Manage NAFTA Trade Preference to Mitigate Risk with SAP BusinessObjects Global Trade Services

  • by Rajesh Malle, Krypt, Inc.
  • October 26, 2011
In growing globalization, free trade agreements provide a comparative advantage for companies engaged with business within a specific trade zone. Implementation of the North American Free Trade Agreement (NAFTA) with SAP BusinessObjects Global Trade Services creates a combined solution to mitigate risk, better manage the process life cycle, and automatically deliver NAFTA certificates to customers.
Key Concept
Implementation of North American Free Trade Agreement (NAFTA) regulations involves various key processes, such as requesting and managing vendor declaration, calculating NAFTA preference by integrating third-party preference rules, and issuing NAFTA certificates to customers. Master data such as bill of material, product classification for harmonized tariff number, procurement type, and prices are vital to determine accurate NAFTA calculations.

A free trade agreement is a pact between two countries or a group of countries to allow trade with reduced duty or no duty. Applicability of these agreements is based on the notion of preferential origin. The difficulty lies in whether a product manufactured in a North American Free Trade Agreement (NAFTA) region using a portion of components from outside NAFTA qualifies based on any other preferential rules. Rules of origin and origin criteria are two key concepts in determining NAFTA preference.

Rules of origin refer to two basic categories to define preference criteria:

  • A change in tariff classification (tariff shift): Classification of the finished product must be different from the classification of nonoriginating products used for manufacturing.
  • Regional value-content requirement (RVC): Minimum proportion of materials is prescribed (NAFTA).

The following definitions of different types of goods help clarify requirements for NAFTA origin criteria:

  • Wholly obtained or produced goods. These goods are wholly obtained or produced entirely in one or more NAFTA countries. For goods to qualify under this criterion, it must contain no non-North American parts or materials.
  • Goods containing nonoriginating materials and meeting origin rules. These goods are made from nonoriginating materials and may also qualify for NAFTA treatment as long as each non-NAFTA input undergoes a tariff classification change as specified in Originating Goods (Article 401) and meets other requirements that may apply.
  • Goods produced in the NAFTA region wholly from originating materials. Another way for goods to originate is if they are produced entirely in one or more NAFTA countries using only originating materials. This provision encompasses goods made of parts and materials that meet NAFTA rules of origin, even though they contain some non-North American inputs. This rule relates to preference criterion C on the NAFTA certificate of origin.


Rajesh Malle

Rajesh Malle is a principal consultant at Krypt Inc. He focuses on providing consulting solutions in global trade and logistics areas. He holds a master's degree in engineering and project management and has executed several SAP projects involving SAP Materials Management and customer-facing modules with SAP ERP.

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