[Federal Register Volume 63, Number 41 (Tuesday, March 3, 1998)]
[Notices]
[Pages 10408-10411]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-5394]


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INTERNATIONAL TRADE COMMISSION

[Investigation No. 332-360]


International Harmonization of Customs Rules of Origin

AGENCY: United States International Trade Commission.

ACTION: Request for public comment on draft proposal concerning certain 
goods of Chapters 82, 84, 85, and 90.

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EFFECTIVE DATE: February 5, 1998.

FOR FURTHER INFORMATION CONTACT: Eugene A. Rosengarden, Director, 
Office of Tariff Affairs and Trade Agreements (O/TA&TA) (202-205-2595), 
Chapter 82--Lawrence A. DiRicco (202-205-2606), Chapters 84-85, 90--
Craig Houser (202-205-2597). Hearing impaired persons are advised that 
information on this matter can be obtained by contacting the 
Commission's TDD terminal on 202-205-1810. The media should contact 
Margaret O'Laughlin, Office of External Relations (202-205-1819).

Background

    Following receipt of a letter from the United States Trade 
Representative (USTR) on January 25, 1995, the Commission instituted 
Investigation No. 332-360, International Harmonization of Customs Rules 
of Origin, under section 332(g) of the Tariff Act of 1930 (60 FR 19605, 
April 19, 1995).
    The investigation is intended to provide the basis for Commission 
participation in work pertaining to the Uruguay Round Agreement on 
Rules of Origin (ARO), under the General Agreement on Tariffs and Trade 
(GATT) 1994 and adopted along with the Agreement Establishing the World 
Trade Organization (WTO).
    The ARO is designed to harmonize and clarify nonpreferential rules 
of origin for goods in trade on the basis of the substantial 
transformation test; achieve discipline in the rules' administration; 
and provide a framework for notification, review, consultation, and 
dispute settlement. These harmonized rules are intended to make 
country-of-origin determinations impartial, predictable, transparent, 
consistent, and neutral, and to avoid restrictive or distortive effects 
on international trade. The ARO provides that technical work to those 
ends will be undertaken by the Customs Cooperation Council (CCC) (now 
informally known as the World Customs Organization or WCO), which must 
report on specified matters relating to such rules for further action 
by parties to the ARO. Eventually, the WTO Ministerial Conference is to 
``establish the results of the harmonization work program in an annex 
as an integral part'' of the ARO.
    The ARO called for the establishment of a Committee on Rules of 
Origin of the WTO and a Technical Committee on Rules of Origin (TCRO) 
of the CCC. These Committees bear the primary responsibility for 
developing rules that achieve the objectives of the ARO.
    A major component of the work program is the harmonization of 
origin rules for the purpose of providing more certainty in the conduct 
of world trade. Under the ARO, the TCRO is to undertake (1) to develop 
harmonized definitions of goods considered wholly obtained in one 
country, and of minimal processes or operations deemed not to confer 
origin, (2) to consider the use of change in Harmonized System 
classification as a means of reflecting substantial transformation, and 
(3) for those products or sectors where a change of tariff 
classification does not allow for the reflection of substantial 
transformation, to develop supplementary or exclusive origin criteria 
based on value, manufacturing or processing operations or on other 
standards.
    In March, 1997 (62 F.R. 11464, March 12, 1997), the Commission 
solicited comments on its draft proposed rules of origin for Chapter 82 
and Chapter 84. In July 1997 (62 F.R. 35834, July 2, 1997), the 
Commission solicited comments on its draft proposed rules of origin for 
Chapter 85 and Chapter 90.
    During its review of the comments submitted in response to those 
notices, the Commission has identified certain cases where application 
of the proposed general rules, i.e., those based on a change-of-
classification of the goods, does not appear to satisfactorily 
attribute origin to the country in which the goods were substantially 
transformed. It was recognized at the outset of this investigation that 
situations would arise in which application of change-of-classification 
rules would cause anomolous or ambiguous origin determinations, and 
that supplementary or residual rules would need to be developed to 
account for those cases.
    The Commission is therefore making available for public comment, 
the following draft proposed supplemental rules affecting certain goods 
of Chapter 82, e.g., tools of heading 82.04; Chapters 84, 85 and 90, 
e.g., goods of headings or subheadings which specifically provide for 
parts or parts and accessories and goods which undergo a change of 
classification which results merely from the form in which they are 
presented to Customs.

