Lawyer: CBP Moving Away From Essential Character Test for Origin Rulings
CBP's analysis of substantial transformation is moving away from its essential character test toward a more holistic review of the final stage of assembly, according to Matthew Bock, managing partner at Bock Trade Law.
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Bock, speaking on a webinar hosted by the Massachusetts Export Center, said that CBP is "reversing course" and it's now "becoming easier to demonstrate that substantial transformation has occurred." He said this is because, in its country of origin rulings, CBP "tends to be moving away from" a component by component analysis of substantial transformation and toward a "model of more holistic review of what exactly is happening at the final stage" of manufacturing.
Previously, CBP used analysis from the Energizer Battery Co. v. U.S. decision for origin rulings, which Bock said allowed companies to "fairly easily game" how CBP would rule on an origin determination. This analysis was changed in a 2022 ruling in Cyber Power Systems v. U.S.(see 2203020073) when CIT rejected what Bock called Energizer's "strict component by component analysis" and the essential character test.
Bock said that while many CBP rulings, "particularly out of New York," still use the "fairly basic analysis" of Energizer, at the headquarters level, rulings "definitely showcase this transition to a more totality of the evidence analysis."
In 2025, Bock said, CBP has a "renewed incentive to promote" findings of substantial transformation and "maybe disallow" findings that transformation hasn't occurred. This shift, he said, means that it may be worth "revisiting" the strategy of taking goods from a "high tariff country" like China and moving them to a "low tariff country" for finishing operations. He said in the post-Cyber Power landscape, "and particularly in 2025, given the current government and current CBP," that the "policy of trying to shift" manufacturing away from China might be more successful than it has been previously.
The change in CBP's analysis of origin rulings represents a "sea change," Bock said, and "needs to be considered by importers" trying to mitigate high tariffs, "particularly if the intention is to stay in somewhere like China and try and source non-Chinese components and make the case that substantial transformation has not occurred."