[Federal Register Volume 59, Number 1 (Monday, January 3, 1994)]
[Proposed Rules]
[Pages 141-144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 93-31853]
[[Page Unknown]]
[Federal Register: January 3, 1994]
DEPARTMENT OF THE TREASURY
Customs Service
19 CFR Parts 4, 10, 12, 102, 134, and 177
RIN 1515-AB19
Rules of Origin Applicable to Imported Merchandise
AGENCY: U.S. Customs Service, Department of the Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document proposes to amend the Customs Regulations to set
forth uniform rules governing the determination of the country of
origin of imported merchandise. These rules would codify existing
principles used for determining when under the customs laws an article
``is wholly the growth, product or manufacture'' of a country or when
an article is ``a new and different article'' [or article of commerce]
as a result of a manufacturing process in a given country. The proposed
rules are intended to codify the present country of origin rules in
order to provide rules that are more objective and transparent and
thereby to provide greater certainty and predictability for both the
trade community and the Customs Service in making country of origin
determinations required under existing laws and regulations.
DATES: Comments must be received on or before April 4, 1994.
ADDRESSES: Written comments (preferably in triplicate) may be addressed
to U.S. Customs Service, 1301 Constitution Avenue, NW., Franklin Court,
Washington, DC 20229, and they may be inspected at the Regulations
Branch located at 1099 14th St. NW., suite 4000, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Sandra L. Gethers, Office of
Regulations and Rulings (202-482-6980).
SUPPLEMENTARY INFORMATION:
Background
On September 25, 1991, a document was published in the Federal
Register (56 FR 48448) proposing to amend the Customs Regulations to
set forth a uniform rule governing the determination of the country of
origin of imported merchandise which is wholly obtained or produced in
a single country. The document also proposed to amend the Customs
Regulations to establish rules, for determining the country of origin
of imported goods, and solicited comments on those proposals. Customs
has refined the original proposal and has decided to issue this second
proposal regarding uniform rules for the determination of the country
of origin of imported merchandise.
All goods imported into the United States are subject to a
determination as to their country of origin because origin
determinations affect the treatment of imported goods under various
laws. Examples of laws that involve country of origin determinations
include laws regarding admissibility, duty assessment, country of
origin marking, and quota administration.
The rules of origin as historically applied in the United States
reflect tests and criteria developed through the years in judicial
decisions and in Customs interpretations of those judicial decisions.
In more recent years, the importance of rules of origin has been
demonstrated by the adoption of statutory or regulatory origin rules
applicable in specific contexts, including for purposes of government
procurement, certain duty-preference programs, and the U.S. textile
import program.
An article may be grown or mined or otherwise extracted from the
ground in a country and not be further processed prior to exportation.
Such an article is ``wholly the growth or product'' of that country and
as such has its origin in that country because it reflects no materials
or processing attributable to any other country. Similarly, an article
may be processed or manufactured exclusively in a country from
materials wholly grown or produced in that same country. In such a case
the article is ``wholly the product or manufacture'' of that country
and thus has its origin in that country because, again, it reflects no
materials or processing attributable to any other country. The U.S.
origin rule in these cases is expressed by the phrase ``wholly the
growth, product, or manufacture of a country'' (or ``wholly grown,
produced, or manufactured in a country'').
The more problematic origin determinations arise when an article is
not wholly the growth, product, or manufacture of a country. In these
other, more problematic determinations, the product in question
incorporates or reflects materials and/or processing which are
attributable to two or more countries. In such cases origin is
determined based on the effect of processing performed on materials or
articles which originated in another country. Under the current
judicially-developed test, a case-by-case determination is made as to
whether the processing is such that it results in a ``new and different
article'' (or ``new and different article of commerce'') having a ``new
name, character, and use'' which is different from that which existed
prior to the processing; Customs has expressed this test as the
``substantial transformation'' rule. Under this rule, the country of
origin of an imported article is considered to be the last country in
which a substantial transformation took place (in other words, the
country in which the imported article assumed its final and distinctive
identity prior to importation).