Draft Rules

Draft Supplemental Rule for Chapter 82

    1. When the product specific rules provided in the matrix are not 
determinant of origin, the following shall apply:
    A. Goods produced from blanks.--Where a goods is produced from a 
blank:
    (1) Provided all the following criteria are met, the country of 
origin of the good shall be the country in which the blank was 
processed into a finished good:
    (a) In its imported prefinished condition, the blank was not 
capable of functioning for its ultimate use and was not advanced beyond 
cleaning or working to remove flash, sprues, burrs or similar excess 
material, and
    (b) In the country in which the goods is finished:
    (i) The blank was configured to final shape by the removal of 
material (other than by honing or polishing), or by bending, hammering, 
pressing, stamping or similar forming process; and
    (ii) The blank underwent one or more of the following processes:
    1. Hardening to a minimum hardness of 38 degrees Rockwell C or 
equivalent standard of hardness; or
    2. Assembly with five or more parts (other than parts of general 
use as defined in Note 2 to Section XV).
    (2) If the criteria of subparagraph 1(A)(1) above are not 
satisfied, the country of origin of the good shall be the country of 
origin of the blank.
    B. Other Goods of This Chapter.--When paragraph 1(A) is not 
applicable,

[[Page 10409]]

the country of origin shall be determined as follows:
    (1) Goods obtained by assembly of components.--Goods obtained by 
assembly of components which are classified as parts of goods of this 
chapter (but not as unfinished goods), shall originate in the country 
in which the parts were assembled into the finished good, provided that 
the assembly used five or more parts (other than parts of general use 
as defined in Note 2 to Section XV).
    (2) Other.--If the requirements of subparagraph 1(B)(1) are not 
met, the country of origin of the goods shall be the country in which 
the working edge, working surface or working part underwent a change of 
classification to a heading of this chapter from any other chapter 
(e.g., from a bar or rod of Chapter 72 to a chisel of Heading 82.05).

Purpose of Draft Supplemental Rule for Chapter 82

    The rule provides a determination of origin in situations in which 
the change of classification rules fail to confer origin because the 
processing of the one or more of the input goods did not result in a 
change classification even though there was a substantial 
transformation. This occurs when the input is an incomplete or 
unfinished article classifiable in the same heading or subheading as a 
blank. It can also occur when goods are assembled from parts classified 
in the same heading or subheading. Rule 1(A) applies in the former 
instance and Rule 1(B) applies in the latter.

