AsianLII [Home] [Databases] [WorldLII] [Search] [Feedback]

APEC Agreements and Declarations

You are here:  AsianLII >> Databases >> APEC Agreements and Declarations >> APEC RULES OF ORIGIN - UNITED STATES OF AMERICA

[Database Search] [Name Search] [Noteup] [Help]

APEC RULES OF ORIGIN - UNITED STATES OF AMERICA

2.16.1 UNITED STATES: PREFERENTIAL RULES OF ORIGIN

2.16.1.1 BASIS OF SUBSTANTIAL TRANSFORMATION CRITERION

U.S. preferential rules of origin schemes are used for several special tariff programs. Most are set forth in the U.S. tariff schedule, that is, the Harmonized Tariff Schedule of the United States "HTSUS". A brief discussion of the above mentioned rules of origin is set forth below:

Andean Trade Preference Act (ATPA)

The ATPA is a program that provides for the duty free entry of merchandise from the following designated beneficiary countries: Bolivia, Ecuador, Colombia, and Peru. It is intended to encourage economic growth in those countries. Duty free treatment is granted under the ATPA to any otherwise eligible article which is the growth, product, or manufacture of a designated beneficiary country if (1) that article is imported directly from a beneficiary country into the U.S. customs territory and (2) the sum of the cost or value of materials produced in one or more Andean beneficiary countries or one or more Caribbean Basin Initiative beneficiary countries plus the direct costs of processing operations performed in one or more Andean or Caribbean Basin initiative beneficiary countries is not less than 35 percent of the appraised value of the article. Puerto Rico and the Virgin Islands are also considered beneficiary countries for this purpose. Up to 15 percent of the value attributable to the cost or value of materials produced in the United States may be applied toward the 35 percent minimum local content requirement.

Automotive Products Trade Act (APTA)

The APTA implements into U.S. law the United States-Canada Automotive Agreement. The APTA provides for the duty free entry of motor vehicles and specified original equipment parts that qualify as "Canadian articles" under general note 5 to the HTSUS. The term "Canadian articles" refers to articles produced in Canada but does not include any article produced in Canada with non-Canadian or non-U.S. materials unless the article satisfies the criteria for originating goods set forth in the NAFTA preferential rules of origin (as found in general note 12 to the HTSUS).

Caribbean Basin Initiative (CBI)

The CBI provides for free rates of duty for all but a few classes of merchandise and reduced rates of duty on selected classes of merchandise imported into the United States from designated beneficiary countries or territories. It is intended to encourage economic growth in those countries and territories. The elements of the CBI's origin rules (for goods that are not wholly obtained from a beneficiary country or territory) can be summarized as follows: (1) substantial transformation of foreign materials and local materials and/or direct processing cost-added of 35 percent of the appraised value; (2) dual substantial transformation of foreign materials possible; (3) unlimited cumulation possible among all CBI beneficiaries; (3) limited U.S.-country benefit (i.e., a prescribed percentage of U.S. materials permitted for satisfying the above-mentioned 35 percent value requirement); and (4) direct shipment from any CBI beneficiary is possible.

General System of Preferences (GSP)

The GSP provides for free rates of duty for merchandise imported into the United States from beneficiary developing independent countries and dependent countries and territories. It is intended to encourage economic growth in those countries and territories. The elements of the GSP's origin rules (for goods that are not wholly obtained from a beneficiary country or territory) can be summarized as follows: (1) substantial transformation of foreign materials and local materials and/or direct processing cost-added of 35 percent of the appraised value; (2) dual substantial transformation of foreign materials possible; (3) full and regional cumulation possible among members of certain free-trade associations; and (4) direct-shipment rule.

North American Free Trade Agreement (NAFTA)

The NAFTA eliminates tariffs on most goods originating in Canada, Mexico, and the United States over a maximum transition period of fifteen years. There are origin rules for tariff preferential purposes. The origin rules (for goods that are not wholly obtained from the NAFTA region) are based on a tariff-shift method and/or regional value-content method.

