Clearit.ca's Blog on Customs Brokerage and News Updates
One of the greatest assets to importing and exporting businesses in North America is the North American Free Trade Agreement (NAFTA). NAFTA offers Canadian, American and Mexican companies free trade within the region. The act was created in 1994 to give the region one of the world’s largest free trade zones to do business. NAFTA promotes strong economic growth within all three countries and increases the competitiveness of each country on a global trading scale.
What Is Free Trade?
A Free Trade Agreement (FTA) is simply an agreement between two or more countries to reduce barriers to trade on goods created in the respective countries. While Canada is a part of NAFTA, the country also has FTA’s with many other countries including Chile, Colombia, Peru, Panama and more.
4 Ways That Understanding Free Trade Agreements Can Benefit You
Before you get overly excited about FTA’s, there are a few things to consider as you evaluate the costs, responsibilities and results of these agreements.
Suppliers & Completed Documents
You will have to make sure any exporter you are working with has sufficient information to properly complete FTA documents. It is absolutely vital that any foreign supplier you do business with has a working knowledge of the FTA involved in the transaction. This is imperative because the Canadian importer is on the leash for duties, fines and penalties if the goods are discovered to not qualify at a later date.
Determine Where The Goods Are Coming From & More
Remember that the goods only qualify for the benefits of an FTA if:
- They are manufactured in the respective country
- They are shipped directly to Canada
- They qualify under the FTA of origin
If the good do not meet these requirements, it is unlikely they will qualify for the FTA benefits. In rare occurrences, the goods may be transported through a third country. However, the importer will need to prove the goods never were for sale in the third country to qualify for FTA benefits.
Understand What Tariff Classification The Goods Fall Under
Even though an FTA may be in place between two countries, not all goods imported will be duty free. It is important to understand that your rate of duty on any imported goods will be correlated with the tariff classification. It doesn’t matter if an FTA is in place or not.
It is very important that the proper tariff classification is placed on each product, as fines and penalties can occur.
Rules Of Origin Can Be Tricky
Each and every FTA will be different. As an importer, you must understand this if you want to maximize your saving under each agreement.