U.S. Commercial Service / U.S. Department of Commerce

Taking Advantage of NAFTA

part of the

Basic Guide to Exporting Webinar Series


March 30, 2011

Coordinator: Welcome and thank you for standing by. At this time, all participants will be on listen-only until the question-and-answer session. Today’s call is being recorded. If you have any objections, you may disconnect at this time. I’d now like to turn today’s meeting over to Ms. Roza Pace. Thank you. You may begin.

Roza Pace: Thank you very much, operator. Good afternoon, everyone. I’m Roza Pace, Senior International Trade Specialist who will be your host today.

On behalf of the U.S. Department of Commerce Trade Information Center and the Export Assistance Center in Sacramento, California, thank you for joining us today for this program on export basics Webinar, Taking Advantage of North America Free Trade Agreement.

This Webinar is one of our series from the Basic Guide to Exporting program designed to help companies new to exporting or train staff new to supporting export activities.

You will see the URL on this welcome slide where you can find the schedule of future Webinars. At the end of the presentation, you will also see the slide with the information about next four Webinar sessions that we’ll be holding over the next couple months.

We hope that you will take part in this.

For hour-long Webinar, we are pleased to welcome our presenter Anthony Hill, our Senior International Trade Specialist working out of our office in Sacramento, California. We are also pleased to have with us today Mr. Dan Duvall, International Trade Specialist who will stand ready to assist us with the Webinar.

Mr. Hill will be covering today general information on free trade agreements in NAFTA, how the U.S. Commercial Service can assist the companies finding opportunities, market research and sources of trade data, and the steps to take to qualify products for NAFTA benefits.

We do have a few housekeeping details to make sure everyone gets the most benefit from today’s Webinar. If at any time you experience technical difficulties, please press star 0 for operator assistance.

Our program is about 60 minutes long. Following Mr. Hill’s presentation, we’ll have an operator-facilitated question-and-answer session. The PowerPoint presentation and a recording of today’s program will be e-mailed to all participants following this Webinar. You can expect this early next week.

Move to another slide, a quick one. Let me know queue-up Mr. Hill for the presentation on NAFTA benefits. Tony, the floor is yours.

Anthony Hill: Thank you, Roza. Thanks very much. I wanted to show everyone this slide here. Now we’re back to my presentation. Thanks very much, Roza. Great colleague, the Trade Information Center is a great resource.

All of the participants today hopefully you know about that. It’s a place that you can call or assistance. You can also contact your local trade specialist, the one that’s in your area for your region.

So let’s get started with talking about NAFTA and I really appreciate all of you for joining us today. NAFTA is a very important agreement for the United States and I think most Americans have heard of NAFTA but I would say most of them also don’t know very many details about the agreement.

So this is a general agenda. We’re going to cover some general information about FTAs and NAFTA and then we’re going to talk about researching opportunities and then talk about the tariff-free benefits in NAFTA.

And the reason I mentioned researching is because in order to take advantage of any international trade opportunity, it takes doing some research so I’d like to go over a little bit of how to do that in my presentation but here is a list of the free trade agreements that are currently in force for the United States.

A lot of people don’t realize that we have all of these different agreements including the most recent agreements that were included with the Central American countries and the Dominican Republic and then also Oman and with Peru as well.

You may have heard in the news a lot about the agreements with Panama, Columbia and South Korea that are currently pending. New one, and I want to talk a little bit about how the difference in trade with free trade agreement countries so here I’ve just pulled up some quick numbers and there’s 2009 trade volume in billions of dollars compared to 2010.

Now of course with the recession, international trade and U.S. exports had decreased in 2008 and slightly increased in 2009 but you can see from ’09 to ’10 with all these free trade agreement countries that U.S. exports has increased substantially and you can see the percent change on the right.

Now with NAFTA opportunities, Canada and Mexico are very important trading partners for the United States and that’s why NAFTA is so important. Trade with Canada and Mexico has increased substantially.

You can see some of those numbers here like from 1993 to 2009, trade has increased 154% and then well, exports, let’s say total merchandise trade has increased 154% and 151% and then what is NAFTA?

NAFTA provides what most people think of which is tariff rate elimination but NAFTA also includes a lot of other benefits and agreements, sections on different aspects of international business and trade.

There is a special agreement on automobiles. There is a special agreement on textiles. There are special sections on energy and petrochemicals on agricultural products, on protecting investments.

So protecting U.S. investments in other countries and their investments in the U.S., telecommunication services, financial services, protecting intellectual property, sanitary measure like getting things inspected, Customs procedures, labor protections, vital mineral protection and so on.

And so one thing I want to point out to people is that there is an office in the Department of Commerce called the Trade Compliance Center and their sole purpose and focus is to make sure that foreign countries abide by the agreements that they’ve signed with the United States.

And so if you have a problem with access to a foreign country, with them not abiding by a particular part of an agreement, you can e-mail them or call them and in fact you can even fill-out a form online to have them help you with that problem.

Now some common misconceptions about NAFTA is that the Canadian and Mexican tariffs are the same but we all keep our own tariff rates. We can change them as we like but so they’re not all starting at the same points.

And also within NAFTA originating the one misconception is that if you purchase something in a NAFTA country then it automatically qualifies which is not the case.

Another thing that people think a lot is that NAFTA certification is a mandatory. It’s not a mandatory certificate. It’s only - it’s a voluntary certificate - in order for you to not have to pay or for your customer to not have to pay duties in the other country.

Now of course some things won’t qualify for NAFTA and so you would not provide the certificate if something doesn’t qualify and another misconception is that a producer is required to supply a buyer with a certificate of origin now.

It’s not required but of course any good producer or seller of a product is going to want to make their customer happy and providing a certificate of origin for a qualified product can help your customer avoid paying extra money for those duties.

Let’s go back one slide, okay. Now I want to talk - (advantages) - now taking advantage of NAFTA - let’s go back to that - taking advantage of NAFTA starts with market research as I mentioned and I want to talk a little bit quickly about the Commercial Service if you don’t know what we can do for you.

