Draft Comment on Proposed Uniform Rules of Origin for Imported Merchandise

Joseph G. Gavin Iii

Informations

• Publié par: Viot
• Nombre de lectures: 22
• Langue: English

Extrait

Peter M. Robinson

President & CEO

October 22, 2008

Via eRulemaking Portal:

http://www

. regulations.gov

Trade and Commercial Regulations Branch

Customs and Border Protection

1300 Pennsylvania Avenue, NW (Mint Annex)

Washington, D.C. 20229

Comment on Proposed Uniform Rules of Origin for Imported Merchandise

Docket No. USCBP-2007-0100

Federal Register Vol. 73, No. 144, page 43385 et. seq. (July 25, 2008)

Gentlemen:

This comment is filed on behalf of the Customs Committee of the United States

Council for International Business (“USCIB”) in response to the above-referenced

Proposed Rule (“The Notice”).

USCIB was established in 1945 to promote an open world trading system and is now

among the premier pro-trade, pro-market liberalization organizations in the United States.

It has an active membership base of over 300 multinational corporations, law firms and

business associations that address issues through over 50 specialized policy committees

and working groups, including a Customs and Trade Facilitation Committee.

USCIB is the U.S. affiliate of the International Chamber of Commerce (ICC), which has

a consultative relationship with the World Customs Organization (WCO), and of the

Business and Industry Advisory Committee (BIAC) to the OECD. Both ICC and BIAC

have active Trade Policy Committees that deal with World Trade Organization (WTO)

issues. In short, USCIB and its members have depth of experience with and vital interest

in uniform rules of origin.

A Proposal with Unintended Consequences

Harming Efforts toward Global Harmonization

The World Trade Organization (WTO) has engaged in efforts to harmonize non-

preferential rules of origin since 1994. Although CBP initially proposed applying the

NAFTA marking rules to all non-preferential trade in the mid-1990’s, it suspended this

proposal after seeking public comment. The timeline suggests that CBP withdrew its

proposal to unilaterally implement non-preferential rules of origin so as not to undermine

the WTO negotiations. Implementation of conflicting non-preferential rules by major

economies such as the US would have imposed a heavy burden on industry. The WTO

negotiations are intended to resolve these difficulties.

Regrettably, the WTO process has not yet yielded an agreement on non-preferential rules

of origin. In its notice of proposed rulemaking, CBP acknowledges that it is proposing to

implement the NAFTA marking rules even though negotiations at the WTO continue.

Industry is concerned that countries will abandon the WTO process if the United States

implements its own rules of origin. In that event, it seems likely that other countries will

respond by moving forward with their own rules. A complex web of non-preferential

rules of origin, layered over similarly inconsistent preferential rules of origin, presents

overwhelming administrative difficulties for industry. Rather than forcing the issue, we

urge the US to re-focus on harmonization of the rules through the WTO.

Overlooking Longstanding Substantial Transformation Precedents

In issuing this proposal CBP seeks to create a codified method that results in more

predictable, objective origin determinations while staying true to the concept of

substantial transformation. While CBP has worked hard to develop tariff shift rules that

are consistent with the substantial transformation concept, it is evident that the rules

under Part 102 fail to achieve this stated objective. Origin determinations based on

longstanding administrative and legal precedent will be changed as a result of these rules.

For example, CBP has issued several rulings that note the importance of software

programming in assessing substantial transformation. These rulings are based in part on

Data General Corp v. United States, 4 C.I.T. 182 (1982). While the tariff shift rule under

HTS 8541-42 accommodates the outcome of Data General for some products, it appears

this rule was drafted specifically to accommodate the Data General decision. The rules

under Part 102 fail to accommodate other products in Chapters 84 and 85 to which CBP

has extended the Data General rationale subsequent to drafting of the NAFTA marking

rules. CBP should not implement these rules unless they are updated to reflect origin

determinations made under longstanding judicial and administrative precedent.

In many cases the essential character item identified through application of the 102 rules

does not comport with country of origin determinations made under the current rules. A

concrete example can be found in Headquarters Ruling Letter 563013 where Customs

addressed the country of origin of a telecommunications switch. The imported chassis

containing the PCA of Chinese origin (typically classified under 8517.50.9000) was

considered substantially transformed as a result of further manufacture including the

assembly of several components. As a result the finished switch was a product of Hong

Kong or the United States. Under the NAFTA marking rules, the imported chassis

containing the PCA would be identified as the essential character item by virtue of the

fact it is classified in the same provision as the finished good. Under these rules the origin

of the switch would be China.

