If you’ve been in business for any length of time, you are probably familiar with the North American Free Trade Agreement (NAFTA), and its impact on international trade
between Canada, the United States and Mexico.
Although NAFTA was meant to simplify trading between these three countries, and to avoid the taxes, tariffs and quotas on products bought and sold between nations, there are complications that some entrepreneurs don’t consider when first starting out in business.
Entrepreneurs who hope to important export goods between Canada, United States and Mexico must comply with NAFTA when it comes to documentation, shipping and record keeping. If you don’t follow the statutes outlined in NAFTA, you could be headed for trouble as an entrepreneur.
First of all, you must determine whether or not your goods are covered under NAFTA. Let’s say, for example, that you manufacture upholstered arm chairs in the United States, but you want to sell them in Mexico. In order to receive NAFTA benefits, not only must the chairs be assembled in the United States, but all of the materials required to produce the chairs must also come from Canada, the U.S. or Mexico.
Assuming that all of the materials exported through your business originate in one of these three countries, the next problem for an entrepreneur is compliance. There are many rules and regulations concerning trade under NAFTA, but the most important is the Certificate of Origin, which is proof that the imported or exported materials comply with NAFTA regulations. An entrepreneur who attempts to ship goods without a Certificate of Origin could be in trouble.
Although you must have the Certificate of Origin before you ship the goods, it is not necessary to present the document at customers unless it is requested by officials. That said, it is necessary to have someone on-hand who can facilitate the seamless importing and exporting for your business, which can be expensive.
And lastly, you must keep spotless records in case you are audited for NAFTA compliance. The rules differ between the three North American countries, but good records are essential for any entrepreneur no matter where your business is located. In Mexico, entrepreneurs must keep their records on file for ten years beyond the date of import or export; Canadian entrepreneurs must keep their records for at least six years; and in the United States, the rule is five years.
Records include the Certificates of Origin, the packing lists, the invoices and any other documentation that explain or support the import or export of goods.
The only shipments that are exempt from the Certificate of Origin laws are shipments that are considered ‘low value’. In the United States, ‘low value’ is defined as anything less than $2,500 or its international equivalent; in Mexico, it is $1,000; and in Canada, ‘low value’ is $1,600.
The understanding of and compliance with NAFTA is essential for any North American entrepreneur whose business will include international shipments.