With the “global factory” concept many imported goods have been made with parts and processing steps that have been produced in or undertaken in more than a single foreign country. The question invariably arises, “What is the country of origin?” The answer to this question will often impact the applicable US duty rate. This is especially true now, when the product could be subject to an additional tariff if the origin were China. At the same time, origin status will determine eligibility for a lower duty rate, or even duty-free entry, under a tariff preference program, such as the Generalized System of Preferences (GSP).
In the GSP context, eligibility of an imported product for GSP will turn, inter alia, on the imported article being a “product of” the beneficiary developing country. CBP regulations spell out the test to determine origin here — simple combining or packaging operation will not suffice. A substantial transformation of the product in the beneficiary developing country must ensue.
In well-settled case law the substantial transformation test for origin should be based on a change in “name, character, or use.” In the context of GSP, the customs regulations prescribe that the necessary “product of” criterion will lie where there is a complex assembly or there is a fabrication-plus-assembly.
Nonetheless, in a flurry of recent rulings such as no. H303816, CBP has denied GSP eligibility for products that meet the origin tests under the regulations and settled case law, such as Uniden and Sassy. Instead, CBP has cited to the Energizer Battery decision, which was not even a GSP case, but one concerned with government procurement in the TAA context. The effect has been to ignore established law in favor of a simplistic and far-fetched “pre-determined end-use” principle.
For more details on GSP eligibility and CBP’s muddled application of the Energizer Battery case to GSP, origin and government procurement questions, refer to Mark Neville’s article in the September 2019 edition of the Journal of International Trade, “CBP’s Hammer: Misuse of Energizer Battery.”