Customs Steps Up NAFTA Enforcement

September 1998

Customs has increased the profile of its enforcement activities under the North American Free Trade Agreement. In a notice posted to its web site, Customs makes clear that it views NAFTA enforcement as a priority.

Under the NAFTA, goods that meet stringent rules of origin to qualify as "North American" (i.e., Canadian or Mexican) are entitled to duty-free or reduced duty entry into the United States. These rules may require that raw materials or parts undergo a qualifying change in tariff classification, that there be a specified level of value added in North America or both. In addition, the importer must have a signed Certificate of Origin at the time it claims NAFTA benefits.

In its notice, Customs identifies transshipment as an illegal means of circumventing the rules of origin. Transshipment occurs when non-North American products are sent to Canada or Mexico and then, on importation to the United States, improperly claimed to be originating. These and other means of making false or invalid NAFTA claims may result in substantial penalties to the importer. Customs notes that a recent investigation led to a civil penalty of more than $500,000.

Importers making NAFTA claims should understand the rules of origin and ensure that the NAFTA procedures suppliers and brokers apply to its entries are consistent with the rules and regulations. Where violations are suspected, the importer should seek expert professional advice to determine whether the circumstances warrant a prior disclosure to Customs. Importers should also be aware that Customs is actively looking for confidential informants who may have information relating to NAFTA and other Customs violations. Thus, internal compliance controls over NAFTA and other Customs processes are increasingly important.