And then the next thing to know about is qualifying your product for NAFTA and then filling-out the documentation for your customer. Now the Commercial Service has a network of offices located throughout the U.S. so there is an office close to you that covers your location.

And then we’re affiliated with our offices in 80-plus countries worldwide which are associated with the U.S. Embassies and (confids) and we work in concert with those offices, with those foreign commercial officers to support U.S. exports so we also have a lot of other local support like district export councils and regional teams.

Now here are some of the services that the Commercial Service offers. One is export counseling. We do training. We do trade missions. We do market research. We have - we support - trade shows and gold key service which is a partner-matching service.

So in doing market research, one great resource is going to be export.gov and within this Website there is a really wide range of information to support your market research and finding markets for your products so here is the market research section and there’s a market research library.

Now I’ve pulled-up all the reports for Mexico because we were talking about NAFTA. When you pull-up a country - you pull-up the research for a particular country - the first thing that comes up is going to be a country commercial guide which is a very comprehensive guide to doing business and exporting to that country.

It includes many things including trade regulations, information on the best sectors for U.S. exports and then contact information. There’s a slide showing the different chapters that are normally within a country commercial guide. Then also there are sector or industry-specific research reports that you can find. This happens to be one for household appliances in Mexico.

Now these are written - these guides and this research - is written by our industry experts that are located in the country so they’re not, you know, people sitting in the U.S. studying a foreign industry but they’re in the country and they are local experts in that industry.

And here’s another one which is unique. It’s research on selling to the Mexican petroleum company which you can imagine has its own set of difficulties and things to know.

So this is the type of research that you can find. It can really be helpful to you. Now also obviously online there are going to be so many other sources for market research. I wanted to give you some more just to get you going.

One that I like is World Bank and their doing business series. They have their own series of research and information on doing business in different countries and it’s always very informative.

Then there are other things like the International Monetary Fund, TIA world fact book, and there’s so many sources but I recommend first finding out which countries are best for your products and if you’re focused on Canada and Mexico then the other thing to know is which products would be good for those markets.

Now I’d also like to talk a little bit about trade data and here are a list of free resources for trade data so you can see where your product’s being shipped to or sold to and you can even figure out what the average price is going to those countries.

Then also there are fee-based resources and those are often a little bit more comprehensive and more sort of manipulatable so you can sort of move the data around and use it in different ways so now you’ve got a flavor of the market research and what some resources you can use for that.

Now for NAFTA and for other free trade agreements, while there are those other sections, what most people think of and what most people want to know about is how to take advantage of the tariff benefits and this is what we’ll talk about for the rest of this session.

Now the tariff rate benefits I mean, within NAFTA mean paying zero tariffs and there are basically four steps here: determining the HS code which is important to know anytime you’re involved in international trade; determining whether there is actually a tariff benefit - you’ll see what I mean by that - in just a minute; determining whether the product qualifies; and then certifying that the product qualifies.

Now one thing I want to note to begin with is that if a product is entirely U.S. content, it automatically qualifies. Okay, so what is an HS code? It’s a six to 10-digit number. There are other terms that are sort of used for this number and like a Schedule B number, HTS code, harmonized tariff code.

The Schedule B is really the U.S. export specific codes but they’re based on the HS system. Now it’s a number that’s used to categorize products and generally speaking throughout the world it’s a system that’s used throughout the world.

You can look-up your Schedule B number for export code at census.gov under export codes or you can call them and have them help you figure out what your code is for your products.

Now the HS code - I want to go back to the trade data - the HS code is also important in trade data and important anytime you’re doing international trade. A lot of documents require the HS code so here’s one example of an HS code for ball-point pens and I just want to point out the different terms that are used when talking about the HS code.

One term is a chapter. The chapter is a very general category that is just the first two digits so even if it’s a 02 - 02 is the chapter - and then also there’s a term which is heading and the heading is the first four digits and subheading is the first six digits so those are really - the first six digits - are the numbers that are harmonized internationally that are supposed to be identical.

When you get to the eight or 10-digit level, those are the more-specific subcategories that countries can use to - well they can use those numbers - to create their own subcategories so at the 10-digit level, the U.S. code could and probably is different than the Canadian and Mexican codes but if you get the six digits, that should be sufficient for most purposes.

Now once you’ve determined the HS code, the next step is to determine whether there is actually a tariff benefit and what I mean by that is that sometimes a product may be duty-free going to a country whether it qualifies for the free trade agreement or not. That means so wherever it’s coming from, it’s duty-free.

A lot of times like for example that might be true of IT products. I’ve noticed that things like servers and computers are often duty-free so in those cases there wouldn’t necessarily be a benefit to figuring out your NAFTA qualification.

There are a couple of exceptions. Right now there is a dispute going on between the United States and Mexico regarding allowing Mexican trucks in the United States and so Mexico has some retaliatory duties on certain products so even though the product may qualify under NAFTA, it may still not be duty-free.

And also Mexico has a Customs fee of .8% so if the product qualifies under NAFTA, you would not have to pay this .8% and that means that even though let’s say it’s a computer going to Mexico and it does qualify under NAFTA, the computer may be duty-free coming from anywhere.

And so there may not actually - so like there’s no duties - on the computer but the Customs fee would still apply if you don’t do the NAFTA certificate so if that .8% is worth it to you, then you could do the NAFTA certificate for that computer and not have to pay that fee.

So basically you’re just comparing what the normal rate is which is sometimes referred to as the MFN rate, Most Favored Nation. That’s just the rate that applies to products from other countries so you compare that rate versus the 0% NAFTA rate and if they’re the same, then there’s no extra benefit except for the Mexican Customs fee.

Now if you’ve determined that there is a benefit to you, then the next step is to determine whether your product does qualify. Now this is going to be the most complicated and please write down your questions when you have them and ask them at the end because this is what we get the most questions about and what people have the most problems with.

