Proposed Rule2021-14265
Non-Preferential Origin Determinations for Merchandise Imported From Canada or Mexico for Implementation of the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA)
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 6, 2021
Issuing agencies
Homeland Security DepartmentU.S. Customs and Border ProtectionTreasury Department
Abstract
This document proposes to amend the U.S. Customs and Border Protection (CBP) regulations regarding non-preferential origin determinations for merchandise imported from Canada or Mexico. Specifically, this document proposes that CBP will apply certain tariff-based rules of origin in the CBP regulations for all non- preferential determinations made by CBP, specifically, to determine when a good imported from Canada or Mexico has been substantially transformed resulting in an article with a new name, character, or use. For consistency, this document also proposes to modify the CBP regulations for certain country of origin determinations for government procurement. Collectively, the proposed amendments in this notice of proposed rulemaking (NPRM) are intended to reduce administrative burdens and inconsistency for non-preferential origin determinations for merchandise imported from Canada or Mexico for purposes of the implementation of the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA). Elsewhere in this issue of the Federal Register, CBP is publishing an interim final rule to amend various regulations to implement the USMCA for preferential tariff treatment claims. The interim final rule amends the CBP regulations, inter alia, to apply certain tariff-based rules of origin for determining the country of origin for the marking of goods imported from Canada or Mexico.
Full Text
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<title>Federal Register, Volume 86 Issue 126 (Tuesday, July 6, 2021)</title>
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[Federal Register Volume 86, Number 126 (Tuesday, July 6, 2021)]
[Proposed Rules]
[Pages 35422-35429]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-14265]
[[Page 35422]]
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DEPARTMENT OF HOMELAND SECURITY
U.S. Customs and Border Protection
DEPARTMENT OF THE TREASURY
19 CFR Parts 102 and 177
[USCBP-2021-0025]
RIN 1515-AE63
Non-Preferential Origin Determinations for Merchandise Imported
From Canada or Mexico for Implementation of the Agreement Between the
United States of America, the United Mexican States, and Canada (USMCA)
AGENCY: U.S. Customs and Border Protection, Department of Homeland
Security; Department of the Treasury.
ACTION: Notice of proposed rulemaking; request for comments.
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SUMMARY: This document proposes to amend the U.S. Customs and Border
Protection (CBP) regulations regarding non-preferential origin
determinations for merchandise imported from Canada or Mexico.
Specifically, this document proposes that CBP will apply certain
tariff-based rules of origin in the CBP regulations for all non-
preferential determinations made by CBP, specifically, to determine
when a good imported from Canada or Mexico has been substantially
transformed resulting in an article with a new name, character, or use.
For consistency, this document also proposes to modify the CBP
regulations for certain country of origin determinations for government
procurement. Collectively, the proposed amendments in this notice of
proposed rulemaking (NPRM) are intended to reduce administrative
burdens and inconsistency for non-preferential origin determinations
for merchandise imported from Canada or Mexico for purposes of the
implementation of the Agreement Between the United States of America,
the United Mexican States, and Canada (USMCA). Elsewhere in this issue
of the Federal Register, CBP is publishing an interim final rule to
amend various regulations to implement the USMCA for preferential
tariff treatment claims. The interim final rule amends the CBP
regulations, inter alia, to apply certain tariff-based rules of origin
for determining the country of origin for the marking of goods imported
from Canada or Mexico.
DATES: Comments must be received by August 5, 2021.
ADDRESSES: You may submit comments, identified by docket number USCBP-
2021-00X25 by one of the following methods:
<bullet> Federal eRulemaking Portal at <a href="http://www.regulations.gov">http://www.regulations.gov</a>.
Follow the instructions for submitting comments.
<bullet> Mail: Due to COVID-19-related restrictions, CBP has
temporarily suspended its ability to receive public comments by mail.
Instructions: All submissions received must include the agency name
and docket number for this rulemaking. All comments received will be
posted without change to <a href="http://www.regulations.gov">http://www.regulations.gov</a>, including any
personal information provided. For detailed instructions on submitting
comments and additional information on the rulemaking process, see the
``Public Participation'' heading of the SUPPLEMENTARY INFORMATION
section of this document.
Docket: For access to the docket to read background documents or
comments received, go to <a href="http://www.regulations.gov">http://www.regulations.gov</a>. Due to the
relevant COVID-19-related restrictions, CBP has temporarily suspended
on-site public inspection of the public comments.
FOR FURTHER INFORMATION CONTACT: Operational Aspects: Queena Fan,
Director, USMCA Center, Office of Trade, U.S. Customs and Border
Protection, (202) 738-8946 or <a href="/cdn-cgi/l/email-protection#6015130d0301200302104e0408134e070f16"><span class="__cf_email__" data-cfemail="0e7b7d636d6f4e6d6c7e206a667d20696178">[email protected]</span></a>.
Legal Aspects: Craig T. Clark, Director, Commercial and Trade
Facilitation Division, Regulations and Rulings, Office of Trade, U.S.
Customs and Border Protection, (202) 325-0276 or
<a href="/cdn-cgi/l/email-protection#aecddccfc7c980da80cdc2cfdcc5eecdccde80cac6dd80c9c1d8"><span class="__cf_email__" data-cfemail="ed8e9f8c848ac399c38e818c9f86ad8e8f9dc389859ec38a829b">[email protected]</span></a>.
SUPPLEMENTARY INFORMATION:
I. Public Participation
Interested persons are invited to participate in this rulemaking by
submitting written data, views, or arguments on all aspects of this
notice of proposed rulemaking (NPRM). U.S. Customs and Border
Protection (CBP) also invites comments that relate to the economic,
environmental, or federalism effects that might result from this
proposed rule. Comments that will provide the most assistance to CBP
will reference a specific portion of the NPRM, explain the reason for
any recommended change, and include data, information or authority that
support such recommended change.
