U.S. Customs Proposes Substantial Change in Its Country of Origin Rules

July 30, 2008

On Friday, July 25, 2008, the Bureau of Customs and Border Protection (CBP) in the Department of Homeland Security proposed significant changes in the rules that it applies to determine the country of origin for a variety of purposes, including the country of origin marking rules that generally require that all imported articles (or their containers) be marked with their country of origin. In the past CBP has generally applied a "substantial transformation" principle in determining the country of origin of articles produced using parts, components or materials from countries other than the country in which the articles are produced. An exception to the use of this "substantial transformation" principle has involved imports from the NAFTA countries, Canada and Mexico, and most textile products, which have been subject to a fundamentally different "tariff shift" approach to determining country of origin. Under the "tariff shift" approach, the country of origin depends upon whether the parts, components or materials sourced in the other country or countries and used to produce the finished article are classified in different provisions in the Harmonized Tariff Schedules of the United States (HTSUS) than the HTSUS provision in which the finished article is classified. (The particular "tariff shift" rules depend upon the classification of the finished article.) CBP is now proposing (as it did earlier in the mid 1990s) to apply the "tariff shift" rules for all country of origin determinations, unless otherwise specified.

CBP has justified the proposed general application of the "tariff shift" rules on the grounds that these rules are less "subjective" than the substantial transformation standard and will result in country of origin determinations that are more "objective and predictable." However, the proposed rules could create significant legal and practical issues for importers, and could also significantly affect country of origin determinations for articles with constituent parts, components or materials sourced in countries other than the country in which the articles are produced. As noted, the proposal involves both the country of origin marking rules and a variety of other country of origin determinations, some affecting import duties. Accordingly, importers will have to analyze the effects of the proposed rules on their procedures for determining country of origin for marking and other purposes, and the extent to which the proposed rules affect the marking of imported products and other aspects of their operations. 

CBP is accepting comments on the proposed rules, currently due Tuesday, September 23, 2008.