KEY ELEMENTS OF NAFTA FOR · PDF fileKEY ELEMENTS OF NAFTA FOR IMPORTERS ... India, Peru....

KEY ELEMENTS OF NAFTAFOR IMPORTERS

The Canadian Institute Customs Compliance Conference

June 21, 2005

John W. [email protected]

#8688197

John W. Boscariol, McCarthy Tétrault LLP, International Trade and Investment Law Group

Why Do International Trade and Investment Agreements Matter?

coverage of obligations

enforcement mechanisms


Coverage of Trade and Investment Agreements

trade in goods

• tariffs

• non-tariff barriers• sanitary and phytosanitary measures• technical barriers to trade• trade facilitation


Coverage of International Trade and Investment Agreements (cont’d)

other areas

• trade in services

• investment protection

• government procurement

• protection of intellectual property


Enforcement Mechanisms – Dispute Resolution

government-to-government

• WTO

• NAFTA

• other trade agreements

• Israel

• Costa Rica

• Chile


Enforcement Mechanisms – Dispute Resolution (cont’d)

private investor-state

• NAFTA Chapter 11

• bilateral investment treaties


Expansion of Obligations Beyond Existing Agreements

negotiation of new trade and investment agreements• Central American Four (El Salvador,

Guatemala, Honduras, and Nicaragua)• European Free Trade Association (Iceland,

Norway, Switzerland, and Liechtenstein)• Singapore• Free Trade Area of the Americas• investment agreements with China, India,

Peru


Expansion of Obligations Beyond Existing Agreements (cont’d)

exploratory discussions and consultations regarding trade agreements• Andean Community (Bolivia, Colombia,

Ecuador, Peru, and Venezuela)• CARICOM (Caribbean Community and

Common Market)• Dominican Republic• European Union• South Korea


Expansion of Obligations Beyond Existing Agreements (cont’d)

accession of new members to existing trade agreements• China• Russia

expansion of obligations under existing trade agreements• trade in services at WTO• trade facilitation


Role in Strategic Decision-Making Process

due diligence mechanism – positive and negative impact on your organization

opportunities for participation in the process• negotiation of trade agreements• dispute resolution


Role in Strategic Decision-Making Process (cont’d)

benefits of participation

• identifying market opportunities

• tools to address market access and competitive issues

• preparation for negative impact


Key NAFTA Provisions – Trade in Goods

national treatment (Chapter 3)

market access (Chapter 3)• tariff elimination (Article 302)• temporary admission of goods (Article

305)• import and export restrictions (Article

309)• country of origin marking (Annex 311)


Key NAFTA Provisions – Trade in Goods (cont’d)

rules of origin (Chapter 4)

customs procedures (Chapter 5)

energy goods (Chapter 6)

sanitary and phytosanitary measures (Chapter 7)


Key NAFTA Provisions – Trade in Goods (cont’d)

technical barriers to trade (Chapter 9)

investment protection (Chapter 11)

review of anti-dumping and countervail measures (Chapter 19)

dispute settlement (Chapter 20)


Hierarchy of NAFTA Origin Law

North American Free Trade Agreement

• Chapter 3: Market Access

• Chapter 4: Rules of Origin

• Chapter 5: Customs Procedures


Hierarchy of NAFTA Origin Law (cont’d)

• Uniform Regulations for the Interpretation, Application, and Administration of Chapters 3 and 5 of NAFTA

• certification of origin

• obligations regarding importations

• obligations regarding exportations



• records

• origin verifications

• advance rulings

• reviews and appeals



Canadian law• Customs Act• Customs Regulations

• NAFTA and CCFTA Verification of Origin Regulations• NAFTA Rules of Origin Regulations• Free Trade Agreement Advance Rulings Regulations• Certification of Origin of Goods Exported to a Free Trade Party Regulations• Exporters’ and Producers’ Records Regulations• Imported Goods Records Regulations• Proof of Origin of Imported Goods Regulations• Determination, Re-determination and Further Re-determination of Origin, Tariff

Classification and Value for Duty Regulations



CBSA policy guidelines• Memorandum D11-4-2, “Proof of Origin” (June 30, 1998)• Memorandum D11-4-13, “Rules of Origin for Casual Goods Regulations” (November 18,

2004)• Memorandum D11-4-14, “Certification of Origin” (July 15, 1998) • Memorandum D11-4-16, “Advance Rulings” (September 14, 2001)• Memorandum D11-4-17, “NAFTA Origin Re-determination Requests Filed by the Person

