CBP Proposes Establishment of Uniform Country of Origin Rules for Imported Merchandise

Tweet

July 25, 2008

Today, U.S. Customs and Border Protection (“CBP”) has issued a notice of proposed rulemaking (“NPRM”) which proposes establishing uniform rules of origin governing CBP determinations of the country of origin of merchandise imported into the United States.  Specifically, CBP proposes extending application of the country of origin rules (also known as the tariff shift rules) codified in 19 CFR Part 102.

Currently, under the Customs Regulations, CBP employs two primary methods in determining the country of origin of imported goods that are processed in, or contain materials from, more than one country.  The first method employs case-by-case adjudication to determine whether an imported good has been “substantially transformed” in a particular country.   The second method employs codified rules (tariff shift rules), also used to determine whether a good has been “substantially transformed,” primarily expressed through changes in tariff classification. 

The substantial transformation standard has developed over many years from a series of federal court decisions.  Under the current standard, an imported article must lose its identity and become an integral part of a new article having a new name, character and use in order to be deemed a product of that country.  Because in almost all cases there can only be one country of origin for rules of origin purposes, the standard refers to the country in which the last substantial transformation occurs.

CBP indicates in the proposed rule that administration of the substantial transformation standard has not been without problems largely due to the subjective nature of judgments made in case-by-case adjudications as to what constitutes a new and different article and whether processing has resulted in a new name, character or use.  CBP further indicates that the standard has been difficult for the courts and CBP to apply in a consistent manner and has resulted in a lack of predictability and certainty for both the trade and CBP.

CBP now seeks to simplify and standardize country of origin determinations by extending application of the Part 102 rules of origin to all country of origin determinations made under the customs and related laws of the United States.   Since 1996, CBP has applied the tariff shift rules to all imports from Canada and Mexico, and nearly all imports of textile products.   CBP believes that the importing community and CBP have extensive experience in applying these rules to goods from Canada and Mexico.

While CBP proposes applying the Part 102 rules in all future free trade agreements negotiated using the substantial transformation standard; these rules will not be applied where current agreements specify another origin test for the purpose of determining origin.  CBP does propose using the Part 102 rules of origin to administer those free trade agreements (“FTAs”) already negotiated which apply the substantial transformation standard as part of the test to determine whether products qualify for reduced tariffs.  To date, this would include the United States-Bahrain and United States-Morocco FTAs.

Additionally, the NPRM proposes amending the country of origin rules in five (5) specific product areas where CBP has determined that the outcome of the two systems has been inconsistent.  Specifically, CBP proposes altering the codified rules in Part 102 with respect to the following: pipe fittings and flanges, printed greeting cards, glass optical fiber, rice preparations and certain textile products.

CBP has invited comments from the trade concerning these proposed changes.  Comments may be submitted electronically or by mail and must be received by CBP by September 25, 2008.