II. Background
The country of origin of merchandise imported into the customs
territory of the United States (the fifty states, the District of
Columbia, and Puerto Rico) is important for several reasons. The
country of origin of merchandise determines the rate of duty,
admissibility, quota, eligibility for procurement by government
agencies, and marking requirements. There are various rules of origin
for goods imported into the customs territory of the United States,
generally referred to as ``preferential'' and ``non-preferential''
rules of origin. ``Preferential'' rules are those that apply to
merchandise to determine eligibility for special treatment, including
reduced or zero tariff rates, under various trade agreements or duty
preference legislation, e.g., Generalized System of Preferences. ``Non-
preferential'' rules are those that generally apply for all other
purposes.\1\ CBP uses the substantial transformation standard to
determine the country of origin of goods for non-preferential purposes.
For a substantial transformation to occur, ``a new and different
article must emerge, `having a distinctive name, character or use.'''
Anheuser-Busch Brewing Ass'n v. United States, 207 U.S. 556, 562 (1908)
(quoting Hartranft v. Wiegmann, 121 U.S. 609, 615 (1887)).
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\1\ The term ``non-preferential purposes'' generally refers to
purposes set forth in laws, regulations, and administrative
determinations of general application applied to determine the
country of origin of goods not related to the granting of tariff
preferences pursuant to a trade agreement or a trade preference
program such as the Generalized System of Preferences. Non-
preferential purposes include antidumping and countervailing duties;
safeguard measures; origin marking requirements; and any
discriminatory quantitative restrictions or tariff quotas. They also
include rules of origin used for trade statistics and for
determining eligibility for government procurement. See, e.g., Art.
I, Uruguay Round Agreement on Rules of Origin. They do not include
the rules of origin used to determine eligibility for preferential
tariff treatment under trade agreements unless otherwise explicitly
specified in those agreements. Notwithstanding the above, under
Title VII of the Tariff Act of 1930, as amended, merchandise within
the scope of the Department of Commerce's antidumping and/or
countervailing duty proceedings may be associated with a country of
origin (for purposes of the scope of antidumping/countervailing
duties) that is different from the country of origin determined by
CBP for other purposes.
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CBP applies two different methods for determining if merchandise
has been substantially transformed. One method involves case-by-case
adjudication, relying primarily on tests articulated in judicial
precedent and past administrative rulings. The other method consists of
codified rules in part 102 of title 19 of the Code of Federal
Regulations (19 CFR part 102) (referred to as the part 102 rules),
which are primarily expressed through specified differences in the
Harmonized Tariff Schedule of the United States (HTSUS) classification
of the good and its materials. This method is often referred to as the
``change in tariff classification''
[[Page 35423]]
or ``tariff shift'' method. Both the case-by-case and tariff shift
methods are intended to produce the same determinations as to origin
because both apply the same substantial transformation standard.
CBP first promulgated the part 102 rules in 1994 to fulfill the
commitment of the United States under Annex 311 of the North American
Free Trade Agreement (NAFTA), which required the parties to establish
rules for determining whether a good is a good of a NAFTA party (i.e.,
the United States, Mexico, or Canada). In contrast to the case-by-case
method, the part 102 rules were intended to provide for more certainty,
transparency, and consistency in application of origin decisions. They
codify, rather than constitute an alternative to, the substantial
transformation standard and are intended to implement the standard
consistently.\2\
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\2\ See ``Rules for Determining the Country of Origin of a Good
for Purposes of Annex 311 of the North American Free Trade
Agreement; Rules of Origin Applicable to Imported Merchandise,'' 60
FR 22312, 22314 (May 5, 1995), citing, in part, ``Rules of Origin
Applicable to Imported Merchandise,'' 59 FR 141 (Jan. 3, 1994).
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Country of Origin Marking Requirements for Imported Merchandise From
Canada or Mexico Pursuant to the Agreement Between the United States of
America, the United Mexican States, and Canada (USMCA) \3\
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\3\ The Agreement Between the United States of America, the
United Mexican States, and Canada is the official name of the USMCA
treaty. Please be aware that, in other contexts, the same document
is also referred to as the United States-Mexico-Canada Agreement.
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On November 30, 2018, the ``Protocol Replacing the North American
Free Trade Agreement with the Agreement Between the United States of
America, the United Mexican States, and Canada'' (the Protocol) was
signed to replace the NAFTA. Section 601 of the United States-Mexico-
Canada Agreement Implementation Act (USMCA Act), Public Law 116-113,
134 Stat. 11 (19 U.S.C. Chapter 29), repealed the North American Free
Trade Agreement Implementation Act (NAFTA Implementation Act), Public
Law 103-182, 107 Stat. 2057 (19 U.S.C. 3301 et seq.), as of the date
that the USMCA entered into force, July 1, 2020. The NAFTA provisions
set forth in part 181 of title 19 of the CFR (19 CFR part 181) and in
General Note 12, Harmonized Tariff Schedule of the United States
(HTSUS), continue to apply to goods entered for consumption, or
withdrawn from warehouse for consumption, prior to July 1, 2020. On
July 1, 2020, CBP published an interim final rule (IFR) in the Federal
Register (CBP Dec. 20-11) amending 19 CFR part 181 and adding a new
part 182 of title 19 of the CFR (19 CFR part 182) containing several
USMCA provisions, including the Uniform Regulations regarding rules of
origin (appendix A to part 182). See 85 FR 39690 (July 1, 2020).
In another IFR published elsewhere in this issue of the Federal
Register (``Agreement Between the United States of America, the United
Mexican States, and Canada (USMCA) Implementing Regulations Related to
the Marking Rules, Tariff-rate Quotas, and Other USMCA Provisions''
(RIN 1515-AE56)), CBP is amending the CBP regulations to include
additional USMCA implementing regulations in 19 CFR part 182 and to
amend other portions of title 19 of the CFR. The IFR includes
amendments to parts 102 and 134 of title 19 of the CFR (19 CFR parts
102 and 134) to apply the rules of origin set forth in 19 CFR part 102
for determining the country of origin for the marking of goods imported
from Canada or Mexico. Those amendments facilitate the transition from
the NAFTA to the USMCA by maintaining the status quo for country of
origin for marking determinations.