Now within NAFTA and a lot of, well, a lot of other free trade agreements there are things called preference criteria. Now the preference criteria is just a statement saying how your product does qualify for the benefits of this agreement.

Now generally speaking, trade agreements, they will have these three main categories, this A, B and C. These are the preference criteria. Now A is almost, well, I would say A is normally reserved for agricultural products and natural resources.

Now one thing I know that sometimes when you read these, they sort of all sound the same and it’s hard to distinguish them from each other but just know that A is normally for agricultural products and natural resources.

And, well, that’s because what A is looking for or the things that qualify under A are those things for which you can trace back the raw materials to raw materials that came from the region like the U.S., Canada or Mexico.

So for most machinery like machinery and parts and things like that, it’d be very difficult to trace those back to the raw materials and you wouldn’t want to do that anyway because, you know, it wouldn’t be necessary but for certain things you probably could and you could use Criterion A.

Now C, C is a manufactured product where all of the parts and materials but not necessarily the raw materials but all the parts and let’s say processed materials did come from the U.S., Canada or Mexico.

When that happens, those parts - let’s say the part was created in the U.S., then another part’s created in Canada - both of those parts are considered originating meaning they come from the region and remember at the beginning of this section I stated that if something is all U.S. content, then it automatically qualifies and so you see that note here also.

Now the difficulty comes when you have foreign materials incorporated into your product. If you do have that, then that’s when you need to determine whether your product qualifies and if it does, you would use preference Criterion B.

Now there are other preference criterions but they are very specific and used only in very specific circumstances and I can definitely help you with those if you need that so you can just send me an e-mail if you have specific questions about the other preference criterion.

Okay. Now with NAFTA, a product with foreign inputs uses preference Criterion B but that means that you have to look-up the rule of origin that applies to your specific product.

Now this one difference between NAFTA and certain other free trade agreements, in NAFTA the rules of origin are very product-specific. The rule for one product may be different than the rule for another product.

Now here right here I’m showing you the different things that could be included in a rule of origin under NAFTA so A is it may require a change in the HS code from the imported part to the finished product that you are exporting.

So the imported part of material is going to come in under a certain HS code and the rule may require that as it’s incorporated that the final exported product be under a different HS code and it may be a requirement that it be under a different chapter, a different heading or a different subheading so that is going to be specific in the rule.

And then also the rule of origin may require a minimum regional value content and what I say is may is because some rules have just the HS code change requirement. Some rules have just the regional value content and some have both and we’ll go over these in more specific detail in a minute.

Now the rules of origin originally were in Annex 401 of the agreements. You can look that up if you like but actually it’s better to look-up the most recent version but sometimes things get updates.

Rules have been updated over time and the U.S. International Trade Commission keeps the updated rules of origin for all of the free trade agreements and those are in the Harmonized Tariff Schedule of the U.S. Now NAFTA is under General Note 12T and you can also get to information on this through export.gov.

Now remember what you want to do is look for the heading or the subheading which encompasses the heading or subheading of your product so a lot of times it won’t - the rule of origin - if you’re looking up on the list of rules, it may not say your specific HS code but there will be a heading or a range so you want to look for the range within which your product would fit.

Now here is an example which I think is pretty simple and hopefully will illustrate what you might need to do and this is cupcakes and we’re going to assume that all of the inputs for these cupcakes were imported.

Now the first step is finding an HS code which is 1905.90. The second step is looking-up the rule of origin, you know, I mean, obviously if these were all U.S. inputs they would automatically qualify but because they’re all imported, we need to look at the rule of origin.

The rule of origin for this HS code says a change to 1905 from any other chapter. Now all of the rules are going to be worded similarly to this meaning that in a way it’s kind of cryptic but what it’s saying is the imported material or parts have to change to 1905 which is the code for the exported product from any other chapter.

Now again there’s going to be a lot of variation but what it’s saying is that the imported material has to change to this exported code from something. Now here’s the interpretation at the bottom.

The cupcakes can qualify if all of the imported components are not from Chapter 19, right, because it says from any other chapter. Okay, here we have the materials that went into making the cupcakes and I’ve only provided the HS codes to the four-digit level of the heading just so you can see that each one of these inputs is not from Chapter 19.

Now Chapter 19 is it’s basically baked goods as you can see and none of these inputs are going to be baked goods so these products, these exports would qualify under NAFTA because they meet the rule of origin requirements.

Now here’s a little more difficult example and this is one that is a real example that I had got from a company. I worked with them on helping them qualify. This is garden umbrellas.

Now I think sometimes maybe looking at rules of origin like this can be sort of intimidating because of all the numbers that are there and you’re not sure what all these numbers mean but my best advice is to take it step by step and just look-up the numbers. It’s not too difficult if you go to that Census Bureau Website to just look-up those numbers.

Now the HS code for the umbrellas is 6601.10 and this says a change to this. This is the exported product so the parts have to change to this exported product from any other heading - remember, the heading is the four digits - except it cannot be from a combination of both of these categories below.

So what does that mean? A, it can’t be a combination of 6603.20 and all these headings below that after B and what, you know, I think what the heck does that mean, right?

Now if you look-up those codes, it actually becomes more clear. 6603.20 which is after A is an umbrella frame. All of those codes or those headings after the letter B are umbrella parts so all this is saying is that you can’t have an umbrella frame that’s foreign and umbrella parts and then combine those into the exported garden umbrella and have that qualify.

So if you think of that in other words is that you can’t just bring in the frame and the parts and do the assembly in the U.S. and have it qualify. Either the frame or the parts must be a U.S. product in order for it to qualify. I hope I make that clear.

But I wanted to show you different examples to give you a feel for what you may encounter when you’re looking at the rules of origin and here’s another one. I think this is a little simpler. It’s the ball-point pens.

We looked at this HS code earlier and it just talks about a change to this subheading because this is a little different at the subheading level. Remember it may be a range and so here’s a range where ball-point pens fall and it has to be from any other chapter.

