According to the Worls Federation Sporting Goods Industry, the U.S. government is seriously considering proposing new rules that would substantially alter the manner in which current country of origin determinations are made for Customs purposes. Officials indicated that the agency has prepared a draft Notice of Proposed Rulemaking that is currently under review and could be published in the next few months.
Rules of origin are essential for determining the admissibility of imported goods, duty rates, appropriate marking, quota, and in some instances, eligibility for preferential treatment. The need for a clear, consistent standard for determining country of origin has increasingly become an issue as companies are importing more and more goods that are manufactured from a variety of components and sources.
Under the existing practice of CBP, the country of origin of a product is generally based on where the imported product last underwent a “substantial transformation,” resulting in a product with a new “name, character and use.” This test has often been criticized as subjective and inherently unpredictable. Under the proposed new rule, country of origin determinations would be based on whether the processing of component articles or ingredients has resulted in a “tariff shift” and would no longer be based on the fact-specific “substantial transformation” test.
Under the “tariff shift” rule, CBP deems that a change in origin has taken place if the processing of components or raw materials classified under one chapter, heading, or subheading of the Harmonized Tariff Schedules results in a product that is classified in another chapter, heading, or subheading, as specifically designated by the appropriate rule.
The intent of the new rule would be to establish a test that provides more certainty and consistency in country of origin determinations. However, while reduced compliance costs are desirable, the changes in the origin standards could significantly impact both the product origin, which could alter the duty rate, quota coverage and eligibility under the Buy American provisions, and record-keeping requirements forsome companies. The implementation of this new rule may require companies to maintain origin and value information of raw materials and components that previously was not necessary, or to maintain the information in a manner different from that which had previously been sufficient.
The potential impacts of the change in the rule are particularly significant for companies that import goods with constituent parts sourced from various countries or that conduct manufacturing or processing in more than one country.
