NAFTA Tariff Shifts

Determining origin for free trade eligibility can be a complex and time consuming task. Use of the global economy often results in raw materials from multiple countries being shipped to one country for manufacture. Does the inclusion of a non-originating good eliminate the finished good from receiving benefits under a free trade agreement?

A non-originating article may be considered originating if that article undergoes a tariff shift. When a rule of origin is based on a change in tariff classification, each of the non-originating materials used in the production of the goods must undergo the applicable change in tariff as a result of production occurring entirely in the territory of one of the parties to the agreement.

This means that the non-originating materials are classified under one tariff provision prior to processing, and classified under another upon completion of processing. The specific rules of origin found in each of the agreements define exactly what change in tariff classification must occur for the goods to be considered "originating." A change in tariff classification may be from one heading in a chapter to another heading in the same chapter. In some cases, the list in GN 12(t) specifies that a shift must be from one specific chapter to another specific chapter.

Example 1- Heading Changes:
A good which will be classified in Chapter 17, under 1704, needs only to have been changed into heading 1704 from any other heading, which may include headings 1701, 1702, or 1703.

Example 2 -Chapter Changes:
In order for a good which is to be classified in Chapter 5 to be eligible under NAFTA, the good must have been changed into a good of Chapter 5 from any other chapter of the HTSUS.

Try the following problem on your own. We’ll provide the answer next week when we examine regional value content (RVC). For additional information, CBP posted a good explanation of tariff shifts on their web site. Although it is geared towards textile importers, the explanations and examples are helpful.

A travel kit imported into the U.S. from Singapore is classified under HTS 9605.00.0000. The kit contains components that originate in the U.S. or Singapore except for the following non-originating items?

· A plastic case classified under HTS 3923.10
· Sewing thread classified under HTS 5204.20
· Sewing needles classified under HTS 7319.90
· Toothpaste classified under HTS 3306.10
· A toothbrush classified under HTS 9603.21

Is the kit eligible for special treatment under the U.S. – Singapore Free Trade Agreement?