NAFTA Preference Criteria, Producer, and Net Cost

Lisa Nemer | January 27, 2020 | Free Trade Agreements, Shipping Solutions News & Tips
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NAFTA Preference Criteria, Producer, and Net Cost | Shipping SolutionsOccasionally I’ll get a call from someone who says, “I’m almost done filling out my NAFTA Certificate of Origin. I just need to know how to complete items 7, 8 and 9. What do I put in those columns?”

Well, that’s the rub isn’t it? The rest of the form is easy, but the meat of it is in those three columns. Those columns determine whether your goods deserve preferential duty treatment under the North American Free Trade Agreement between the United States, Canada and Mexico.

The Future of NAFTA

The North American Free Trade Agreement will be replaced by the U.S.-Mexico-Canada (USMCA) Free Trade Agreement on July 1, 2020. (See the article, NAFTA vs. USMCA, for more details.)

Until the USMCA becomes official, the existing rules and procedures guiding the use of NAFTA remain in effect. That means that the NAFTA Certificate of Origin is still the document you should use if your goods qualify under the terms of the agreement.

Column 7: Preference Criteria

There are five ways that goods qualify as originating under the NAFTA Rules of Origin. The five ways are called Preference Criteria, which is column 7 on the certificate of origin. The Preference Criteria are referred to with the letters shown below.

Preference Criteria A

A good is considered originating if that good is wholly obtained or produced in one or more of the NAFTA countries, such as items that are mined or farmed. It does not include goods or materials that were imported from a non-NAFTA country.

Preference Criteria B

A good is considered originating if that good meets the requirements of a specific rule of origin for that product, as listed in NAFTA Annex 401. There are three possible ways a product can qualify as originating under this rule:

  • Product must satisfy a specific tariff shift;
  • Product must satisfy a tariff shift and regional value content requirement; or
  • Product must satisfy a regional value content requirement with no tariff shift. This qualification process requires referral to Annex 401, Specific Rules of Origin.

Download a Sample USMCA Certificate of OriginPreference Criteria C

A good is considered originating if that good is made up entirely of components and materials that qualify in their own right as goods that originate in a NAFTA country. The goods are produced from materials that may contain non-NAFTA materials, but the materials meet the NAFTA Rule of Origin.

Preference Criteria D

Unassembled goods and goods classified in the same Harmonized System number as their parts, which do not meet the Annex 401 rule of origin (tariff shift), but contain sufficient North American regional value content qualify as originating.

Preference Criteria E

Goods are considered originating if they are certain electronic items or parts qualifying under the provisions of Annex 308.1.

So, if you are exporting soybeans that you grew in a field in Nebraska, you would put an A in Column 7. Obviously, other items are more complicated, and it can be tricky to determine which preference criteria is correct.

Learn more about the dozens of exporting forms you may need to complete in  order to ship your goods. Download The Beginner’s Guide To Export Forms.

Column 8: Producer

Column 8 indicates whether you are the producer of the goods. If you are, then the answer is an easy Yes. If you aren’t, there are three choices: No1, No2 or No3.

No1 indicates that you have knowledge that the goods are originating. But, just because you believe it that doesn’t make it true, so customs authorities usually consider No1 to be an invalid answer.

No2 means you have in writing from the producer that the goods qualify as originating.

No3 means you have a completed and signed Certificate from the producer that the provided to you voluntarily. No3 is obviously the best answer, but only use it if it is true.

Column 9: Net Cost

If you think you must enter a dollar value in column 9, I’m sorry to tell you that you’re wrong. The choices are NC or NO. This field applies to items that qualify for preferential treatment under NAFTA because they satisfy a regional value content (RVC) requirement.

The Net Cost field identifies which way you calculated the RVC. If you used the net cost method, enter NC. If you used the transaction value method, enter NO, meaning you did not use the net cost method. This column would be blank if your item does not need to meet a RVC requirement to qualify for NAFTA.

NAFTA in Shipping Solutions Export Software

The Preference Criteria, Producer and Net Cost are entered on the EZ Start-Product Details screen in a section called NAFTA/Other FTAs. You can also store this information for each of your products in the Products screen on the Databases tab.

Learn More

Now is the time to get ready for USMCA. While some portions of the agreement are similar to NAFTA, other areas have changed more significantly. Check out the blog post, NAFTA vs. USMCAT: The North American Free Trade Agreement and the U.S.-Mexico-Canada Agreement for a summary of the difference between the two agreement.

Better yet, register now for one of the International Business Training webinars: USMCA: The Modernized NAFTA. As you might expect, these webinars are filling up quickly, so don't wait too long to register.

This article was first published in March 2017 and has been updated to include current information, links and formatting.