Draft Supplemental Rules for Chapters 84 and 85

    1. Limitations on change of classification rules.--Notwithstanding 
the product specific rules in the matrix, where a change of 
classification (i.e., change of heading, subheading, split heading or 
split subheading) results from one of the following circumstances, 
origin shall be determined as indicated:
    A. Disassembly.--Where a change in classification results from 
disassembly of a previously assembled good, the origin of the good 
shall be the origin prior to disassembly.
    B. Packaging.--Where a change in classification results from 
packaging or repackaging, the origin of the good shall be the origin 
prior to such packaging or repackaging.
    C. Collection of parts into kits.--Where a change in classification 
results from the application of General Rule of Interpretation 2(a) 
with respect to collections of parts that are presented as unassembled 
articles of another heading or subheading, the individual parts shall 
retain their origin prior to such collection.
    D. Multi-function machines and composite machines.--Where a change 
in classification results from application of note 3 to Section XVI, 
the origin of the good shall be the origin of the machine or component 
which determines the classification of the good under note 3 to section 
XVI.
    E. Functional units.--Where a change in classification results from 
the application of note 4 to Section XVI to separately packaged goods 
presented together in a single shipment, the separately packaged goods 
shall retain their origin prior to such presentation.
    2. Residual rules.--When neither the product specific rules 
provided in the matrix nor legal note 1 above are determinant of 
origin, the following shall apply:
    A. Goods produced from incomplete or unfinished articles 
classifiable in the same heading or subheading by application of GRI 
2(a).--Where a good is produced from an incomplete or unfinished (other 
than unassembled or disassembled) article which had the essential 
character of the complete or finished good and was classifiable, by 
application of GRI 2(a), in the same heading or subheading as the 
complete or finished goods, origin of the presented good shall be 
determined as follows:
    (1) Goods produced from blanks.--Where a good is produced from a 
blank:
    (a) Provided all the following criteria are met, the country of 
origin of the good shall be the country in which the blank was 
processed into a finished good:
    (i) In its imported prefinished condition, the blank was not 
capable of functioning for its ultimate use and was not advanced beyond 
cleaning or working to remove flash, sprues, burrs or similar excess 
material, and
    (ii) In the country in which the good is finished:
    1. The blank was configured to final shape by the removal of 
material (other than by honing or polishing), or by bending, hammering, 
pressing, stamping or similar forming process; and
    2. The blank underwent one or more of the following processes:
    A. Hardening to a minimum hardness of 38 degrees Rockwell C or 
equivalent standard of hardness; or
    B. Assembly with five or more parts (other than parts of general 
use as defined in Note 1(g) to Section XVI).
    (b) If the criteria of subparagraph (a) above are not satisfied, 
the country of origin of the good shall be the country of origin of the 
blank.
    (2) Goods produced from incomplete or unfinished articles, other 
than blanks.--Where the good is produced from an incomplete or 
unfinished article, other than a blank, the origin of presented goods 
shall be the country of origin of the incomplete or unfinished article 
from which it was produced.
    B. Other rules for assembled goods.--Where neither the product 
specific rules in the matrix nor the preceding legal notes are 
determinant of origin, the following shall apply:
    (1) Origin in the country of assembly.--Provided the following 
criteria are met, the goods shall originate in the country of assembly:
    (a) The assembly resulted in a device or apparatus capable of 
performing one or more new mechanical or electrical function(s), and 
either:
    (i) The assembly involved 5 or more parts (other than parts of 
general use, as defined in Note 1(g) to Section XVI), or
    (ii) The assembly involved less than 5 parts (other than parts of 
general use, as defined in Note 1(g) to Section XVI), and one or more 
of the parts (other than parts of general use, as defined in Note 1(g) 
to Section XVI), satisfies the product specific rules provided in the 
matrix as having origin in the country of assembly.
    (b) For purposes of the subparagraph (a) above, the following shall 
not be considered assembly operations:
    (i) The attachment of machinery to a base,
    (ii) The installation of machinery or apparatus into cabinets or 
similar encasements,
    (iii) The attachment of dials, knobs, hand cranks, and other 
consumer-operated controls,
    (iv) The attachment of a power cord, or
    (v) Installation of batteries, accumulators or other articles not 
designed to become a permanent part of the good.
    (2) Other.--If the requirements of subparagraph (1) above are not 
met, the following shall apply:
    (a) If the principal rule applicable to the goods in the product 
specific matrix includes an exception to a change of classification 
from a particular heading or subheading and a non-originating part 
classifiable in such heading or subheading was used in the assembly of 
the good, the country of origin of the good shall be the country of 
origin of such excepted part.
    (b) In all other cases, the country of origin shall be the country 
in which the majority of the parts originated. If there is no majority, 
the country of origin shall be the country of origin of the part which 
appears last in the Nomenclature.

[[Page 10410]]

Purpose of Draft Supplemental Rules for Chapters 84 and 85

    Rule 1 supercedes the change of classification rules for those 
situations in which a change of classification occurs, either by virtue 
of the presentation of the goods or by application of one of the legal 
notes to the Harmonized System, but the change of classification does 
not necessarily reflect a substantial transformation of the goods. For 
each of the situations specified, the change of classification rules 
are superseded by the rule provided therein. On the other hand, Rule 2 
provides a determination of origin in situations in which the change of 
classification rules fail to confer origin because the processing of 
the one or more of the input goods did not result in a change 
classification even though there was a substantial transformation. This 
occurs when the input is an incomplete or unfinished article 
classifiable in the same heading or subheading as the complete or 
finished article, by application of General Rule of Interpretation 
2(a). In particular, this applies to the processing of blanks into 
finished goods. It can also occur when ``major'' parts of goods, i.e. 
subassemblies, are assembled from ``minor'' parts classified in the 
same parts heading or subheading. Rule 2(A) applies in the former 
instance and Rule 2(A) applies in the latter.

