Contributing Lawyers


Cyndee Todgham Cherniak

United States

Susan Kohn Ross


Andrew Hudson

NAFTA Verifications Can Highlight That Global Manufacturing Operations Production Shifts May Put Offside NAFTA

If your business is sourcing product from a non-North American source and that product used to be manufactured by your business at a Canadian production facility, you should ask whether the necessary changes have been made to the shipping/customs documentation that your business generates (such as, whether NAFTA certificates of origin are no longer valid).

True Story:

I was recently involved in a NAFTA verification conducted by the United States Customs and Border Protection of a Canadian company. The Canadian company was a subsidiary in a multinational manufacturing operation. During the 2008-2009 economic roller coaster, the multinational operation streamlined operations (like so many companies did). Some of the products that had been manufactured at manufacturing facilities located in Canada were no longer manufactured in Canada (and some manufacturing operations in Canada continued).

The products that used to be manufactured in Canada were imported from outside North America and held in inventory in Canada to be shipped to North American customers. In other words, the products were no longer manufactured in North America.

No one informed the shipping department of the change and, as a result, the shipping department continued to provide NAFTA certificates of origin when the foreign-manufactured product was shipped from Canada to the United States. No one told the shipping department (that is, the department responsible for preparation of invoices, customs documentation, etc.) that there had been a change and that changes needed to be made to the documentation. The shipping department continued to complete customs documentation (incorrectly) stating that the goods were of Canadian origin.

Needless to say, there were problems to be resolved during the NAFTA verification.  Unfortunately, the failure to catch the error cause customers to incur added costs (duties) and embarrasment. This mistake could have been avoided.

It may be prudent to periodically review your shipping documentation to see if there are any mistakes. If you have stopped manufacturing goods in Canada, pick those items and see whether the shipping documentation reflects the change. If it does not, you may need to talk to your customers about making a prior disclosure (that is voluntarily report the errors) and you may have to assist with the reporting process.

The same holds true for the reverse. U.S or Mexican operations that moved production operations outside North America may be sending inaccurate customs documentation with shipments to Canada and invalid NAFTA certificates of origin. Importers would need to make a voluntary disclosure of the mistake to the Canada Border Services Agency.

If the goods are subject to the MFN rate duty (rather than being duty-free under NAFTA), then the importer would be assessed that duty and possibly an additional penalty. The prior disclosure or voluntary disclosure will eliminate the penalty, if applicable.

We would be pleased to provide assistance. Please contact, Cyndee Todgham Cherniak at 416-307-4168.

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