Canada, Mexico and the United States maintain measures imposing criminal, civil or administrative penalties for violations of their laws and customs procedures, including those related to NAFTA.

Here are the top 5 NAFTA errors to watch out for:

1. Completing a NAFTA when you don’t actually need one — (either you’re not the exporter, or your product is not dutiable)
2. Assuming “US Origin” is the same as an “originating good under NAFTA” — (not the same)
3. Completing a NAFTA incorrectly — (Preference Criterion, Producer, Net cost errors rolled into one)
4. Missing Records — (Substantiation is the rule)
5. Misapplying the NAFTA Rules and Exceptions — (RVC vs. Tariff Shift)

NAFTA is basically telling the government that you’re not going to pay them. They therefore have the responsibility to maintain the integrity of the program through protocols written into the treaty itself. You absolutely do not want customs agents from another country performing an on-site audit at your facility. They take the responsibility of upholding the treaty – and collecting any rightfully owed duties & fees – very seriously.

1. Unnecessarily completing a NAFTA

We see companies do it all the time, not realizing that all you’re doing is exposing your company to unnecessary risk. Since NAFTA is never a regulatory requirement, all that is accomplished is that your company has taken on additional risk without gaining any benefit.

If you don’t understand the circumstances when a NAFTA is beneficial and appropriate, it’s probably time to get some help with the do’s and don’ts of the NAFTA.

[Some of the rules I’m talking about here are: 434s for domestic transactions (Annex 504), imports under $1,000 (Annex 503), and non-dutiable HTS items.]

2. Assuming “US Origin” is the same as an “originating good under NAFTA”

NAFTA has very specific rules that determine eligibility that apply to products of U.S., Canada, or Mexico origin. Are you aware of the eligibility requirements that make one U.S.-manufactured product NAFTA-eligible while another is not?

The rules of origin are laid out in Annex 401 of the treaty; if your product does not meet the necessary threshold, regardless of where it was manufactured, your product may not be eligible for preferential treatment.

3. Completing a NAFTA incorrectly

Common errors on NAFTA certificates may be inviting extra scrutiny and potentially audit. Customs agencies for all three member countries routinely evaluate NAFTA documentation and use some of the most frequent mistakes as indicators to trigger inquiries and audits.

Applying certain Preference Criterion, Producer, or Net Cost information can raise or lower the bar of your obligations. Do you know when to use Preference Criterion B instead of C? Are you inadvertently increasing your burden of proof by using NO(3) in column 8? Should you be using the Net Cost Method or is it better to use Transaction Value for your products in key circumstances? Is your good described appropriately and specifically enough to allow customs agencies to recognize how the NAFTA correlates to entry and commercial documents? These, and more, are all critical questions.

4. Missing Records

NAFTA is a voluntary program, but once you make the claim you have all the burdens and responsibilities outlined in the treaty. What records do you have and how quickly can you produce them? How specific are your claims and can you meet the threshold of substantiation?

If you use the Net Cost method, can you verify the amounts paid or payable? Do you have written, provable documentation from your suppliers to satisfy the Tariff Shift requirements?

5. Misapplying the NAFTA Rules and Exceptions

Some of the NAFTA Rules outlined in Annex 401 can be complex in application, with more than one way to qualify a good. Sometimes the rule is very straightforward but complex in its execution. Even customs agents have misapplied the rules – are you equipped to know and understand the rules and facts, and do you possesses the evidentiary requirements sufficient to defend and substantiate a claim when the need arises? If the answer is not an unequivocal “yes”, your company could have 5 years of exposure to back duties and interest as well as criminal, civil, or administrative penalties.

Remember, the NAFTA document is only as good as all the data and signatures contained within it!

Contact Star USA to learn more about how to correct NAFTA mistakes with the least applicable penalties. Phone us at: 800-230-5554