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July 25, 2008 

CBP Proposes to Change Rules of Origin for Determining Country of Origin of Imported Goods

U.S. Customs and Border Protection (CBP) has proposed yet another significant change to long-standing U.S. customs law and policy. In today's Federal Register, CBP published a notice of proposed rulemaking that would amend CBP's regulations to replace the "substantial transformation" test for determining the country of origin of imported merchandise with the NAFTA-like rules of origin set forth in 19 CFR Part 102. In addition, CBP also proposes to amend the country of origin rules applicable to pipe fittings and flanges, printed greeting cards, glass optical fiber and rice preparations.

CBP stated that it is proposing this change because the tariff shift rules set forth in NAFTA and other recently negotiated free trade agreements "have proven to be more objective and transparent and provide greater predictability in determining the country of origin of imported merchandise than the system of case-by-case adjudication they would replace." In addition, CBP indicated that the agency's "experience in administering country of origin rules using the codified method has been that, by virtue of their greater specificity and transparency, codified rules result in determinations that are more objective and predictable than under the case-by-case adjudication method." Finally, CBP noted that the "proposed change also will aid an importer's exercise of reasonable care."

Of course, the notice indicates that the Part 102 tariff shift rules will not be used where existing free trade agreements specify another origin test for determining origin. For example, the tariff shift rules will not apply to making preference determinations for goods other than textile and apparel goods under the United States-Israel and United States-Jordan Free Trade Agreements because it has been the understanding of U.S. negotiators and trade officials of those governments that the case-by-case method would be used for making origin determinations for preference purposes under those agreements.

CBP did not, however, that it will use the appropriate sections of Part 102 to make all other origin determinations (non-preference or preference) regarding goods from Israel and Jordan and for those free trade agreements already negotiated that use the substantial transformation standard as part of the test to determine whether products qualify for reduced tariffs (such as the United States-Bahrain and United States-Morocco Free Trade Agreements). CBP also indicated that it plans to apply the Part 102 tariff shift rules to any FTA negotiated in the future using the substantial transformation standard, unless otherwise specified.

Public comments on this proposed change in CBP policy must be submitted by September 23, 2008.




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