Who Completed and Signed the Certificate of Origin” (November 15, 1993)• Memorandum D11-4-18, “Uniform Regulations Chapters 3 and 5 of NAFTA” (February

28, 2002)• Memorandum D11-4-19, “Regulations Respecting the Determination of When Goods are

Entitled to the Benefit of the United States Tariff, Mexico Tariff or Mexico-United States Tariff” (January 1, 1994)

• Memorandum D11-4-20, “Free Trade Agreement Origin Verification Procedures” (May 14, 1999)

• Memorandum D11-5-1, "NAFTA Rules of Origin Regulations" (April 16, 2003)• Memorandum D11-5-2, “NAFTA Rules of Origin Regulations – Amendments to Schedule

I – Specific Rules of Origin” (December 12, 2003)• Memorandum D20-1-5, “Maintenance of Records and Books in Canada by Exporters and

Producers” (January 1, 1994)


Rules of Origin: Qualifying for NAFTA Tariff Treatment

goods qualifying for NAFTA tariff treatment

preference criteria

goods produced in the NAFTA territory from materials, including non-originating materials• materials undergoing a tariff shift• regional value content requirements


NAFTA Preference Criteria

NAFTA preference criteria are basis for determining whether imported goods originate in a NAFTA country and thereby qualify for preferential tariff treatment

Criterion A: wholly obtained or produced entirely in the NAFTA territory (NAFTA Articles 401(a) and 415)


NAFTA Preference Criteria

Criterion B: produced entirely in the NAFTA territory and satisfies the specific rule of origin set out in NAFTA Annex 401 (NAFTA Article 401(b))

• tariff shift• regional value content• both


NAFTA Preference Criteria (cont’d)

Example 1: origin rule for tailors’ dummies classifiableunder subheading No. 9618.00:

A change to heading No. 96.18 from any other Chapter.



Example 2: origin rule for mixtures of juices classifiableunder subheading No. 2009.90:

A change to subheading 2009.90 from any other Chapter; or

A change to subheading No. 2009.90 from any other subheading No. within Chapter 20, whether or not there is also a change from any other Chapter, provided that a single juice ingredient, or juice ingredients from a single non-NAFTA country, constitute in single strength form no more than 60% by volume of the good.



Example 3: origin rule for centrifuge cream separatorsclassifiable under subheading No. 8421.11:

A change to subheading No. 8421.11 from any other heading No.; or

A change to subheading No. 8421.11 from subheading No. 8421.91 [parts of centrifuges], whether or not there is also a change from any other heading No., provided that there is a regional value content of not less than:

(a) 60% where the transaction value method is used, or(b) 50% where the net cost method is used.



• determining regional value content



NAFTA Article 402 (Regional Value Content) – Transaction Value Method

2. Each Party shall provide that an exporter or producer may calculate the regional value content of a good on the basis of the following transaction value method:

RVC = ————— x 100

where

RVC is the regional value content, expressed as a percentage;

TV is the transaction value of the good adjusted to a F.O.B. basis; and

VNM is the value of non-originating materials used by the producer in the production of the good.

TV - VNMTV



NAFTA Article 402 (Regional Value Content) – Net Cost Method

3. Each Party shall provide that an exporter or producer may calculate the regional value content of a good on the basis of the following net cost method:

RVC = ————— x 100 NC

where

RVC is the regional value content, expressed as a percentage;

NC is the net cost of the good; and

VNM is the value of non-originating materials used by the producer in the production of the good.

NC - VNM



Criterion C: produced entirely in the NAFTA territory exclusively from originating materials (NAFTA Article 401(c))

Criterion D: produced entirely in the NAFTA territory but certain non-originating materials do not undergo the required change in tariff classification; must still meet a regional value-content requirement (only applies to certain unassembled goods, parts) (NAFTA Article 401(d))



Criterion E: certain automatic data processing goods and their parts (NAFTA Annex 308.1)

Criterion F: certain agricultural goods originating under preference criterion A, B or C and which are not subject to a quantitative restriction; does not apply to goods that wholly originate in Canada or the United States and are imported into either country (NAFTA Annex 703.2)


NAFTA Certificates of Origin and Customs Enforcement

customs authority verification of NAFTA Certificates of Origin (NAFTA Article 506)