Compact of Free Association Act (FAS)

The FAS provides for zero rates of duty for merchandise imported into the United States from designated freely associated states of the United States. The freely associated states that have been designated as beneficiary countries for purposes of the FAS are the Marshall Islands, Federated States of Micronesia, and Republic of Palau. The elements of the FAS's origin rules (for goods that are not wholly obtained from a beneficiary state) can be summarized as follows: (1) local materials and/or direct processing cost-added of 35 percent of the appraised value; (2) limited U.S.-country benefit (i.e., a prescribed percentage of U.S. materials permitted for satisfying the above-mentioned 35 percent value requirement); and (3) direct-shipment rule.

Insular Possessions of the United States

Merchandise imported into the United States from insular possessions of the United States that are outside the customs territory of the United States are accorded preferential tariff treatment if they satisfy certain origin rules. The elements of the insular possessions' origin rules (for goods that are not wholly obtained from a beneficiary insular possession) can be summarized as follows: (1) local cost and profit added of 50 percent of the appraised value for articles not eligible for CBI preferences; (2) local cost and profit added of 30 percent of the appraised value for articles eligible for CBI preferences; (3) dual substantial transformation of foreign materials possible; and (4) unlimited percentage of U.S. materials permitted for satisfying the above-mentioned value requirement.

United States-Israel Free-Trade Agreement (IFTA)

The IFTA provides for zero or reduced rates of duty for merchandise imported from Israel into the United States. The IFTA is intended to stimulate trade between the United States and Israel. The elements of the IFTA's origin rules (for goods that are not wholly obtained from Israel) can be summarized as follows: (1) local materials and/or direct processing cost-added of 35 percent of the appraised value (including the cost or value of materials produced in and the direct costs of processing operations performed in the West Bank, the Gaza Strip or a qualifying industrial zone); (2) dual substantial transformation of foreign materials possible; (3) limited U.S.-country benefit (i.e., a prescribed percentage of U.S. materials permitted for satisfying the above-mentioned 35 percent value requirement); and (4) direct shipment from Israel required but direct shipment from West Bank, the Gaza Strip or a qualifying industrial zone also permitted for purposes of that requirement.

Products of the West Bank, the Gaza Strip or a Qualifying Industrial Zone

Merchandise imported into the United States from the West Bank, the Gaza Strip or a qualifying industrial zone are accorded preferential tariff treatment if they satisfy certain origin rules. The elements of those origin rules (for goods that are not wholly obtained from a beneficiary area or industrial zone) can be summarized as follows: (1) local materials and/or direct processing cost-added of 35 percent of the appraised value (including the cost or value of materials produced in and the direct costs of processing operations performed in Israel); (2) dual substantial transformation of foreign materials possible; (3) limited U.S.-country benefit (i.e., a prescribed percentage of U.S. materials permitted for satisfying the above-mentioned 35 percent value requirement); and (4) direct shipment from the West Bank, the Gaza Strip or a qualifying industrial zone required but direct shipment from Israel also permitted for purposes of that requirement.

2.16.1.2 BACKGROUND TO PREFERENTIAL RATES OF DUTY Trade Initiatives

As indicated above, preferential rates of duty are derived from the following trade initiatives:


Initiative
Agreement Status
Preference Flow
Andean Trade Preference Act
Unilateral
Non-reciprocal
Automotive Products Trade Act
Bilateral
Reciprocal
Caribbean Basin Economic Recovery
Act
Unilateral
Non-reciprocal
General System Preferences
Unilateral
Non-reciprocal
North American Free Trade Agreement
Trilateral
Reciprocal
Compact of Free Association Act
Unilateral
Non-reciprocal
Procucts of Insular Possessions
Unilateral
Non-reciprocal
Products of the West Bank the Gaza
Strip or a Qualifying Industrial Zone
Unilateral
Non-reciprocal
United States-Israel Free Trade
Bilateral
Reciprocal Agreement

Variations in Rules of Origin

As indicated above, the U.S. preferential rules of origin schemes employ the "wholly obtained" criterion for goods that are wholly the growth, product, or manufacture of a particular country. On the other hand, for goods that consist in whole or in part of materials from more than one country, the majority of U.S. preferential rules of origin schemes are based (1) on a change in name/character/use and (2) on a required minimum value content. The NAFTA tariff preferential rules of origin (for goods that are not wholly obtained from the NAFTA region) are based on a tariff-shift method and/or regional value-content method.