Non-Preferential Origin Determinations for Merchandise Imported From
Canada or Mexico
Although the NAFTA Implementation Act was repealed by the USMCA Act
as of July 1, 2020, the part 102 rules remain in 19 CFR part 102 and
are applicable for country of origin marking determinations for goods
imported from Canada or Mexico under the USMCA (pursuant to the IFR,
being concurrently published, as explained above). The part 102 rules,
specifically Sec. Sec. 102.21 through 102.25, are also to be used by
CBP to determine the country of origin of textile and apparel products
(imported from all countries except from Israel (see 19 CFR 102.22)),
including the administration of quantitative restrictions, if
applicable.
After the part 102 rules were promulgated in 1994, the rules were
subsequently amended to also include references to specific U.S. trade
agreements that incorporated those rules as part of the determination
for trade preference eligibility, i.e., for preference purposes. For
example, as indicated in the scope provision for part 102, the rules
set forth in Sec. Sec. 102.1 through 102.21 also apply for purposes of
determining whether an imported good is a new or different article of
commerce under Sec. 10.769 of the United States-Morocco Free Trade
Agreement regulations and Sec. 10.809 of the United States-Bahrain
Free Trade Agreement regulations.
Unlike the NAFTA, the USMCA does not refer to a marking
requirement, except with regard to certain agricultural goods. For
certain agricultural goods, the USMCA does contain a requirement that a
good must first qualify to be marked as a good of Canada or Mexico in
order to receive preferential tariff treatment under the USMCA. For
most goods, only the general Uniform Regulations regarding rules of
origin set forth in Appendix A of part 182 of title 19 (19 CFR part
182) and the product-specific rules of origin contained in General Note
11, HTSUS, are needed to determine whether a good is an originating
good under the USMCA and therefore is eligible to receive preferential
tariff treatment.
The Secretary of the Treasury has general rulemaking authority,
pursuant to 19 U.S.C. 1304 and 1624, to make such regulations as may be
necessary to carry out the provisions of section 304(a) of the Tariff
Act of 1930, as amended, related to the country of origin requirements
for imported articles of foreign origin. The Department of the Treasury
and CBP have concluded that extending application of the well-
established part 102 rules to goods imported from the USMCA countries
of Canada and Mexico will provide continuity for the importing
community because those rules have been applied to all imports from
these countries since 1994.\4\ The importing community has made
extensive efforts to comply with the part 102 rules and CBP has
significant experience in applying those rules to imported merchandise
from Canada and Mexico. The part 102 rules, as codified, are a
reliable, simplified, and standardized method for CBP when determining
the country of origin for customs purposes.
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\4\ This rule does not apply for purposes of determining whether
merchandise is subject to the scope of antidumping and
countervailing duty proceedings under Title VII of the Tariff Act of
1930, as amended, as such determinations fall under the authority of
the Department of Commerce. Specifically, notwithstanding a CBP
country of origin determination, that merchandise may be subject to
the scope of antidumping and/or countervailing duty proceedings
associated with a different country.
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When promulgating the part 102 rules in 1994, the U.S. Customs
Service (now CBP) explained:
. . . the long history of the substantial transformation rule,
[and] 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
[[Page 35424]]
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.
``Rules for Determining the Country of Origin of a Good for Purposes of
Annex 311 of the North American Free Trade Agreement,'' 59 FR 110, 141
(January 3, 1994).
Importers of goods from Canada and Mexico are well-versed in the
part 102 rules, and the greater specificity and transparency those
rules provide will facilitate the determination of eligibility for
USMCA tariff preferences for certain agricultural goods, as noted
above. Accordingly, to make the transition from the NAFTA to the USMCA
as smooth as possible for the importing community, CBP is amending 19
CFR parts 102 and 134, in the IFR concurrently published today, to
continue application of the part 102 rules to determine the country of
origin for marking purposes of a good imported from Canada or Mexico.
CBP has not previously applied the part 102 rules for non-
preferential origin determinations involving goods imported from Canada
and Mexico other than for textile products and for purposes of
determining country of origin marking. CBP has, instead, used case-by-
case adjudication for other non-preferential origin determinations. CBP
makes such non-preferential origin determinations for purposes such as
admissibility, quota, procurement by government agencies, and
application of duties imposed under sections 301 to 307 of the Trade
Act of 1974, as amended (19 U.S.C. 2411-2417, commonly referred to as
``Section 301''). This means that importers of goods from Canada and
Mexico are subject to two different non-preferential origin
determinations for imported merchandise: One for marking; and, another
for determining origin for other purposes. Consequently, these
importers must also potentially comply with requirements to declare two
different countries of origin for the same imported good (e.g., Canada
and China). This burdens importers with unnecessary additional
requirements, creates inconsistency, and reduces transparency.
To address these burdens, CBP is proposing to amend the scope
section of part 102 of title 19 of the CFR so that the substantial
transformation standard will be applied consistently across all non-
preferential origin determinations that CBP makes for merchandise
imported from Canada and Mexico. This purpose is accomplished by adding
new language to the scope provision of the part 102 rules. The proposed
regulatory change will obviate the need for importers of merchandise
from Canada and Mexico wishing to comply with the various laws that
require CBP origin determinations from having to request multiple non-
preferential country of origin determinations from CBP for a particular
good. The proposed regulatory change also means that CBP will no longer
need to issue rulings with multiple non-preferential origin
determinations goods imported from Canada or Mexico, and there will no
longer be rulings that conclude that a good imported from Canada or
Mexico has two different origins under the USMCA (i.e., one for marking
and one for other, customs non-preferential purposes). CBP's
application of the part 102 rules would not, however, affect similar
determinations made by other agencies, such as the Department of
Commerce's scope determinations in antidumping or countervailing duty
proceedings (see 19 CFR 351.225), determinations by the Agricultural
Marketing Service under the Country of Origin Labeling (``COOL'') law
(see 7 CFR part 65), or origin determinations made by other agencies
for purposes of government procurement under the Federal Acquisition
Regulation (see 48 CFR chapter 1).
