The North American Free Trade Agreement (NAFTA) is a trilateral trade agreement between Canada, Mexico, and the United States. It came into effect on January 1, 1994 and has fostered strong economic ties between these three nations.
One of the key features of NAFTA is the preference criterion, which is designed to promote trade among the member countries. Under this criterion, goods must meet certain criteria to be eligible for preferential treatment, which includes reduced tariffs and duties.
The preference criterion requires that goods must be produced or manufactured in one of the NAFTA member countries. This means that the goods must undergo a substantial transformation in one of the member countries, resulting in a change in their tariff classification.
In addition, goods must meet a certain regional value content (RVC) requirement to be eligible for preferential treatment. This requirement varies depending on the type of product, but generally, it requires that a certain percentage of the value of the product is added in one of the member countries.
To determine the regional value content, the value of all materials used to produce the product is added up. This includes the cost of all materials, such as raw materials, labor, and overhead costs, as well as the cost of any other inputs used in the production process.
Once the value of all materials is determined, the regional value content is calculated as a percentage of the total. If the percentage meets or exceeds the RVC requirement for the product, the product qualifies for preferential treatment under NAFTA.
It`s important to note that not all goods are eligible for preferential treatment under NAFTA. Some goods, such as textiles and apparel, have more stringent requirements for qualification.
In conclusion, the preference criterion is a key feature of NAFTA that promotes trade among the member countries. By requiring that goods be produced or manufactured in one of the member countries and meet certain regional value content requirements, NAFTA helps to create a level playing field for businesses and encourages cross-border trade. As such, it is an important tool for promoting economic growth and development in North America.