U.S. Customs and Border Protection recently issued a Federal Register notice that proposes expanding the scope of the so-called “NAFTA Marking Rules” in 19 C.F.R. Part 102, and to make them applicable to all non-preferential origin determinations for goods imported from Canada or Mexico.
The amended regulation also proposes using the “tariff shift” rules in Part 102 to determine the country of origin of goods from Canada and Mexico for the purposes of government procurement.
Non-preferential origin determinations are made for purposes such as admissibility, quota, procurement by government agencies, and application of duties imposed under Section 301, and so on.
CBP uses the “substantial transformation” standard to determine the country of origin of goods for non-preferential purposes, whereby “a new and different article having a distinctive name, character or use” must emerge. In making this determination, CBP currently applies two different methods.
One method involves case-by-case adjudication, relying primarily on tests articulated in judicial precedent and past administrative rulings. The other utilizes the codified rules in Part 102, which primarily rely on a change in tariff classification.
Regarding the first method, CBP acknowledges that the substantial transformation standard is inherently problematic and that the case-by-case approach which addresses specific sets of facts, “has led to varied case-specific interpretations of the basic rule, resulting in a lack of predictability.” As for the other method, the agency states that the Part 102 rules “are a reliable, simplified, and standardized method for CBP when determining the country of origin for customs purposes.”
CBP has not previously applied the Part 102 rules for non-preferential origin determinations involving goods imported from Canada and Mexico other than for textile products and for purposes of determining country of origin marking.
This means that importers of goods from Canada and Mexico are currently subject to two different non-preferential origin determinations for imported merchandise — one for marking and another for determining origin for other purposes. In some cases, this has resulted in CBP assigning a good a country of origin for tariff purposes, which is different from that for marking purposes. CBP states that this confusing situation “burdens importers with unnecessary additional requirements, creates inconsistency, and reduces transparency.”
Proposed Rule Changes
Looking to address the above-noted issues, CBP is proposing to amend the scope section of Part 102 of title 19 of the CFR so that the substantial transformation standard will be applied consistently across all non-preferential origin determinations that CBP makes for goods imported from Canada and Mexico.
CBP says this change “will obviate the need for importers of merchandise from Canada and Mexico wishing to comply with the various laws that require CBP origin determinations from having to request multiple non-preferential country of origin determinations from CBP for a particular good.”
The proposed amendment also means that CBP will no longer need to issue rulings with multiple non-preferential origin determinations for goods imported from Canada or Mexico, thereby eliminating the possibility of rulings that conclude that a good imported from Canada or Mexico has two different origins under the USMCA (i.e., one for marking and one for other, customs non-preferential purposes).
Note: CBP points out that its application of the Part 102 rules will not affect similar determinations made by other agencies, such as the Department of Commerce’s scope determinations in antidumping or countervailing duty proceedings.
CBP is also proposing to make amendments to Part 177 of title 19, which sets out the requirements for various types of administrative rulings, such as those pertaining to country of origin advisory rulings and final determinations relating to government procurement for purposes of granting waivers of certain “Buy American” restrictions. CBP notes that these changes would not, however, affect the origin determinations other agencies make related to procurement.
Importers and other interested parties may submit comments regarding this proposed rulemaking via the regulations.gov portal, citing docket number USCBP-2021-00X25. Comments must be received by August 5, 2021.
Need More Information?
Should you have any questions or concerns about the impact of this proposed rulemaking, don’t hesitate to get in touch with our Global Trade Services Team.