A NAFTA audit is conducted to ensure that materials used in production qualify for duty free status due to their North American origin.
For goods to receive preferential tariff status under the North American Free Trade Agreement (NAFTA), they must be shown to qualify as originating according to the NAFTA Rules of Origin or as having experienced a tariff shift. To ensure fair play and compliance, each member country is tasked with conducting verifications to this end, primarily in the form of an on-site NAFTA audit. The primary bodies to conduct such verifications relative to their country are:
- Origin Audits Unit of Revenue Canada (Canada)
- Direction of International Audit of the Ministry of Finance and Public Credit (Mexico)
- Regulatory Audit and Field Operations, US Customs Service (United States)
Programs and Objectives
Overall, the objective of exporter and producer verifications is the confirmation of originating status for products certified by the exporter, or producer, in accordance with Chapter 4 of the NAFTA and the NAFTA Rules of Origin Regulations. Specific verification programs for identifying the recommended verification procedures to be utilized and their objectives are spelled out in Chapter 5 of the NAFTA and are briefly discussed below.
Non-Qualifying Operations Program: to ensure that originating status was not achieved by dilution or through any other pricing or production practice to circumvent Chapter 4 Rules.
Tariff Classification Program: to ensure all non-qualifying goods adequately meet tariff-shift rules and that the finished good and non-originating materials used in its production are properly classified.
Transactional Value Method Program (RVC): the NAFTA audit is conducted to ensure that the Regional Value Content requirement has been met where the Transaction Value Method has been used.
Net Cost Method Program (RVC): to ensure that the Regional Value Content requirement has been met where the Net Cost Method has been used.
Transshipment Program: to ensure originating goods, having satisfied Article 401, are not removed from customs control outside of NAFTA territory and do not further production or any other operation outside of NAFTA territories aside from those action specifically allowed (loading, inspection, cleaning, etc.).
Tariff Treatment Program: to ensure that all goods are imported according to correct and applicable tariff treatment.
Scope of the NAFTA Audit
Verification Period: the period subject to NAFTA audit verification is typically the fiscal year of the exporter/producer; imported goods should be matched to the period in which the goods were produced.
Coverage: the scope of verifications may include all models of goods for which preferential tariff treatment is claimed that are reported on the Certificate of Origin and exported to the US.
Identification of Importers: current policy is to query the Automated Commercial System (ACS) using the Manufacturer’s Identification Number; the US companies who have imported goods from that exporter/producer are identified and notified that the goods are under review.
Assessment/Liquidation Period: results of a verification/audit will be applied to unliquidated entries.