CBP is also proposing to make corresponding edits to part 177 of
title 19 of the CFR, which sets forth the requirements for various
types of administrative rulings. Specifically, subpart B of part 177
applies to the issuance of country of origin advisory rulings and final
determinations relating to government procurement for purposes of
granting waivers of certain ``Buy American'' restrictions in U.S. law
and practice for products from eligible countries. As noted in 19 CFR
177.21, the subpart is intended to be applied consistent with the
Federal Acquisition Regulation (48 CFR chapter 1) and the Defense
Acquisition Regulations System (48 CFR chapter 2). It is also noted
that Chapter 13 of the USMCA provides that the United States will apply
the same rules of origin to Mexican imports for government procurement
as it does for other trade. The United States has the same obligation
to Canada under Article IV:5 of the WTO Agreement on Government
Procurement. While the substantial transformation standard already
applies by statute (19 U.S.C. 2518(4)(B)), CBP's proposed application
of the part 102 rules to make these substantial transformation
determinations would ensure the consistency of CBP determinations for
goods imported from Mexico and Canada. The proposed regulatory change
will specifically provide that, when making country of origin
determinations for purposes of subpart B of part 177, the part 102
rules will be applied by CBP to determine whether goods imported into
the United States from Canada or Mexico previously underwent a
substantial transformation in Canada or Mexico. The proposed regulatory
change would not affect the origin determinations other agencies make
related to procurement.
III. Discussion of Proposed Amendments
Pursuant to 19 U.S.C. 4535(a), the Secretary of the Treasury has
the authority to prescribe such regulations as may be necessary to
implement the USMCA. Section 103(b)(1) of the USMCA Act (19 U.S.C.
4513(b)(1)) requires that initial regulations necessary or appropriate
to carry out the actions required by or authorized under the USMCA Act
or proposed in the Statement of Administrative Action approved under 19
U.S.C. 4511(a)(2) to implement the USMCA shall, to the maximum extent
feasible, be prescribed within one year after the date on which the
USMCA enters into force. The Secretary also has general rulemaking
authority, pursuant to 19 U.S.C. 1304 and 1624, to make such
regulations as may be necessary to carry out the provisions of the
Tariff Act of 1930, as amended, related to the country of origin
requirements for imported articles of foreign origin. The Secretary
also has authority under 19 U.S.C. 1502 to regulate the procedures for
issuing binding rulings, and 19 U.S.C. 2515(b)(1) requires the
Secretary to make rulings and determinations as to
[[Page 35425]]
substantial transformation under 19 U.S.C. 2518(4)(B).
CBP is proposing to amend the scope provision in 19 CFR part 102 to
apply the substantial transformation standard consistently across
country of origin determinations CBP makes for imported goods from the
USMCA countries of Canada and Mexico for non-preferential purposes.\5\
Specifically, CBP proposes to amend section 102.0 to extend the scope
of part 102 to state that the rules set forth in Sec. Sec. 102.1
through 102.18 and 102.20 are intended to apply to CBP's country of
origin determinations for non-preferential purposes for goods imported
from Canada and Mexico.
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\5\ See supra footnote 4.
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CBP is also proposing to amend subpart B of 19 CFR part 177 to add
a cross-reference to clarify that, for ``country of origin'' in Sec.
177.22(a), the determination pursuant to 19 U.S.C. 2515(b)(1) as to
whether an article has been substantially transformed into a new and
different article of commerce with a name, character, or use distinct
from that of the article or articles from which it was so transformed,
for purposes of granting waivers of certain ``Buy American''
restrictions, must be made using the rules set forth in Sec. Sec.
102.1 through 102.18 and 102.20 of title 19 of the CFR for goods from
Canada and Mexico.
IV. Statutory and Regulatory Authority
A. Executive Orders 13563 and 12866
Executive Orders 13563 and 12866 direct agencies to assess the
costs and benefits of available regulatory alternatives and, if
regulation is necessary, to select regulatory approaches that maximize
net benefits (including potential economic, environmental, public
health and safety effects, distributive impacts, and equity). Executive
Order 13563 emphasizes the importance of quantifying both costs and
benefits, of reducing costs, of harmonizing rules, and of promoting
flexibility. This rulemaking is a ``significant regulatory action,''
although not an economically significant regulatory action, under
section 3(f) of Executive Order 12866. Accordingly, the Office of
Management and Budget (OMB) has reviewed this regulation.
Background and Purpose of Rule
All merchandise of foreign origin imported into the United States
must generally be marked with its country of origin, and it is subject
to a country of origin determination by CBP.\6\ The country of origin
of imported goods may be used as a factor to determine preferential
trade treatment, such as eligibility under various trade agreements and
special duty preference legislation, like the Generalized System of
Preferences. The country of origin of imported goods is also used to
determine non-preferential trade treatment, such as admissibility,
marking, and trade relief.\7\ Importers must exercise reasonable care
in determining the country of origin of their goods and often make this
determination on their own. However, some importers may seek advice
from CBP to determine the country of origin for their goods for
preferential and/or non-preferential purposes.
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\6\ See 19 U.S.C. 1304 and 19 CFR part 134.
\7\ See supra footnote 4.
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CBP applies two methods for determining the country of origin of
imports for non-preferential purposes, as stated above. One method
involves case-by-case adjudication to determine whether the goods have
been substantially transformed in a particular country, relying
primarily on judicial precedent and past administrative rulings. The
other method consists of codified rules in part 102 of title 19 of the
Code of Federal Regulations (19 CFR part 102) (referred to as the part
102 rules), which are also used to determine whether the goods have
been substantially transformed, but are primarily expressed through
specific changes in the Harmonized Tariff Schedule of the United States
(HTSUS) classification, often referred to as a ``tariff shift.'' Both
the case-by-case and tariff shift methods implement the substantial
transformation standard and are intended to lead to the same result.