Notwithstanding the long history of the substantial transformation
rule, its administration has not been without problems. These problems
devolve from the fact that application of the substantial
transformation rule is on a case-by-case basis and often involves
subjective judgments as to what constitutes a new and different article
or as to whether processing has resulted in a new name, character, and
use. As a result, application of the substantial transformation rule
has remained essentially non-systematic in that a judicial or
administrative determination in one case more often than not has little
or no bearing on another case involving a different factual pattern.
Thus, while judicial and administrative decisions involving the
substantial transformation rule may have some value as restatements or
refinements of the basic rule, they are often of little assistance in
resolving individual cases involving the myriad of issues or tests that
have arisen, such as the distinction between producer's goods and
consumer's goods, the significance of further manufacturing or
finishing operations, and the issue of dedication to use. The very fact
that the substantial transformation rule has been the subject of a
large number of judicial and administrative determinations is testament
to the basic problem: The case-by-case approach, involving application
of the rule based on specific sets of facts, has led to varied case-
specific interpretations of the basic rule, resulting in a lack of
predictability which in turn has engendered a significant degree of
uncertainty both within Customs and in the trade community as regards
the effect that a particular type of processing should have on an
origin determination.
The United States-Canada Free-Trade Agreement (CFTA), Public Law
100-449, 102 Stat. 1851 (codified at 19 U.S.C. 2112 note), sets forth
rules for determining the origin of goods for purposes of duty
preference under the CFTA. Those rules, which are set forth in General
Note 3 HTSUS, and the rules of origin in Chapter 4 of the North
American Free Trade Agreement (NAFTA), which will supplant the CFTA
rules, provide that goods will have their origin (1) in the country in
which they are wholly obtained or produced, or (2) in the case of goods
not wholly obtained or produced in a country, in the country in which
they were transformed so as to be subject to a specified change in
tariff classification (with minimum value-added requirements applying
in addition to a tariff classification change in certain cases). The
change in tariff classification standard was specifically developed as
an alternative to the traditional substantial transformation rule in
order to obviate the problems described above. Customs believes that
rules based upon the change in tariff classification approach, would
provide by virtue of their greater specificity, more objectivity,
transparency, and predictability in origin determinations.
Consequently, Customs is proposing to adopt a system of country of
origin determination rules based on change in tariff classification
that would be applicable to all merchandise imported into the United
States. To that end, this document would amend interim regulations (19
CFR part 102) published in today's Federal Register, that follow the
change in tariff classification approach applicable to North American
products.
Discussion of Proposals
This document proposes to amend the interim regulations as set
forth in part 102 of the Customs Regulations, published elsewhere in
today's issue of the Federal Register, to make them uniformly
applicable to all merchandise imported into the United States. The
background section of the interim regulations as well as the regulatory
text of part 102, is applicable to this document. This document
proposes to amend Sec. 102.0 to set forth the scope of areas for which
the rules of origin set forth in part 102 are proposed to be used to
make country of origin determinations. These proposed rules of origin
will be applicable for all purposes for which the ``product of'' or
``country of origin'' criterion is prescribed by statute. As this
position would be consistent (except in the case of waste and scrap
which are treated as if they originated as raw materials) with the
position Customs has always taken regarding the concept of goods
``wholly grown, produced or manufactured'' in one country, including
under preferential trade arrangements, such as the Generalized System
of Preferences (GSP) and Caribbean Basin Initiative (CBI) statutes and
regulations, Customs proposes that this definition apply for all
purposes under the Customs and related laws and the navigation laws of
the United States (for example, for duty assessment and country of
origin marking purposes). Consequently, this document proposes to amend
all provisions where the phrase, ``wholly the growth, product or
manufacture'', or ``wholly obtained or produced'' or a similar phrase,
is used in the current regulations for origin purposes, by including
cross-references to the definition of ``wholly obtained or produced in
a country'' set forth in the proposed Sec. 102.1(g).
