The Importance of Knowing the Country of Origin of Your Products
By Margaret Lange
In today’s world of globalized supply chains, trade wars, and increased enforcement, a company’s decision to build country of origin determination and marking into design and purchase practices just makes good sense. Determining the true country of origin of imported products, and ensuring all products are marked properly prior to importation, is a matter of U.S. regulation. However, it is also necessary for determining the subject rate of duty, if the product is eligible for the benefit of a Trade Agreement, or if your product is subject to additional duties related to Trade Remedies or Antidumping and/or Countervailing Orders. Additionally, a company can avoid financial risks in the form of penalties for failure to declare the correct country of origin or to properly mark products with their origin.
Product purchased or shipped from a country may actually be the product of another country. It is the responsibility of the Importer to use Reasonable Care in determining the actual country of origin of all imported products. Generally, the country of origin is where the product was “wholly obtained” or “substantially transformed.” Substantial Transformation is applied where the imported product consists in whole or in part of materials from more than one country. Under the substantial transformation rule, Importers must know the full supply chain, including the origin of materials, components and parts used in the manufacture of the imported product. Once the origin is determined, then you can determine if the good is subject to any trade remedies or preferential treatment.
The country of origin is critically important; more now than any time in the past. All of the Trade Remedies implemented by the Trump Administration over the past two years have been related to products of certain countries. Knowing the origin of your products will determine whether a product is subject to the additional Trade Remedy duties related to the product and manufacturing country.
Section 301 – Certain products imported from China
Section 301 – Certain products from EU countries – related to Large Civil Aircraft
Section 232 – Steel products from All Countries except Australia and South Korea
Section 232 – Aluminum products from All Countries except Argentina and Australia
Section 201 – Solar Cells and Panels and Washing Machines and Parts from All Countries
To determine if a product qualifies for a Trade Preference Program or Trade Agreement, a company must apply the specific Preferential Rules of Origin for the particular program. Just because a product is made in Mexico does not mean it will meet the NAFTA Rules of Origin. Preferential Rules of Origin are complex and require understanding and careful application of the particular program rules. Typically, a product must meet either a “Tariff Shift” rule or a “Regional Value Content” calculation; or in some cases, both must met. There are other considerations depending on the particular commodity; for instance, textiles and apparel, require a “yarn forward’ or “fabric forward” determination. Proper application of the origin rules may result in the reduced or duty free status for the imported product.
Antidumping/Countervailing Duties (AD/CVD)
AD/CVD are additional duties determined by the U.S. Department of Commerce (DOC), which offset unfair low prices and foreign government subsidies on certain imported products from specific countries. AD/CVD rates can be significant; therefore, it is important to know the origin of your product and whether your product is described in the terms of the AD/CVD scope. AD/CVD is a Priority Trade Issue for Customs and Border Protection (CBP), and as such, CBP has increased enforcement to target importers who evade AD/CVD duties. For more information on AD/CVD, please see our AD/CVD Whitepaper.
Country of Origin Marking
Under the Code of Federal Regulations (CFR19 §134), unless excepted, every article of foreign origin (or its container) imported into the United States must be marked in such a manner as to indicate the country of origin of the article. Failure to properly mark products prior to importation will subject the Importer to penalties of 10% of the final appraised value of the product. Goods found to be improperly marked will be detained by CBP until properly marked or exported. If the goods have been released, CBP will request redelivery of the goods to CBP custody. Failure to redeliver will result in penalties equal to the value of the product not returned. Additionally, certain products are required to be marked with their country of origin by the Federal Trade Commission (ei. textile, apparel, fur, wool, and leather products). For more information, see our Country of Origin Marking Whitepaper.
In order to manage and plan for the final cost of your imported products, and to ensure timely release from CBP custody, it is a best practice for Importers to be proactive in reviewing and determining the proper country origin for all imported products. Failure to make accurate origin determinations will result in your product being excluded, seized, recalled and subject to penalties. The best approach for any Importer is to demonstrate due diligence and own product origin information, determination and marking.