Ruling of the Week 2016.10: Share-A-Dram and NAFTA Marking
I've been at this a long time. Nevertheless, I am still sometimes surprised. That happened when I read N272495 (Mar. 1, 2016).
There are two "travel kits" at issue in this ruling. These are travel kits of the kind used by Victorian gentlemen tromping around the Amazon or Africa trailing a line of porters carrying their necessities. In this case, the necessities include six glass bottles with caps, two pipets, a funnel, coasters, a whisky taking journal, some other stuff, and a leather case for all of it. There is also a Share-A-Dram kit consisting of 12 glass bottles, a funnel, paper neck tags, and sample tasting ledger.
Customs and Border Protection decided that these kits are to be classified as retail sets based on the single item that imparts their essential character. For the travel kits and the Share-A-Dram, that is the glassware, specifically the drinking glasses, which are the most expensive glass items.
Here's the more interesting point. The drinking glasses are made in Germany and etched in the UK. There are pipettes in the kits, which are products of the United States. Everything else appears to be from China. The leather case includes a Japanese zipper. So, how should the importer determine the country of origin of the set and how should it be marked?
Interestingly, and without discussion, Customs used the NAFTA marking rules of 19 CFR Part 102 to determine whether the glass etching produced a tariff shift in the UK (it did not). Similarly, Customs used the NAFTA rules to determine that the zipper form Japan made a sufficient tariff shift to make the leather case a product of China. Chinese pencils embossed in the US do not change tariff classification and remain products of China.
Why is Customs doing this? It gives me a headache and this kind of analysis has given me a headache for years. The only clue I can find is that the party requesting the ruling is in British Columbia, which is in Canada, which is a NAFTA country. The NAFTA marking rules are applicable to goods of a NAFTA country, so maybe that's the connection.
Let's assume that the goods are actually shipped from Canada, is this analysis correct? 19 CFR 134.1(b) says this:
So let's say, hypothetically, I import a German glass, etched in the UK from Canada. How do I determine the country of origin? Well, it comes from Canada, so for laughs we can check the NAFTA rules. We do that, and we determine that the glass is from Germany. It is not a good of a NAFTA country. Are we done? I don't think so. We next have to ask whether the etching is a substantial transformation. It's not, so we end up at the same place, but this is not a trivial matter.
The reason we have NAFTA tariff shift rules is to replace the substantial transformation test. That means the two test might produce different results. The NAFTA rules apply to goods of a NAFTA country. That means the NAFTA rules do not apply to goods for which the NAFTA marking rules indicate that the country of origin is other than Canada, Mexico, or the United States.
When a product is not the good of a NAFTA country, Customs needs to revert to substantial transformation. Or, am I wrong? Someone talk me out of this.
There are two "travel kits" at issue in this ruling. These are travel kits of the kind used by Victorian gentlemen tromping around the Amazon or Africa trailing a line of porters carrying their necessities. In this case, the necessities include six glass bottles with caps, two pipets, a funnel, coasters, a whisky taking journal, some other stuff, and a leather case for all of it. There is also a Share-A-Dram kit consisting of 12 glass bottles, a funnel, paper neck tags, and sample tasting ledger.
Customs and Border Protection decided that these kits are to be classified as retail sets based on the single item that imparts their essential character. For the travel kits and the Share-A-Dram, that is the glassware, specifically the drinking glasses, which are the most expensive glass items.
Here's the more interesting point. The drinking glasses are made in Germany and etched in the UK. There are pipettes in the kits, which are products of the United States. Everything else appears to be from China. The leather case includes a Japanese zipper. So, how should the importer determine the country of origin of the set and how should it be marked?
Interestingly, and without discussion, Customs used the NAFTA marking rules of 19 CFR Part 102 to determine whether the glass etching produced a tariff shift in the UK (it did not). Similarly, Customs used the NAFTA rules to determine that the zipper form Japan made a sufficient tariff shift to make the leather case a product of China. Chinese pencils embossed in the US do not change tariff classification and remain products of China.
Why is Customs doing this? It gives me a headache and this kind of analysis has given me a headache for years. The only clue I can find is that the party requesting the ruling is in British Columbia, which is in Canada, which is a NAFTA country. The NAFTA marking rules are applicable to goods of a NAFTA country, so maybe that's the connection.
Let's assume that the goods are actually shipped from Canada, is this analysis correct? 19 CFR 134.1(b) says this:
Country of origin. “Country of origin” means the country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within the meaning of this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
So let's say, hypothetically, I import a German glass, etched in the UK from Canada. How do I determine the country of origin? Well, it comes from Canada, so for laughs we can check the NAFTA rules. We do that, and we determine that the glass is from Germany. It is not a good of a NAFTA country. Are we done? I don't think so. We next have to ask whether the etching is a substantial transformation. It's not, so we end up at the same place, but this is not a trivial matter.
The reason we have NAFTA tariff shift rules is to replace the substantial transformation test. That means the two test might produce different results. The NAFTA rules apply to goods of a NAFTA country. That means the NAFTA rules do not apply to goods for which the NAFTA marking rules indicate that the country of origin is other than Canada, Mexico, or the United States.
When a product is not the good of a NAFTA country, Customs needs to revert to substantial transformation. Or, am I wrong? Someone talk me out of this.
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