Packaging Conglomerate Objects to Proposed Use of Part 102 Rules in USMCA

CBP's plans to extend the Part 102 marking rules from NAFTA to USMCA determinations of country of origin for nonpreferential claims and procurement under USMCA (see 2107010045) lacks the legal justifications needed to finalize the proposal, Novolex Holdings, a packaging conglomerate owned by the Carlyle Group, said in comments to the agency. "As proposed, such origin determinations would no longer abide by the precedent developed in over a century of determinations by the federal courts," the company said. The comments were posted Aug. 11 in the docket.

The proposal would improperly extend a set of rules that were created "for the very limited purposes specified in the NAFTA," the company said. "Given the legal underpinnings and historical context of the NAFTA Marking Rules (i.e., developed on a trilateral basis for purposes of country of origin determination and related purposes under the NAFTA,) it is questionable whether there exists any legal basis to broadly extend such rules to apply for all non-preferential purposes for goods imported from Canada and Mexico," Novolex said. "Such action would fly in the face of over a century of judicial precedent."

Replacing the substantial transformation standard "for determinations such as those under the China 301 tariffs and the Section 232 steel and aluminum tariffs (even if limited to goods imported from Canada and Mexico) would upend many years of precedent to the contrary and effectively change the rules of the road for such other agency actions midstream," the company said. Also, expected annual savings to CBP of as little as $25,735 "(which may actually be lower if additional tariff classification determinations must be made) does not justify a change," it said.

Trade flows also would likely suffer if the proposal is implemented, Novolex said. CBP issued 52 origin rulings during the last two fiscal years on nonpreferential USMCA claims and "it stands to reason that the recipients of such rulings have invested in manufacturing programs to reflect the determinations reached in such rulings," it said. "In addition, many other importers have likewise based their production plans around existing rulings and precedent with respect to the issue of substantial transformation." A change to the origin standard, "even if limited to importations from Canada and Mexico, would unnecessarily create disruption in many industries," it said.

The administrative burden on CBP might also increase, despite the intent of the proposal, it said. "To illustrate, for purposes of the China 301 program, an article containing inputs from China which are processed in a second country would be evaluated using: a) the NAFTA marking rules if the second country is Canada or Mexico; and, b) substantial transformation if any other country is the second country," it said. "Far from harmonizing its practices, adoption of the proposal would create different standards under the very same program (e.g., China 301 or Section 232)."

Other filers in the docket, including Flexport and regional brokers associations, were supportive of the proposal. Those filings largely relied on a template produced by the National Customs Brokers & Forwarders Association of America, which supports the changes (see 2107270049). Some in the technology industry recently voiced concerns regarding the proposal (see 2108090027), which was expected to be contentious (see 2107070011).