Imports and exports are governed by a whole host of regulations developed at the national and international levels. For example, all goods coming into the U.S. must include information about country of origin. U.S. Customs and Border Patrol (CBP) pays close attention to shipping documents to ensure that this information is correct.
As a consumer, you may not understand why country of origin matters. Needless to say, it is a big deal for importers. Below are several reasons explaining why, compliments of Vigilant Global Trade Services. Vigilant is based in Shaker Heights, Ohio and provides a variety of global trade management services to importers and exporters.
Country of origin is important because it affects duty rates. Duties are taxes paid on imported goods for the purposes of leveling the playing field between trading nations. The amount of duty required often depends on the country of origin, even when comparing goods of the exact same type arriving from two separate countries. Importers need to know country of origin so they can pay the appropriate duties.
Next up, countries have trade agreements between themselves to control the flow of goods. Country of origin plays into these agreements. Our trade agreements with Canada and Mexico provide the perfect example. Certain goods imported from both countries are treated differently than similar goods from other countries.
Sometimes trade agreements include import quotas. A quota might determine the volume of a given good or service that could be imported from a particular country, for example. Importers and Customs both need to know country of origin to make sure that quotas are adhered to.
Yet another issue relating to country of origin is compliance with trade sanctions. Certain countries, entities, and persons are excluded from doing business with U.S. interests. Importers need to know country of origin to ensure they are not dealing with sanctioned entities.
Determining Country of Origin
Knowing that country of origin is important and actually figuring it out are two different things. Getting it right is not always easy for the importer. In a nutshell, country of origin relates to where an imported good or service is manufactured, produced, or grown. Sometimes this is pretty straightforward. For example, Cuban tobacco’s country of origin is Cuba regardless of the country from which it is purchased.
Things are more complicated when goods are manufactured using parts and labor from numerous countries. In such cases, the country of origin is that country that makes up the largest percentage of parts and labor. Certain types of imports maybe eligible for conditional claims if it is difficult to determine genuine country of origin.
U.S. Customs generally relies on the ‘wholly obtained’ and ‘wholly produced’ rules to determine country of origin. For the U.S. to be listed as the country of origin, a manufactured product must be made mostly of materials that originated in the US. It must also be manufactured mostly by U.S. labor.
When Goods Are Substantially Transformed
One final rule affects goods that are substantially transformed as they move from one country to the next. In such cases, a product’s country of origin would be the last country in which it was substantially transformed to re-emerge with a substantially new character, use, or name.
Though the description of the rules in this post may seem ambiguous, it is clear that they are also complicated. It is for this reason that Vigilant encourages importers to outsource trade compliance if they do not have certified experts on staff. Something as simple as country of origin can be problematic otherwise.