• written questionnaires to be completed by exporter/producer

• verification letters requesting information from exporter/producer

• visits to exporter/producer premises


NAFTA Certificates of Origin and Customs Enforcement (cont’d)

the verification visit (NAFTA Article 506, NAFTA Uniform Regulations Article VI)• written notification to

exporter/producer• identity of Customs administration issuing

the notification• name of the exporter or producer whose

premises are to be visited• date and place of proposed verification visit



• object and scope of the proposed verification visit, including specific reference to the good that is subject of the verification

• the names and titles of the officials performing the verification visit

• the legal authority for the verification visit

• written consent from exporter/producer

• presence of counsel• presence of two observers



where no written consent to a proposed verification visit within 30 days, preferential tariff treatment may be deniedpreferential tariff treatment may also be denied where• exporter/producer or importer fails to

maintain or provide sufficiently detailed books and records

• exporter/producer denies access to books and records



if pattern of conduct by export/producer of false or unsupported representations that good qualifies as originating good, preferential treatment may be withheld to identical goods exported or produced until compliance is establishedcivil, criminal, or administrative penalties where violation of these requirements



recordkeeping requirements for exporter/producer that completes and signs a NAFTA certificate of origin

• maintain in its territory• for five years after the date on which the

NAFTA certificate was signed (six years under Canadian law)

• all records relating to the origin of the good, including purchase, cost, value and payment for the good; purchase, cost, value and payment for materials, etc.



importer obligations• must correct origin declarations when

advised of error in certificate of origin• must have certificate of origin in

possession at time of importation• must be able to provide certificate of

origin upon request by CBSA• must maintain records (for six years in

Canada)


Tips and Traps for NAFTA Certificates of Origin

carefully completing the NAFTA certificate of origin

• importance of using the correct preference criterion

• tip-off for review or audit


Tips and Traps for NAFTA Certificates of Origin (cont’d)

using the de minimus rule where non-originating materials do not satisfy the tariff shift rule



NAFTA Article 405: de minimus

1. Except as provided in paragraphs 3 through 6, a good shall be considered to be an originating good if the value of all non-originating materials used in the production of the good that do not undergo an applicable change in tariff classification set out in Annex 401 is not more than seven percent of the transaction value of the good, adjusted to a F.O.B. basis, or, if the transaction value of the good is unacceptable under Article 1 of the Customs Valuation Code, the value of all such non-originating material is not more than seven percent of the total cost of the good, provided that:

a) if the good is subject to a regional value content requirement, the value of such non-originating materials shall be taken into account in calculating the regional value content of the good; and

b) the good satisfies all other applicable requirements of this Chapter



significance of representations in the Certificate of Origin

• “true and accurate”• maintenance of documentation

“necessary to support this Certificate”



• requirement “to inform, in writing, all persons to whom the Certificate was given of any changes that would affect the accuracy or validity” of the Certificate



goods having a most-favoured-nation (MFN) rate of zero

involving other NAFTA customs authorities in disputes over interpretation of the origin rules• tariff classification• tariff shift or regional value content rule



preparation is key

• preparation and documentary support of NAFTA Certificates of Origin

• preparation and planning for verification visits and audits



keep apprised of proposed changes to origin rules – recent changes effective January 1, 2005

• opportunity for export market access

• assessment of potential threat to domestic market


Administrative Monetary Penalties in Respect of NAFTA Origin

in addition to denial of preferential tariff treatment, there is potential exposure to criminal and administrative penaltiesexamples of possible AMPs• C080: importer failure to make required

correction to declaration of origin of imported goods subject to a free trade agreement


Administrative Monetary Penalties In Respect of NAFTA Origin (cont’d)

• C152: importer failure to furnish proof of origin upon request

• C154 – C155: importer failure to keep records relating to origin and other matters in respect of imported goods for six years

• C193: exporter or producer failure to provide certificate of origin upon request



• C194: exporter or producer failure to notify person to whom certificate of origin was provided of incorrect information

• C195: exporter failure to keep records in respect of exported goods

• C298 – C299: importer failure to keep records for six years in respect of payment for imported goods



• C348: provision of false information in a certificate for exported goods

• C350: importer failure to pay duties as a result of a required correction to a declaration of origin


