WCO Revenue ConferenceMexico’s 20 years experience of implementing the NAFTA

agreement, Rules of Origin

July 1st, 2014July 1st, 2014

CONTENTS

Until today, Mexico has signed 11 Free Trade Agreements with a total of 45 countries, containing each of the agreements their own verification of origin procedures .

No. TREATYDATE OF

SIGNATURE

1 NAFTA 12/17/1992

2 Colombia 06/11/1994

3 Chile 04/17/1998

4 EU-Mexico Free Trade Agreement (TLCUEM) 03/23/2000

5 Israel 04/10/2000

6 European Free Trade Association (TLCAELC) 11/27/2000

7 Uruguay 11/15/2003

8 Japan 09/17/2004

9 Peru 04/06/2011

10Costa Rica, Salvador, Guatemala, Honduras y Nicaragua (Central America-Mexico)

11/22/2011

11 Panama 03/04/2014

GENERAL INFORMATION

Mexico relies on international commerce to sustain its economic stability. The imports combined with the exports form a core component of our economy. Trade transactions in Mexico accounted for 63.1% of the GDP 2013.

Source: INEGI data (2013) - http://www.inegi.org.mx/sistemas/bie/

GENERAL TRADE VOLUME AND TRENDS - GDP

Commercial Flows and its relation to GDP (2003-2013)(billions USD)

962.40 960.031,034.12 1,075.49 1,106.24 1,108.92

866.50972.30

1,028.73 1,007.90 1,049.62

487.2 509.9568.8

613.7 641.5 645.5

450.5

578.9637.0 633.9 662.150.6% 53.1%

55%57.1% 58% 58.2%

52%

59.5%61.9% 62.9% 63.1%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GDP Comercial Flows (Imports + Exports)

Source: Ministry of Economy. 2014

• Within the block of North America, Mexico's trade, along with its partner countries, went from 30.7% of the region's total in 1993 to 46.9% in 2013, reflecting the importance of Mexico as a trading partner of Canada and the United States.

• In 2013 the imports from the NAFTA region represent 53% and exports 81% of the total, (the USA accounts for 96% of the commercial flows).

NAFTA TRADE TRENDS

Imports and Exports from the NAFTA Region (USA and Canada) (1993 – 2013)

(billions USD)

0.0

100.0

200.0

300.0

400.0

500.0

600.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Year

Exports NAFTA Imports NAFTA (Imports + Exports)

Source: Ministry of Economy. 2014

• In 2013, the trade flows between Mexico and Canada presented a decrease of 2.5%, reaching $20,299 million USD. This value represents a growth of 741% in trade since NAFTA came into force, translating into an annual growth rate of 11.3% between 1993 and 2013.

• Regarding trade statistics between Mexico and the USA, in 2013 the exchange of goods presented an increase of 2.9% reaching $486,790 million USD. This represents a growth of 552% since NAFTA came into force; reflecting an annual growth rate of 9.6% between 1993 and 2013.

NAFTA TRADE TRENDS

Imports and Exports from the NAFTA country’s (1993 – 2013)(billions USD)

0.0

5.0

10.0

15.0

20.0

25.0

0.0

100.0

200.0

300.0

400.0

500.0

600.0

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Can

adá

USA

Comercial Flows USA Comercial Flows Canadá

Source: Ministry of Economy. 2014

NAFTA TRADE TRENDS

NAFTA trade flows in 2013 Percentage

During 2013, over 75% of NAFTA’s commercial flows concentrated in three sections: 31.78% correspond to section XVI-Machinery, 25.10% to section V-Animal products and 21.57% to section XVII-Transport equipment.

4.33%3.26%

21.57%

25.10%

31.78%

13.9%

Section XIV Precious Stones & Articles Section II Vegetable Products

Section XVII Transport Equipment Section V Animal Products

Section XVI Machinery Others

TOP FIVE COUNTRIES BY IMPORT & EXPORTS VALUE

Source: Ministry of Economy 2013 - http://www.economia.gob.mx/comunidad-negocios/comercio-exterior/informacion-estadistica-y-arancelaria

Exports Imports

USA China UE Japan South Corea

49.1%

16.1%11.2%

4.5% 3.5%

USA UE Canadá España China

78.8%

5.2% 2.7% 1.9% 1.7%

• In 2013, the United States remains our top trading partner (in terms of imports and exports) with 78.7%.

• During 2013, 77% of the total imports originated from 5 countries, the U.S.A. represented 49.1% of the total imports, followed by China and the European Union (16.1% and 11.2% respectively).

The Jurisdiction on NAFTA

Origin Verifications is

exclusive to the Tax

Administration Service

(SAT for its acronym in

Spanish)

Within SAT, NAFTA Origin

Verifications are the

responsibility of the

General Administration for

Foreign Trade Audit

(AGACE for its acronym in

Spanish)

NAFTA’S JURISDICTION- VERIFICATIONS OF ORIGIN

VERIFICATIONS OF ORIGIN

Verification of origin procedure according to NAFTA: :

• The processes are carried out in accordance with Article 506 are questionnaire and verification visits.

