Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Is the Auto Parts Industry a Target of NAFTA Verifications?

From what we are seeing, the answer is "yes". During the economic/financial crisis of 2008-2010, the Governments of the United States and Canada requested that the automobile industry (OEMs) cut costs. In response (and to be responsive to the requests), the OEMs requested that their suppliers reduce the cost of auto parts.

What happened next? Some auto parts manufacturers off-shored production or sought cheaper foreign supplies of auto parts or parts of auto parts.

Why is that important? Some auto parts manufacturers who off-shored production, import the foreign parts into North America and inventory the parts in warehouses in Canada or the United States (or Mexico). In some cases, the purchasing department or production department did not inform the shipping department of the changes. The shipping department continues to issue NAFTA certificates of origin for the foreign parts. In some cases, the foreign shipments are imported in bulk and packaged in North America. There have been some cases where the markings on the packaging have not been changed to reflect the non-North American source.

In other cases, the auto parts manufacturer imports foreign inputs to auto parts manufactured in the North America. However, the auto parts manufacturer has not revisited the rules of origin and the requirement to meet the applicable rule. Again, the purchasing department has not communicated with the shipping department concerning the changes to sourcing. The production department also has not communicated with the shipping department or the finance department. The end result is that the customs documentation continues to state that the finished good is originating for NAFTA purposes and a NAFTA certificate of origin accompanies the shipment to the OEM.

Even if the parts are supplied to an OEM in the same jurisdiction (e.g., the auto parts manufacturer is in Canada and the OEM is in Canada), it is important to document the change in sourcing properly and apply the NAFTA rules of origin properly. The OEMs transfer assemblies across the border during the manufacturing process of a vehicle and must apply the rules of origin properly. It may be that a regional value content requirement is no longer satisfied as a result of a decision by an auto parts manufacturer.  the OEMs need tohave correct infmati to apply the rules of origin properly themselves.

The Canada Border Services Agency (CBSA) and United States Customs and Border Protection (USCBP) have been conducting NAFTA verifications of the auto parts industry and these are just a few of the problems that they have discovered. The fact they have seen mistakes has resulted in more verifications as there is non-compliance to correct and fines to be levied.

We would be pleased to provide assistance prior to first contact by the CBSA and/or the USCBP. We can help you revisit your application of rules of origin. If your business has made mistakes, we can help with voluntary disclosures and prior disclosures. We can help your business file B3 adjustments in Canada if necessary.

Cyndee Todgham Cherniak is a Canadian lawyer with law degrees from Ontario and Michigan. Cyndee is an adjunct law professor at Case Western Reserve University School of Law in Cleveland, Ohio and teaches a course on NAFTA and free trade agreements. Cyndee is on the advisory board of the University of Windsor School of Law/University of Detroit Mercy School of Law Dual Joint J.D. Degree Program. Cyndee is familiar with the automobile NAFTA rules of origin. Cyndee can be reached at 416-307-4168.

Leave a Reply

remember my information