Binational Panel Review of Anti-dumping and Countervailing Duty Matters

NAFTA Chapter 19 Binational Panel view of final anti-dumping and countervailing duty determinations

applies to• dumping determinations of CBSA and

U.S. Department of Commerce• injury determinations of Canadian

International Trade Tribunal and U.S. International Trade Commission


Binational Panel Review of Anti-dumping and Countervailing Duty Matters (cont’d)

consideration of whether determinations were in accordance with the anti-dumping or countervailing duty law of the importing NAFTA Party

parties having standing to challenge include importers, exporters and producers of goods subject to investigation


NAFTA Chapter 20 Dispute Settlement Procedures

government-to-government settlement procedures for disputes arising under NAFTA

consultation procedures regarding actual or proposed measures that might affect the operation of NAFTA (NAFTA Article 206)


NAFTA Chapter 20 Dispute Settlement Procedures (cont’d)

establishment of arbitral panel (NAFTA Article 2008)issuance of Panel Report that includes• findings of facts• determination as to whether measure is or

would be inconsistent with the obligations of NAFTA or cause nullification or impairment

• recommendations for resolution of a dispute



implementation of final report (NAFTA Article 2018)

• wherever possible, resolution shall be non-implementation or removal of the offending measure



suspension of benefits (NAFTA Article 2019)• if Panel determines that measure is

inconsistent with NAFTA and there has been no “mutually satisfactory resolution”, the complaining NAFTA Party “may suspend the application … of benefits of equivalent effect until such time as they have reached agreement on a resolution of the dispute”



• first seek to suspend benefits in the same sector or sectors as that affected by the offending measure

• if not practicable or effective, may suspend benefits in other sectors



examples of import measures challenged under NAFTA Chapter 20 (and predecessor)• Puerto Rico ban on import and sale of UMT

Milk from Québec• U.S. ban on import of small-sized live lobsters

from Canada• U.S. treatment of interest expenses in

determination of origin• Canadian duties applied to agricultural

products from the United States



engaging governments in the NAFTA (or WTO) dispute resolution process

• “Section 301” mechanisms in the United States

• EU Trade Barriers Regulation• International Trade Canada


NAFTA Chapter 11 Investment Obligations

scope of obligations

means of enforcement

• government-to-government• investor-state


Scope of NAFTA Investment Obligations

national treatment (NAFTA Article 1102)

most-favoured-nation treatment (NAFTA Article 1103)

minimum standard of treatment –fair and equitable treatment (NAFTA Article 1105)


Scope of NAFTA Investment Obligations (cont’d)

prohibition against performance requirements (NAFTA Article 1106)

prohibition against certain measures concerning senior management or board of directors (NAFTA Article 1107)


Scope of NAFTA Investment Obligations (cont’d)

transfers relating to an investment must be made freely and without delay (NAFTA Article 1109)

expropriation and compensation (NAFTA Article 1110)


NAFTA Investor-State Claims

investor-state dispute mechanism (NAFTA Chapter 11, Part B)• investors may sue NAFTA country

governments for losses or damages arising out of that government’s breach of NAFTA Chapter 11

submission of claim before arbitral tribunal


NAFTA Investor-State Claims (cont’d)

award of monetary damages and applicable interest to claimant

investor-state claims against customs and border measures• S.D. Myers – Canadian ban on exports

of PCBs



• Pope & Talbot/Ketcham and Tysa –Canadian enforcement of export fees levied on softwood lumber

• Ethyl Corporation – Canadian ban on importation and inter-provincial sale of MMT

• Sunbelt Water – Canadian restrictions on export of fresh water from British Columbia



• Doman/Canfor/Tembec/Terminal Forest– U.S. application of anti-dumping and countervailing duties on Canadian softwood lumber

• Canadian Cattlemen for Fair Trade –U.S. ban on importation of live Canadian cattle

• Karpa (Feldman) – Mexican denial of export tax rebates on cigarettes



• Corn Products/Archer Daniels Midland –Mexican tax on soft drinks containing high fructose corn syrup


Key Exceptions to NAFTA

areas of sensitivity to which certain NAFTA obligations may not apply or may be limited

national security (NAFTA Article 2102)

taxation (NAFTA Article 2103)


Key Exceptions to NAFTA (cont’d)

cultural industries (NAFTA Article 2106)

existing subfederal measures at the time NAFTA came into force

reservations for existing measures and liberalization commitments (NAFTA Annex I)


Key Exceptions to NAFTA (cont’d)

reservations for future measures (NAFTA Annex II)

KEY ELEMENTS OF NAFTA FOR · PDF fileKEY ELEMENTS OF NAFTA FOR IMPORTERS ... India, Peru....

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