Rule of Origin Key Terms and GSP

Antananarivo, MadagascarMay 2015

Lesson Agenda

• Rules of Origin Terminology

• GSP Requirements

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Rules of OriginTerminology

Origin vs Originating • Non-preferential rules of origin

– Standard rules attached to Normal Trade Relations (Column 1) or Column 2 countries (19 CFR 134)

• Preferential rules of origin– Rules attached to trade preference programs and inherently

more restrictive– If met, goods may receive preferential duty treatment

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Harmonized Tariff Schedule

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Non-Originating• A non-originating good does not meet the applicable

trade preference rules• A non-originating good does not receive preferential

duty treatment

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Originating• An originating good is eligible to receive trade

preference program benefits because it meets the applicable trade preference program rules

• The trade preference program rules are found in the Harmonized Tariff Schedule of the United States, General Note 4 (GSP) and General Note16 (AGOA)

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Wholly Grown or Produced Entirely• All materials must originate – and production occur – in

the territory of one or more of the parties to the agreement

• No de minimis exception for small quantities of non-originating materials

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Substantial TransformationAn imported article emerges from processing as a new and different article of commerce that possesses a new name, character, and use

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Substantial TransformationExample

Wood blocks imported into Madagascar and combined with bristles to form hairbrushes and toothbrushes

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Substantial TransformationExample

Orange juice concentrate imported into Madagascar and blended with water, orange essences, and orange oil to make orange juice

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Double Substantial TransformationNon-originating materials may be included in the value of materials if they are substantially transformed into a new and different article of commerce – an intermediate good – before they undergo a second substantial transformation in the production of the finished good

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Double Substantial Transformation (cont.)

When a double substantial transformation occurs, the value of the imported material used in the first substantial transformation may be treated as an originating material in the 35% value-content calculation

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Double Substantial TransformationExample

Gold → 14-karat gold shot → Gold ringsAustralia Cameroon Cameroon

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Double Substantial Transformation

Example

Cobalt oxide → Ceramic Glaze → Glazed ceramic tilesNorway Liberia Liberia

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Value-Added ConceptA good must be substantially transformed into a new and different article of commerce, and it must meet the 35% value-added requirement

• The value of all materials from and cost of processing operations that take place in the Parties must be at least 35% of the adjusted value of the good

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Value-Content RequirementThe value of originating materials (VOM) plus the direct costs of processing (DCP) must be equal to or greater than 35% of the appraised value (AV) of the good

VOM + DCP > 35% AVAV

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Value-Content Requirement ExampleGlazed ceramic tiles imported from LiberiaAppraised value at entry: $1000

Non-originating materials:Cobalt oxide from Norway $250International freight $50Insurance $50Packing $50

Originating materials:Glaze ingredients (Liberian silica, flux, binder) $50Inland freight and insurance $25Packing $25

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Value-Content Requirement Example (cont.)

Glazed ceramic tiles imported from Liberia

Processing costs in Liberia:Labor $25Engineering $25Indirect materials (fuel and utilities) $25Depreciation of equipment $25Research and development $25Packaging (boxes from Spain) $50Packing for export $50Inspection and testing $25Profit and general expenses $250

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Value-Content Requirement Example (cont.)

Glazed ceramic tiles imported from Liberia

VOM = $100DCP = $200

Value-added = $100 + $200 x 100 = 30%$1000

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Additional RequirementsGSP

GSP Claim RequirementsTo qualify for duty-free treatment under GSP, goods must:

• Be classified in a tariff number of the HTSUS that is eligible for GSP

• Have been wholly the growth, product, or manufacture or substantially transformed in a designated beneficiary country listed in GN 4

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GSP Claim Requirements (cont.)To qualify for duty-free treatment under GSP, goods must:

• Meet the 35% value-added rule– May be met using a double substantial

transformation• Be imported directly

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GSP Imported Directly• Directly shipped from beneficiary country or• Shipped through the territory of a third country or

free trade zone or from a third country provided the requirements of 19 CFR 10.175 are met

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GSP Supporting Documentation• Form A no longer required as of June 16, 1994• Signed statement that goods are eligible for

preferential treatment, to include request for the following records:

– The purchase, cost, value and payment for the imported good

– The purchase, cost, value and payment for materials used in production of the good

– Documents regarding the good in its exported form

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GSP Certified Handicraft Agreement• Several categories of textiles become eligible for

GSP duty-free treatment after a beneficiary has signed an arrangement with the United States to provide certification that the items are hand-made

• 15 beneficiaries have done so: Afghanistan, Argentina, Botswana, Cambodia, Colombia, Egypt, Jordan, Mongolia, Nepal, Pakistan, Paraguay, Thailand, Tunisia, Turkey, and Uruguay

• To be eligible GSP must be in effect

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What products are eligible?• Certain hand-loomed and

folklore wall hangings• Hand-loomed and folklore pillow

covers• Hand-woven tapestries• Hand-loomed and folklore rugs,

carpets and other textile floor coverings

• Hand-loomed fabrics

GSP Certified Handicraft Agreement (cont.)

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Effective Date January 1, 1976References General Note 4, 19 CFR 10.171-178a, 19 U.S.C. 2461-

2467Special Program Indicator A, A+, A*Rules of Origin 35% Value Added + Substantial TransformationAllowable U.S. Value Content U.S. materials and processing costs may NOT count

toward 35%Documentation Needed to Make Claim

Knowledge, GSP Declaration

Verification Notification ImporterDetermination Notification Importer, Exporter if provided documentation to CBP

Transit/Transshipment May not enter into commerce of a 3rd country (19 CFR 10.175)

Post-Importation Claims Post Entry Amendment, 19 U.S.C. 1514Merchandise Processing Fee (MPF)

Exempt for products of least-developed beneficiary developing countries (LDBDCs)

Expiration Date Expired July 31, 2013

GSP Summary

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Key Points • Origin vs Originating

• Rules to qualify for preference• Claim requirements • Required Supporting Documentation

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Questions ?

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