Prior to the USMCA, under the NAFTA, country of origin marking
determinations were made using the NAFTA marking rules codified in 19
CFR part 102 that specify whether a good imported from Canada or Mexico
that is not entirely of Canadian or Mexican origin has been
substantially transformed through processes that resulted in changes in
the tariff classification (i.e., tariff shifts) in Canada or Mexico. To
determine the country of origin of goods imported from Canada or Mexico
for other non-preferential purposes (i.e., purposes other than
marking), CBP employed case-by-case adjudication to determine whether
such goods were substantially transformed in those NAFTA countries.
These different non-preferential country of origin-determination
methods required some importers to determine and declare two different
countries of origin for the same imported good (e.g., Canada and
China).
The USMCA, which recently superseded the NAFTA, was generally
silent as to how the country of origin should be determined for goods
imported from Canada and Mexico for marking and other non-preferential
purposes. However, CBP is concurrently publishing an IFR in this issue
of the Federal Register that, among other things, continues to apply
the existing part 102 rules for determining the country of origin for
marking of goods imported from Canada or Mexico. In this proposed rule,
CBP proposes to expand the scope of the part 102 rules to provide that
those rules are also to be generally applicable for all other (i.e.,
other than marking) non-preferential origin determinations made by CBP
for goods imported from the USMCA countries of Canada and Mexico. CBP's
application of the part 102 rules would not, however, affect similar
determinations made by other agencies, such as the Department of
Commerce's scope determinations in antidumping or countervailing duty
proceedings (see 19 CFR 351.225).
With this regulatory change, all non-preferential country of origin
determinations by CBP for goods imported from Canada or Mexico would be
based on substantial transformation pursuant to the tariff shift rules
required by 19 CFR part 102. This would eliminate the need for some
importers of products from Canada or Mexico to request two different
non-preferential determinations--one for country of origin marking and
one for case-by-case adjudication for other non-preferential purposes--
to confirm CBP's treatment of their imports and avoid potentially
different determinations. The rulemaking would also eliminate the need
for some importers to comply with requirements to declare two different
countries of origin for the same imported good (e.g., Canada and
China). CBP is proposing these changes to simplify and standardize
country of origin determinations by CBP for all non-preferential
purposes for goods imported from Canada or Mexico.
Population Affected by Rule
This rulemaking would directly affect certain importers of goods
from Canada and Mexico and the U.S. Government (particularly CBP). In
fiscal year (FY) 2019, 38,832 importers \8\ made 2.6 million non-NAFTA-
preference entries
[[Page 35426]]
of goods from Canada and Mexico.\9\ All of these entries were subject
to non-preferential country of origin marking requirements, while some
of these goods were also subject to other non-preferential country of
origin determinations, like trade remedies, that involve case-by-case
adjudication. Around the same time, in FY 2020 and the start of FY
2021, CBP issued 52 rulings determining the origin of goods imported
from Canada and Mexico for non-preferential purposes.\10\ These
rulings, except for those involving the importation of certain textile
and apparel products, employed case-by-case adjudication to determine
whether such goods were substantially transformed in Canada or Mexico
or other countries.
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\8\ Based on unique importer of record (IOR) numbers of
importers who entered goods in FY 2019. In some cases, multiple IOR
numbers correspond to the same entity.
\9\ These goods were not eligible for the generalized system of
preferences.
\10\ Based on data from October 1, 2019, to December 16, 2020.
---------------------------------------------------------------------------
In the future, CBP projects that around 38,832 importers would
continue to make around 2.6 million entries of goods from Canada and
Mexico that are subject to non-preferential trade treatment, with or
without this rule, each year. An unknown share of these importers would
enter goods subject to non-marking-related non-preferential treatment.
CBP also projects that about 52 case-by-case non-preferential country
of origin determinations would be requested and issued each year in the
absence of this rulemaking based on the historical number of case-by-
case adjudications. This rulemaking would eliminate such case-by-case
determination requests and the issuance of such rulings.
Costs and Revenue Impacts of Rule
This rulemaking may introduce changes in non-preferential payments
from importers to the U.S. Government. In addition, there may be
minimal costs for some importers, as discussed in this section.
Changing from case-by-case adjudications for other non-preferential
origin purposes to part 102's tariff shift rules may impose some costs
on importers with goods from Canada and Mexico. Importers who switch
from using these two determination methods for non-preferential origin
purposes to just the part 102 rules with this rulemaking may, for
example, incur some one-time, minor costs to adjust their inventory
tracking systems and Automated Commercial Environment (ACE) entries to
reflect the part 102-based non-marking, non-preferential country of
origin for their goods in those cases where origin determinations under
the current practice have been inconsistent.\11\ In such instances,
importers may also need to adjust their business practices to ensure
that they properly use the part 102 rules for all non-preferential
country of origin purposes when the goods are sourced from Canada or
Mexico under this proposed rule. These same importers must also ensure
that they use case-by-case adjudications for any goods sourced outside
of Canada or Mexico that are subject to non-preferential treatment. The
extent of these costs on importers is unknown, but likely to be
minimal. CBP requests public comments on these costs and any other
costs of this rule to importers. This rule would not introduce costs to
CBP.
---------------------------------------------------------------------------
\11\ As an example, if an importer has an inventory tracking
system that identifies the non-marking, non-preferential country of
origin for its goods from Canada and Mexico based on existing case-
by-case adjudication rules, with this rule, that importer may need
to revise the system to ensure that it identifies the goods based on
the part 102 rules if the importer is importing goods subject to
inconsistent origin determinations under the current practice.
