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Importing & Free Trade Agreements: What You Should Know

IMPORTING FROM A FOREIGN SUPPLIER

You are buying a product from a foreign supplier and will be importing the product into the US. You learn that the US has a free trade agreement (FTA) with that country. Under the FTA you can import the article free of duty. Properly done, your company can save money. However, what concerns should you address?

KNOW THE APPLICABLE FREE TRADE AGREEMENT (FTA)

The US has free trade agreements with many countries. The best known FTA is the North American Free Trade Agreement (NAFTA) with Canada and Mexico. There are other agreements in place with countries including Korea, Australia, Singapore, Israel and many other countries. All FTAs provide duty free entry for qualifying imports. However, all of the agreements also have many rules and requirements associated with imports and exports.

Example: A US company wants to import a product from Canada. The product would ordinarily take a duty of 5%. If it qualifies for NAFTA benefits the product is duty free. Should the US company pursue NAFTA benefits? If so, how do they determine whether the product qualifies?

Each FTA has its own rules, but there are many similarities between them. Most call for the importer to either obtain a certificate of origin from the producer or exporter (as with NAFTA), or provide a certification signed the importer that the article meets the rules of origin (as with the Australia and Korea FTAs). In the example above, the importer would need to require that their Canadian supplier provide a NAFTA Certificate of Origin. The importer would need to keep the certificate for 5 years and present it to US Customs on request.

CONSEQUENCES OF NON-COMPLIANCE 

US Customs & Border Protection (US Customs) takes a strict enforcement view of FTA claims. If an importer cannot produce the required certificate or certification on request it will – at a minimum – be subject to paying additional duties and fees. If the importer makes repetitive unsupported claims, it may be subject to stricter enforcement actions, such as an audit or assessment of a penalty for gross negligence. Under most FTAs US Customs also has the right to audit the foreign supplier that provided the certificate of origin or certification.

RECOMMENDATIONS

Our advice to importers contemplating claiming benefits under FTAs is:

  • Educate yourself on FTA eligibility and requirements. Many of these are found at the US Customs website: cbp.gov
  • Make it a purchase order requirement that the non-US supplier provide a certification or certificate of origin, depending on the FTA being claimed, and additional supporting documents as required.
  • Do not allow customs brokers to make automatic FTA claims (e.g., if a shipment comes from Canada or Mexico they automatically claim NAFTA benefits). Instead require that the customs broker may only claim FTA benefits if sufficient documentation is available to support the claim.
  • Keep all certificates or origin, certifications and other documents supporting FTA claims for five years from the date of import so they may be provided to US Customs on request.

Claiming FTA benefits is an easy way to save money, but it is also an easy way to get in trouble.

ABOUT OUR LAW FIRM AND WORKSHOPS

Leslie Marell is a business and commercial law attorney with over 25 years of experience in business contracts, purchasing and sales law, technology law & day to day business legal matters. She heads her own Los Angeles firm which specializes in providing legal services to the manufacturing, industrial and high technology industries. For more information about the firm, click onto http://www.marell-lawfirm.com. If you’d like a complimentary consultation, call Leslie at 310.372.8663

In addition to her legal practice, Leslie has presented contracting and business law seminars and workshops throughout the country since 1990 to thousands of sales, marketing, and purchasing professionals. She has given in-house presentations to companies such as Applied Materials, Eastman Chemical, FMC, Goodrich, Hanes, Hewlett Packard, Hitachi Data Systems, John Deere, Northrop, Texaco, Unum Insurance, University of California, 3M, Unocal, and Verizon. She is a frequent speaker at the Institute of Supply Management International Conference, the Electronics’ Independent Sales Representative’s Association, Manufacturer Agents’ National Association (MANA), and local purchasing and sales trade associations.

Leslie’s workshops are a blend of lecture, dynamic coaching, and audience participation.  She brings her contract knowledge to the corporate classroom in lively and valuable workshops, translating “legal mumbo jumbo” into understandable, useful concepts in an entertaining way.

Leslie’s workshops will enhance your purchasing and sales organizations contracting and negotiating skills and ensure more effective contracts.

 

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