Trade Basics: What is the North American Free Trade Agreement?

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Aug 29, 2013

The North American Free Trade Agreement (NAFTA), is a multilateral free trade agreement between the United States, Canada and Mexico.

When NAFTA came into effect in 1994 it created the world’s largest free trade zone, and laid the foundation to strengthen the relationship between the three NAFTA countries by supporting their shared economic growth.

As intended, it has proven to improve international relations between these three countries by eliminating most tariff and non-tariff barriers to investment and free trade.

The Office of the United States Trade Representative reported that in creating the world’s largest free trade area, NAFTA has now linked 450 million people who produce $17 trillion in goods and services. Since its inception, the effect of NAFTA has more than tripled the amount of merchandise trade between these countries.

In quoting U.S. Secretary of State John Kerry:

“NAFTA recognizes the reality of today’s economic-globalization and technology.  Our future is not in competing at the low-level wage job; it is in high-wage, new technology jobs based on our skill and our productivity.”

How to Determine If Your Goods Are NAFTA Eligible:

Only goods that meet specific requirements are eligible for preferential tariff treatment. In order for goods imported into the U.S., Canada or Mexico from one of the other NAFTA countries to qualify, they must satisfy the following:

• Goods must be wholly obtained or entirely produced in one of the three NAFTA regions or be transformed in Canada, Mexico, and/or the U.S.
• Goods must be produced entirely in one of the three countries, exclusively from originating materials.
• Some offshore goods may be eligible, as long as they underwent further processing in North America that resulted in a tariff change.

How Has NAFTA Benefited Trade?

As a free trade agreement, NAFTA has greatly impacted trade between the U.S., Canada, and Mexico by breaking down barriers to trade and saving importers and exporters considerable costs. By eliminating or reducing duties it has lowered the cost of doing business internationally, and aided trade partners in being competitive in cross-border markets.

Exporter Responsibilities Under NAFTA:

Under  NAFTA, the exporter is responsible for fully completing the Certificate of Origin, also referred to as the NAFTA Certificate. If you are exporting or importing NAFTA eligible goods and you are not the producer or the manufacturer, request a copy of the original NAFTA Certificate to be used as a basis for filling out your own certificate.

Importer Responsibilities Under NAFTA:

For NAFTA, as with other preferential trade programs, the importer bears responsibility to claim the benefits. A claim for preferential NAFTA treatment is done when the Certificate of Origin is supplied  with the customs documents used when the goods enter Canada, Mexico or the United States.

NAFTA creates a free trade area, not a common market. Customs administrations will still exist and goods entering Canada, Mexico or the United States must still comply with each country’s laws and regulations. Importers need to be aware that NAFTA does not allow for the unchecked movement of goods among Canada, Mexico and the United States.

If you need assistance in determining if your goods qualify, or if you have questions on how to fill out the NAFTA Certificate of Origin, please contact one of our Trade Compliance Specialists. They will help you take full advantage of the benefits provided by NAFTA.

Additionally, take an in depth tour of NAFTA, by attending an upcoming NAFTA Workshop wherein you will gain a better understanding of NAFTA, learn how to how to manage NAFTA compliance and utilize this free trade agreement to your benefit.