CBP Proposes Continuation of NAFTA Marking Rules for Non-preferential Origin Determinations Under USMCA

Jul. 13, 2021

Last week, U.S. Customs and Border Protection (CBP) issued a notice of proposed rulemaking that seeks to allow the continued use of NAFTA Marking Rules for non-preferential origin determinations of merchandise imported from Canada or Mexico.

As a general matter, CBP uses the substantial transformation standard to determine the country of origin of goods for non-preferential purposes. A substantial transformation occurs where a new and different article emerges from manufacturing processes having a distinctive name, character, or use.

For goods imported from anywhere other than Canada and Mexico, whether a substantial transformation has occurred is determined on a case-by-case basis and involves a highly subjective analysis. Under the NAFTA Marking Rules, a substantial transformation occurs where there has been a specified change in tariff classification or tariff shift. The tariff shift method is much more transparent, consistent, and objective than the traditional substantial transformation test employed for non-NAFTA imports.

Under the USMCA, which replaced the NAFTA, there is no marking requirement or provision concerning how non-preferential origin determinations for goods coming from Canada or Mexico are to be made. By proposing the continuation of the clearer, objective origin method, CBP attempts to maintain the rules of origin framework that has long applied to the trade communities operating in USMCA countries. Moreover, CBP also cites the agency’s own experience with applying the NAFTA Marking Rules as reason for the continued application of the “reliable, simplified, and standardized method” for determining country of origin for non-preferential USMCA imports.

Some early critics of the proposal have described the proposed continuation of the NAFTA Marking Rules as “strange and unsupportable” because effectively CBP is perpetuating a bifurcated non-preferential origin framework that uses one test to articles imported from Canada and Mexico, and a completely different test for articles imported from anywhere else. Essentially, companies importing from any non-USMCA country are subject to a much more unpredictable and involved substantial transformation test while Canadian and Mexican importers benefit from the straightforward tariff-shift method. Rather than continue to operate under this hybrid framework, those critics advocate for uniformity, suggesting either using the same subjective test for all non-preferential origin determinations regardless of export or making the NAFTA Marking Rules applicable across the board. CBP has requested comments on the proposed amendments. All comments must be received by Thursday, August 5, 2021.

Given that the results under the two methods for determining substantial transformation can vary and that the obligations on the importer asserting their origin claim are different under each method, importers should be familiar of what is required to substantiate any non-preferential origin claim for their product.

Should you have any questions on non-preferential origin determinations or origin determinations of any kind, or should you wish to submit comments on the proposed amendments, please contact an attorney at Barnes, Richardson & Colburn LLP.