If you’re a Canadian manufacturer and you import parts to use in assembling your equipment, don’t be surprised if U. S. customs agents come knocking at your door.
They’re checking to see if you’re NAFTA compliant.
NAFTA rules require a certain percentage of components in your manufactured product to be North American in origin. If not, you can be penalized.
Guy Precourt, a Canada-U. S. customs broker, led a group of manufacturers attending Manitoba AgDays through NAFTA requirements on country of origin.
Let’s say you’re making swathers and you import parts from overseas bearings from Italy, electronics from China and so on.
That’s fine as long as those components don’t make up more than a certain percentage of the entire product, Precourt said.
If they exceed that level (which varies, although 50 per cent is usually a starting point), you’re not complying with NAFTA and you can either be fined or forced to pay duties, he said.
So if you think NAFTA means no more duties on imports and exports, that’s not necessarily so.
Precourt said this wasn’t an issue when NAFTA was signed because most components for manufacturing were made in North America.
But with globalization, that’s no longer true. For example, hardly anyone in North America makes ball bearings any more, Precourt said. Most are manufactured more cheaply overseas. So are many other items.
With the constant pressure to keep costs low in order to remain competitive, manufacturers naturally prefer to source the least expensive parts for their products from Russia, China, Brazil, etc.
But if you’re selling into the U. S., don’t get too carried away or it may come back to bite you, Precourt warned.
Under NAFTA, American customs agents have the right to descend on your office in Canada and demand to see your records on where you got your parts from.
Don’t blame Uncle Sam because Canada Customs can also make the same demands of American manufacturers exporting to this country, said Precourt.
However, Canada stands to lose more by not following the rules strictly because the U. S. is this country’s biggest trading partner, he said.
His advice to manufacturers: watch your content when assembling finished goods.
Precourt said large manufacturers already know this and to them it’s old hat. But small entrepreneurs just starting up and hoping to tap the U. S. market should be aware that NAFTA doesn’t necessarily mean free trade, if too many of your components come from offshore, Precourt said.