Understanding Country of Origin Rules Still Challenging for Foreign Exporters to US, Panelists Say
As importers, customs brokers and attorneys feel whiplash from the ever-shifting changes in U.S. tariff policy, one particular issue that these stakeholders will continue to grapple with over the coming months is ensuring that importers understand and comply with all the regulations on country of origin, according to experts speaking on a May 30 webinar sponsored by the International Trade Institute titled "Rules, Risk and Reality: How EU Exporters Can Navigate the New US Trade Era."
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"It's like [being] a tennis player. We can try to create a plan, a strategy, and then everything is changed again. And then we go forward, okay, what's next? And now also, it seems to be that there was a kind of a relief ... that there would be no additional country-specific tariffs. Then it changed again. So it's difficult to create a strategy, and there's also no standard strategy, because every situation is different ... . There's still a lot of uncertainty on how to react [to] this, from both sides," said Richard Loomans, managing director with Seichin Consulting.
Loomans said his clients in the EU still need to grasp U.S. rules of origin and the concept of, as well as adherence to, substantial transformation, particularly as European countries might source materials from other places, such as China.
Other webinar speakers echoed Loomans' observations about how companies are still grappling with complying with country-of-origin regulations.
"We've been dealing with companies in Switzerland and Germany, and especially in Switzerland, and they'll get a certificate of origin from the Swiss authorities. U.S. Customs doesn't care about that," said Mollie Sitkowski, a partner with Faegre Drinker.
Customs looks at various qualitative and quantitative factors when determining country of origin, and the complexity of those factors makes the rule of origin "a very hard rule, because no one else uses our nebulous rule. And it's been a challenge to educate people about that," she said.
Furthermore, European companies have to get the rule of origin right, because CBP officials have indicated that, "yes, we have ramped up enforcement," said Bonnie Kersch, owner of Magnolia Global Trade Solutions. This enforcement extends to ensuring that goods are properly classified with the correct Harmonized Tariff Schedule number, as well as ensuring that the importer has made the proper valuation, especially in situations where first sale might be used, she continued.
Another complication in determining valuation is for products covered under the free trade agreement between the U.S., Mexico and Canada. There are questions about some of the regulations governing rules of origin in USMCA as rules for some products in chapters 8504 and vehicles will change on July 1.
"Some of the [companies] are, like, well, my products qualified under the existing rules of origin, but I'm worried that after July 1, I may not be able to meet the regional value content requirement now, as opposed to a more tariff-shift-heavy requirement before," Kersch said.
Sitkowski, meanwhile, noted that CBP might currently be focusing its enforcement efforts on more visible changes beyond valuation.
"They haven't quite gotten to the value enforcement yet, because there's so many easy things for them: they can see a change in origin. They can see a claim for USMCA that was never made before. They can see the use of a Chapter 98 provision," Sitkowski said.
Even though CBP may be focused on other aspects of enforcement, importers still need to be making sure that they are calculating values correctly -- and that means not pulling certain values out, Sitkowski continued.
Sitkowski has encountered situations where clients' exporters tell the client that R&D costs will be invoiced separately from the main invoice. But clients still need to calculate the whole value, she said.
"I'm like, okay, that's fine, but you still need to add it together to declare the value. And so then going through the assist rules with people is very important, because we have seen a lot of people want to pull things out of value that shouldn't be pulled out of value," Sitkowski said.
Sitkowski's clients have also had their suppliers offer to take some of the duty burden on themselves. In those situations, clients need to have the agreement in writing, she said.
"We've been seeing people do that, and actually duties can be excluded from the value of goods," Sitkowski said. "So if you're importing DDP and your value includes duties, you can break them out. They have to be broken out on the invoice though," Sitkowski said. "But for those situations where the supplier is offering to absorb some of the duties, our recommendation is first to get an agreement in writing, because for discounts, you have to have the agreement in writing before the good is exported. And even though this technically isn't a discount, we still want people to follow it."
Sitkowski has also been recommending reimbursement on the back end to make clear that it's a duty reimbursement.