---------------------------------------------------------------------------
In addition to costs, applying the part 102 (tariff shift) rules of
origin rather than case-by-case adjudications to determine the origin
for other non-preferential purposes could lead to trade policy outcomes
different from historical and current practice. If an importer's goods
are subject to inconsistent origin determinations under the current
practice, this proposed rule may lead to a change in non-preferential
payments from importers to the U.S. Government, which would result in
an equal change in U.S. Government revenue. The number of instances
where an importer would receive a different non-preferential country of
origin determination under this rulemaking compared to current practice
would likely be low, especially considering both methods apply the same
substantial transformation standard and are intended to reach the same
results. The specific effects of these different determinations on
revenue are unknown. Any change in payments from importers to the U.S.
Government as a result of this rulemaking are considered transfers
rather than costs or benefits as they are moving money from one part of
society to another.\12\ CBP requests public comments on the potential
number of instances where a good would be treated differently under
trade remedy laws and relief under the new rule compared to historical
and current practice and any related effects on revenue.
---------------------------------------------------------------------------
\12\ As described in OMB Circular A-4, transfer payments occur
when ``. . . monetary payments from one group [are made] to another
[group] that do not affect total resources available to society.''
Examples of transfer payments include payments for insurance and
fees paid to a government agency for services that an agency already
provides.
---------------------------------------------------------------------------
Benefits of Rule
Besides costs and revenue impacts, this rulemaking would introduce
benefits to importers and the U.S. Government. Importers must exercise
reasonable care when determining the country of origin for their goods,
which can include researching previous case-by-case adjudications on
substantial transformation. This rulemaking would enhance the
consistency of country of origin marking and non-preferential country
of origin determinations for goods imported from Canada and Mexico. All
determinations made by CBP would be based on substantial transformation
through application of the part 102 rules. This change would allow
importers of goods from Canada and Mexico to comply with just one non-
preferential country of origin determination made by CBP for their
goods rather than two.
The overall benefit to importers of complying with just one country
of origin determination method from CBP for their goods from Canada and
Mexico is unknown. Some importers who require CBP ruling requests to
determine the country of origin for non-preferential purposes would
enjoy greater benefits from the transition to just one non-preferential
determination method. As previously described, importers of goods from
Canada and Mexico must currently request two country of origin rulings
from CBP if they cannot determine the country of origin for non-
preferential purposes--one for country of origin marking and one for
case-by-case adjudication for other non-preferential purposes. CBP
estimates that a case-by-case determination request takes an importer
at least 8 hours on average to request, at a time cost of $250.96 per
request according to an importer's average hourly time value of
$31.37.\13\ Based on
[[Page 35427]]
this time cost and the historical average of about 52 case-by-case
adjudication requests for non-preferential country of origin
determinations for goods imported from Canada and Mexico, CBP estimates
that importers would save at least $13,050 in research time costs each
year from no longer submitting case-by-case adjudication requests to
CBP for their non-preferential country of origin requests for goods
from Canada and Mexico. These requests may impose an unknown amount of
additional time and resource costs on importers from an importer's
gathering of information for the process and drafting the request,
which could be avoided with this rulemaking.
---------------------------------------------------------------------------
\13\ CBP bases this $31.37 loaded wage rate on the Bureau of
Labor Statistics' (BLS) 2020 median hourly wage rate for Cargo and
Freight Agents ($21.04), which CBP assumes best represents the wage
for importers, multiplied by the ratio of BLS' average 2020 total
compensation to wages and salaries for Office and Administrative
Support occupations (1.4912), the assumed occupational group for
importers, to account for non-salary employee benefits. Source of
median wage rate: U.S. Bureau of Labor Statistics. Occupational
Employment Statistics, ``May 2020 National Occupational Employment
and Wage Estimates United States- Median Hourly Wage by Occupation
Code- Occupation Code 43-5011.'' Updated March 31, 2020. Available
at <a href="https://www.bls.gov/oes/2020/may/oes_nat.htm">https://www.bls.gov/oes/2020/may/oes_nat.htm</a>. Accessed June 1,
2021. The total compensation to wages and salaries ratio is equal to
the calculated average of the 2020 quarterly estimates (shown under
Mar., June, Sep., Dec.) of the total compensation cost per hour
worked for Office and Administrative Support occupations ($28.8875)
divided by the calculated average of the 2020 quarterly estimates
(shown under Mar., June, Sep., Dec.) of wages and salaries cost per
hour worked for the same occupation category ($19.3725). Source of
total compensation to wages and salaries ratio data: U.S. Bureau of
Labor Statistics. Employer Costs for Employee Compensation. Employer
Costs for Employee Compensation Historical Listing March 2004-
December 2020, ``Table 3. Civilian workers, by occupational group:
employer costs per hours worked for employee compensation and costs
as a percentage of total compensation, 2004-2020.'' March 2021.
Available at <a href="https://www.bls.gov/web/ecec/ececqrtn.pdf">https://www.bls.gov/web/ecec/ececqrtn.pdf</a>. Accessed
June 1, 2021.
---------------------------------------------------------------------------
Furthermore, CBP's country of origin determinations sometimes
result in an imported good being determined to be a product of Canada
or Mexico for some customs purposes and a good of a third country for
other purposes. This rulemaking would eliminate these different
determinations, which would standardize country of origin
determinations for non-preferential purposes for goods imported from
the USMCA countries of Canada and Mexico. CBP's application of the part
102 rules would not, however, affect similar determinations made by
other agencies, such as the Department of Commerce's scope
determinations in antidumping or countervailing duty proceedings (see
19 CFR 351.225). This standardized approach would provide additional
benefits to importers, but the extent of these benefits is unknown. CBP
requests public comments on the benefits of this change to importers.
Although this rulemaking would eliminate the need for some importers to
request case-by-case country of origin determinations for non-
preferential purposes, it may require such importers to now request
classification determinations for their goods imported from Canada and
Mexico. The extent of these new classification requests is unknown. To
the extent that importers would need to request additional
classification determinations in place of case-by-case adjudications,
the benefits of this rulemaking to importers would be lower. CBP
requests public comments on any other benefits of this rulemaking to
importers.
