[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