ADVERTISEMENTS

Most people generally think of the NAFTA preferences in terms of criteria A through D. These cover the vast majority of compliance issues with B being the leader. The ICPA question was about preference criterion E. What, you ask? Never heard of it.

Well, it is of limited use, but if you are in the IT sector, it is a terrific rule. Preference E states simply that certain goods listed in NAFTA Annex 308.1 are considered originating simply by virtue of having been imported duty paid into the NAFTA region. [If you struggle with tariff shifts and RVCs, pick your jaw up off the ground.] What this means is that a 100% Japanese content computer imported duty paid into Mexico, for example, is originating when it is later transferred to the United States or Canada. In other words, for the IT sector, NAFTA sets up a mini customs union.

That's all well and good but the devil is always in the details. The question presented in the ICPA question was about the documentation. Specifically, what origin to declare for the goods on the NAFTA CO and on the entry documents.

There are two rulings (NY R03125 and H005101) addressing preference criterion E and neither explains the procedure for making a claim at the time of entry. In both rulings, the real issue was the country of origin marking. Because the goods were further processed in Canada, the origin for marking purposes was found to be Canada. In addition, the August 20, 2009 Customs Bulletin (page 18) includes a notice saying the Customs is considering the status of an earlier related ruling.

When more than minor processing takes place in the NAFTA region, the NAFTA Preference Override (19 CFR 102.19(a)) kicks in and makes the origin the country of last processing. But is no processing occurs, the answer is unclear.

The HTSUS permits only two special program indicators to make a NAFTA claim: MX and CA. To make a legally valid preference criterion E claim at the time of entry, you have to use one or the other. But in the example of the Japanese computer, the CO must be accurate and valid. The CO, therefore, should probably correctly state the fact the origin is JP because the NAFTA marking rules don't result in a NAFTA country being the country of origin.

Further, the instructions on the NAFTA Certificate of Origin are a little squirrely on this point. The instructions seem to recognize that the goods are not actually originating but that the goods are only "considered" originating. Here is the language:

Certain automatic data processing goods and their parts, specified in Annex 308.1, that do not originate in the territory are considered originating upon importation into the territory of a NAFTA country from the territory of another NAFTA country when the most-favored-nation tariff rate of the good conforms to the rate established in Annex 308.1 and is common to all NAFTA countries.

That is different than criterion A through D which just define originating goods. So, this seems kind of like the NAFTA preference override, which assigns an origin for duty purposes only and leaves marking alone. Does criterion E work the same way?

An alternative approach that avoids this problem, but has cash-flow implications, is to avoid making the claim at the time of entry. Instead, make a post-entry claim for a refund. That way, you don't have to assert a NAFTA country as the origin in the SPI column (although it can be argued that the SPI is not an origin claim but only a duty preference).

So, here is a question for you. Am I over thinking this? Is there really no problem. Maybe one of the brokers out there will set me straight. Or, if you happen to work for an IT equipment importer, please drop a comment and let me know what is happening on the ground with respect to this issue.

Bloggers, promote your law blog by nominating your blog for inclusion in USLaw.com's Law Blog Directory and RSS Reader. Benefits described.