Now this one has two options in fact. You know, the first one is if the foreign material comes from another chapter, then it automatically qualifies now but then there’s an exception which is letter B.

If there is some foreign material that comes from other - that is not from another chapter - then you can still qualify if you have a certain amount of value added in the U.S. You know, and I can’t explain why the different rules are the way they are. This is just the way the agreement was negotiated.

Now what does this mean? Now Chapter 96 is miscellaneous manufactured articles, subheading 9608.60 is refills for pens and 9608.99 is other pen parts so I’m going to go back real quick. Remember, there’s refills for pens and other pen parts.

Under B, this range of 9608.60 through 9608.99, the parts can be from that range which as you can see is within the same Chapter of 96 but if they are then you have to have this regional value content meaning that a certain amount of value from the U.S.

Now what does that mean? That means that if the refill for the pen and the pen parts are not from the U.S., it can still qualify if the product - the final exported pen - has enough value added in the U.S.

Now under NAFTA qualification we talked a little bit about the regional value content. When that is included, you will always have the option of using the transaction value or the net cost and the thresholds for these will always be the same.

Now it is your choice, you can use whichever one best enables you to qualify and so at this point, you get to where you have these formulas and it’s, you know, some people - they’re intimidated by, you know, having to do a calculation - but really this is just a matter of figuring out what the percent value is from the U.S.

So under transaction value, you’re starting at a higher point which is the transaction value and you’re taking out - subtracting any - the value of non-originating materials which is just the foreign materials but it’s foreign materials that are not from Canada and Mexico so if it’s Canada and Mexico, it still would qualify as a domestic or a regional material.

That’s why they call it the regional value content so subtracting the non-originating materials from the transaction value and then what is left over? What is left over as a percentage of the transaction value? You know, that threshold is 60% so if it’s 60% or more then the product does meet that regional value content.

And then the other method is the net cost where you would add-up the costs of production. You can use almost all costs. There are certain ones which I’ll mention that you would not include but you can see here the threshold is lower and that’s because you’re not starting at that higher point.

And here again you’re just subtracting out the value of the non-originating material and figuring out what the remainder is and what percentage that is of the net cost.

Okay, so the transaction value is adjusted to an FOB basis which means you don’t include the duty whatever the duty would be then and the transportation across the border to the customer.

And then the value of a non-originating material, if it’s not included it should include all the costs of that material including waste, including duties and taxes. You know, of course it would be to your advantage for this number to be smaller but they don’t want you to be taking out all kinds of costs that are real costs of the foreign products or the foreign materials.

Now net cost, when you’re using net cost and building-up the costs involved in the material, there are certain things that you don’t include like sales promotion, marketing, after-sales service. You do take out shipping and packing costs. Packing is packing for shipment, not packaging for retail.

Now within NAFTA and other free trade agreements, if you do have foreign material and the foreign material doesn’t qualify, there is a de minimus rule which allows up to 7% of the value to be non-qualifying material.

That means that you add-up all the foreign parts that don’t qualify and if they all add-up to 7% or less of the value, then you can still qualify it but if the foreign inputs does not meet the specific rule of origin for your final product, then the final product doesn’t qualify and unfortunately that does happen once in awhile.

I’ve had a few cases where, you know, there was quite a decent amount of value added in the United States but the problem was just that the HS code did not change from the imported part material to the exported part material and in that case, I mean, there’s really nothing you can do because the rule of origin is the rule of origin.

Now certification. This is important. For NAFTA it’s required that you use a NAFTA certificate of origin. I mean, you can download this for free at export.gov. Cbp.gov also has these and even Canadian Border Services has their own version but it’s just the same in that you can download. Now the NAFTA certificate is a self-certification.

That means you’re not sending it to our office to get stamped or signed or anything. It’s something that you’re certifying is true but it does need to be presented to the foreign Customs official so you send a copy to your buyer and I always recommend including a copy with all the paperwork that’s going with the shipment and then of course keep a copy for yourself.

Now I want to go over the certificate of origin real quickly because we do get a lot of questions about this. We get questions about let’s see the blanket period. Hopefully you can see it’s sort of the box Number 2 on the right side.

Now blanket period allows you to use this same - or allows your customer to use - this same document for multiple identical shipments and it can be valid for up to one year so you would put whatever date of your first shipment integration the from and the to one year from that date.

You can make it less than a year if you would like but it’s just so you don’t have to fill-out a new certificate each time you make a shipment and I also get a lot of questions about the text identification number.

You may not know the text ID number of your customer or the importer or the producer and that’s okay. They don’t really expect you to know everyone else’s text ID number necessarily.

Next is Box 7. Box 7 is for the purpose criterion that we went over and it’s probably the one I get the most questions about. As you can see, Box 6 is the HS code so you’ll need to know that there of course.

And then Box 8. Box 8 is really a yes-or-no question. A lot of times people aren’t sure about that but it’s basically just saying are you the producer and you put yes. If you’re not the producer, then you’re have to put a number code after the word no.

The numbered code signifies how you know that the product does qualify so, you know, if you’re the producer, it’s assuming that you know because you know where the parts and the materials came from but if you’re not the producer, you know, they want to know, you know, how do you know?

How do you know that this product qualifies so the different numbers indicate this. The Number 1, Number 1 indicates that you know based on just your own knowledge meaning you don’t have a document stating that from the producer.

Note 2 - the 2 after that - says that or it means that you do have a document stating that it qualifies and this is from the producer but it’s not - the document is not - a signed NAFTA certificate and that’s okay too. That’s okay.

Note 3 means that you do have a signed NAFTA certificate from the producer and as you can imagine, that is the safest way to go if you’re not the producer, just to be able to document that you have a certificate of origin.

Net costs. Net costs always trips people up too. Net costs is it’s still kind of a yes-no question but the first answer, well, one option is no, you don’t and it’s really just asking whether you used the net cost calculation in order to qualify your product. Most of the time that’s going to be no. If you did use it, you’ll put NC and then after that is the country of origin which is self-explanatory.

