Issue 276, October 31, 2000
When considering NAFTA?s Article 303, most importers have focused on the monumental changes impacting the Mexican Maquiladora Industry. There is no question that Article 303 represents a huge change for an industry, which has enjoyed total duty deferral for over 30 years. Article 303's impact on duty deferral programs in the United States, while less daunting than its impact in Mexico, is still significant for those companies who rely on certain duty deferral programs, especially for those goods exported to Mexico on or after January 1, 2001.

During the NAFTA negotiations, there was a concern on how to address the many duty deferral programs that existed in Canada, Mexico and the United States. Duty deferral simply means that foreign goods (non-originating) can enter the territory of a NAFTA country for manufacturing or processing without the payment of duties, provided that those manufactured goods are exported. Article 303 was specially designed to prevent non-NAFTA originating components and materials from entering the NAFTA territories free of duty for manufacturing or processing into finished goods which are ultimately exported to another NAFTA country at a free or reduced rate. The stated goal of Article 303 was to promote the use of originating materials and components, and to insure that materials entering the NAFTA territories pay duties in at least one of the three NAFTA countries.

Article 303 affects three different U.S. duty deferral programs - 1) Foreign Trade Zones 2) bonded warehouses for manufacturing or processing and 3) TIB?s under Subheading 9813.00.05. Another indirect duty deferral program is duty drawback, which results in a duty refund for goods exported. On January 1, 2001, Article 303 becomes effective for goods processed and manufactured in the United States under either a bonded manufacturing warehouse program, TIB?s under Subheading 9813.00.05 program or an FTZ with a claim of non-privileged foreign status. Moreover, foreign goods manufactured in the United States, will no longer be eligible for manufacturing drawback claims when those finished goods are exported to Mexico. For goods exported to Canada, Article 303 became effective on January 1, 1994.

Article 303 was also designed to prevent the assessment of double duties. It has a mechanism to waive or reduce those duties owed in the U.S. depending on the duties paid, if any, in Mexico. For example, if duty of $100 is owed in U.S., but Mexico charges duty of $75, then only $25 is owed in the U.S. If the Mexican duties exceed the U.S. duties, then no duties would be owed in the U.S. There is no waiver or reduction for antidumping or countervailing duties, agricultural fees or MPF. The U.S. entry filer has 60 days to provide proof, usually in the form of a Mexican Pedimento, if a claim for a waiver or reduction of duties is made.

Our contributing writer, Steven B. Zisser, is an attorney in the San Diego border community of Otay Mesa, where he specializes in the practice of U.S. Customs and International Trade Law. He can be reached via email or at (619) 671-0376.

Please note that due to the complex nature of the subject matter, Danzas AEI cannot be responsible for actions taken by the reader in reliance on the information contained herein without prior consultation with Danzas AEI.