nafta 2001. what is nafta? n north american free trade agreement n a preferential agreement among...
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What is NAFTA?
North American Free Trade Agreement
A preferential agreement among Canada, the US and Mexico
Reduces the taxes the importer pays
Misnomer
The NAFTA isn’t really a free trade agreement; calling it a FTA is a misnomer. The NAFTA is a preferential trade agreement.
A free trade agreement makes a common customs territory. Once a good enters that territory, it can transit freely - that isn’t the case with NAFTA.
The NAFTA is a PREFERENTIAL TRADE AGREEMENT.It provides reduced duty rates for qualifying merchandise.
What is Qualifying?
Just because your product is made or assembled in the U.S. does not mean that it qualifies for NAFTA tariff reductions
Can I still send my product if it doesn’t qualify for reduced rates?
Yes, but you can’t use the NAFTA Certificate of Origin
Your customer can not claim reduced NAFTA tariffs
How do I qualify?
Find your harmonized number for trade MFN vs NAFTA Look up the appropriate rule of origin Interpret the rule of origin for your
product Perform necessary qualifying steps
What is the HS number?
Like a Social Security number for a product
HS# is used because custom officials around the world don’t speak the same language.
Chapter: 85 (two digits)
Heading: 8539 (four digits)
Subheading: 8539.49 (six
digits)
The first six digits are the same worldwide
The last two to four digits, following the first six, differ from country to country.
Where to find the HS Code
U.S. Dept of Commerce Schedule B classification of exports - can be purchased at the gov’t bookstore
U.S. Census Bureau tel: 301-457-1084 fax: 1158
On-line: http://www.census.gov/foreign-trade/schedules/b/– on the next page select “Search” and type in a key
word(s)
Ultraviolet lamp
8539 Electronic filament or discharge lamps, including sealedbeam lamp units and ultraviolet or infrared lamps; etc
Ultraviolet or infrared lamps; arc lamps:8539.41.0000 Arc lamps………………………8539.49 Other: …………………………..8539.49.0040 Ultraviolet lamps………8539.49.0080 Other……………………………8539.90.0000 Parts………………………………………
The Chapter is 85; the heading is 8539 and the subheading is 8539.49; 8539.49.0040 is specific to the U.S. The digits for Canada are 8539.49.10………..
Tariff# and rates for Canada
Option 1 Go to www.apectariff.org/ register, select the country, in this example, Canada, and
search by HS# or description and scroll through until you find the right description. Tariff information is also available here.
Option 2 Call 1-800-USA-Trade and follow the prompts for the US
Department of Commerce Trade Information Desk. You’ll need your HS # to identify tariff rates
email a trade specialist at [email protected] with specific questions
call Canada Revenue (Canada Customs) at 1-800-661-6121
MFN vs NAFTA
MFN NAFTA(Most Favored Nation)
For Lamp: free For Lamp: freeFor parts: 7.5% For Parts: free
8539.49.10 For use in measuring, checking or testing instrumentsof chapter 90 (optical, photographic, cinematographic, measuring,checking, precision, medical, or surgical instruments and apparatus.)or for indicating intervals of time; Ultra violet hollow-cathode lamps,for use in instruments and apparatus for measuring or detectingnoxious gases8539.90 Parts
This is Canadian specific
If MFN = zero then NAFTA = zero
Remember, NAFTA is a preferential agreement, with preferenceover MFN. Therefore, you can type on your invoice:
Since MFN is zero for HS# 8539.49.10, no NAFTA Certificateof Origin is necessary.
However, for the sake of this presentation, let’s pretend that MFNis greater than zero and NAFTA is zero. You want to use a NAFTA Certificate of Origin to give your Canadian customerthe lowest possible tariff,the difference between MFN and NAFTA.
If the NAFTA rate is lower than MFN
Find the General Note 12 (GN12) formerly known as the 401 Annex at http://www.customs.gov/nafta/docs/us/gn12t1-29.html
This is organized by chapter headings (the first two digits of you HS code tell you the chapter). Scroll through until you find the applicable rule.
Example of the General Note 12 page:(B) A change to heading 8537 from tariff items 8538.90.10, 8538.90.30 or8538.90.60, whether or not there is also a change from any other heading,provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or(2) 50 percent where the net cost method is used
122. A change to heading 8538 from any other heading.
Subheading rule: The underscoring of the designations in subdivision 123 pertainsto goods provided for in subheadings 8539.10 or 8539.21 for use in a motor vehicleof chapter 87.
123 (A) A change to subheadings 8539.10 through 8539.49 from any other heading; or(B) A change to subheadings 8539.10 through 8539.49 from subheading8539.90, whether or not there is a change from any other heading, provided there is a regional value content of not less than:
continued
General Note 12 example continued
(1)60 percent where the transaction value method is used, or
(2)50 percent where the net cost method is used.
