Scenario - Trade based on a Free Trade Agreement (SAP Library

Scenario - Trade based on a Free Trade Agreement

Purpose

This scenario describes the processes involved in exporting goods from your country when a trade agreement exists between your country and the importer. (See Trade Based on a Free Trade Agreement in The Situation Within Your Own Country)

Preferential Treatment

If your products qualify as originating according to the rules stipulated by the customs territory from which you are exporting, they may qualify for preference. When you dispatch goods that qualify for preference, your customers pay little or no customs duties.

Example

Using the North American Free Trade Agreement (NAFTA) as an example, if your company is located in Canada and you export a material to Mexico that originated in Canada or the USA, it may qualify for preference. Under NAFTA, you can export many materials without paying customs duty.

You can find detailed information about NAFTA under the Internet address http://www.customs.ustreas.gov/nafta/.

This graphic is explained in the accompanying text

Prerequisites

Certificate of Origin

A primary requirement for shipping merchandise to another country with which you have a free trade agreement involves the Certificate of Origin. A certificate of origin is an official document that certifies that goods exported from one customs territory to another is an originating good – that is, it was derived or manufactured within the country of export.

This document is provided and signed by the exporter when goods are exported for which an importer may claim preferential tariff treatment.

See NAFTA Certificate of Origin below.

Process

The customer requests a quotation for the cost of the merchandise.

You (the exporter) provide a quotation for the merchandise to the customer.

The customer sends you a purchase order based on your offer.

You create a sales order based on the purchase order.

You ship the merchandise in accordance with the terms agreed upon.

You send an invoice to the customer.

The customer transfers funds to your company or your bank.

You file an export declaration with the customs authorities.

The customer receives the merchandise and files an import declaration with the customs authorities in the country of import.

NAFTA Certificate of Origin

Under the NAFTA, a new certificate of origin is required for all shipments that qualify for special tariff treatment – reduced or free duty rate.

The importer who claims preferential tariff treatment is required to

Make a written declaration, based on a valid Certificate of Origin, that the goods qualify as originating goods
Have the certificate of origin in his or her possession when the declaration is made
Provide a copy of the certificate to the customs service if requested

In NAFTA, a certificate of origin is not required if the transaction is valued at US$ 1000 or less.

Frequently, products manufactured in one of the three countries in the agreement are manufactured from raw materials from one or more of the countries. For example, a product made in Mexico may be produced from raw materials from Canada and the USA. In this case, the exporter is responsible for providing the importer with a certificate of origin that is filled out and signed. Both the exporter and importer must keep a signed original certificate of origin on file for five years after the goods have been imported. You do not give this certificate to the Customs Service unless it is requested.