CBP Affirms Use of 'Substantial Transformation' Standard for Section 301 Goods Subject to NAFTA Rules

CBP affirmed its position on the use of substantial transformation as the standard for determining country of origin for goods subject to Section 301 tariffs and NAFTA rules, it said in ruling HQ H305370. CBP said another recent ruling mistakenly said that computer server cabinets assembled in Mexico were not subject to the Section 301 tariffs when in fact they are.

The Oct. 11 ruling was in response to Sara Arami, a lawyer with Rock Trade Law on behalf of Johnson Electric North America, who questioned CBP ruling HQ H301619 from Nov. 6 about the 301 tariffs and country of origin standards for motors assembled in Mexico from Chinese parts. The Nov. 6 ruling found that the substantial transformation analysis applies under the Section 301 tariffs and the country of origin in China.

The Nov. 6 ruling in question was a modification of a ruling the month before that outlined how the Section 301 tariffs are considered alongside NAFTA rules (see 1810090035). Johnson asserted "that CBP should use the NAFTA Rules of Origin to determine the origin of the electric motors at issue." In support of that argument, the company pointed to ruling NY N303338, which found the computer cabinets not to be subject to the 301 tariffs. But that ruling "did not state that the NAFTA Rules of Origin is the correct standard for determining origin under Section 301," CBP said. "Instead, it stated that the cabinet at issue was 'not subject to the Section 301 trade remedies as provided for under 9903.88.03, HTSUS,' although it was."

The mistake was not in Nov. 6 finding "that the correct standard to determine origin for purposes of Section 301, is the substantial transformation test," but was in the New York ruling on the computer cabinets, CBP said. The agency is in the process of modifying NY N303338, it said. "Based on the information provided, the production process performed in Mexico is mere simple assembly and the foreign subassemblies are not substantially transformed," CBP said. "Therefore, we affirm the origin of the electric motors is China, the country of origin of the subassemblies."