFTA Certificate of Origin
- The exporter is responsible for filling out the NAFTA Certificate of Origin, not the importer.
- Once an exporter has determined the product qualifies for NAFTA, the exporter needs to fill out a NAFTA Certificate of Origin UNLESS the product going to Canada or Mexico is valued at LESS than $1,000 USD. In these cases, the exporter simply needs to make a written declaration on the commercial invoice stating that the product is NAFTA qualifying.
- Once the Certificate is completed, the exporter needs to send the original or a copy of the Certificate of Origin to the importer. It is recommended that a copy of the Certificate of Origin is also included with the shipment. The exporter is required to keep all documentation of NAFTA claims five years from the date of importation or such longer period as a Party may specify after the completion of the transaction.
- NAFTA Certificate of Origin (PDF from Customs and Border Protection).
- For more on completing a NAFTA Certificate of Origin, view Part one and Part two of the video series.
The issuer of a written declaration of origin is required to have it available, in addition to other supporting documentation used in demonstrating that the good qualifies as originating under the NAFTA rules of origin, for a period of FIVE years from the date of importation of the good for products going to Canada and for a period of TEN years from the date of importation of the good for products going to Mexico.
- For more information on the NAFTA, please go to Chapter 6 of NAFTA Agreement: NAFTA Agreement: A Guide to Customs Procedures.
More information on what to include can be found in Free Trade Agreements Certificates of Origin.
For more information on USMCA, visit the USTR website.