The North American Free Trade Agreement (NAFTA) is a trade agreement between the United States, Canada and Mexico that was signed in 1994. One of the important provisions of NAFTA is Appendix 1603.D.1, which outlines the rules of origin for automotive goods.
Under NAFTA, goods imported from member countries are subject to lower tariffs than goods from non-member countries. However, to qualify for these preferential tariff rates, the goods must meet certain rules of origin criteria. Appendix 1603.D.1 specifically pertains to the origin of automotive goods, and outlines the requirements for a good to be considered originating.
To qualify as originating, an automotive good must meet one of the following requirements:
1. The good must be produced entirely within the NAFTA region (the United States, Canada, and Mexico).
2. The good must be produced using materials that are themselves originating in the NAFTA region.
3. The good must undergo a specific amount of production or processing within the NAFTA region.
The third requirement is known as the “tariff shift” rule. To meet this requirement, a good must undergo a specific amount of production or processing in the NAFTA region. In the case of automotive goods, this means that a certain percentage of the value of the final product must be generated within the NAFTA region.
Appendix 1603.D.1 provides specific guidance on the amount of production or processing required for each type of automotive product. For example, for a passenger vehicle or light truck, 62.5% of the net cost of the vehicle must originate from the NAFTA region. For parts, the amount of production or processing required varies depending on the type of part.
Overall, Appendix 1603.D.1 is a critical component of NAFTA that ensures that automotive goods that receive preferential tariff rates are actually originating in the NAFTA region. By establishing clear rules of origin, this provision helps to promote trade and economic benefits for all three member countries.