U.S. Customs Ruling Concerning Country of Origin for Section 301 Purposes

On September 13, 2018, U.S. Customs and Border Protection announced a new ruling that will be pertinent to any company seeking to shift production from China to Mexico (or Canada) in hopes of mitigating the effect of Section 301 duties. The most important take-away is that although the NAFTA Marking Rules (19 C.F.R. Part 102) are used to determine the country of origin of articles imported into the U.S. from Mexico for marking purposes, the traditional substantial transformation test is used to determine the country of origin of articles for Section 301 duty purposes.

CBP illustrated the application of the ruling using the example of parts of a motor imported into Mexico for assembly. The assembly operation in Mexico was sufficient to satisfy the applicable NAFTA Marking Rule and thus for marking purposes, the finished article was deemed to be a "product of Mexico." However, CBP went on to say that the traditional substantial transformation test is used for purposes of "antidumping, countervailing, or other safeguard measures[.]" CBP then applied the traditional substantial transformation test to the facts and reached the conclusion that the Mexican assembly operations were not sufficient to confer origin and, therefore, the finished motor imported into the United States was a "product of China" for Section 301 purposes. So, in short, the product had to be marked to indicate that it was of Mexican origin, but the importer had to pay the Section 301 duty applicable to Chinese-origin articles.

Importers should be aware of what CBP’s analysis indicates: while the traditional substantial transformation test and the NAFTA Marking Rules are intended to rest on the same origin principles, they do not always produce the same result due to the nature of the tests. This is largely because the NAFTA Marking Rules are objective and the substantial transformation test is more subjective. Further, where Section 301 is concerned, the traditional substantial transformation test must be used even if the goods are imported from an FTA-partner country such as Mexico, Canada, Singapore, etc. Thus the NAFTA Marking Rules may be useful to that analysis, but cannot be considered determinative. In some cases, then, a company might find that an article marked as a product of Mexico could still be subject to duties applicable to products of China.

DHS/CBP Amends Customs Regulations to Include Civil Monetary Penalty Adjustments

On December 8, 2017, U.S. Customs and Border Protection (CBP) amended its regulations to adjust for inflation the amounts that CBP can assess as civil monetary penalties for the following three violations:

  • The penalty for transporting passengers between coastwise points in the United States by a non-coastwise qualified vessel has been increased from $750 to $762.
  • The penalty for towing a vessel between coastwise points in the United States by a non-coastwise qualified vessel has been increased from $875-$2,750 plus $150 per ton to a new amount of $889-$2,795 plus $152 per ton.
  • The penalty for dealing in or using an empty stamped imported liquor container after it has already been used once has been increased from $500 to $508. 

These changes are being made in accordance with the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 which was enacted on November 2, 2015. In addition, a number of other CBP civil penalty amounts were adjusted pursuant to this 2015 Act in previously published documents published in the Federal Register on July 1, 2016, and January 27, 2017; however, the adjustments for these three civil penalties were omitted from those documents inadvertently and so are being published now.   The rule went into effect on December 8, 2017.  The adjusted penalty amounts will be applicable for penalties assessed after December 8, 2017 if the associated violations occurred after November 2, 2015.

Suzanne DeCuir, Global Trade Expertise

CPB Announces One-Day Grace Period This Month

CPB has been working to make a transition to all electronic filing of protests to ACT, the Automated Commercial Environment.  A series of notices lays out some of the guidelines and deadlines, and on August 8th, CBP announced the addition of a one-day grace period; CBP stated that it will accept protests filed in the ACE Portal past the required due date.  Beginning on August 27th, all Protests must be filed in the ACE Portal.  The transition from ACS to ACE will occur on August 29th, 2016, and since the ACS will be down on August 28th for the cutover, CBP will allow any protest due on August 28th to be filed in the ACE Portal on August 29th. 

A complete summary of the transition dates and necessary steps for using the new system is available at CBP at: https://www.cbp.gov/trade/automated/news/protest