The Canada Border Service Agency (CBSA) frequently conducts origin compliance audits to verify if duty-free NAFTA importations qualify under the rules of origin and proof of origin regulations.
Failure by the importer to provide proof of origin and failure by the exporter to prove origin will result in the withdrawal of preferential treatment, and the assessment of duties, taxes, interest and penalties. Assessments usually cover 1-2 years of importations.
If NAFTA status is disallowed, the Most Favoured Nation (MFN) rate of duty is assessed. On apparel, duty of 17% to 18% is not recoverable when NAFTA was applied in error, and Tariff Preference Level (TPL) should have been applied. If TPL should have been applied instead of NAFTA, there is no recourse because TPL allocation is fully utilized every year.
Apparel imported from the U.S. only qualifies under NAFTA if all the materials were made in North America. Very often, when the CBSA conducts its review, it is discovered that the yarns and/or fabrics originated offshore. It is this discovery that results in assessments.
Importers must know the origin of the yarns and fabrics, and fibres in some cases, in order to determine if textiles and apparel are eligible for NAFTA or TPL.
Therefore, in order to maintain duty-free status, all suppliers of textiles and apparel produced in the U.S. should provide a textile certificate along with the import documents. This certificate must indicate the country of origin of the finished goods, the materials and the yarns.
Importers of NAFTA goods should contact our technical consulting group for a review of their entries to avoid costly assessments.