Draft Supplemental Rules for Chapter 90

    1. Limitations on change of classification rules.--Notwithstanding 
the product specific rules in the matrix, where a change of 
classification (i.e., change of heading, subheading, split heading or 
split subheading) results from one of the following circumstances, 
origin shall be determined as indicated:
    A. Disassembly.--Where a change in classification results from 
disassembly of a previously assembled good, the origin of the good 
shall be the origin prior to disassembly.
    B. Packaging.--Where a change in classification results from 
packaging or repackaging, the origin of the good shall be the origin 
prior to such packaging or repackaging.
    C. Collection of parts into kits.--Where a change in classification 
results from the application of General Rule of Interpretation 2(a) 
with respect to collections of parts that are presented as unassembled 
articles of another heading or subheading, the individual parts shall 
retain their origin prior to such collection.
    D. Functional units.--Where a change in classification results from 
the application of note 4 to Section XVI to separately packaged goods 
presented together in a single shipment, the separately packaged goods 
shall retain their origin prior to such presentation.
    2. Residual rules.--When neither the product specific rules 
provided in the matrix nor legal note 1 above are determinant of 
origin, the following shall apply:
    A. Goods produced from incomplete or unfinished articles 
classifiable in the same heading or subheading by application of GRI 
2(a).--Where a good is produced from an incomplete or unfinished (other 
than unassembled or disassembled) article which had the essential 
character of the complete or finished good and was classifiable, by 
application of GRI 2(a), in the same heading or subheading as the 
complete or finished goods, origin of the presented good shall be 
determined as follows:
    (1) Goods produced from blanks.--Where a good is produced from a 
blank:
    (a) Provided all the following criteria are met, the country of 
origin of the good shall be the country in which the blank was 
processed into a finished good:
    (i) In its imported prefinished condition, the blank was not 
capable of functioning for its ultimate use and was not advanced beyond 
cleaning or working to remove flash, sprues, burrs or similar excess 
material, and
    (ii) In the country in which the good is finished:
    1. The blank was configured to final shape by the removal of 
material (other than by honing or polishing), or by bending, hammering, 
pressing, stamping or similar forming process; and
    2. The blank underwent one or more of the following processes:
    A. Hardening to a minimum hardness of 38 degrees Rockwell C or 
equivalent standard of hardness; or
    B. Assembly with five or more parts (other than parts of general 
use as defined in Note 1(g) to Section XVI).
    (b) If the criteria of subparagraph (a) above are not satisfied, 
the country of origin of the good shall be the country of origin of the 
blank.
    (2) Goods produced from incomplete or unfinished articles, other 
than blanks.--Where a good is produced from an incomplete or unfinished 
article, other than a blank, the origin of presented goods shall be the 
country of origin of the incomplete or unfinished article from which it 
was produced.
    B. Other rules for assembled goods.--Where neither the product 
specific rules in the matrix nor the preceding legal notes are 
determinant of origin, the following shall apply:
    (1) Origin in the country of assembly.--Provided the following 
criteria are met, the good shall originate in the country of assembly:
    (a) The assembly resulted in a device or apparatus capable of 
performing one or more new mechanical or electrical function(s), and 
either:
    (i) The assembly involved 5 or more parts (other than parts of 
general use, as defined in Note 1(g) to Section XVI), or
    (ii) The assembly involved less than 5 parts (other than parts of 
general use, as defined in Note 1(g) to Section XVI), and one or more 
of the parts (other than parts of general use, as defined in Note 1(g) 
to Section XVI), satisfies the product specific rules provided in the 
matrix as having origin in the country of assembly.
    (b) For purposes of the subparagraph (a) above, the following shall 
not be considered assembly operations:
    (i) The attachment of machinery to a base,
    (ii) The installation of machinery or apparatus into cabinets or 
similar encasements,
    (iii) The attachment of dials, knobs, hand cranks, and other 
consumer-operated controls,
    (iv) Tthe attachment of a power cord, or
    (v) Installation of batteries, accumulators or other articles not 
designed to become a permanent part of the good.
    (2) Other.--If the requirements of subparagraph (1) above are not 
met, the following shall apply:
    (a) If the principal rule applicable to the goods in the product 
specific matrix includes an exception to a change of classification 
from a particular heading or subheading and a non-originating part 
classifiable in such heading or subheading was used in the assembly of 
the good, the country of origin of the good shall be the country of 
origin of such excepted part.
    (b) In all other cases, the country of origin shall be the country 
in which the majority of the parts originated. If there is no majority, 
the country of origin shall be the country of origin of the part which 
appears last in the Nomenclature.