Okay, we’ve gone through the steps, certifying the product, it does qualify. A couple of things to know. It is required that the product is shipped directly from the U.S. or if it goes through a third country, it cannot leave Customs control and there are different ways you can do that.

You can remain in a Customs warehouse or under bond or something like that but it cannot enter the commerce of the third country and then qualify under NAFTA. You should keep your records for at least five years. They can audit you up to five years back and Customs can seek information from both parties.

I want to remind you market research is important and we can help you with that in the Commercial Service. If your product is all-U.S. then, you know, it automatically qualifies. You just need to know about their certificate of origin but if its’ got some foreign inputs, you know, you need to know how to qualify that.

And here is my contact information and I think Dan do you have anything to add?

Dan Duvall: Yes, just a couple of thoughts, Tony. Hello, everybody. Dan Duvall at the Trade Information Center in Washington. One thing that has helped me when you’re doing your calculations if you have to figure out original value content or net cost is to think of it as your ninth-grade algebra problem.

Because it’s just the same kind of little formula that you used back then and it’ll help you to understand the calculation better and Tony I’m glad you clarified about the net cost because I get a lot of questions where people are confused in thinking that refers to the value of the product which it does not.

It refers to whether or not you’re using a net cost methodology to calculate your...

Anthony Hill: Yeah, that’s right. That’s a common misunderstanding on the form. People want to put a value there or something like that, yeah.

Dan Duvall: Yeah, the only other thing I might mention is that on the country of origin if you’re doing it online or on a computer, a lot of software only recognize a two character for it so for the United States it’s just U.S. not USA and only other thing I’ll say is that people are also welcome to e-mail me.

The e-mail format is the same as Tony’s except that my name is Dan dot D-U-V-A-L-L at trade dot gov and I’m in Washington, D.C. on the other side of the country from Tony and that’s all I had for now Tony but I’ll be glad to participate in the question-and-answer session too.

Anthony Hill: Great. Operator, can we open it up for questions?

Coordinator: Thank you. If you would like to ask a question, you may do so by pressing star 1 on your touch-tone phone. Please unmute your phone and record your name clearly. Once again to ask a question, please press star 1 and record your name and it does just take a moment for that first question to come through.

Roza Pace: Tony, can you hear me?

Anthony Hill: I can.

Roza Pace: Yeah. One question perhaps and by the way thank you so much for a wonderful presentation. As usual very useful and it was chock full of information and practical steps.

Now in terms of small-value shipments, one of the most popular calls that we also get is do I really need to fill-out a NAFTA certificate if my shipment is let’s say only $500 or so? Can you comment on that?

Anthony Hill: Oh yeah, yeah, and that’s a good point, that’s a good point. Yeah, Canada, well yeah, you’re allowed to do low-value shipments without filling-out the NAFTA certificate of origin. You just need to write on the commercial invoice that this product is NAFTA-qualified. Thanks for asking that question.

Coordinator: And Tony we do have three questions from the phones if you’d like to take those.

Anthony Hill: Okay, yes, thanks.

Coordinator: (Participant), your line is open.

(Participant): Hello, Tony. Thanks for the presentation. It was pretty informative for us. One of our questions is we have a compliance group within our company and they in the past have told us that only our compliance officer can sign the master certificates and we sense that this might be just a company rule because most of us have worked other places and we’ve all been able to sign these certs.

Anthony Hill: Yeah, yeah, that’s right. It sounds like a company rule and any official from a company could at least to Customs represent that that product qualifies.

(Participant): Okay, can I ask one other follow-up question to the last caller?

Anthony Hill: Sure.

(Participant): What is the value for these low-cost invoices? As she said, is there a...

Anthony Hill: Yeah, $2000.

(Participant): Two thousand, okay, so anything below 2000 you can put on the invoice NAFTA-qualified if it is and you don’t have to do a cert?

Anthony Hill: That’s right.

(Participant): Okay, thank you.

Coordinator: And our next question comes from (Participant). Your line is open.

(Participant): Hi, Tony.

Anthony Hill: Hi.

(Participant): I have a question regarding the de minimus rule. I was just wondering, with using the de minimus rule would this product still fall under Criterion B?

Anthony Hill: If it qualifies under - no - no no. That’s right. It would be under Criterion C.

(Participant): Okay, so you would pretty much not consider that foreign material as anything that would change that?

Anthony Hill: That’s right.

(Participant): Okay.

Anthony Hill: Because it’s not meeting the rule of origin but it’s not necessary because there’s a minimal amount of foreign materials.

(Participant): Yeah, they give you some leeway. Well, thank you very much.

Anthony Hill: You’re welcome.

Coordinator: Our next question comes from (Participant). Sir, your line is open.

(Participant): Thank you. Real quick question, Tony. We get asked a lot to provide a NAFTA with the importer’s name as “various” and they don’t want to provide the text ID number because they’d like to use the NAFTA for multiple locations going north or going south and usually we push back and we try to limit it to one and get the actual importer with their tax ID. What is the position on using the word various for the importer?

Anthony Hill: Yeah, I would recommend against that. You know, I don’t think there’s a big risk to you as long as the product does qualify but, you know, I don’t know. To me it just seems like there’s no specific company that’s the importer then you don’t know what’s going on with the product but I don’t think there’s necessarily a bigger risk to you so I guess it would be okay but I would recommend against.

(Participant): Thank you.

Anthony Hill: Yeah, you’re welcome.

Roza Pace: Well Tony just FYI, the instruction page it allows one to do that various but I agree with your take on that.

Anthony Hill: Yes.

Coordinator: And Tony if you have time for one more question?

Anthony Hill: Yeah, sure.

Coordinator: Our next question comes from (Participant). Your line is open.

(Participant): Hi. I had a quick question about the recordkeeping. I know you’re supposed to keep their certificate for five years but do you also need to keep the calculations, regional value content, tariff classification, how you came up with it in the recordkeeping as well or is that not necessary?