• The questionnaire is sent in English, as well as an official document in Spanish, accompanied by a courtesy translation(this document has no legal effect)

• SAT’s contact information of who is in charge of conducting the audits is contained within the official document, including email, phone number, address and fax numbers.

• There is no specific time frame for Origin Verifications, it can take up to 4 months average. However, this depends on products, number of transactions subject to the audit and the complexity of the rule of origin. Verifications can take up to 10 months.

• For more information in English on origin verifications can be found on www.sat.gob.mx.

Manufacturers Manufacturer and/or Exporter

Signs a C.O.

Mexican importer receives the C.O. and files it before Mexican

Customs

Goods are imported to

Mexico subject to a 0% import

tax

NAFTA provides a preferential tariff treatment for goods which originated from Mexico, Canada and the

United States.

NAFTA IMPORT PROCEDURES

VERIFICATION SYSTEMS

Uniform Regulations, which will reassure the application, administration and coherent interpretation of chapter IV and V.

A uniform certificate of origin, including the requirements of certification and procedures which will need to be followed by importers and exporters who claim a preferential tariff treatment.

Importers and exporters appeal rights are common.

In order to determine the goods to which a preferential tariff treatment applies to, NAFTA provides the following set of rules:

Advanced rulings issued by the National Customs Authority of the importing country.

A tri-national group that will be in charge of any modifications to the rules of origin as well as uniformed regulations.

Specific timeframes to provide a prompt solution to the controversies which emerge between the signatory countries, regarding the rules of origin.

VERIFICATION PROCEDURES

VERIFICATION OF ORIGIN PROCEDURES IMPLEMENTED BY FREE TRADE AGREEMENTS TO

WHICH MEXICO IS SIGNATORYTypes of Verification of Origin:

1. VO questionnaire addressed to the exporter/producer: Written questionnaires are conducted to collect information and documentation related to the origin of goods and later sent through a special courier. (For instance, NAFTA, Chile and Colombia)

2. VO visits to the exporter/producer facilities: The factory or plant where goods are produced receive a visit intended to acquire all the necessary documentation. (For instance, NAFTA, Chile and Colombia)

3. VO applications to the authority of the country of exports or production: the VO is executed by the authority of the exporter or producer and the results are sent to the importer’s authority. (For instance, NAFTA, Chile and Colombia)

VERIFICATION PROCEDURES

By courier (DHL, FEDEX, UPS, etc.)

QUESTIONNAIRE TO THE EXPORTER AND/OR PRODUCER

The questionnaire is notified

30 days to respond

Subsequent questionnaire

notified (Denial intent of

Preferential tariff treatment)

Additional information

request (Denial intent of

Preferential tariff treatment)

Final resolution of origin ( 4 to 10

months)

Information or

documents not accurate

or insufficient

OK

A sample of documents can be filed within 30 days, followed by the rest on a negotiated date

VERIFICATION PROCEDURES

No answer

30 days to respond

Answer

30 days to respond

Sensitive industry sectors: TEXTILE - FOOTWEAR – ELECTRONICS - STEEL

VERIFICATION PROCEDURES

98% of the total procedures completed in the NAFTA region during the fiscal year of 2013, where executed on imports from the USA.

YearVO Questionnaires VO VisitsUSA CANADA USA CANADA

2008 86 5 25 02009 148 7 35 02010 253 18 28 02011 267 4 20 02012 245 22 20 02013 158 4 3 02014 55 0 44 0

Annex 401 of NAFTA provides the specific rule of origin which is applied to determine whether a good qualifies as an originating good under the terms of NAFTA.

Most of NAFTA rules of origin for Textile and Apparel goods are “Yarn Forward” and “Fiber textiles Forward” meaning that depending on the case the fabric must come from NAFTA yarn or NAFTA Synthetic or natural Fibers Textiles, and the good must be cut (or knit to shape) sewn or otherwise assembled within NAFTA territory. Synthetic textile fibers as

well as yarn for fibers, shall be NAFTA originating.

Cutting and sewing of the fabric, shall be done within a NAFTA country.

The producer and/or exporter that signs a Certificate of Origin shall have the knowledge and necessary documents in order to proof all prior conditions.

e.g. Crude polyester staple fiber, is not required to be

originating.

Analysis on Rules of Origin

VERIFICATION CASES

EXPORTER / PRODUCER RESPONSIBILITIES DURING AN ORIGIN VERIFICATION

Exporters/producers must cooperate with authorities during the procedures and send

complete and accurate information.

Exporters/producers must have the documents and necessary information to demonstrate their knowledge regarding the origin of goods.

In a timely manner, exporters/producers must answer the questionnaire or visit proposal as well as inform importers regarding any change that might

affect the certification.

VERIFICATION CASES

MOST COMMON IRREGULARITIES DETECTED DURING ORIGIN VERIFICATIONS

Thank you!

General Administration for Foreign Trade Audit

International Affairs Central Administration