The Country of Origin of Imported Merchandise and Marking Requirements
Author | David Grace, Christine Minarich, Trice Stabler |
Pages | 89-108 |
CHAPTER 5
The Country of Origin
of Imported Merchandise
and Marking Requirements
DAVID GRACE, CHRISTINE MINARICH, TRICE STABLER
All goods imported into the United States come from somewhere. U.S. Customs
and Border Protection (CBP) generally requires that the “somewhere,” known
as the “country of origin,” be determined and marked on all imported merchan-
dise. This requirement serves a number of purposes. The most important is so
that “the ultimate purchaser may, by knowing where goods were produced, be
able to buy or refuse to buy [the goods] if such mark ing should influence his
will.” The origin of a good also can affect whether the good is admissible to be
imported into the United States or whether it is eligible for sale to government
agencies.
In addition, country of origin determinations are necessary for according
preferential tariff treatment to goods imported from countries with whom the
United States has entered into free trade agreements or who, pursuant to unilat-
eral U.S. trade programs, are so-called beneficiary countries. Generally, although
not always, these preferential rules of origin are different from the nonpreferential
rules of origin. The rules of origin for tariff preference purposes are explained
and discussed in detail in Chapter 6, “Duty Savings Opportunities: Introduction
to Trade Agreements, Unilateral Preference Programs, and Other Duty Savings
Mechanisms.” This chapter focuses on the nonpreferential rules of origin, or
what are generally known as the marking rules.
It may be self-evident, but products that are “wholly the growth, product,
or manufacture” of a particular country are considered products of that country.
However, the realities of modern global manufacturing and production mean
that goods often consist in whole or in part of materials from more than one
country. In such situations, the country of origin of the imported product is gen-
erally the last country in which the product has been “substantially transformed”
into a new and different article of commerce.
Importers may determine for themselves the country of orig in of their
imports and most do, most of the time. However, the substantial transforma-
tion test is a complex, fact-specific standard that is approached by CBP and the
courts on an ad hoc basis. Because very few bright lines apply, the test is inher-
ently subjective in nature and many importers find it difficult and frustrating to
apply. As a result, in particularly complex situations, or when importers require
absolute certainty as to origin, they may seek binding advice from CBP. This is
89
bre53031_05_c05_p089-108.indd 89 3/2/16 12:27 PM
90 CHAPTER 5
accomplished through the submission of a written r uling request in the format
prescribed in Part 77 of the CBP regulations.
During the negotiation of the North American Free Trade Agreement
(NAFTA), concerns were raised that under the substantial transformation test, it
is often difficult to predict how CBP will address a given fact pattern. In response,
the United States promulgated special country-of-origin marking r ules for goods
imported from Canada and Mexico in an attempt to make the process more
objective.2 While still relying on the substantial transformation principle, the spe-
cial NAFTA marking rules focus on changes in tariff classifications (tariff shifts)
to nonoriginating input materials as a result of production activity in NAFTA
countries. If the requisite tariff shifts occur, the finished good is deemed to have
undergone substantial transformation without the need for further analysis. If
the requisite tariff shifts do not occur, other express rules apply to determine the
country of origin. To be sure, these additional rules are not devoid of subjective
elements in their application, but the intent is to minimize subjectivity to the
extent possible.3
This chapter will address the traditional substantial transformation test for
determining country of origin. It will then discuss the special NAFTA marking
rules. The chapter also explains the interplay of the Federal Trade Commission
(FTC or Commission) “Made in USA” marking standard with CBP’s marking
requirements. The last sections explain government procurement in the context
of countr y of orig in and the special rules of origin that apply to textile and
apparel products.
H SUBSTANTIAL TRANSFORMATION
Introduction and Overview
Under the substantial transformation analysis, the country of origin of a good is
deemed to be the last country in which the product is substantially transformed
into a new and different article of commerce.4 If a good consists of materials
from more than one country, CBP seeks to determine whether the activities
in the last country were sufficient to effect a substantial transformation of the
materials,5 and that a new article has acquired “a new name, character, or use”
compared to its component materials.6 “To determine whether a substantial
transformation of an article has occurred . . . each case must be decided on its
own particular facts.”7
As a rule of thumb, if a product has been “manufactured” in a country, then
its origin is considered to be that country. However, as the Supreme Court made
clear as far back as 907, “[m]anufacture implies change, but every change is not
manufacture.”8 For example, a substantial transformation does not result from
manufacturing or combining processes that are minor in nature and leave the
identity of the impor ted article intact.9 To determine whether combining parts
or materials constitutes a substantial transformation, CBP and the federal courts
consider “the extent of operations performed and whether the parts lose their
identity and become an integral part of a new article.”0
bre53031_05_c05_p089-108.indd 90 3/2/16 12:27 PM
To continue reading
Request your trial