Anthony Hill: Yeah, if you have those, it definitely, you know, if you’re ever audited, it’s kind of like being audited by the IRS, right? You want to have all the records you can so it’s definitely better to keep those than to not have them.

Roza Pace: And we also note this recently we get several number of calls from companies that when they put no one when they are not the producer and the information that they obtained for the qualification of product is based on their understanding or knowledge of the product, that might be potential red flag.

A lot of companies are then asked within 10-day period or so to provide additional information. At least that’s an experience of last couple of weeks and I think maybe because Customs are looking more carefully to collect more revenue or we don’t know why but just to let you know that in this case is best to keep as much information as you can.

(Participant): Thank you.

Anthony Hill: You’re welcome.

Roza Pace: Tony, I have a couple of questions here from the follow-ups that were typed.

Anthony Hill: Okay.

Roza Pace: Can we get more information concerning blanket period - you explained the blanket period - if you wouldn’t mind restating just very quickly what that is all about?

Anthony Hill: The blanket period is just to allow you to use the same form for multiple shipments to the same customer so you’d fill-out the form as you normally would and send it to your customer and then put on the blanket period some period of up to one year and then you don’t have to keep sending the form to your customer. Your customer can reuse that same form. I hope that makes sense.

Roza Pace: Yes, but I think that’s helpful.

Anthony Hill: Anything else?

Roza Pace: Now while we are waiting for additional questions, I want to thank everyone for tuning in today and we have a slide on the computer that you could look at the future upcoming Webinars. Tony actually is going to be our speaker for the next one, Cashing-in with Free Trade Agreements.

As he indicated, we have quite a few of those and the rules of origin are FTA-unique and the documentation is different so for those of you who are looking at cashing-in with different FTA agreements, we strongly encourage that you look at those too.

Then we also looking in April at Expert Filing Documents. That’s another very useful and popular Webinar using expert data to find market and price your products and the one in May that I’ll be hosting again is Using E-Commerce and Social Networking to Increase Your International Sales.

Part of this Webinar will also be focusing on optimizing your Web presence. Operator, do you have any other questions perhaps?

Coordinator: We do. We have about four more questions if you have time.

Roza Pace: Tony, do you have enough time?

Anthony Hill: Yeah, I have.

Roza Pace: Okay.

Coordinator: Our next question comes from (Participant). Your line is open.

(Participant): Yes, I had a question regarding the importer and wanting to not - some people want to put various there - so we have a situation where we send literally thousands of products into a multiple number of customers which could be in the hundreds into Canada.

Anthony Hill: Right.

(Participant): So we do put importer various and a blanket period of a year and we supply that. We don’t supply the NAFTA cert with every shipment. We give it to our brokers who then...

((Crosstalk))

(Participant): ...so are you expecting people to create a NAFTA cert for every shipment if they’re putting in the actual importer?

Anthony Hill: Well, no. I mean, obviously in your situation it makes sense for you to use various.

Roza Pace: I agree, yeah.

Anthony Hill: Yeah, you know, it’s allowed. You know, there are certain parts of international trade or situations where you really do want to know who the customer is and what they’re going to be using it for and so I wouldn’t do it if it weren’t necessary for like in a situation like yours.

Roza Pace: And if I may also add Tony too that sometimes folks ask us questions like this. I’m shipping number of products. Some of them are NAFTA-qualifying, others are not. They are on the same pallet, in the same big box. Can I should I put them on NAFTA certificate? Can you comment on that?

Anthony Hill: Oh, no, yeah, yeah. We do get that question. That’s a good point and you definitely should not put the products that are not qualified on the NAFTA certificate. Just list the ones that are qualified.

(Participant): This is a follow-up question I have if I’m still connected. We have some items that have no duties applied to them that they meet NAFTA requirements but there’s a zero duty assessed on them but we still get requests for NAFTA - so we do not supply - a NAFTA cert in that case?

Anthony Hill: Yeah.

(Participant): But we still get requests for those NAFTA certs and people are very insistent.

Anthony Hill: You know, I’ve heard that a lot too and the best I can say is, you know, keep your customers satisfied. I mean, if they really want one even though it’s not going to benefit them at all.

(Participant): Right. I usually give them - here’s the HS number - it is duty-free. We do not provide NAFTS certs for these because I think sometimes...

Anthony Hill: Yeah, if it’s a hassle for you, don’t worry about it. Just explain that it’s duty-free. Sometimes, you know, if the customer really insists, sometimes the customer really insists and I say well, you know, keep the customer happy, right?

Roza Pace: And you know too to add to that too what Tony said that there might be occasional situations that customer you may be shipping a product or input to a larger product then in turn may have to be qualified for NAFTA and so you try to make sure that you either have NAFTA certificates for the components or you want to know where it originates so in this particular situation (Participant) you may want to comply if that’s not too much of a burden.

Anthony Hill: Yeah, you know, that’s true. You’re sending in input to a company and they want to know whether it’s qualified, that’s a good point.

Roza Pace: That’s not a required one. We need to contact Canadian Customs about that question and they said it’s not required because in case, you know, you can ship the same product from China and you don’t have to do it so in a sense it would be like putting additional burden for U.S. exporter when you can ship it from China for free without the paperwork.

So it’s only when you make sense and like Tony say sometimes you just do it because you want - customer wants it - and if it’s not so much, you do.

(Participant): Yes. Thank you.

Coordinator: Our next question comes from (Participant). Your line is open.

(Participant): Hi, Tony. One more question from our group.

Anthony Hill: Okay.

(Participant): It speaks to the various again but from the exporter side. We are the producer because we’re supply, we’re manufacturer and so right now when we drop ship for Mexican distributors into Laredo, we put various in the exporter section and the brokers in Laredo get really upset with us because they want us to be shown as the exporter of record.

Anthony Hill: Okay.

(Participant): So we only want to be shown as the producer so...

Anthony Hill: Interesting.

(Participant): Yeah.

