CBP Extends Comment Period for Proposed Uniform Rules of Origin
On July 25, 2008, CBP published a notice proposing to amend the CBP regulations to establish uniform rules of origin for imported merchandise. Under the proposal, application of the country of origin rules codified in 19 CFR Part 102 will be extended to all imported merchandise.
All merchandise imported into the U.S. undergoes country of origin determination. Under current regulations, CBP uses two primary methods to determine the country of origin of imported goods that contain material from, or were processed in, more than one country. To determine whether goods have been "substantially transformed" in a particular country, one method employs case-by-case analysis while the other primarily uses 19 CFR Part 102 rules detailing change in tariff classification.
Under the proposed regulations, CBP intends to eliminate the “substantial transformation” test codified in Part 134 of the CBP regulations, and adapt the Part 102 rules that currently apply to textiles (with some exceptions) and to products originating in the NAFTA region.
CBP Proposes New Uniform Rules of Origin for Imported Products
CBP states that under the current regulations, there are two primary methods that CBP uses to determine the country of origin of imported goods that are processed in, or contain materials from, more than one country. CBP states that one method employs a case-by-case adjudication to determine whether goods have been "substantially transformed" in a particular country. CBP states that the other method employs codified rules, also used to determine whether a good has been "substantially transformed" primarily expressed through changes in tariff classification.
CBP states that the case-by-case substantial transformation standard has developed from federal court decisions issued over many years and was first applied by the U.S. Supreme Court in the case of Anheuser-Busch Brewing Association v. United States 207 U.S. 556 (1908). In a drawback decision, the Court held that manufacture requires a "transformation; a new and different article must emerge, 'having a distinctive name, character or use.'" Id. at 562 (quoting Hartranft v. Wiegmann, 121U.S. 609, 615 (1887)).
CBP states:
Despite its heritage and apparent straightforwardness, administration of the substantial transformation standard has not been without problems. These problems derive in large part from the inherently subjective nature of judgements 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, and use. The substantial transformation standard has evolved over many years through numerous court decisions and CBP administrative rulings. Because the rule has been applied on a case-by-case basis to a wide range of scenarios and has frequently involved consideration of multiple criteria, the substantial transformation has been difficult for the courts and CBP to apply consistently and has often resulted in a lack of predictability and certainty for both CBP and the trade community.
CBP goes on to state:
In an effort to simplify and standardize country of origin determinations, Customs developed a codified method that uses specified changes in tariff classification (tariff shifts) and other rules to express the substantial transformation concept. Under this codified method, the substantial transformation that an imported good must undergo in order to be deemed a good of the country where the change occurred is usually expressed in terms of a specified tariff shift as a result of further processing.
After going through the history of Part 102 of the CFR, CBP states that since 1996, the Part 102 rules have applied to all imports from Canada and Mexico, and nearly all textile product, accounting for approximately 40 percent of total U.S. imports. CBP states that it and the trade community have had extensive experience in applying Part 102 origin rules and in CBP's experience administering these rules, it has found that "by virtue of their greater specificity and transparency, codified rules result in determinations that are more objective and predictable than under the case-by-case adjudication method."
Therefore, CBP is proposing "to extend by application of the Part 102 rules of origin to all country of origin determinations made under the customs and related laws and the navigation laws of the United States, unless otherwise specified."