U.S. Tariff Schedule

The Harmonized Tariff Schedule of the United States has preferential rates of duty specified throughout the schedule for particular special tariff programs. As indicated above, the goods must meet the requirements for the particular special tariff program in order to be eligible for the preferential rate of duty. The country of origin of goods is shown on the entry documents whether or not the country of origin is the country of last manufacture.

2.16.1.3 LEGISLATION AND OTHER RULES/DOCUMENTS Legislation

The United States of America's rules of origin are embodied in the following legislation:

Andean Trade Preference Act General Note 11 to HTSUS (19 U.S.C. 1202) 19 U.S.C. 3201

Automotive Products Trade Act General Note 5 to HTSUS (19 U.S.C. 1202) 19 C.F.R. 10.84 19 U.S.C. 2001

Caribbean Basin Economic Recovery Act General Note 7 to HTSUS (19 U.S.C. 1202) 19 C.F.R. 10.191 19 U.S.C. 2701

General System of Preferences General Note 4 to HTSUS (19 U.S.C. 1202) 19 C.F.R. 10.171 19 U.S.C. 2461

North American Free Trade Agreement Article 401 of the North American Free Trade

Implementation Act Agreement: Tariff Preferential Rules

General Note 12 to HTSUS (19 U.S.C. 1202) 19 C.F.R. 181.131 19 U.S.C. 3332

Compact of Free Association Act General Note 10 to HTSUS (19 U.S.C. 1202)

Products of Insular Possessions General Note 3(a)(iv) to HTSUS (19 U.S.C. 1202) 19 C.F.R. 7.8

Products of the West Bank, the Gaza Strip General Note 3(a)(v) to HTSUS (19 U.S.C. 1202) or a Qualifying Industrial Zone 19 U.S.C. 2112

United States-Israel Free Trade Area General Note 8 to HTSUS (19 U.S.C. 1202) Implementation Act 19 U.S.C. 2112


Publicly Available Documents

The U.S. preferential rules of origin can be found in the following instruments: United States Code (U.S.C.), United States Code of Federal Regulations (C.F.R.), United States Customs Service Administrative Rulings, United States Federal Court Decisions, and the Harmonized Tariff Schedule of the United States (HTSUS).


2.16.1.4 RESPONSIBILITY FOR CORRECT DETERMINATION OF ORIGIN

U.S. importers are responsible for declaring the correct country of origin of imported goods. United States Customs Service officials at the ports of entry into the United States are responsible for verifying the accuracy of those declarations during the clearance of goods through customs. That responsibility is discharged and monitored though the review of pertinent documents and through selected audits of the merchandise and the importer. Pertinent entry documents (which may include declarations) are used to declare the country of origin of a good for the preferential rules of origin regime.


2.16.1.5 RULES OF ORIGIN

Under the U.S. preferential rules of origin regime, goods are considered to be "wholly obtained" from a particular country if they are wholly the growth, product, or manufacture of that country. The origin of goods not wholly obtained are determined as discussed above in item 1. Moreover, there is no fixed rule on the content permitted. Packaging is generally considered to originate from the same country as the goods contained therein. The NAFTA rules of origin are based on the 1996 version of the Harmonized System.


2.16.1.6 DIRECT SHIPMENT PROVISIONS

See the discussion for each scheme in item number 1 above.


2.16.1.7 OTHER CONDITIONS OR REQUIREMENTS

See the discussion for each scheme in item number 1 above.


2.16.1.8 REVIEW PROCEDURES

One may seek an administrative review of a country of origin determination by the United States Customs Service by protesting the decision to the Customs Service. A protest will result in the decision being internally reviewed by the Customs Service at a higher level of authority than the level at which the decision was originally rendered. If not satisfied with the decision resulting from the protest, one may seek judicial review of the decision by the United States Court of International Trade. If not satisfied with the decision by the United States Court of International Trade, one may seek review of the decision through an appeal to the United States Court of Appeals for the Federal Circuit. Finally, if not satisfied with the decision of the United States Court of Appeals for the Federal Circuit, one may request a review of the decision by the United States Supreme Court (the final court of review at the federal level in the United States).

