The verification program has been conducted primarily through written questionnaires to exporters or producers in the United States or Canada. The customs administration, however, may visit the premises of an exporter or a producer or send a verification letter.
The customs administration does not notify the importer in Mexico that it is seeking to verify the origin of a good. This prevents the importer from providing any documentation that could attest origin. Therefore, if the exporter or producer in the United States or Canada fails to provide sufficient information to the Mexican authorities, the customs administration may conclude that the goods imported into Mexico do not originate from NAFTA.
As a result of the origin verification program, the Mexican authorities have been imposing tax liabilities often amounting to several hundreds of thousands of dollars.
Importers challenge the new approach
Importers are challenging the Tax Court and Federal Courts with generally positive outcomes.
The Tax Court ruled in favor of importers, based on the fact that they should have been notified of the final resolution regarding the verification of origin procedure (which rejects the preferential duty treatment). To not notify them was a violation of their constitutional rights, since the verification procedure typically prevents them from providing evidence that could prove the goods do originate from within NAFTA.
Now, when an importer is imposed with a tax liability resulting from an origin verification procedure, before challenging the liability before the Tax Court it will often make an administrative appeal, which the customs administration is more likely to accept and therefore revoke the liability.
In addition, the Mexican customs administration has now started initiating these verification procedures based not only on NAFTA regulations, but also on the Mexican Tax Code. This means the Mexican importer is notified if the exporter or producer fails to provide sufficient information or documentation to verify the origin of the good.