Are you familiar with the North America Free Trade Agreement (NAFTA) and the responsibilities you assume when receiving the benefits of duty free status on imported goods?
With the relative ease in enjoying the benefits of NAFTA, you can also take advantage of free trade on importations from other participating countries.
Free Trade Agreements (FTAs)
Free Trade Agreements (FTAs) are agreements made between countries who desire to reduce trade barriers on goods manufactured in their respective countries. Canada has entered into Free Trade Agreements (FTAs) with several countries including Colombia, Peru, Panama, and Chile to name a few.
Things to consider when evaluating your costs and responsibilities:
1. Determine if the goods are coming direct from a foreign country
In order to receive the benefits of a FTA, the goods must be manufactured in the respective country, qualify under the rules of origin and be shipped directly from the foreign country to Canada. In some instances, it is necessary to transfer the goods through a third country. A transportation scenario like this can still meet the FTA rules, but there are some conditions that must be met. In this instance, if the importer wishes to claim duty free benefits under a FTA, they will need to have proof that the goods were moved “in bond” through another foreign country and have never entered the commerce of that country.
2. Make sure the exporter has sufficient knowledge to complete FTA documents
It is imperative that your foreign supplier has sufficient knowledge of the Free Trade Agreement. The person completing and signing the FTA Certificate of Origin is declaring that all statements are true and accurate; in other words, that due process has been observed and the goods listed actually qualify. While the foreign supplier is responsible to supply the respective FTA Certificate of Origin, the Canadian importer is ultimately responsible for duties, fines and penalties if at a later date and it is discovered that the goods do not qualify. If you have reservations regarding the validity of the supplier’s claim, you may wish to pay the regular rate of duty.
3. Verify the tariff classification
Our previous blog ‘4 Reasons for Determining the Correct Harmonized Tariff Classification’ covers the reasons of this important step. In reference to FTAs, the obvious assumption is that goods imported under free trade should be duty free. This is incorrect.
Establishing the rate of duty for an imported good depends, in part, on determining the proper H.S Tariff Classification. Tariff classification can be very complex and speaks to the essential character of the article being imported:
- What article is being imported?
- What is the article made of?
- What is the item used for?
It is very important that the H.S. Tariff Classification is correctly assigned to each product, as the H.S. Tariff Classification determines the rate of duty. If you are unsure regarding the H.S. Tariff Classification, please contact Pacific Customs Brokers for assistance.
To learn more about The Harmonized System Code (HS) Code:
- Read another one of our blog articles: How Much Do You Know About H.S. Tariff Codes?
- Attend a Harmonized System Tariff & Classification Workshop.
4. Be aware of the rules of origin
Not all FTAs are the same. Trade agreements were endorsed to provide advantages for importers and exporters; you must understand the responsibilities in order to utilize the savings.
For more information on the respective Canadian Free Trade Agreements, visit the Trade Negotiations and Agreements section of the Department of Foreign Affairs and International Trade Canada.
Has your business benefited from Free Trade Agreements? Do you have questions about Free Trade Agreements? We welcome your comments below.