As previously stated, CBP issued 52 non-preferential determinations
adjudicated on a case-by-case basis for goods imported from Canada and
Mexico from October 2019 to December 2020. This rulemaking would
eliminate the need for CBP to make such case-by-case determinations for
similar goods imported from Canada and Mexico in the future. The
current method for CBP to determine country of origin on a case-by-case
basis for non-preferential purposes is generally more time and
resource-intensive than the tariff-shift method. For CBP, country of
origin determinations for non-preferential purposes based on case-by-
case adjudications are highly individual, fact-intensive exercises.
This rulemaking would largely make it easier for CBP to administer
rules of origin for non-preferential country of origin determinations
for goods imported from Canada and Mexico by employing the codified
part 102 rules for both country of origin marking and other non-
preferential purposes. By eliminating the need for importers to request
non-preferential case-by-case determinations of their goods from Canada
and Mexico, CBP would save an average of 5 hours to 40 hours currently
dedicated to each case-by-case adjudication. This would translate to a
time cost saving of between $494.90 and $3,959.20 based on a CBP
attorney's average hourly time value of $98.98.\14\ CBP estimates that
with this proposed rule, CBP would no longer have to make 52 case-by-
case rulings determining the origin of goods imported from Canada or
Mexico for non-preferential purposes according to historical data.
Considering these forgone determinations and the average time cost per
determination, CBP would save approximately $25,735 to $205,878 per
year from this rulemaking. These benefits would represent time cost
savings to CBP rather than budgetary savings, meaning that CBP could
use the savings to perform other agency missions, such as facilitating
trade. As previously stated, this rulemaking may increase requests for
classifications of goods imported from Canada and Mexico, though the
extent of these requests is unknown. To the extent that CBP would need
to conduct additional classifications in place of case-by-case
adjudications, the benefits of this rulemaking to CBP would be lower.
---------------------------------------------------------------------------
\14\ CBP bases this wage on the FY 2019 salary, benefits, and
non-salary costs (i.e., fully loaded wage) of the national average
of CBP attorney positions.
---------------------------------------------------------------------------
Net Impact of Rule
In summary, this rulemaking would introduce costs, revenue changes,
and benefits to importers and the U.S. Government. Some importers, for
example, whose goods are subject to inconsistent origin determinations
under the current practice, may incur minor costs to adjust their
inventory tracking systems, ACE entries, and business practices to
reflect the new country of origin determination for other non-
preferential purposes, as described above. Transitioning to the
proposed tariff shift system could also lead to an increase or decrease
in non-preferential payments from importers, which would lead to an
equal increase or decrease in revenue to the U.S. Government. The exact
amounts of these costs and revenue changes are unknown, but they should
be small considering the tariff shift methodology implements the same
substantial transformation standard as the existing case-by-case
method. Additionally, the rule would implement a simpler, standardized
administration system for country of origin determinations made by CBP
for all non-preferential purposes for goods imported from Canada and
Mexico that would save importers and the U.S. Government time and
resources. Importers could save at least an estimated $13,050 in time
costs annually from this rulemaking, while the U.S. Government could
save between $25,735 and $205,878 in time costs each year. Overall, CBP
believes this rulemaking's benefits would outweigh the costs.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (RFA; 5 U.S.C. 601 et. seq.), as
amended by the Small Business Regulatory Enforcement and Fairness Act
of 1996, requires agencies to assess the impact of regulations on small
entities. A small entity may be a small business (defined as any
independently owned and operated business not dominant in its field
that qualifies as a small business per the Small Business Act); a small
not-for-profit organization; or a small governmental jurisdiction
(locality with fewer than 50,000 people).
This rulemaking proposes to expand the scope of the 19 CFR part 102
rules to provide that those rules are to be generally applicable to all
non-preferential country of origin determinations made by CBP for goods
imported from the USMCA countries of Canada and Mexico. With this
change,
[[Page 35428]]
country of origin marking and all other non-preferential country of
origin determinations made by CBP for goods imported from Canada or
Mexico would be based on substantial transformations occurring with
tariff shifts as defined under part 102. CBP's application of the part
102 rules would not, however, affect similar determinations made by
other agencies, such as the Department of Commerce's scope
determinations in antidumping or countervailing duty proceedings (see
19 CFR 351.225).
In FY 2019, 38,832 importers \15\ made 2.6 million non-NAFTA-
preference entries of goods from Canada and Mexico, valued at $155
billion.\16\ All of these entries were subject to non-preferential
country of origin marking requirements, while some were also subject to
other non-preferential country of origin determinations, like trade
remedies, that involve case-by-case adjudication. CBP does not have
precise data on the number of importers who entered goods from Canada
and Mexico that were subject to country of origin requirements for
marking and another non-preferential purpose that would be affected by
this rulemaking. Based on available FY 2019 data on goods from Canada
and Mexico subject to part 102 rules for marking and that involve case-
by-case adjudication for the non-preferential purposes of Section 201
and Section 232 duties and quotas, as well as the 38,832 importers who
entered non-NAFTA preference goods from Canada and Mexico in FY 2019,
CBP estimates that this rulemaking could affect between approximately
10,000 and 38,832 unique importers entering goods from the USMCA
countries of Canada and Mexico each year. These importers would range
from individual buyers (households or businesses) to large businesses
across many different industries. Some industries and businesses may be
more affected than others, depending on the ultimate country of origin
determination and the classification of the merchandise being imported.
The exact number of small importers affected by this rulemaking is
unknown. However, according to a separate CBP analysis, the vast
majority of importers are classified as small businesses. Because this
rulemaking would directly affect importers and the vast majority of
importers are small businesses, the rule could affect a substantial
number of small entities.
---------------------------------------------------------------------------
\15\ Based on unique importer of record numbers of importers who
entered goods in FY 2019. In some cases, multiple IOR numbers
correspond to the same entity.
\16\ These goods were not eligible for the Generalized System of
Preferences.
