CBP Rules of Origin Proposal Could Mean Compliance Headaches

(World Trade Interactive)

Importers are faced with a number of potential problems from a recent U.S. Customs and Border Protection proposal to change the way the country of origin of most imported goods is determined. CBP recently extended the comment period on the proposed rule to October 23, leaving importers just over a month to review the rule’s impact on their operations and notify CBP of any recommended changes.

At present, the origin of non-NAFTA goods is determined by the case-by-case application of a “substantial transformation” test under which a good is considered to be a product of a particular country if the processing in that country is sufficient to substantially transform that good into one having a new name, character and use. Under the proposed rule, however, CBP intends to extend the “tariff shift” rules applicable to virtually all non-textile/apparel goods under NAFTA to imports from all countries. This approach would require companies to classify foreign inputs used in the manufacture of a finished product and then apply sometimes complicated tariff shift rules to determine the origin of that good. (The proposed rule would also amend the tariff shift rules relating to specific products (e.g., pipe fittings and flanges) and make corrections to the rules of origin for textile and apparel goods of HTSUS chapter 59 and heading 6212.)

There are a number of compliance concerns associated with CBP’s proposal.

• Depending on your supply chain, it may be difficult to obtain information relating to the origin of various inputs and/or information sufficient to classify those inputs in order to apply the proposed rules of origin to the finished product.

• Although the origin of many products may remain the same under the new rules, it is likely that there will be a number of changes as well.

• Qualification for trade preference programs such as the Generalized System of Preferences, as well as certain duty preferences available under HTSUS chapter 98, could be affected.

Accordingly, importers should quickly review the rules applicable to their products to determine their impact and submit comments to CBP if warranted.