In international trade, correctly determining and certifying the origin of goods is not just a bureaucratic requirement--it's a strategic necessity. Under trade agreements like %20(3).png?width=438&height=346&name=Text%20Message%20with%20Reaction%20(1080%20x%201080%20px)%20(3).png)
the USMCA (United States-Mexico-Canada Agreement), the ability to qualify for preferential tariff treatment can make a significant difference in a company's bottom line. For manufacturers and exporters operating across North America, these cost savings can be substantial, improving competitiveness in an increasingly globalized market.
However, there's growing trend that presents serious risks: self-certifying the origin of goods without legal or trade compliance support. While the USMCA allows importers, exporters, or producers to self-certify the origin of a product, this flexibility comes with complex responsibilities. Misinterpreting the rules of origin--or overlooking key details--can lead to costly errors, including retroactive duties, fines, and audits that disrupt operations and damage trade relationships. What may seem like a simple form or declaration can quickly escalate into a compliance nightmare if not handled with care and expertise.
In light of the current political climate, Prodensa partnered with experts to provide detailed insights into the importance of origin analysis services. We would like to thank Adrián González, President of Global Alliance Solutions, for his valuable participation and collaboration.
Why Companies Often Misclassify Product Origin
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Many companies misclassify a product’s origin simply because the rules can be complex and hard to follow. The Rules Of Origin are what decide if a product qualifies for lower tariffs under a trade agreement. Their main goal is to make sure that only products truly made in the region get those benefits—and not goods from other countries trying to take advantage.
Many companies assume that partial manufacturing in a member country automatically qualifies the product as originating. However, the rules are complex and vary by sector.
What are the main causes of incorrect classification?
Companies often depend on supplier-provided information without verifying it, which can lead to inconsistencies.
If a supplier changes the origin of materials without notice, the final product's origin may be affected.
Rules of origin depend not just on production location, but also on Regional Value Content (RVC), transformation processes, and materials used.
Companies often depend on supplier-provided information without verifying it, which can lead to inconsistencies.
If a supplier changes the origin of materials without notice, the final product's origin may be affected.
Rules of origin depend not just on production location, but also on Regional Value Content (RVC), transformation processes, and materials used.
Companies often depend on supplier-provided information without verifying it, which can lead to inconsistencies.
Without deep knowledge of these criteria, companies commonly make mistakes in determining product origin.
The Financial Risks of an Incorrect Certificate of Origin
Issuing an incorrect certificate of origin can lead to serious financial consequences. In Mexico, for instance, misapplying a preferential tariff may result in fines of 130% to 150% of the unpaid duties, along with additional penalties. On top of that, errors in tax declarations can impact your VAT obligations and increase your overall financial burden. In some cases, customs authorities may even suspend preferential tariff treatment for future shipments of the same goods until the correct origin is proven.
Financial Impacts
These are some of the top risks companies face when the origin certification isn't handled properly.
If a product is later found to be ineligible for preferential treatment, the company must pay retroactive duties plus interest.
Repeated errors can lead to stricter audits or suspension from trade preference programs.
Authorities in the U.S., Mexico and Canada can impose fines for false declarations. In 2021, CBP fined an automotive company $2.5 million for failing to comply with the rules of origin.
If a product is later found to be ineligible for preferential treatment, the company must pay retroactive duties plus interest.
Repeated errors can lead to stricter audits or suspension from trade preference programs.
Authorities in the U.S., Mexico and Canada can impose fines for false declarations. In 2021, CBP fined an automotive company $2.5 million for failing to comply with the rules of origin.
If a product is later found to be ineligible for preferential treatment, the company must pay retroactive duties plus interest.
Real Cases:
- In 2021, CBP fined an automotive company $2.5 million USD for failing to comply with rules of origin.
- In 2020, a Mexican textile company lost $1.2 million in tariff benefits after an audit revealed that its origin certifications did not comply with USMCA requirements.
How Self-Certification Can Lead to Compliance Issues
Self-certification means that the importer, exporter, or producer declares that their products meet the rules of origin without external verification. While this may seem efficient, it carries high risks if not done correctly.
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Errors in self-certification can trigger audits by customs authorities, resulting in the loss of tariff preferences and possible penalties. A lack of proper documentation also makes it harder to defend the company in case of an audit, exposing it to legal and financial risks.
What are the most common compliance risks?
Authorities can request proof of origin at any time. If the company cannot provide it, benefits are revoked.
In serious cases, intentional errors can be considered customs fraud, with criminal consequences.
Article 5.2 of the USMCA requires maintaining supporting documents for at least 5 years. Companies that fail to do so face penalties.
Authorities can request proof of origin at any time. If the company cannot provide it, benefits are revoked.
In serious cases, intentional errors can be considered customs fraud, with criminal consequences.
Article 5.2 of the USMCA requires maintaining supporting documents for at least 5 years. Companies that fail to do so face penalties.
Authorities can request proof of origin at any time. If the company cannot provide it, benefits are revoked.
A 2023 Baker McKenzie study found that 45% of companies audited in North America had inconsistencies in their origin certifications.
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The Role of an Expert in Ensuring Proper Origin Documentation
Having the support of a foreign trade expert is essential for proper origin certification. These professionals not only understand how to interpret and apply the specific rules under each trade agreement, but also help evaluate product composition and determine eligibility for tariff benefits. In addition, they assist with preparing and maintaining the necessary documentation—greatly reducing the risk of costly errors, penalties, or compliance issues.
What are the benefits of hiring an expert?
Supply chain analysis: Verifying that each component meets origin rules.
Accurate RVC calculation: Ensuring the correct regional content percentage.
Internal training: Educating teams to prevent errors in future certifications.
Audit support: Providing legal and technical support in customs audits.
Investing in expert consulting translates into major savings by avoiding fines and maximizing trade agreement benefits.
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PRODENSA Key Points:
- Self-certifying origin without expert support increases the risk of costly financial penalties and customs audits, don't risk it!
- Misclassification often stems from lack of technical knowledge, supplier dependency, or untracked supply chain changes.
- Incorrect certificates can result in fines, retroactive duties, and reputation damage.
- Maintaining accurate documentation is legally required and critical for successful audits.
- Expert consultants help verify compliance, calculate RVC, train teams, and defend during customs verifications.
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Self-certification of origin is a valuable tool in international trade, but its improper use can lead to significant financial and legal risks.
It is essential for companies not to rely solely on information from suppliers and to seek the guidance of foreign trade experts to ensure accurate and compliant origin certification.
Are you looking for guidance on the USMCA certificate of origin?
