CBP has published a proposal that, if adopted, would significantly change its rules for determining the origin of goods imported from Canada or Mexico for non-preferential purposes (i.e., not for USMCA eligibility).
For purposes of determining USMCA eligibility, CBP applies the originating status rules set forth in General Note 11 of the tariff schedule. For purposes of country of origin marking of goods imported from Canada or Mexico, CBP has in the past applied the “NAFTA marking rules” set forth in Part 102 of its regulations. In a separate notice, CBP indicated its intention to continue this practice under the USMCA.
However, with respect to determinations of the country of origin of goods imported from Canada and Mexico for various other purposes (including applicability of the “China 301 tariffs” or the “Section 232” steel and aluminum tariffs), CBP has historically applied the “substantial transformation” origin test based on long line of judicial precedent. A substantial transformation occurs when processing in a country creates an article with a new name, character and use.
As a result, there have been instances in which CBP has ruled that an article processed in Canada or Mexico had different origins for different purposes. For example, CBP has issued rulings in which an article assembled in Mexico from Chinese inputs was to be marked as a product of Mexico (by application of the NAFTA marking rules) but was still considered a product of China for purposes of the China 301 tariffs (as the assembly in Mexico did not rise to the level of substantial transformation).
CBP presents its proposal as a harmonization of origin determinations being made for goods imported from Canada and Mexico. However, in practice, the proposed change can alter the origin outcome for other purposes, most notably the applicability of the China 301 and Section 232 duties noted above. As such, depending on the product and production details, some items currently not covered by such duties may become covered and vice versa. All importers of products from Canada and Mexico should study the impact of this proposed change on their supply chain.
CBP is accepting public comment on this proposal through August 5, 2021.
We are available to discuss the potential impact of this proposal on your company and to assist in the drafting of comments in response. Please contact Arthur W. Bodek or any of our attorneys for further information.