Anthony Hill: Do you have a U.S. entity that’s the exporter of record? Who’s the exporter of record?

(Participant): Well, that’s the thing. Our logistics group wants us to turn it over to the Mexican distributor’s broker in Laredo and let them deal with it.

Anthony Hill: Okay.

(Participant): And just make us the producer for NAFTA purposes.

Anthony Hill: Yeah, well someone’s got to be filling-out the export documentation for you or for someone who is the exporter of record.

(Participant): Right.

Anthony Hill: Like is it the Customs broker?

(Participant): Well, I assume the Mexican distributor gives a POA to the broker in Laredo and then I don’t know if he acts as agent on their behalf but our logistics group and compliance group doesn’t want us to show EGS our company as the exporter of record. They want to put various in there and we get pushback from brokers in Laredo that say fill it out the right way.

Anthony Hill: Yeah, well...

(Participant): And we come back with we only want to be the producer.

Anthony Hill: Yeah, I guess the thing is to know who is on the other export documentation on aesdirect.gov. Who is filling that out and who is the exporter of record there whether it’s your company or whoever it is, I mean, if it’s your company that is in fact the exporter of record, then you’re the exporter.

(Participant): Well, actually we do the filing as the U.S. PPI but we don’t want to become the exporter of record.

Anthony Hill: Well, someone has to be, I mean.

(Participant): Right, right, right, but it doesn’t fly sometimes to have various on there and if you don’t want to become the exporter of record, what do you put in that box? If you just want to certify...

Anthony Hill: Well as a producer, yeah, if you’re just the producer, you are truly just the producer and not the exporter...

(Participant): Yes.

Anthony Hill: ...then I wouldn’t see a problem putting various...

(Participant): Okay.

Anthony Hill: ...for the exporter because you could have multiple exporters of record...

(Participant): That’s right.

Anthony Hill: ...and you’re just providing the documentation to the exporter who would then fill-out their own NAFTA certificates based on your documentation, yes.

(Participant): Okay. We just wanted to clarify that.

Anthony Hill: Yeah.

Man: But that’s only if you do consolidations, right?

(Participant): Well, it would be for consolidations or single shipments, right?

Anthony Hill: Yes.

(Participant): Okay, depending on who we were shipping to in Mexico and who they appointed as a broker in Laredo.

Anthony Hill: Right, right.

(Participant): Okay, any other questions from our group? Thank you, Tony.

Anthony Hill: Okay, you’re welcome.

Coordinator: Our next question comes from (Participant). Your line is open.

(Participant): Hi, thank you again for such a great job in doing this. Mine is kind of a - I had one question originally - and then it brought up another question with one of the statements that you guys said.

We’re just a packing and shipping company. We’re not the exporter. We’re not the importer. We’re not even a producer. I’m just a logistics person for shipping items back and forth at which point 99% of the time, the little people here in the U.S. they’re asking me to ship this elsewhere, Mexico or Canada.

They don’t have certificate of origin because it’s either they’ve owned this for awhile or they just purchased it. An example would be a piano I just shipped into Mexico. Obviously it was made here in the U.S.

I had a receipt from the store that they purchased it from but it all comes back to our Number 8, no Number 1 but at that point, you all said that if that happens, Customs is going to come after me saying where’s the document for proof? How often does that happen in situations like this?

Anthony Hill: Yeah, it could happen.

(Participant): Because I have no way of proving it. It’s just based on what I’m being told.

Anthony Hill: Yeah. Is there any way for you to get documentation or an e-mail at least?

(Participant): Besides the receipt, no.

Anthony Hill: Yeah, see you’re sort of setting yourself up for a bad situation I think because, I mean...

Dan Duvall: You need supporting documentation.

(Participant): Okay, so at that point you all are looking for more than just a receipt? You all are looking for a certificate of origin here that it was actually made in the United States and then I can put this with this NAFTA?

Anthony Hill: Yeah, something that’s saying that it qualifies. If you would keep the supporting documentation for yourself, for your records.

(Participant): Right, right, okay.

Anthony Hill: Yes.

(Participant): Okay. That got brought up with you all’s statement earlier. My original question was if I’m using on Number 6 and 7 if I’m using just the regular Schedule B or HS code that you get on I normally go to the foreign trade Census Bureau and look under Schedule B.

Anthony Hill: Yeah, exactly.

(Participant): This is not a problem, I get that, but Number 7, where do I find - let’s pretend I’m the piano going to Mexico - where would I find Number B, let’s pretend that the strings were made in Italy but the piano itself was made here, where do I find all that supporting documents that you were showing like for the ball-point pen and the umbrellas?

Roza Pace: You mean the rules of origin, yeah?

(Participant): Yes, yes, yes. Where do I find that information at?

Anthony Hill: Well, you know, the next case is that’s what kind of makes it really going to be - it’s going to be really difficult - for you because you may have no contact with the producer at all, right?

(Participant): Correct. I normally 99.9% of the time do not have any contact with the producers.

Anthony Hill: So if I were you, I probably would avoid certifying that qualifies unless you can get in touch with the producer and have them at least send you an e-mail that it qualifies, some kind of document.

(Participant): Okay.

Roza Pace: And you know one thing yeah to remember is that made in the USA or made in Mexico does not necessarily mean the product qualifies.

(Participant): Exactly which was what I was trying to find where the preference criterion in this (case) is.

Anthony Hill: Yeah, because that’s right.

Roza Pace: Oh, the preference criterion you can find on the Website. Tony, you may want to comment on where it is, the rules of origin.

Anthony Hill: The criteria’s on the Website and the rules of origin are at U.S. ITC but I think what you would need is to know what foreign materials are in the product and where they, you know, where they came from.

(Participant): Where they came from.

Anthony Hill: You know, and that’s going to be really hard for you to find out, I think.

(Participant): Yeah, so I’m going to have to start shying away from these period because I don’t have seven and I don’t have eight.

Anthony Hill: Yeah.

