Report to Free Trade Commission Working Group
on Rules of Origin (including Customs Subgroup) - February 1997
Pursuant to Article 513(1)(a), (3)(b) and (c) of the NAFTA, the working group amended the uniform regulations governing applications of rules of origin. The regulations, which are identical for all three countries, detail requirements for qualifying for NAFTA tariff preference. Uniform regulations promote consistent interpretation of the Agreement among all three countries.
The working group also simplified the NAFTA rules of origin for chemical products, under authority of NAFTA Article 513(1)(a) and (3)(b). During the NAFTA negotiations, lack of time prevented development of rules of origin based on the tariff shift format for more than a very few chemical products. Instead, the rules of origin for these products were based on the far more cumbersome value-content test. At the request of their respective chemical industries, the working group developed tariff shift rules to replace the value-content rules. This relieves companies of burdensome bookkeeping costs of applying the regional value-content test and therefore reduces costs to companies of meeting the rules, facilitating trade and reduces costs imposed on customs administrations in administering the rules.
In accordance with the provisions of Article 513(3)(d), Annex 401 was amended to reflect 1996 changes in the tariff schedules of the three countries. Most of the changes were due to changes in the Harmonized System, the system on which all three countries tariff schedules are based. Other changes, at a greater level of detail, were made by individual NAFTA parties. The specific rules of origin, in Annex 401, which are based on the tariff schedules of the three countries, were amended to reflect these changes. Corrections of errors and other non-substantive technical changes were made to clarify the rules.
Pursuant to Article 513(6)(a)(ii) of the Agreement, classification disputes involving epoxy curing agent, engine brakes, corn flour, trash compactors, rope testers, and motor starters were resolved. To help resolve disagreement over the classification of rope testers, certain wired assemblies and thermostat housings, opinions were requested from the World Customs Organization Secretariat. Furthermore, the Harmonized System Committee, in response to our request, issued a decision on the classification of esters of glycerol at its 17th Session in May 1996. Resolution of classification disputes promotes consistency and transparency in administration of the Agreement and helps avoid commercial disputes and classification difficulties encountered by exporters.
Operational procedures were developed to ensure compliance with NAFTA provisions on duty drawback and duty deferral, which became effective between Canada and the United States in January 1996. These are procedures for the quarterly exchange of information between Canada and the United States to ensure proper collection of duties on items for which drawback or duty deferral may have been claimed. These procedures were agreed upon on the basis of NAFTA Article 513(6)(a)(i).
Two uniform questionnaires to assist in conducting origin verifications were developed under the authority of Article 513(6)(a)(i) and (b)(i) of the NAFTA. One is used during audits, the other when less extensive information is required. The questionnaires aid customs administrations in verifying claims for tariff preference. They facilitate compliance without necessarily employing a full-scale audit.
1997 Work Program
In accordance with the provisions set forth in Article 513(1)(a) and (3)(b) of the Agreement, the working group is currently considering changes in Annex 401 that would result in more liberal rules for:
Certain non-stainless alloy steels
Certain petroleum products
Headphones incorporating microphones
Additional changes to Annex 401 have been proposed, but are in the early stages of consideration.
Also pursuant to these same provisions of NAFTA, the working group is also considering changes in Chapter Four that would result in more liberal rules for alcoholic beverages.
In addition, pursuant to NAFTA Article 513(1)(a) and (3)(b), the working group has prepared a list of corrections for incorrect tariff numbers currently in Annex 401. The working group is also preparing a new format for Annex 401 that will reduce the need to amend Annex 401 when tariff numbers are altered by any Party.
The working group has also identified the need to address inconsistencies in the automotive tracing requirements of Article 403(1) of the Agreement pursuant to Article 513(1)(a) and (3)(b) of the NAFTA.
In order to eliminate ambiguities, the working group is considering changes to several sections of the uniform regulations. These changes will be based on the authority established under Article 513(1)(a) and (3)(b) of the Agreement.
The subgroup is, pursuant to NAFTA Article 513(6)(a)(iv), considering ways in which to simplify the certificate of origin required to obtain NAFTA tariff benefits.
As a customs related matter arising under the NAFTA, in accordance with Article 513(6)(a)(vi) of the Agreement, the subgroup is developing procedures for conducting textile verification visits under Article 512(2)(b).
The subgroup is reviewing inventory management methods for petroleum products, in order to agree on their uniform interpretation, application and administration, as set forth in Article 513(6)(a)(i).