Also, companies would have to classify many more articles to apply the proposed tariff

shift rules. In many cases they would have to rely on suppliers of finished goods and

components to apply the US HTS classifications and the 102 tariff shift rules to

determine the origin of the product so that the U.S. importer could make an accurate

declaration.

Impacting Government Procurement

Many companies that participate in government procurement will be negatively impacted

by this proposal. Currently, products substantially transformed in designated end-

countries are eligible for sale to the US government. If the NAFTA marking rules are

adopted, the country of origin of many products currently considered qualifying would be

altered. Many US companies with global supply chains will be unable to compete in

government contracts without incurring significant costs to restructure supply chains.

Impacting Trade Neutrality

The proposal to extend the application of Part 102 rules is intended to be a trade-neutral

change that would not increase the imported tariffs on products or components for U.S.

importers and companies, or increase costs to consumers.

In fact, for products that incorporate inputs from multiple countries, a switch from ad hoc

rulings on substantial transformation to tariff shift criteria can result in a classification

subject to higher duties. The frequency of this problem varies by sector but even occurs

in the textiles and apparel sectors, which have already been subject to Part 102 rules.

The Part 102 rules can also result in less favorable treatment for new, high tech products.

Because of the delay in getting new products classified in the WCO HS, they tend to be

classified with items they are “most like” or by the materials they are made of. When a

Part 102 rule of origin is applied to that classification it often does not fit well and favors

the country in which the raw materials or semifinished goods are made. The end result is

a less favorable origin rule for the country that is performing the high tech

manufacturing.

Regardless of sector, companies are forced to invest resources and time to determine the

tariff impact of this proposed change on a product-by-product basis. This is a particularly

demanding activity for sectors that have complicated global supply chains and many

components in products imported to the U.S., for example, the high tech sector.

Therefore companies need adequate time to assess the proposed change on all their

products, and they need reasonable and timely procedures to address instances in which

products are exposed to higher tariff duties.

Need to Incorporate HS-2007

Another consideration is that the Part 102 rules do not incorporate the HS-2007. If

companies are asked to apply Part 102 rules before this incorporation they will have to

maintain two databases, with significant costs that could be avoided if application is

postponed until that integration is completed. Many importers would require time to

review and assess impacts if updates to Part 102 rules are issued. For this reason, if CBP

chooses to push forward with these rules despite broad opposition, we strongly suggest

that CBP consider creating a working group to develop updated rules. This would allow

for development of rules consistent with existing substantial transformation precedent

and would provide the trade community the opportunity to comment on the updated Part

102 rules before application.

Overall Costs and Priorities of Implementation

In addition to the costs of product- by- product assessments mentioned above, and the

potential cost of running two different HS data bases, companies are committing

considerable resources at this time to the implementation of high priority security

requirements. Companies are already anticipating another layer of requirements with the

prospective implementation of the Importer Security Filing (“10 plus 2 data”) initiative,

and the costs of this adjustment are unknown, in part, because business has not seen the

final rule. During this global economic crisis US companies are struggling to remain

competitive. It is not the time to implement high cost compliance programs that do little

or nothing to facilitate trade or ease administrative burdens.

Conclusion

CBP’s proposal to unilaterally implement the NAFTA marking rules will undermine

efforts to achieve consensus at the WTO on non-preferential rules of origin and may

subject industry to conflicting rules. The proposed rules do not adequately reflect

outcomes under the traditional substantial transformation analysis and will have the

unintended consequence of changing the country of origin for many products. These

changes will seriously impact the ability of companies to qualify for government

procurement contracts and will result in the application of higher duties on certain

products. The costs of implementing the Part 102 rules at this time outweigh the benefits

since, for many companies, the whole process will have to be repeated once the rules are

expressed in terms of the 2007 version of the HS. For these reasons, we respectfully

request that the proposal to implement the NAFTA marking rules be withdrawn.

Respectfully submitted,

Peter M. Robinson