Moreover, since the new rules of origin include specific tariff
rules (tariff classification change and/or specific operations) which
codify the ``substantial transformation'' rule, i.e., the criteria for
determining whether a good has become a ``new and different article of
commerce'' as a result of a manufacturing process in a given country,
and provide the results that would be reached under a case-by-case
application of the substantial transformation rule, the new rules would
apply for all purposes where ``substantial transformation'' currently
is specified in the Customs Regulations as the test for determining
origin under Customs law. This does not include origin determinations
under antidumping, countervailing duty, or government procurement
statutes, although the authorities responsible for promulgating
determinations under those statutes may avail themselves of these rules
if they so choose. The proposed amendments to part 134 concerning
country of origin marking also clarify that the substantial
transformation rule currently used for identifying an ultimate
purchaser is the same rule that is used for determining the country of
origin of a foreign article imported into the United States. Proposed
changes were also made to parts 4, 10, 12, and 177, Customs Regulations
(19 CFR parts 4, 10, 12, and 177).
The Interim Regulations set forth in Part 102 also are proposed to
be used to determine whether a good meets the ``product of'' criterion
for receiving duty preferences under General Note 3(a)(iv), 3(c)(ii),
(viii), (ix) (Insular Possessions, Generalized System of Preferences
(GSP), Caribbean Basin Economic Recovery Act (CBERA), Freely Associated
States, Andean Trade Preferences Act (ATPA) and following bilateral
consultations now underway, under General Note 3(c)(vi) [the United
States-Israel Free-Trade Agreement]. The value content requirements
under these provisions, however, must still be met in order for a good
to qualify for the duty preference.
Comments
Before adopting the proposed amendments, consideration will be
given to any written comments (preferably in triplicate) timely
submitted to Customs. Comments submitted will be available for public
inspection in accordance with the Freedom of Information Act (5 U.S.C.
552), and applicable Treasury Department Regulations (31 CFR 1.4) and
Customs Regulations (19 CFR 103.11(b)), on normal business days between
the hours of 9 a.m. and 4:30 p.m. at the Regulations and Disclosure Law
Branch.
Comments submitted in response to this Federal Register document,
need not be duplicated in response to the Interim Rulemaking document
relating to the Rules of Origin for the NAFTA published in today's
Federal Register. Comments in response to one document will be
considered during the review of both documents.
Executive Order 12866
This document does not meet the criteria for a ``significant
regulatory action'' as specified in E.O. 12866.
Regulatory Flexibility Act
Pursuant to the provisions of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), it is certified that the proposed regulations
amendments will not have a significant economic impact on a substantial
number of small entities. Accordingly, the proposed amendments are not
subject to the regulatory analysis or other requirements of 5 U.S.C.
603 and 604.
List of Subjects
19 CFR Part 4
Customs duties and inspection, Freight, Harbors, Imports, Maritime
carriers, Reporting and recordkeeping requirements, Vessels.
19 CFR Part 10
Customs duties and inspection, Imports, Reporting and recordkeeping
requirements.
19 CFR Part 12
Customs duties and inspection, Labeling, Marking, Reporting and
recordkeeping requirements, Textiles and textile products.
19 CFR Part 102
Customs duties and inspections, Imports, Reporting and
recordkeeping requirements, Rules of origin, Trade agreements.
19 CFR Part 134
Country of origin, Customs duties and inspections, Imports,
Labeling, Marking, Packaging and containers.
19 CFR Part 177
Administrative practice and procedures, Customs duties and
inspection, Imports, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, it is proposed to amend Chapter I of Title 19, Code of
Federal Regulations (19 CFR Chapter I), by amending parts 4, 10, 12,
102, 134, and 177 as set forth below:
PART 4--VESSELS IN FOREIGN AND DOMESTIC TRADES
1. The general authority citation for part 4 continues to read as
follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1624; 46 U.S.C. App. 3.
2. Section 4.80b is amended by adding a sentence at the end of
paragraph (a) to read as follows:
Sec. 4.80b Coastwise transportation of merchandise.
(a) * * * For purposes of determining whether merchandise is
manufactured or processed into a new and different product under this
section, the rules set forth in part 102 of this chapter (regarding the
determination of whether goods are substantially transformed in a
country) shall apply.
* * * * *
PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE,
ETC.
1. The general authority citation for Part 10 continues to read as
follows:
Authority: 19 U.S.C. 66, 1202, 1481, 1484, 1498, 1508, 1623,
1624;
2. Section 10.12 is amended by revising the last sentence of
paragraph (e) to read as follows:
Sec. 10.12 Definitions.
