Importing Basics: Country of Origin
by John Goodrich
Importers, do you know the country of origin of your product? Really?
If your product is wholly the growth or manufacture of a single country, it is simple to determine that the country in which the product was grown or manufactured is the country of origin. In today’s global economy, however, manufacturers are sourcing materials and components from around the world. It may be more difficult than you are aware to determine the country of origin for Customs purposes.
Why is country of origin important?
Duty rates, preferential trade agreements, trade sanctions and import quotas are regulated according to country of origin. Because of the revenue and admissibility issues involved, Customs is vigilant about verifying accurate country of origin.
Country of origin is also important for marking purposes. The import regulations put an emphasis on informing the end user of the country of origin of imported articles
How do I determine the country of origin of my products for duty purposes?
If your product is subject to any of the myriad of free trade agreements or duty preference programs, the definition of country of origin is spelled out for you in excruciating detail.
Country of origin of products subject to modern free trade agreements, that is to say NAFTA or any of the agreements that have been implemented since then, are subject to detailed rules based upon the HTS classification of the good. These rules are listed within the general notes of the Harmonized Tariff Schedule.
Other trade agreements and duty preference programs have less detailed rules, also found within the general notes of the HTS. These generally include two requirements:
- The product must ship directly from the beneficiary country to the United States, and
- The product must meet a regional value content, usually 35%. Some of the agreements even allow a portion of the regional value to consist of U.S. components!
What if my product is not eligible for duty preference or free trade?
The definition of country of origin, in this instance, is found in two areas of the regulations. The definitions are quite similar and relatively straightforward:
§ 134.1 Definitions
(b) Country of origin. "Country of origin" means the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within the meaning of this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
§ 177.22 Definitions
(a) Country of origin. For the purpose of this subpart, an article is a product of a country or instrumentality only if
- it is wholly the growth, product, or manufacture of that country or instrumentality, or
- in the case of an article which consists in whole or in part of materials from another country or instrumentality, it has been substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was so transformed….
The concept of substantial transformation is somewhat vague. Generally it has come to mean the following:
- The country in which the product obtained its essential character is the country of origin, or
- The country in which the product takes on its harmonized code (HTS) number is the country of origin.
The above are merely rules of thumb and are by no means a legal standard.
Do these definitions apply for marking purposes?
Usually! The exceptions are NAFTA and textiles. NAFTA and textiles have their own rules.
NAFTA, textiles and textiles from Israel all have unique rules of origin that apply for marking purposes. These are to be found in the Customs Regulations 19 CFR § 102. I will deal with these rules at greater length in another article.
Products classified in chapters 50-63 of the HTS, along with a handful of other headings, are subject to country of origin rules detailed in the regulations at 19 CFR §102.21. These rules are similar to the above but incorporate processes unique to the textile trade. If the product is a textile from Israel, read a bit further in 19 CFR §102.22 for specialized origin rules.
What does not confer country of origin?
A number of common minor manufacturing and distribution processes have no impact upon the country of origin of the product. These processes include among others:
- Simple assembly,
- Finishing work such as painting or applying a preservative,
- Packaging or repackaging into measured doses,
- Repairs, cleaning, laundering or simple alterations,
- Dilution with water or other substances.
Importers whose products undergo such processes should take steps to identify the country where the product is actually manufactured.
If I use these rules will I qualify for free trade?
It is important to repeat that simply determining the country of origin of your product may not automatically qualify it for favorable duty treatment. Generally the country of origin for marking purposes definition is a much lower threshold than qualifying for participation under a free trade agreement.
How can I be certain I have properly documented my country of origin?
Reasonable care practices vary depending on products and supply chains.
Depending on the complexity of your products, you may choose to visit your manufacturers and observe their manufacturing processes. This may include investigating the country of origin of the material inputs into your products. For textile and apparel importers, this would also include creating a document trail for country of origin of fabrics and manufacturing processes.
Other importers might get away with more modest oversight comparing purchasing, invoicing and shipping records with the product itself.
Some importers have begun utilizing the NAFTA marking rules detailed in 19 CFR §102.20 to determine country of origin for marking purposes for non-NAFTA goods. The regulations neither permit nor prohibit this practice. Certainly these rules provide a more objective measurement for some companies.
Importers with highly mobile manufacturing processes have gone so far as to make surprise visits to their factories to validate origin.
When in doubt, defer to the regulators. U.S. Customs and Border Protection is authorized to issue country of origin determinations to the trade and to interested parties. Processes for doing so are detailed under 19 CFR §177 for most products and 19 CFR §181 for NAFTA goods.