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CHAPTER FOUR, (RULES OF ORIGIN)

OF THE

NORTH AMERICAN FREE TRADE AGREEMENT

(NAFTA)

What is Chapter Four of the NAFTA and what does it do?

Who benefits from Chapter Four of the NAFTA?

How can I tell whether the goods I produce originate in North America?

What else does Chapter Four do?

Can the U.S. Government help me if I have a problem?

How can I get more information?

What is Chapter Four of the NAFTA and what does it do?

Chapter Four of the North American Free Trade Agreement (NAFTA) establishes rules for determining whether goods "originate" in the territory of one or more of the NAFTA countries (the United States, Canada and Mexico) and are therefore eligible for preferential tariff treatment and other benefits under the Agreement. Only originating goods qualify for tariff free treatment upon importation into Canada, Mexico and the United States under the NAFTA, as described in Chapter Three. The rules are designed to ensure that the NAFTA's benefits accrue primarily to firms and individuals that produce or manufacture goods in North America.

The NAFTA entered into force on January 1, 1994. It has no expiration date.

Who benefits from Chapter Four of the NAFTA?

Any company or individual that produces originating goods and wishes to export them to another NAFTA country can benefit from the rules of origin set forth in Chapter Four. To ensure that originating goods receive preferential treatment when entering the territory of another NAFTA country, they must be accompanied by a "certificate of origin" described in Chapter Five.

How can I tell whether the goods I produce originate in North America?

Not all goods made in the United States, Canada and/or Mexico qualify for NAFTA benefits. In particular, goods that incorporate inputs from outside the NAFTA countries may not qualify. Traders should carefully examine the terms of Chapter Four to determine whether their products originate and are therefore entitled to preferential tariff treatment.

In general, the NAFTA provides that a good is "originating" if it is wholly obtained or entirely produced entirely in the territory of one or more NAFTA countries; if the good is produced entirely in the territory of one or more of the NAFTA countries, exclusively from originating materials; or if non-originating materials undergo, in one or more of the NAFTA countries, processing or assembly sufficient to result in a change in tariff classification set out in Annex 401 of the Agreement. In some product sectors, most notably the automotive and chemicals sectors, the change- in-tariff-classification requirement is supplanted or replaced by a requirement that a specified percentage of the value of the goods or their net cost be attributable to labor performed and materials produced in the NAFTA countries (regional value content).

Detailed information on how to determine regional value content using the "transaction value method" or the "net cost method" is contained in Article 402. Special rules for automotive goods are set out in Article 403.

Annex 401 provides a tariff-heading by tariff-heading list of articles and the change necessary to grant originating status to the article. To see the current NAFTA's specific rule of origin for your product set out in Annex 401 of the Agreement, visit the NAFTA Trilateral Customs Web Site (offsite link).

What else does Chapter Four do?

In addition to defining what goods can be considered to be originating, Chapter Four sets out certain "accumulation" and "de minimis" rules that may make it easier for certain items produced in North America to qualify for NAFTA preferential tariff treatment. The Chapter also includes provisions on transshipment and special rules for: fungible goods and materials; accessories, spare parts and tools; indirect materials; packing and packaging materials; and non-qualifying operations.

Can the U.S. Government help me if I have a problem?

Yes. If you are looking for practical advice on how to determine whether your product meets NAFTA rules of origin, contact the Commerce Department's Trade Information Center at (800) 872-8723 or visit the TIC web site.

If you believe, in the course of conducting business with Canada or Mexico, that the Canadian or Mexican customs authorities have failed to comply with any provisions of Chapter Four, contact the Office of Trade Agreements Negotiations and Compliance' s hotline at the U.S. Department of Commerce. The Compliance Center will forward your message to the Commerce Department's Designated Monitoring Officer for this NAFTA Chapter. The Compliance Center and the Designated Monitoring Officer can help you understand your rights and the other NAFTA countries' obligations under Chapter Four and can work with other U.S. Government officials to help you resolve your problem. The U.S. Government can, if appropriate, raise the particular facts of your situation with Canadian or Mexican authorities and ask them to review the matter.

You can also contact the Designated Monitoring Officer at the following address:

Designated Monitoring Officer -

NAFTA Chapter 4 (Rules of Origin)

Office of North America

U.S. Department of Commerce

14th Street & Constitution Avenue, N.W.

Washington, D.C. 20230

Tel: (202) 482-1810

Fax: (202) 482-5865

How can I get more information?

The complete text of Chapter Four (Rules of Origin) of the NAFTA is available on the Office of Trade Agreements Negotiations and Compliance's web site.

Other useful information is available on the web sites of the Office of NAFTA and Inter-American Affairs and the U.S. Customs Service.