Annex 401 Simplified
Frontier is starting an article series to discuss the topical issue of The North American Free Trade Agreement (NAFTA).
This article is delivered to explain how the specific rules or origin apply to products your organization may produce or trade using NAFTA.
NAFTA is currently being re-negotiated, Frontier wanted to give insight into how NAFTA and changes to NAFTA could affect your organization.
“The biggest topic of the NAFTA negotiations is absolutely autos. The US administration is looking to increase the regional value content of autos up to 75%, and 35 – 50% of the content be made in the USA. This would have a massive impact on all North American auto makers.” - John Quirke - VP of Trade Compliance
Annex 401 Is a rule based mechanism for the specific rules of origin on how a good qualifies for NAFTA.
Annex 401 indicates goods may “originate” In Canada, Mexico or the United States, even if they contain non-originating materials. Annex 401 rules of origin are commonly referred to as specific rules of origin and are based on a change in tariff classification, a regional value content requirement or a combination of both.
Regional Value Content (RVC)
If the rule is based on a regional value content, the transaction value method calculates the value of the non-originating material as a percentage of the good’s transaction value (the price paid or payable for the good). RVC rules require that a product include a certain percentage of originating content.
Tariff Shift When a rule of origin is based on a change in tariff classifications, each of the nonoriginating materials used in the production of the goods must undergo the applicable change as a result of production occurring entirely in the NAFTA region.
Tariff Shift Example If you import frozen pork meat (chapter 2) from England and spices (chapter 9) from Jamaica, then add Canadian labor to create pork sausage (chapter 16), the product qualifies for NAFTA under tariff shift. The pork sausage is under a different chapter than either the frozen pork meat or the spices are.