---------------------------------------------------------------------------
The Regulatory Flexibility Act does not specify thresholds for
economic significance but instead gives agencies flexibility to
determine the appropriate threshold for a particular rule. Changing
from case-by-case adjudications for other non-preferential origin
purposes to part 102's tariff shift rules may impose some costs on
importers with goods from Canada and Mexico. Importers who switch from
using these two determination methods for non-preferential origin
purposes to just the part 102 rules with this rulemaking may incur some
one-time, minor costs to adjust their inventory tracking systems and
Automated Commercial Environment entries to reflect the part 102-based
non-marking-related, non-preferential country of origin for their
goods. As an example, if an importer has an inventory tracking system
that identifies the non-marking, non-preferential country of origin for
its goods from Canada and Mexico based on existing case-by-case
adjudication rules, with this rulemaking, that importer may need to
revise the system to ensure that it identifies the goods based on the
part 102 rules if the importer is importing goods subject to
inconsistent origin determinations under the current practice. These
determinations should match the country of origin determinations that
importers must already make for non-preferential marking purposes.
According to representatives of the Commercial Operations Advisory
Committee, these costs will be approximately $2,000-$3,000 per company.
Some importers who source the same goods from Canada or Mexico and
another country may also need to adjust their business practices to
ensure that they properly use the part 102 rules for customs non-
preferential country of origin purposes when the good is sourced from
Canada or Mexico once this rulemaking is in effect and use case-by-case
adjudications for any goods sourced outside of Canada or Mexico that
are subject to non-preferential treatment. According to representatives
of the Commercial Operations Advisory Committee, these costs are
minimal. For mid to large companies, these costs would total at most
$2,000 to $3,000 (note that this is in addition to a similar estimate
above). Smaller companies would have smaller costs.
CBP does not believe that these costs, a maximum of $4,000-$6,000,
would have a significant economic impact on importers, including those
considered small under the RFA. The annual value of importations
average $4 million per importer, so these one-time costs make up less
than one percent of the value of their importations. In addition, trade
members have expressed that the non-monetized benefits of operating
under a single set of rules well outweigh the minimal costs to comply
with this rulemaking. Therefore, CBP certifies that this rulemaking, if
finalized, will not have a significant economic impact on a substantial
number of small entities. CBP welcomes comments on this conclusion.
C. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires
that CBP consider the impact of paperwork and other information
collection burdens imposed on the public. CBP has determined that there
is no collection of information that requires a control number assigned
by the Office of Management and Budget.
Signing Authority
This rulemaking is being issued in accordance with 19 CFR
0.1(a)(1), pertaining to the authority of the Secretary of the Treasury
(or that of his or her delegate) to approve regulations related to
certain customs revenue functions.
List of Subjects
19 CFR Part 102
Canada, Customs duties and inspections, Imports, Mexico, Reporting
and recordkeeping requirements, Trade agreements.
19 CFR Part 177
Administrative practice and procedure, Customs duties and
inspection, Government procurement, Reporting and recordkeeping
requirements.
Proposed Amendments to the Regulations
For the reasons given above, it is proposed to amend parts 102 and
177 as set forth below:
PART 102--RULES OF ORIGIN
0
1. The general authority citation for part 102 is revised to read as
follows:
Authority: 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized
Tariff Schedule of the United States), 1624, 3592, 4513.
0
2. Amend Sec. 102.0 by revising the second sentence and adding four
sentences after the second sentence to read as follows:
Sec. 102.0 Scope.
* * * For goods imported into the United States from Canada or
Mexico and entered for consumption, or
[[Page 35429]]
withdrawn from warehouse for consumption, before [EFFECTIVE DATE OF
FINAL RULE], these specific purposes are: country of origin marking;
determining the rate of duty and staging category applicable to
originating textile and apparel products as set out in Section 2
(Tariff Elimination) of Annex 300-B (Textile and Apparel Goods) under
NAFTA; and determining the rate of duty and staging category applicable
to an originating good as set out in Annex 302.2 (Tariff Elimination)
under NAFTA. CBP will determine the country of origin for all non-
preferential purposes for goods imported into the United States from
Canada or Mexico and entered for consumption, or withdrawn from
warehouse for consumption, on or after [EFFECTIVE DATE OF FINAL RULE],
using the rules set forth in Sec. Sec. 102.1 through 102.18 and
102.20. The rules in this part regarding goods wholly obtained or
produced in a country are intended to apply consistently 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 are also
intended to apply consistently for all purposes where this requirement
exists for ``country of origin'' or ``product of'' determinations made
by CBP for goods imported from Canada or Mexico. The rules in this part
do not affect similar determinations made by other agencies, such as
the Department of Commerce's scope determinations in antidumping or
countervailing duty proceedings (see 19 CFR 351.225). * * *
PART 177--ADMINISTRATIVE RULINGS
0
3. The general authority citation for part 177 is revised to read as
follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 3(i),
Harmonized Tariff Schedule of the United States), 1502, 1624, 1625,
2515.
0
4. Amend Sec. 177.22 by adding a sentence to the end of paragraph (a)
to read as follows:
Sec. 177.22 Definitions.
(a) * * * (For goods imported into the United States after
processing in Canada or Mexico and entered for consumption, or
withdrawn from warehouse for consumption, on or after [EFFECTIVE DATE
OF FINAL RULE], substantial transformation will be determined using the
rules set forth in Sec. Sec. 102.1 through 102.18 and 102.20.)
* * * * *
Troy A. Miller, the Senior Official Performing the Duties of the
Commissioner, having reviewed and approved this document, is delegating
the authority to electronically sign this document to Robert F. Altneu,
who is the Director of the Regulations and Disclosure Law Division for
CBP, for purposes of publication in the Federal Register.
Robert F. Altneu,
Director, Regulations & Disclosure Law Division, Regulations & Rulings,
Office of Trade, U.S. Customs and Border Protection.
Approved:
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 2021-14265 Filed 7-1-21; 11:15 am]
BILLING CODE 9111-14-P
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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.