124. A change to subheading 8539.90 from any other heading
125. A change to tariff item 8540.11.24 or 8540.11.28 from any other subheading, except from more than one of the following:
(A) tariff 7011.20.10,
(B) tariff item 8540.90.15
Example….again, on one page
123 (A) A change to subheadings 8539.10 through 8539.49 from any other heading; or(B) A change to subheadings 8539.10 through 8539.49 from subheading8539.90, whether or not there is a change from any other heading, provided there is a regional value content of not less than:
(1)60 percent where the transaction value method is used, or
(2)50 percent where the net cost method is used.
THIS IS OUR RULE!!!
Your CompanyMX #6000 Ultra-violet lamps HS# 8539.49ZB-100 Blacklight (115/60/1
Costed Bill of Materials
Components Price/unit HS# NAFTA Cert?1) plastic lamp body $3.10 8539.90 No (imported from Asia)2) electric cord $4.26 Yes3) paint $ .20 Chpt.32 No4) light bulb $1.30 8539.31 Yes5) nuts/bolts/screws $ .50 No6) metal stem of lamp $8.86 8539.90 No (imported from Asia)
Total cost of parts: $18.22
What does this really mean?
(A) A change to subheading 8539.10 through 8539.49 from any other heading….
Okay, so if the components that go into the ultraviolet lamp come from outside of heading 8539 the lamp qualifies for NAFTA. But, we canbe 99% sure that some of the components can only be classifiedas parts of the ultraviolet lamps.
Since parts of the lamps are classified as 8539.90 the lamp would not qualify because the heading of the parts is the same as the heading of the lamps, 8539, there is no change to heading 8539. So we must try the B rule for a regional value content
Rule B of 123
(B) A change to subheadings 8539.10 through 8539.49 from subheading8539.90 (parts), whether or not there is a change from any other heading,provided there is a regional value content of not less than:
1) 60 percent where the transaction value method is used2) 50 percent where the net cost method is used
Since parts that can only be classified as parts of an ultraviolet lamp are classified as 8539.90 and are part of the components for the final product,we must attempt to prove regional value content.
What is Regional Value Content(RVC)?
The idea behind Regional Value Content is to prove that a percentage of the content is actually from within the NAFTA territory.
•Not from Asia•Not from Europe•Not just distributed from a NAFTA country•Rather, made in a NAFTA country
Regional Value Content (RVC)
Tran sac tionV a lu e
M eth od
N et C os t
M eth od
R eg ion a lV a lu e
C on ten tR V C
Net Cost Method (NC)
• Under the net cost method, up to 50% of the net cost of the good may be foreign-originating components.• NC is defined as the total cost of production, includingoverhead and labor (but not profit) less sales promotion,marketing and after-sales service costs, royalties, shippingand packing costs
NC formula: RVC = NC-VNM* x 100 NC
* VNM (value of non originating material)
Transaction Value Method (TVC)
• Up to 40% of the transaction valueof the good can be non originating.• Under this method, the transactionvalue (TV) is defined as the price actually paidfor the good.
TVM formula: RVC = TV - VNM* x 100TV
* VNM (value of non originating material)
Let do an example of TVM
Here is what you need:
• Costed bill of materials
• Selling price/transaction value
Calculations of TVM
Selling price is $40 for the model MX#6000 ZB-100Blacklight (115/60/1)
The formula is: TV-VNM x 100 TV
Lets make it simple first try. Rather than figuring the cost ofall the non-originating material, lets save time and simply add all the components (not just non-originating) and plug it into the formula.
40-18.22 x 100 = 54.45% This is under the 60% RVC 40 requirement and doesn’t
pass for NAFTA
Bill of Material
Costed Bill of Materials
Components Price/unit HS# NAFTA Cert?1) plastic lamp body $3.10 8539.90 No (imported from Asia)2) electric cord $4.26 Yes3) paint $ .20 Chpt.32 No4) light bulb $1.30 8539.31 Yes5) nuts/bolts/screws $ .50 No6) metal stem of lamp $8.86 8539.90 No (imported from Asia)
Total cost of parts: $18.22
18.22-(4.26) - (1.30) = $12.66 This is the cost of non-originating parts.
TVM take two...The second time we’ll reconsider and calculate the actual value of non-originating material: $12.66
We have subtracted the components of which we aresure originate because we have NAFTA certificates for them.
TV(40) - VNM (12.66) x 100 = 68.35%TV (40)
Therefore, we exceed 60% RVC and can qualify for NAFTA