(Participant): What this boils down to is that because I don’t want to make mistakes and I’m certainly not letting Customs come after me because I don’t have all the details from a shipper. Is that what this is boiling down to?

Anthony Hill: Yeah. That’s right.

(Participant): Just don’t do them?

Anthony Hill: Yeah, the shipper is going to have to take some responsibility to find out that information.

(Participant): Okay.

Anthony Hill: You know, I mean, we can help them. They can take one of these Webinars, something like that.

(Participant): Or they can just call that I believe there was an 800 number...

Anthony Hill: That’s right.

(Participant): ...that they need to call and talk to you all about and have them come up with six, seven and eight and at that point then I can fill this out for them.

Anthony Hill: Yeah.

(Participant): Is that what you recommend?

Anthony Hill: Yeah, I would recommend them taking the responsibility and figuring out what qualifies.

(Participant): I like that. That’s happy. Brilliant. Thanks again for all of your all’s help.

Anthony Hill: You’re welcome.

Coordinator: Our next question comes from (Participant). Your line is open.

(Participant): Hello. I have used the regional value content calculations in the past and I thought that you I heard you mention something that that might be an option rather than something that you could always use? How could I find out whether that option is available to me?

Anthony Hill: That is within the specific rule of origin for your product so the rule of origin may allow the regional value content calculation or it may not.

(Participant): Okay, so if...

Anthony Hill: So you would find your HS code and you look-up your rule of origin and, you know, if it’s allowed in the rule of origin then you can use it.

(Participant): Okay, so it specifically has to say that it’s allowed?

Anthony Hill: Yeah, that’s right.

(Participant): Okay.

Anthony Hill: Sometimes it’s not allowed, that’s the thing.

(Participant): Okay, so it must say if it’s allowed? I also had a really...

Anthony Hill: Sometimes it’s an option, yeah.

(Participant): Okay, and I had a quick question too about the most favored nation rate that was mentioned earlier. Where would I locate that?

Anthony Hill: That would - well you can call the 1-800 number for the Trade Information Center - and they can help you with that.

(Participant): All right.

Anthony Hill: There’s also a way you can get to - you can look that up - online through export.gov.

(Participant): Great.

Roza Pace: And if I may also add Tony we did have a couple of very useful Webinars on that topic. One was on how to classify your products and another how to calculate your duties and taxes.

When you try to register for our Webinars, we did add the link on the export.gov page to archived Webinars so at your convenience you can just go, click there and listen and see the Webinar, the recorded Webinar and if you have any questions about it, you could e-mail us. We could send you direct link.

(Participant): Great. Thank you very much.

Coordinator: And our last question comes from (Participant). Your line is open, sir.

(Participant): Hi, Tony. This is (Participant) from Florida. Actually I have two comments regarding two calls that they had two questions, first one about Laredo and I believe they said they are filing the AES and if they are filing the AES that means they are the exporter of record.

And if they are filing the AES on behalf of the importer, then they need to have an actual power of attorney from them to do so and that actually another question is for the lady that she’s doing the shipping.

I believe she said that she had the receipt of purchase of the piano but she then she thought that would clear or basically qualify it for NAFTA but that doesn’t as everybody knows. It’s only receipt that we purchase it from here the piano could be made from, you know, in another country.

However my question is I noticed that you only talked about preference criteria A, B and C but we didn’t talk about D, E and F. Is there a reason for that?

Anthony Hill: Right, mainly because A, B and C are the most commonly used and this is a basic guide Webinar. We only have an hour, you know, and I did mention that I could talk to someone about the other preference criterion if they need to use those but they’re very specific.

(Participant): Okay.

Anthony Hill: It sounds like you would know.

(Participant): No, actually I had the question about the D so...

Anthony Hill: So D?

(Participant): ...so I still have always, you know, questions about that.

Anthony Hill: Yeah, you could just send - why don’t you just - send me an e-mail? We can talk about it unless you want to ask your question now?

(Participant): Actually the question is to cover the if you could in just briefly if you could talk about it and what makes it, you know, a product qualified for D?

Anthony Hill: D?

Roza Pace: You know, Tony, D. Tony I can read over to you the criterion. You probably don’t have on the screen. In a few cases a good that has not undergone the required tariff change can still qualify.

Anthony Hill: Yeah. That is one actually...

((Crosstalk))

Anthony Hill: ...in very few circumstances where the parts and materials are - let’s say the parts and the final product - are categorized under the same HS code but the rule of origin says the HS code must change.

So in that situation, the HS code could not have changed and so you could under that criterion still qualify.

Roza Pace: And one more thought too that what I find useful when qualifying products for NAFTA - I’m sure Tony is doing the same - just across database, U.S. Customs has database of all kinds of Customs rulings.

Now so for items that some companies already raised the questions to Customs to different ports, the cross-database which you can just Google C-R-O-S-S, Customs cross-database you can then search for whatever product or HS number category you’re looking at.

And then already might be a ruling about whether preference Criterion D or whether you may have something about very esoteric situation or about trade value for automotive or just you could see whether something is there.

You could also request a formal Customs ruling for your particular situation and but please be advised that those Customs rulings if you ship to Canada, the ruling will have to be made by the Canadian Customs. If it’s Mexico, it have to be Mexican Customs, not the U.S. Customs.

Anthony Hill: Yeah, that’s a good point.

(Participant): Well, that’s good to know.

Anthony Hill: Right. Sometimes you have to resort to getting a Customs ruling. That’s an option of course. It takes more time but...

(Participant): That is true. All right. Thank you so much, Tony. Thanks, everybody. That was very informative. Thanks.

Roza Pace: Well, thank you everyone and as you know you have Tony’s contact information as well as our in Trade Information Center so please feel free to ask any questions and as we indicated, you will be getting a recorded Webinar. Thank you for dialing-in.

Anthony Hill: Thank you very much, everyone.

Dan Duvall: Thank you and sign-up for more Webinars.

Coordinator: And thank you. Once again this does conclude today’s conference call. You may disconnect at this time.

END