 

2.16.1.9 CONTACTS

The following person is a contact for further information: Myles B. Harmon, Director
International Agreements Staff
Office of Regulations and Rulings United States Customs Service Franklin Court, Room 4070
1301 Constitution Avenue, NW Washington, D.C. 20229
U.S.A.

Tel: 1-202-482-7000
Fax: 1-202-482-7042


2.16.2 THE UNITED STATES: NON-PREFERENTIAL RULES OF ORIGIN

2.16.2.1 OUTLINE OF NON-PREFERENTIAL RULES OF ORIGIN REGIME

All U.S. non-preferential rules of origin schemes employ the "wholly obtained" criterion for goods that are wholly the growth, product, or manufacture of a particular country. On the other hand, all U.S. non-preferential rules of origin schemes employ the "substantial transformation" criterion for goods that consist in whole or in part of materials from more than one country. In the majority of the non-preferential schemes, the substantial transformation criterion is applied in a case-by-case manner that is based on a change in name/character/use method (i.e., an article that consists in whole or in part of materials from more than one country is a product of the country in which it 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 is was so transformed). A rules of origin scheme for textiles and textile products exists that employs the substantial transformation criterion which is based on a tariff-shift method. Another rules of origin scheme for products imported from Canada or Mexico exists that also employs the substantial transformation criterion which is based on a tariff-shift method. A brief discussion of the above-mentioned rules of origin schemes is set forth below.

Government Procurement

This rules of origin scheme is used to determine the country of origin of government procurement for the purpose of granting waivers of certain "Buy American" restrictions in U.S. laws or practice for products for eligible countries. For purposes of this scheme, an article is a product of a country or instrumentality only if (1) it is wholly the growth, product, or manufacture of that country or instrumentality, or (2) in the case of an article which consists in whole or in part of materials from another country or instrumentality, it 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 is was so transformed.

Most-Favored-Nation (MFN) Treatment

This rules of origin scheme is used to determine the country of origin of a product for purposes of MFN duty treatment. It employs the "wholly obtained" criterion for goods that are wholly the growth, product, or manufacture of a particular country. On the other hand, it employs the "substantial transformation" criterion for goods that consist in whole or in part of materials from more than one country. The substantial transformation criterion is based on a change in name/character/use method (i.e., an article that consists in whole or in part of materials from more than one country is a product of the country in which it 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 is was so transformed).

Marking

There are two sets of rules of origin schemes for country of origin marking purposes. The first scheme is used to determine the country of origin of a product for all countries except Canada and Mexico. It employs a rules of origin approach similar to that discussed above for MFN duty treatment. The second scheme is based on Annex 311 to the North American Free Trade Agreement (NAFTA). It is used for products imported from Canada or Mexico.

For goods that consist in whole or in part of materials from more than one country, this scheme employs the substantial transformation criterion which is expressed or based exclusively on a tariff- shift method (which is based on the 1996 version of the Harmonized System). This scheme includes the following general rules: (1) a de minimis test of 7 percent of value of a good except for goods of chapter 22 wherein the test is 10 percent of the value of a good; (2) a chemical reaction origin rule for the goods of chapters 28, 29, 31, 32 or 38; (3) provisions relating to the origin of certain packaging materials, accessories, spare parts, tools, indirect materials (neutral elements), and certain non- qualifying operations (e.g., mere dilution with water).

Textile and Textile Products

This rules of origin scheme is used to determine the country of origin for textiles and textile products for, among other things, the application of quotas. It employs the substantial transformation criterion which is expressed or based exclusively on a tariff-shift method (which is based on the 1996 version of the Harmonized System).

2.16.2.2 BASIC PRINCIPLES OF NON-PREFERENTIAL RULES OF ORIGIN

As indicated above, all U.S. non-preferential rules of origin schemes employ the "wholly obtained" criterion for goods that are wholly the growth, product, or manufacture of a particular country. On the other hand, for goods not wholly obtained, the substantial transformation criterion is employed in the following general manner or method for the majority of the U.S. non-preferential rules of origin schemes.

An article that consists in whole or in part of materials from more than one country is considered to be a product of the last country in which it 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. Also as indicated above, there are also rules of origin for textile and textile products and for products imported from Canada or Mexico that employ a tariff-shift method as the reflection of the substantial transformation criterion.

