Rules and Regulation of NAFTA

The rules of origin are the most critical factor in determining whether a product is eligible for preferential duty treatment under the NAFTA. The same rules apply to goods exported and imported from Canada, Mexico and the United States. Since the NAFTA cannot be used as a channel for third country products or any item which contains third country components. It must undergo a substantial processing which is physically and commercially significant in Canada, Mexico and/or the United States to be eligible for NAFTA treatment.

To be eligible for the reduced duty rates offered by the NAFTA, goods must qualify as "originating" in Canada, Mexico and/or the United States. That mean it must be either made in those three countries or finally being compound there. The following rules are identified as they appear under the Preferential Criteria of the North American Free Trade Agreement Certificate of Origin .

Preference Criteria A

Goods wholly obtained or produced in Canada, Mexico and/or the United

States. Examples of these criteria are the following items:

(a) Mineral goods extracted in Canada, Mexico and/or the United States

(b) Goods harvested in Canada, Mexico and/or the United States

(c) Live animals born and raised in Canada, Mexico and/or the United States'

Preference Criteria B

The NAFTA indicates that the goods may "originate" in Canada, Mexico and/or the United' States. Even if they contain non-originating materials (materials that are not made in those 3 countries) and if the materials satisfy the rules of origin specified in the Agreement. The rules of origin are based on a change in tariff classification, a regional value-content requirement or both.

Tariff Classification Change

            When a rule of origin is based on a change in tariff classification, each of the non-originating materials used in the production of the exported goods must undergo the applicable

Change because of production occurring entirely in Canada, Mexico and/or the United States. These classification changes reflect the specific changes or transformations each commodity must undergo in order to be considered originating.

Regional Value Content Change

            Some specific rules of origin require that a good have a minimum regional value content, i.e., a certain percentage of the value of the goods must be from Canada, Mexico and/or the United States. There are two formulas for calculating regional value content; "transaction value" method and the "net cost" method.

Preference Criteria C

Goods are considered to "originate" under these criteria if they are produced entirely in Canada, Mexico and/or the United States exclusively from materials that are considered to be originating because they meet the specific rules of origin.

Preference Criteria D

In a few very specific situations, a good, which has not under-gone the required tariff change, can still qualify for preferential treatment under the NAFTA. Under Criteria D, no change in tariff classification occurs because either:

 I) The goods are produced using materials imported into Canada, Mexico and/or the

   United States which are classified as parts under the HTS and the parts are classified in

   The same subheading or undivided heading as the finished goods 

 ii) The goods are imported into Canada, Mexico and/or the United States unassembled

    Or disassembled, but are classified as assembled goods.