CBP Proposes Revision of Country of Origin Rules

(American Shipper)

U.S. Customs and Border Protection is proposing to revise the rules used to determine the country of origin of imported merchandise.

The proposal would apply the so-called “tariff shift” rules, which CBP said “have proven to be more objective and transparent, and provide greater predictability in determining the country of origin of imported merchandise than the system of case-by-case adjudication they would replace. The proposed change also will aid an importer’s exercise of reasonable care.”

The proposal was published Friday in the Federal Register in a notice of proposed rulemaking and comments on the proposal are being accepted through Sept. 23.

Merchandise imported into the United States is subject to a country of origin determination, and under most circumstances that is done by CBP.

In a memo to clients, the law firm of Katten Muchin Rosenman explained that for customs purposes, all imported products must have a single country of origin. When products are composed of materials from more than one country, or undergo processing operations in more than one country, the country of origin is the country in which the product last underwent a “substantial transformation” prior to entry into the United States.

“For nearly a century, both CBP and courts have interpreted substantial transformation to mean the creation of a new or unique article of commerce having a distinctive name, character or use,” the firm explained. “This analysis, which applies to labeling and preferential trade systems, such as the Generalized System of Preferences or the Caribbean Basin Trade Partnership Act, has been applied in a case-by-case basis, which CBP argues has led to subjective or inconsistent results.”

So more recently, CBP has applied the “tariff shift” rules laid out in Part 102 of its regulations that looks for specific changes in the tariff classification of a product before and after processing or combination with other materials. The Part 102 rules are used to determine the country of origin for all goods imported from Canada and Mexico under NAFTA, for nearly all imports of apparel or textile products, and for imports of products under certain free-trade agreements.

Under the new proposal, CBP would apply the Part 102 rules “to all country of origin determinations made under the customs laws of the United States, with only a few exceptions as mandated in certain trade agreements,” said Katten Muchin Rosenman. CBP claims the new test will be more transparent to importers, can be objectively applied, and will result in more predictable country of origin determinations.

Another law firm, Tompkins & Davidson, noted the Part 102 rules “will not be used for purposes of determining origin for preferential trade agreements, if the agreements specify another origin test for that purpose. For example, application of tariff benefits under NAFTA are determined by the preference origin rules set out in Chapter Four of that agreement.” Read the complete article.