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Customs Country of Origin Labeling Proposal

Posted: September 4, 2008

The U.S. Customs and Border Protection agency (CBP) has proposed a new method of deciding the country of origin of all imported merchandise, including food and dietary supplements and their ingredients. Under the proposed new method, CBP would find a "substantial transformation" -- a change resulting in a new product with its own country of origin -- wherever it finds a requisite "tariff shift" to have occurred under the code currently used in NAFTA trade. Comments are due on the proposal, linked below for your information and review, by September 23, 2008.

The CBP proposal (pdf, 86 KB) would use for ALL imported merchandise a complex regime currently governing the North American Free Trade Agreement (NAFTA) trade. According to the NAFTA regime, if altering a good creates a product belonging to a different tariff group (its "classification" as defined by numerous rules under a codified schedule"), then the alteration affects what Customs continues to call a "substantial transformation." Any such new "substantial transformation," i.e. from a change based on a NAFTA-rule "tariff shift" -- would result in a new product with its own country of origin.

In the food area, it has become well recognized that when importing concentrated foods such as juices or foods that require some processing to be consumer-ready (making a finished product for sale) does not create a product that is changed in name, character or use, i.e. there is no "substantial transformation" and the country of origin of the concentrated or raw ingredient remains the country of origin for labeling the finished food. Similarly, when dietary ingredients are imported and fabricated into finished dietary supplements, the ingredients undergo no "substantial transformation" so that the country of origin of the dietary ingredient is the country of origin for labeling the finished dietary supplement.

Instead of looking at the concepts of name, character and use under the proposal, one would have to look at the specific tariff classification of the finished product and the NAFTA tariff shift rules applicable to that product. Then the focus shifts to the imported ingredients to determine, under complex NAFTA rules, if there is a requisite shift in the tariff classification. If a requisite shift takes place, then the place of producing the finished product becomes the country of origin for Customs marking purposes. If that requisite shift takes place in the United States in producing the finished food or dietary supplement, then the finished product would no longer have a foreign origin and for Customs purposes would no longer require a label of foreign origin.