* * * * *
(e) * * * If the article consists wholly or partially of foreign
components or materials, the manufacturing process must be such that
the foreign components or materials have been substantially transformed
as provided in Sec. 10.14(b) of this part.
3. Section 10.14 is amended by revising the text in paragraph (b)
preceding the examples to read as follows:
Sec. 10.14 Fabricated components subject to the exemption.
* * * * *
(b) Substantial transformation of foreign-made articles or
materials. Foreign-made articles or materials will become products of
the United States if they undergo a process of manufacture in the
United States which results in their substantial transformation.
Substantial transformation occurs when under part 102 of this Chapter,
the country of origin of a good which is produced in the United States
from foreign materials is determined to be the United States.
* * * * *
4. Section 10.171 is amended by adding a new paragraph (c) to read
as follows:
Sec. 10.171 General.
* * * * *
(c) Wholly the growth, product, or manufacture defined. For
purposes of Secs. 10.171 through 10.178, the expression ``wholly the
growth, product, or manufacture'' refers to articles and materials
wholly obtained or produced within the meaning of Sec. 102.1(g) of this
chapter.
5. Section 10.176(a) is revised to read as follows:
Sec. 10.176 Country of origin criteria.
(a) Any article which is (1) either wholly the growth, product, or
manufacture of a beneficiary developing country or of any two or more
countries which are members of the same association of countries, or a
new or different article of commerce which has been grown, produced, or
manufactured in a beneficiary developing country and (2) imported
directly from such beneficiary developing country or member countries,
may qualify for duty-free entry under the Generalized System of
Preferences (GSP). However, duty free entry under GSP may be accorded
only if: (i) The sum of the cost or value of the materials produced in
the beneficiary developing country or any two or more countries which
are members of the same association of countries which is treated as
one country under section 502(a)(3), Trade Act of 1974, as amended (19
U.S.C. 2462(a)(3)), plus (ii) the direct costs of processing operations
performed in such beneficiary developing country or member countries,
is not less than 35 percent of the appraised value of the article at
the time of its entry into the customs territory of the United States.
For purposes of this section, a ``new and different article of
commerce'' exists when under part 102 of this Chapter, the country of
origin of a good, which is produced in a beneficiary developing country
from foreign materials, is determined to be that beneficiary developing
country.
* * * * *
6. Section 10.191 is amended by revising paragraph (b)(3) to read
as follows:
Sec. 10.191 General.
* * * * *
(b) Definitions.
* * * * *
(3) Wholly the growth, product, or manufacture. For purposes of
Sec. 10.191 through Sec. 10.198, the expression ``wholly the growth,
product, or manufacture'' refers to articles and materials wholly
obtained or produced within the meaning of Sec. 102.1(g) of this
chapter.
* * * * *
7. Section 10.195 is amended by adding a statement at the end of
the existing text in paragraph (a)(1) to read as follows:
Sec. 10.195 Country of origin criteria.
(a) Articles produced in a beneficiary country--
(1) * * * For purposes of this section, a ``new and different
article of commerce'' exists when under part 102 of this Chapter, the
country of origin of a good, which is produced in a beneficiary country
from foreign materials, is determined to be that beneficiary country.
* * * * *
PART 12--SPECIAL CLASSES OF MERCHANDISE
1. The general authority citation for part 12 continues to read as
follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 8,
Harmonized Tariff Schedule of the United States (HTSUS)), 1304,
1624.
2. Section 12.130 is amended by removing paragraphs (d) and (e) and
redesignating paragraphs (f) through (i) as paragraphs (d) through (g),
and by revising paragraph (b) to read as follows:
Sec. 12.130 Textiles and textile products country of origin.
* * * * *
(b) Country of origin. For the purpose of this section and except
as provided in paragraph (c) a textile or textile product, subject to
section 204, Agricultural Act of 1956, as amended, imported into the
customs territory of the United States shall be a product of a
particular foreign territory or country, insular possession of the
U.S., if it is wholly obtained or produced (as defined under
Sec. 102.1(g), part 102, of this Chapter) in that foreign territory or
country, or insular possession. However, except as provided in
paragraph (c), a textile or textile product, subject to section 204,
which consists of materials produced or derived from, or processed in,
more than one foreign territory or country, or insular possession of
the U.S., shall be a product of that foreign territory or country, or
insular possession where it last underwent a substantial
transformation. A textile or textile product will be considered to have
undergone a substantial transformation when under part 102 of this
Chapter, the country of origin of a good, which is produced in a
country from foreign materials, is determined to be that country.
