Rules-of-origin and certificates of origin are critical for U.S. exporters to Canada - under Free Trade Agreement, United States-Canada; includes copy of certificate

Business America, Jan 30, 1989 by Karen Homolac

U.S. exporters must pay close attention to the Rules-of-Origin and Certificate of Origin regulations to benefit from the tariff provisions of the U.S.-Canada Free Trade Agreement (FTA).

Rules-of-Origin

The primary purpose of the Rules-of-Origin is to ensure that significant economic activity takes place in either the United States or Canada before FTA preferential tariff treatment can be claimed by the importer. The FTA Rules-of-Origin are based on the Harmonized System of tariff classification and statistical coding (HS). The Rules-of-Origin can be summarized as follows:

(1) Goods wholly produced in the United States or Canada will qualify for FTA tariff treatment.

(2) Goods composed of imported input which have been changed in ways that are physically and commercially significant are eligible for FTA tariff treatment. The exporter must ensure that the goods have been sufficiently altered, using the changes in HS nomenclature as specified in the FTA.

(3) In addition to a change in HS tariff classification, some goods require that a percentage (generally 50 percent) of the direct cost of processing be American, Canadian, or a combination of the two.

(4) For certain limited cases where no change in tariff classification occurs between the end product and the imported component materials, a value-added criterion only (50 percent or more) may be applied.

The rules also contain a safeguard provision which denies FTA treatment to any goods altered merely to circumvent the Rules-of-Origin. Goods that are further processed in a third country before being shipped to their final destination will not qualify for FTA treatment, e.g., goods produced by U.S.- or Canadianowned maquiladora operations in Mexico. Goods which are shipped through a third country are not eligible for FTA treatment unless they have remained under Custom's control and have only undergone handling related to unloading, reloading, or any operation necessary to preserve them in good condition.

Special rules apply for textiles and apparel and for automotive products exported to Canada from the United States.

Certificate of Origin

The exporter is responsible for determining the eligibility of his/her goods for FTA treatment and for providing the importer with the Certificate of Origin. In order to claim FTA treatment the importer must be in possession of a valid Exporter's Certificate of Origin from the U.S. exporter which certifies that the goods in question meet the FTA Rules-of-Origin. The Certificate of Origin should be sent directly to the importer, not accompany the shipment. The certificate does not have to be presented at the time of release or accounting, but must be available on request for presentation to Canadian Customs. If the certificate is not available, the appropriate most-favored-nation tariff must be applied.

Exporters may provide importers with certificates of origin for a product line, a product, or an individual shipment. A certificate that covers more than a single shipment, known as a "blanket" Certificate of Origin, must indicate the starting and ending dates for its period of validity. The maximum period of validity is twelve months for U.S. goods exported to Canada and six months for Canadian goods exported to the United States. If any information contained in the blanket certificate changes during the validity period, the exporter must promptly notify the importer.

Copies of the certificate, whether reproduced or FAX, are acceptable to both U.S. and Canadian customs. Customs officials from both countries will accept either country's certificate. Copies of the certificate are available from U.S. and Canadian customs and from private companies which print business forms.

Canada Customs has in place a comprehensive enforcement program to deter and detect noncompliance. Selective review of import transactions where free trade rates are claimed will be conducted by Canada Customs so as to ensure that the goods do indeed qualify. Canadian civil and/or criminal penalties will be applied against Canadian importers who falsely declare that they are in possession of a certificate. Additional information from the U.S. exporter regarding the qualification of the goods may also be requested by Canada Customs. If warranted, the exporter's permission will be sought to conduct an on-site verification of the costs of production and sources of supply.

If evidence of fraud or misrepresentation is uncovered by Canada Customs regarding a U.S. exporter or manufacturer, U.S. Customs will be requested to conduct an investigation and to take appropriate action under U.S. law. It is an offense under U.S. civil law to certify fraudulently the origin of goods exported to Canada.

Low Value Shipments

Low value commercial shipments, having a value of less than $900 Canadian, do not have to be documented on the detailed Exporter's Certificate of Origin. Instead, the certification may be handwritten, stamped, or typed on the commercial contract or invoice covering the goods for which the FTA tariff is being claimed. A preprinted Certificate of Origin is not permitted on the sales invoice, but is permitted on separate forms.