Canada Grants Favorable Customs Treatment to NAFTA Originating Cores and Remanufactured Parts
The Canada Border Services Agency (CBSA) has decided for purposes of the North American Free Trade Agreement (NAFTA) to include “disassembly” of used goods as a production process which would allow a disassembled article to qualify for a different customs classification than the original good from which it was taken.
This allows cores which have been disassembled in a NAFTA country to be deemed to have “originated” in that country and therefore be subject to more favorable customs treatment if imported into another NAFTA country. Rebuilt or remanufactured parts made from such cores could also qualify for more favorable NAFTA duties if the majority of the combined value of the core and the other components and the work performed on the part is of NAFTA origin.
Under NAFTA, goods which originate in one NAFTA country receive favored tariff treatment when imported into another NAFTA country. A process which qualifies as “production” and which occurs in a NAFTA country qualifies the article or good produced as “originating in that country for NAFTA tariff purposes. Processes which constitute “production” are listed in the NAFTA Rules of Origin regulations. Disassembly is not listed among those processes but the list is not considered exhaustive.
The CBSA now says that it will consider disassembly of used goods as a “production” process which will allow the cores to be classified as originating in a NAFTA country, assuming that all other NAFTA Rules of Origin have been met.
For remanufacturers and core suppliers, this means that any cores recovered by them in the US or Mexico will normally be subject to lower duties if imported into Canada because the cores will be deemed to have originated in a NAFTA country. Previously, the core would be deemed to have originated in the country where the original part was manufactured, thus making many cores removed from US vehicles subject to higher non-NAFTA tariffs.
Rebuilt and remanufactured parts using such cores will also get the same favorable treatment unless the value of the non-NAFTA components and labor used in creating the rebuilt or remanufactured part would disqualify it.
The CBSA pointedly stated that the new rule does not apply to the disassembly of new goods and that it will still be incumbent upon importers to prove that disassembly occurred in a NAFTA country.
The US Customs Service reached a similar decision in 2005, but Mexico has not yet done so.