* * * * *
PART 102--NON-PREFERENCE RULES OF ORIGIN
1. The authority citation for part 102 continues to read as
follows:
Authority: 19 U.S.C. 66, 1202 (General Note 8, Harmonized Tariff
Schedule of the United States (HTSUS)), 1624, and the North American
Free-Trade Agreement Implementation Act, Pub.L. 103-182, 107 Stat.
2057.
2. Section 102.0 is revised to read as follows:
Sec. 102.0 Scope.
This part sets forth rules for determining the country of origin of
imported goods for purposes of the Customs and related laws and the
navigation laws of the United States. The rules in this part regarding
goods wholly obtained or produced in a country are intended to apply
for all such purposes. The rules in this part which determine when a
good becomes a new and different article or a new or different article
of commerce as a result of manufacturing processes in a given country,
also are intended to apply for all purposes where this requirement
exists for ``country of origin'' or ``product of'' determinations under
the Customs laws. The rules in this part also will be applied by the
United States for determining when a good is a good of a North American
Free-Trade Agreement (NAFTA) country for the purposes specified under
Annex 311 of the NAFTA.
PART 134--COUNTRY OF ORIGIN MARKING
1. The authority citation for part 134 continues to read as
follows:
Authority: 5 U.S.C. 301, 19 U.S.C. 66, 1202 (General Note 8,
Harmonized Tariff Schedule of the United States (HTSUS)), 1304,
1624.
2. Section 134.1 is amended by revising paragraph (b);
redesignating current paragraphs (d) through (f) as (e) through (g);
adding a new paragraph (d); and revising newly designated paragraphs
(e) (1) and (2) to read as follows:
Sec. 134.1 Definitions.
* * * * *
(b) Country of origin. ``Country of origin'', when used with
reference to any article of foreign origin imported into the United
States, means the country in which the article was wholly obtained or
produced within the meaning of Sec. 102.1(e) of this chapter, or, in
the case of an article not wholly obtained or produced in one country,
the country where the article last underwent a substantial
transformation prior to its importation into the United States.
* * * * *
(d) Substantial transformation. ``Substantial transformation''
occurs when, under part 102 of this Chapter, the country of origin of a
good, which is produced in a country from foreign materials, is
determined to be that country.
(e) Ultimate purchaser. * * *
(1) If an imported article will be used in further processing, the
processor will be the ``ultimate purchaser'' if he subjects the
imported article to a process which results in a substantial
transformation of the article.
(2) If the process does not result in a substantial transformation
of the imported article, the consumer or user of the article, who
obtains the article after the processing, will be regarded as the
``ultimate purchaser.''
* * * * *
3. Section 134.35 is revised to read as follows:
Sec. 134.35 Articles substantially transformed after importation.
If an imported article will be used in further processing in the
United States, the processor will be considered the ultimate purchaser
if such article is determined to be a good of the United States under
part 102 of this Chapter. In such a case, the imported article is
excepted from individual marking pursuant to 19 U.S.C. 1304(a)(3)(D)
and Sec. 134.32(d) of this part, provided the container in which it is
imported will reasonably indicate the country of origin of the article
to the ultimate purchaser.
PART 177--ADMINISTRATIVE RULINGS
1. The general authority citation for part 177 continues to read as
follows:
Authority: 5 U.S.C. 301, 19 U.S.C. 66, 1202 (General Note 8,
Harmonized Tariff Schedule of the United States), 1624, unless
otherwise noted.
Sec. 177.22 [Amended]
2. Section 177.22(a) is amended by adding at the end the following
sentence: ``The expression ``wholly the growth, product, or
manufacture'' refers to articles wholly obtained or produced within the
meaning of Sec. 102.1(g) of this chapter.''
Approved: December 17, 1993.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
George J. Weise,
Commissioner of Customs.
[FR Doc. 93-31853 Filed 12-30-93; 8:45 am]
BILLING CODE 4820-02-P