The Fine Line Between Transshipment and Substantial Transformation
Zero dollars or millions of dollars, that can be the difference in duties assessed depending on a country of origin determination.
Country of origin sounds simple – where did the product you are importing come from? However, in today’s global manufacturing market, this determination isn’t always straightforward.
Country of Origin & Substantial Transformation
Sometimes determining the country of origin is straightforward. If the entire product is born and bred in a single country, then that’s the country of origin. But what about when inputs from various countries are shipped to another country where they are then manufactured together into a finished product? This is when things can get a bit more complicated.
Many US Free Trade Agreements (FTAs) stipulate the precise amount of inputs that must be from the country in question in order to qualify for a special, lower (usually zero percent) duty rate. Other times, what happens to those inputs and in what country, regardless of where said inputs were originally from, is what matters. So, if you are sourcing inputs from China, and transforming them into a finished product in a Mexico, then Mexico will likely be the country of origin for the product.
But there’s a fine line here. Would snapping some Mexican door handles onto a car that is otherwise made in China, in Mexico, make it a car from Mexico? What if we painted the exterior? Put in the engine? Pursuant to 19 C.F.R. § 134.1(b), Customs will generally consider the 2nd country to be the […]
