Canada and Mexico are still account for a huge amount of imports ̶ over 25 percent of all imports entering the United States last year. And of course a large proportion of those imports are processed with claims that the product is eligible for NAFTA duty preference (zero or reduced duty rates and no mpf fees). Based on activity levels over the past year, it appears that Customs and Border Protection (CBP) is now more aggressively probing to see if those NAFTA claims are valid. For US importers, this can mean some level of disruption to gather and present paperwork acceptable to CBP for past entries, as well as the potential for loss of NAFTA benefits (higher duty rates and mpf), enforcement actions, and penalties if NAFTA claims turn out to be incorrect or cannot be supported with sufficient backup to satisfy CBP.

Over the past few years, we have heard several pronouncements from CBP (as well as the Canadian and Mexican customs authorities) that more attention would be paid to verifying NAFTA origin claims. Anecdotal evidence indicates this has indeed occurred, with increased emphasis on validating NAFTA origin claims in a variety of ways.

For importers, this has meant inquiries from CBP, usually in the form or Requests for Information (CF 28s), on whether NAFTA certificates were in the importer’s possession at the time the import took place and if those certificates properly matched up to the claimed entries. In many cases CBP has gone further, requesting that the importer provide some backup to establish that they had performed some level of due diligence on the seller/producer to support the NAFTA certificate received. In addition, NAFTA reviews have become a favorite topic of the ubiquitous Focused Assessment and “Quick Response Audit.” Those unfortunate to be hit with a Focused Assessment or QRA will know that NAFTA claims are considered a prime target if NAFTA claims are a significant component of import operations.

For producers, the experience is a little different in that CBP has initiated some direct “NAFTA audits” of the producer to establish that NAFTA certificates were validly issued and could be supported. For producers who cannot prove the NAFTA originating status of their products, subsequent imports claiming NAFTA status based on those certificates will be rejected, or worse an investigation will be initiated to invalidate past NAFTA import claims. In several recent cases, CBP has used inquiries to importers as a surrogate for a direct NAFTA audit. In this case, CBP simply requests that the importer provide documentation beyond the certificate to establish NAFTA origin, which kicks the inquiry up the chain to the producer. Where the producer can’t produce enough documentation, prior disclosures or investigations tend to follow. For integrated multinationals with operations on both sides of the border, the issues presented become more complex, because CBP expects the company to have better documentation and more sophisticated compliance systems to support NAFTA entries – an expectation that is not always correct.

While many of these reviews are ongoing, we anticipate and increased amount of enforcement activity with fines, penalties and forfeitures (FP&F), either in the form of prior disclosures or in the form of investigations and penalty actions. For importers claiming NAFTA on a substantial number/value of entries, they would do well to undertake a fresh look at their NAFTA claims, first by matching imports with NAFTA certificates issued to ensure imports have proper certificates, and second by performing some additional diligence on foreign producers who are the source of the NAFTA claims. Yes, it is an additional burden on the importer, but until the NAFTA rules are revised we can expect CBP to be more aggressive in validating NAFTA origin claims.