NAFTA AGRICULTURE FACT SHEET:
Rules of Origin

What are Rules of Origin?

• In the North American Free Trade Agreement (NAFTA), a product is said to originate in the free trade area when it is grown, harvested, wholly produced, or substantially transformed in the free trade area. Substantial transformation occurs when processing causes a product to shift from one tariff classification to another.
• NAFTA rules of origin are designed to ensure that the benefits of free trade accrue to the NAFTA Parties by requiring that the products traded with NAFTA preference be of North American origin, and by preventing non-NAFTA products from receiving NAFTA treatment.

The De Minimis Provision:

• The de minimis provision permits a final NAFTA good to contain a small quantity of the same kind of good from a non-NAFTA source. A de minimis level of up to 7 percent of the value of each shipment (or 9 percent in the case of cigarettes and cigars) applies to most processed agricultural goods and most industrial products. Bulk agricultural commodities are not subject to this provision.
• To qualify for the 7 percent de minimis provision, the non-originating component must undergo a tariff subheading change in the territory of a NAFTA Party. For example, a Mexican exporter of palm kernel oil may import third-country crude oil, refine it, and combine it up to the de minimis level with Mexican refined oil for export as NAFTA product.

Enforcement of NAFTA Rules of Origin:

• For shipments of goods for which NAFTA preferential treatment is claimed, a Certificate of Origin must be filed with the import broker, certifying that the goods are originating.
• The U.S. Customs Service gives U.S. companies the opportunity to challenge foreign companies' claims for tariff preference based on rules of origin. If a U.S. company has evidence to show that a foreign company's products do not satisfy NAFTA rules of origin, U.S. Customs will contact the Canadian/Mexican company with a request to visit (audit).
• Denial of a request to visit may result in the Canadian/Mexican company losing NAFTA tariff preference on the goods they ship. Where a visit takes place, and Customs auditors find a violation of a rule of origin, the goods will be denied NAFTA duty preference. Depending on the circumstances, civil or criminal penalties may be assessed.

Rules of Origin for Selected Commodities:

Dairy Products: Only U.S. or Mexican milk or milk products may be used to make milk, cream, cheese, yogurt, ice cream, or milk-based drinks. For infant preparations, certain dairy preparations, and calf milk replacer feed, up to 10 percent by weight non-NAFTA milk solids are permitted.

Mixes and doughs may contain up to 25 percent non-NAFTA butterfat; butter substitutes and certain dairy preparations may contain up to 10 percent non-NAFTA butterfat.

For certain items made primarily from non-dairy products but also containing some dairy products, there is no restriction on origin of dairy content. All dairy inputs may be non-NAFTA in origin. These items are chocolate crumb, mixtures of animal and vegetable fats and oils, and sugar confectionery not containing cocoa.

The de minimis provision does not apply to dairy products. That is, the 7 percent de minimis may not be added to the 10 or 25 percent non-NAFTA product ceiling allowed for some dairy products. For products that must be made wholly from NAFTA dairy products, de minimis may not be used to reduce the 100 percent NAFTA requirement.

Peanut products: For trade in peanut products with Canada, NAFTA origin is conferred on peanut butter and peanut paste made from non-NAFTA peanuts. However, roasting or blanching of non-NAFTA peanuts does not confer origin.

For U.S. imports of Mexican peanuts or peanut products, only one hundred percent Mexican-grown peanuts may be used to qualify for NAFTA preferential access. This same "domestically produced" rule applies for U.S. exports to Mexico.

The de minimis provision does not apply to trade in peanuts.

Vegetable oils: Refining crude vegetable oils does not confer origin, with the exception of certain industrial fatty acids and acid oils. Making margarine and hydrogenated oils from imported crude oils does not confer origin.

The de minimis provision applies only to a few oils, including tropical oils, hydrogenated oils and margarine.

Sugar: Refined sugar or molasses made from imported raw sugar does not originate. Refining does not confer origin.

In order for sugar to originate, all processing of sugar cane or sugar beets must take place in NAFTA territory. The unprocessed cane or beets may be imported, but they must be processed or refined in NAFTA territory. The de minimis provision does not apply to sugar. To qualify for NAFTA preference, 100 percent of the sugar must be NAFTA in origin. Sugar confectionery that is made with imported sugar qualifies for NAFTA preference.

Citrus: All single citrus juices -- fresh, frozen, concentrated, reconstituted, and fortified -- must be made from one hundred percent NAFTA fresh citrus fruit. Reconstituting concentrated juices, or fortifying juices, does not confer origin. There is no de minimis allowance for citrus products.

For U.S.-Canada trade in citrus products, drawback may be claimed on imported (non-NAFTA) product which is combined with NAFTA product and subsequently exported. Because citrus products must be 100 percent NAFTA in origin to qualify for NAFTA tariff preference, blended products may not be shipped as NAFTA-originating goods.

For fruit juice cocktails, including juice mixtures, no NAFTA content is required.

Manufactured tobacco products: For cigars, cheroots, cigarillos and cigarettes, the rule of origin allows up to 9 percent of the value of each shipment to consist of non-NAFTA Oriental or other tobaccos. For all other tobacco products, the general de minimis provision of 7 percent applies.

Coffee: Roasting or decaffeinating, grinding, or packaging coffee does not confer origin. Coffee beans must be grown in NAFTA territory (93 percent or more) to qualify for preference.

For unflavored instant coffees, 40 percent by weight of coffee must be NAFTA in origin. For flavored instant coffees, 100 percent of the coffee may be non-NAFTA in origin.

Cocoa: One hundred percent non-NAFTA cocoa beans, paste, butter, and unsweetened powder may be used to make bulk chocolate and chocolate candy for retail sale.

For sweetened cocoa powder containing less than 90 percent sugar, 65 percent of the cocoa and 65 percent of the sugar must be NAFTA in origin.

For U.S.-Mexico trade in sweetened cocoa powder containing 90 percent or more sugar, all of the sugar must originate in the United States or Mexico.

 

Cotton textile products summary:

Fiber-forward:	     cotton yarns
                     cotton knit fabrics

Yarn-forward:	     most cotton woven fabrics
                     most cotton/man-made blends

Fabric-forward:	     cotton luggage, handbags, flat goods cotton fabrics that are coated, 
                     laminated, or impregnated

Single substantial   men's shirts from certain high-count cotton

transformation:      fabrics
                     men's shirts from certain cotton/man-made blends apparel from 
                     specific fabrics (corduroy, velveteen)

TRQs will allow additional entry of some non-NAFTA-origin apparel. De minimis allows up to 7 percent by weight of fibers and yarns to be non-NAFTA in origin.

Last modified: Friday, November 18, 2005