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North American Free Trade Agreement

Rules of Origin

In NAFTA, the Rules of Origin refer to product specific rules that stipulate what must happen to inputs from non-NAFTA countries for the final, exported product to qualify for NAFTA benefits. The rules are listed in HTSUS General Note 12(t) by HS code heading or subheading and may require a tariff shift which means that the foreign input must have a different heading or subheading than the exported product. Rules of origin may also require that exported products with foreign inputs contain at least a certain amount of value-added from the U.S. or other NAFTA countries.

This video provides further explanation of NAFTA Rules of Origin.

Interpreting NAFTA Rules of Origin

A rule of origin might contain

1) a change in tariff classification;

2) a regional value-content requirement; or

3) both a change in tariff classification and a regional value content requirement.

Note: It is necessary to refer to the rule associated with the product being exported. Regional value content can only be applied when it is allowed under a product-specific rule.

Example of a rule of origin:

Please note that within the rules of origin chapter refers to the first two (2) digits of the HS code, heading refers to the first four (4) digits of the HS code, and subheading refers to the first (6) digits of the HS code.

Rule of Origin: "A change to heading 1902 through 1905 from any other chapter."

Products: Breads, pastries, cakes, biscuits (HS 1905.90)

Non-NAFTA input: Flour (classified in HS chapter 11), imported from Europe.

Explanation: For all products classified in HS headings 1902 through 1905, all non-NAFTA inputs must be classified in an HS chapter other than HS chapter 19 in order for the product to obtain preferential duty treatment. These baked goods would qualify for tariff preference because the non-originating goods are classified outside of HS chapter 19. (The flour is in chapter 11). However, if these products were produced with non-originating mixes, then these products would not qualify because mixes are classified in HS chapter 19, the same chapter as baked goods.

Other Factors: A thorough reading of Chapter Four of the NAFTA is necessary for anyone attempting to determine the origin of a product's eligibility for preferential duty rates. However, to improve understanding of these subjects, a brief discussion appears below of some of the factors, beyond the product-specific rules of origin that may be considered in determination of origin.

De Minimis Rule: The de minimis rule provides an additional possibility of qualifying as originating for a good that cannot meet the required “tariff shift.” Despite not undergoing the specified tariff shift, a good may still be originating if the value of the non-originating materials that do not undergo the tariff classification do not exceed 7% of the adjusted value of the good. The value of these non-originating materials must also be included in the “value of non-originating materials” for any applicable regional value content requirement and the good must meet all other applicable requirements. Exceptions do exist to the application of the de minimis rule and they can be found in Article 405 of the NAFTA.

Fungible Goods and Materials: Fungible goods and materials refers to goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical. According to the Article 406 of the NAFTA, where fungible goods are handled together and commingled such that it is impossible to determine which are originating and which are not, their origin may be decided based upon any of the inventory methods recognized in the Generally Accepted Accounting Principles. Physical separation of the goods is not necessary.

Prepared by the International Trade Administration

Trade Information Center

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