NOTE: The following is a Guest post from Randi Waltuck Barnett, a Global Trade Compliance, Operations and Strategy Executive with over 15 years of experience in a broad range of verticals, across all global regions, successfully creating, implementing and assessing internal control programs for import and export laws and regulations.
Cerasis, as of 2013, has now expanded service areas to include both Canada (Inter and Intra), as well as Mexico. Many of our automotive aftermarket clients kickstarted this program, but this requirement from our customers benefits all. With that said, the below is great information for both our customers, potential customers and those in the industry, to better understand how to handle free trade agreement solicitations each year.
Well, if you haven’t yet, you’d better not cry and get to work on your annual Trade Agreement solicitations and internal analyses to receive and distribute those pesky Certificates of Origin!
Wait, what are we talking about? Free Trade Agreements or “FTAs”. These are not well-named as they imply that there is something free about them. While it’s true that these complex tools of foreign trade policy negotiations offer relief in whole or in part from the importer’s obligation to pay the government sometimes substantial sums in import duties taxes and fees, they are most certainly not free to the importer or exporter who wants to participate in these voluntary programs: they require a great deal of technical expertise to understand and implement properly, so that any savings gained can be retained without risk of the government coming to ask for its money back, plus interest, and, potentially, in the case of intentional fraud, substantial penalties. See, for example, http://www.insidecounsel.com/2007/12/01/ford-loses-nafta-recordkeeping-case which was overturned, in part, on Appeal, but still…
So what do you need to do to take advantage of these programs and still be compliant? Various tips follow.
While some Agreements, like NAFTA, the North American Free Trade Agreement that entered into force between Canada, Mexico and the United States in January, 1994, requires that the Importer be “in possession” of a “facially valid” proscribed-format (See US Customs Form 434 at http://forms.cbp.gov/pdf/CBP_Form_434.pdf ) , many FTAs don’t have such a requirement, and rely on the Importer’s :knowledge” that the goods are eligible for the duty-free or reduced tariff treatment.
But wait! Is it a good idea to rely solely on an individual’s knowledge”? In case the Government calls upon the Importer to prove that it can substantiate the claim for preferential treatment, what will happen if (a) the ‘knowledgeable’ individual is no longer with the company; (b) that they may have made an error or didn’t really know how to determine the eligibility, requiring a thorough understanding of the specific Rules of Origin for the given product under the given Agreement; or worse (c), they knew the goods didn’t really qualify, but thought they wouldn’t get caught: yikes! That’s outright fraud.
So the best practice is for the Importer to always, ALWAYS have a facially valid, and sometimes validated Certificate of origin in its possession before making any applicable free trade agreement claims for its importer goods. That way, when the Government looks for its lost revenue, and if the dollars are enough, they surely will sooner or later, the Importer can sigh and say, “Of course! Here are the Certificates of Origin, including our internal audit review for facial validity that was provided to our duly-appointed, licensed Customs Broker, who made the claim on our behalf based on this evidence.” PHEW!
To request, receive, review and retain all this evidence can be a mighty chore for the Trade Compliance folks. Some companies have launched useful web-portals, requiring their Suppliers to provide the Certificates of origin (“COOs”) via the portal; some outsource this onerous task; some have knowledgeable and hard-working internal staff do this work directly. In any case, before the first of the year, to support next year’s claims, based on most COOs that are issued for a period of one year from January 1 to December 31, now is the time to “get ‘er done”!
Well, this a horse of a different color: Now you, the Exporter, has to be the one to know about the FTAs for which your product may be eligible by analyzing the origin-dewtiantion pairs of your goods and seeing what FTAs apply, if any. Once identified, each free trade agreement has to be understood and applied to your particular set of facts: are you a manufacturer, a distributor, a 3PL? Generally speaking, only a Manufacturer can make a preferential origin determination, as most FTAs base preferential origin eligibility on one of two methods:
Once the analyses are performed, then the Certificates can be created and distributed to your Customers. It’s a best practice to keep a list of all recipients of the issued COOs so that, if there is a change in any of the sourcing or manufacturing processes during the effective period of the issued COOs, you can amend your Certificates and communicate timely to all affected parties.
Again, this is an arduous task, and many companies purchase bolt-on software programs to analyze their goods, or outsource the analyses to relieve the burden.
Remember that any and all supporting documents are legal evidence in support of claims that take money out of Federal Tax coffers and as such are at high risk for Government Audit. Be aware of the statutory period for the records that support all your import and export free trade agreement claims and be sure to have a robust record retention system to make sure they are properly created, indexed, and retained for a sufficient period of time. It’s also a best practice to make sure that they get destroyed as soon after the end of the statutory period as practical so that they can’t be subpoenaed beyond the statute of limitations.
 N.B. that the country of export is NOT the country of [preferential] origin under FTAs.
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