2.16.2.3 LEGISLATION AND OTHER RULES/DOCUMENTS Legislation

The United States of America's legislation is embodied in the following legislation:

Government Procurement 19 U.S.C. 2511 19 C.F.R. 177.21

Marking Rules of Origin 19 U.S.C. 1304 19 C.F.R. 134 19 C.F.R. 102.0


Most-Favored-Nation Duty Assessment General Note 3 to Harmonized Tariff Schedule of the United States (19 U.S.C.1202)

Textiles and Textile Products 7 U.S.C. 1854 19 U.S.C. 3592 19 C.F.R. 12.130 19 C.F.R. 102.21

The authority for introducing and revising instruments providing for the U.S. non-preferential rules of origin originates with the United States Congress. That authority has in certain instances been delegated to the President of the United States and to U.S. Federal Governmental Departments and Agencies.

Publicly Available Documents

The U.S. non-preferential rules of origin can be found in the following instruments: United States Code (U.S.C.), United States Code of Federal Regulations (C.F.R.), United States Customs Service Administrative Rulings, United States Federal Court Decisions, and the Harmonized Tariff Schedule of the United States (HTSUS).

Interested parties may gain access to the U.S. non-preferential rules of origin through the above- mentioned instruments which are all publicly available.

2.16.2.4 RESPONSIBILITY FOR CORRECT DETERMINATION OF ORIGIN

U.S. importers are responsible for declaring the correct country of origin of imported goods. United States Customs Service officials at the ports of entry into the United States are responsible for verifying the accuracy of those declarations during the clearance of goods through customs. That responsibility is discharged and monitored though the review of pertinent documents and through selected audits of the merchandise and the importer. Pertinent entry documents (which may include declarations) are used to declare the country of origin of a good for the non-preferential rules of origin regime.

2.16.2.5 RULES OF ORIGIN

Under the general U.S. non-preferential rules of origin regime, goods are considered to be "wholly obtained" from a particular country if they are wholly the growth, product, or manufacture of that country. On the other hand, an article that consists in whole or in part of materials from more than one country is considered to be a product of the last country in which it 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. There are no fixed rules concerning the use of value content or the occurrence of specific manufacturing operations. There is also no fixed rule on the content permitted. Packaging is generally considered to originate from the same country as the goods contained therein.

There is also a rules of origin scheme for textile and textile products that employs the substantial transformation criterion which is based exclusively on a tariff-shift method. It is based on the 1996 version of the Harmonized System and covers the headings and chapters of the Harmonized System relevant to textile and textile products. The tariff shift involved in the scheme may take several forms: heading to heading, heading to chapter, etc.

There is also a rules of origin scheme for products imported from Canada or Mexico that employs the substantial transformation criterion which is based exclusively on a tariff-shift method (see attachments). It is based on the 1996 version of the Harmonized System and covers the headings and chapters of the Harmonized System. The tariff shift involved in the scheme may take several forms: heading to heading, heading to chapter, etc.


2.16.2.6 OTHER CONDITIONS OR REQUIREMENTS

The conditions or requirements for the U.S. non-preferential rules of origin are as discussed above in item 1.


2.16.2.7 REVIEW PROCEDURES

One may seek an administrative review of a country of origin determination by the United States Customs Service by protesting the decision to the Customs Service. A protest will result in the decision being internally reviewed by the Customs Service at a higher level of authority than the level at which the decision was originally rendered. If not satisfied with the decision resulting from a protest, one may seek judicial review of the decision by the United States Court of International Trade.

If not satisfied with the decision by the United States Court of International Trade, one may seek review of the decision through an appeal to the United States Court of Appeals for the Federal Circuit.

Finally, if not satisfied with the decision of the United States Court of Appeals for the Federal Circuit, one may request a review of the decision by the United States Supreme Court (the final court of review at the federal level in the United States).

2.16.2.8 CONTACTS

The following person is a contact for further information: Myles B. Harmon, Director
International Agreements Staff
Office of Regulations and Rulings United States Customs Service Franklin Court, Room 4070
1301 Constitution Avenue, NW Washington, D.C. 20229
U.S.A.

Tel: 1-202-482-7000
Fax: 1-202-482-7042

AsianLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.asianlii.org/apec/other/agrmt/aroousoa383