Customs Law Advisory - US Customs Proposes To Change Country Of Origin Rules For Most Imports

On July 25, 2008, US Customs and Border Protection (“CBP”) announced a proposal to change the country of origin rules for most goods imported into the United States.  If adopted, US law would require importers of goods processed in more than one country to perform a “tariff shift” analysis, and to maintain records supporting that analysis, before declaring or marking country of origin.  This change also would apply in situations where importers determine that no origin marking is necessary, in the belief that processing done after import is sufficient to remove the usual US law requirement of a foreign country of origin marking.  Every importer that currently relies on a substantial transformation analysis to determine the country declared for or marked on goods imported into the United States should review the tariff shift rules for its goods to determine whether CBP’s proposal would cause a change in treatment.

CBP invites comments on the proposal to be filed by September 23, 2008.

The proposed change
Under the existing regulations, the country of origin of a good is the last country in which it experiences “substantial transformation,” that is, processing that results in an item with a new “name, character or use.”  This test has always been subject to a fair amount of interpretation and is usually governed by accumulated CBP rulings and court decisions for the particular product type or industry at issue.  For many years, this test has determined the proper country of origin to be declared for and marked on most goods imported into the United States or sold after US processing.

CBP proposes to replace the “name, character or use” test with “tariff shift” rules that already exist in Part 102 of the Customs Regulations for NAFTA goods.  Under these rules, a good originates in a country if the tariff numbers before and after processing show a large enough shift (along with other possible conditions for some products), under specific rules listed for the finished good.  CBP believes that tariff shift is a more objective and predictable method of finding substantial transformation than interpretations of “name, character or use.”

Who would be impacted?
All of the following companies should review the tariff shift rules to see if the proposal will change the country of origin required to be declared or marked:

• Buyers and sellers of goods in the United States that are not marked with foreign country of origin based on the belief that the US processing is sufficient to be considered substantial transformation of any foreign inputs;
• Importers of goods processed in more than one country for which substantial transformation is used to determine country of origin;
• Importers of goods assembled using inputs from more than one country for which substantial transformation is used to determine country of origin; and
• Importers who use substantial transformation to claim that goods meet the “product of” requirement for eligibility under the following programs:
  
  
• General System of Preferences (“GSP”);
• Caribbean Basin Economic Recovery Act (“CBERA”);
• Freely Associated States;
• Andean Trade Preferences Act ("ATPA”);
• African Growth and Opportunity Act ("AGOA”);
• US-Morocco Free Trade Agreement;
• US-Bahrain Free Trade Agreement;
• US insular possessions; and
• West Bank, Gaza Strip or qualifying industrial zones. 

All other requirements of the programs immediately above, such as value-content, if any, will still apply.  CBP also states that the tariff shift rules will be used for any future free trade agreement that uses the substantial transformation test to determine eligibility for reduced tariffs.

The proposed change would NOT impact
The import shipments and issues below would not be changed by the proposed rule:

• NAFTA and other preferential trade agreements where the agreements specify another origin test;
• Most textile products;
• The US-Israel and US- Jordan Free Trade Agreements; and
• Country of origin determinations by the Department of Commerce for the purpose of antidumping or countervailing duty cases.

Changes in tariff shift rules for specific products
In addition to the proposed changes above, CBP proposes to change the existing tariff shift rules for certain listed products. Any importers of the products listed immediately below must review these specific proposals in order to understand the proposed new import compliance obligations under US law.

• Pipe fittings and flanges;
• Greeting cards;
• Glass optical fiber;
• Rice preparations;
• Plastic laminated fabrics of heading 5903; and
• Knit to shape body supporting garments of heading 6212.

The complete proposal
CBP’s proposal was published in the Federal Register at 73 Fed. Reg. 43,385 on July 25, 2008. The existing tariff shift rules that CBP proposes to use for substantial transformation instead of “name, character or use,” are available online.

If you have any questions on US Customs or import procedures, please contact Greg McCue at 202.429.6421 or Laura Ardito at 202.429.3055.