Purpose of Draft Supplemental Rules for Chapter 90

    Rule 1 supercedes the change of classification rules for those 
situations in which a change of classification occurs, either by virtue 
of the presentation of the goods or by application of one of the legal 
notes to the Harmonized System, but the change of classification does 
not necessarily reflect a substantial transformation of the goods. For 
each of the situations

[[Page 10411]]

specified, the change of classification rules are superceded by the 
rule provided therein. On the other hand, Rule 2 provides a 
determination of origin in situations in which the change of 
classification rules fail to confer origin because the processing of 
the one or more of the input goods did not result in a change 
classification even though there was a substantial transformation. This 
occurs when the input is an incomplete or unfinished article 
classifiable in the same heading or subheading as the complete or 
finished article, by application of General Rule of Interpretation 
2(a). In particular, this applies to the processing of blanks into 
finished goods. It can also occur when ``major'' parts of goods, i.e. 
subassemblies, are assembled from ``minor'' parts classified in the 
same parts heading or subheading. Rule 2(A) applies in the former 
instance and Rule 2(B) applies in the latter.
    These proposals have been reviewed by interested government 
agencies and are intended to serve as the basis for the U.S. proposal 
to the Technical Committee on Rules of Origin of the World Customs 
Organization or to the Technical Committee of the World Trade 
Organization. The proposals do not necessarily reflect or restate 
existing Customs treatment with respect to country of origin 
applications for all current non-preferential purposes. Based upon a 
decision of the Trade Policy Staff Committee, the proposals are 
intended for future harmonization for the nonpreferential purposes 
indicated in the ARO for application on a global basis. They seek to 
take into account not only U.S. Customs current positions on 
substantial transformation but additionally seek to consider the views 
of the business community and practices of our major trading partners 
as well. As such they represent an attempt at reaching a basis for 
agreement among the contracting parties. The proposals may undergo 
change as proposals from other government administrations and the 
private sector are received and considered. Under the circumstances, 
the proposals should not be cited as authority for the application of 
current domestic law.

Written Submissions

    Interested persons are invited to submit written statements 
concerning this phase of the Commission's investigation. Written 
statements should be submitted as quickly as possible, and follow-up 
statements are permitted; but all statements must be received at the 
Commission by the close of business on March 18, 1998, in order to be 
considered. The Commission notes that it is particularly interested in 
receiving input from the private sector on the effects of the various 
proposed rules and definitions on U.S. exports. Commercial or financial 
information which a submitter desires the Commission to treat as 
confidential must be submitted on separate sheets of paper, each marked 
``Confidential Business Information'' at the top. All submissions 
requesting confidential treatment must conform with the requirements of 
section 201.6 of the Commission's Rules of Practice and Procedure (19 
CFR 201.6). All written submissions, except for confidential business 
information, will be available for inspection by interested persons.
    All submissions should be addressed to the Office of the Secretary, 
United States International Trade Commission, 500 E Street SW., 
Washington, DC 20436.
    World Wide Web Access: This notice may be obtained from the ITC 
Internet web server: http://www.usitc.gov.

    Issued: February 25, 1998.

    By order of the Commission.
Donna R. Koehnke,
Secretary.
[FR Doc. 98-5394 Filed 2-28-98; 8:45 am]
BILLING CODE 7020-02-P