AAEI, IBM Join Objectors to Proposed Use of Part 102 Rules for USMCA, While AISI Gives Support

The American Association of Exporters and Importers, IBM and U.S. subsidiaries of the Foxconn Technology Group all disagree with CBP's proposed use of Part 102 rules of origin in non-preferential claims and procurement under USMCA (see 2107010045), they said in the comments recently posted in the docket for the proposal. Meanwhile, lithium-ion battery producer, Inventus Power, and the American Iron and Steel Institute voiced support for the changes in their comments. So far, the comments show a deep split between industries in support (see 2107270049) and against (see 2109010006) the proposal.

The proposal could result in the need for "U.S. businesses to determine and analyze the classification of (potentially thousands of) imported components that they do not now classify," AAEI said. "Many such components are commonly obtained from multiple suppliers in multiple countries, making the process complex and costly," it said. "Importers will either be required to gather information from suppliers and sub-suppliers, much of which will be difficult, if not impossible, to obtain or contractually obligate the [Mexico] or [Canada] shipper to perform the work of accurate derivation in accordance with U.S. law. As of the date of our response, many of these companies were unable to support the necessary impact analysis in advance of comment close for these reasons."

At the same time, "[s]everal AAEI members have expressed their support for this change, specifically in those cases where imported products are subject to 301 duties but meet the Part 102 tariff shift test," the trade group said. AAEI would support "importers being allowed to elect either set of rules at their discretion, per regulation, like the way importers elect to support preferential origin under any of the alternatives provided," it said. "Current preferential rules of origin frequently permit manufacturing processing rules, tariff shift, regional value content and de minimis. We would envision the application of importers discretion being applied in a similar manner."

The Motor & Equipment Manufacturers Association would also like the Part 102 rules to be optional and wants at least two years to implement the changes if they are required, it said. CBP should also "modernize Part 102 by adding 'tariff shift plus' rules, as necessary, to reflect current CBP substantial transformation rulings that consider key processing such as functionality and software development, particularly for automotive electronics products," MEMA said. "[B]ecause the Part 102 rules are structured as a hierarchy of rules, there is opportunity for creating rules that appropriately reflect the amount of value-added processing can occur even without a tariff shift. If this proposal were to be adopted, MEMA encourages CBP and Treasury to seek input from various industries on how the rules may be crafted to reflect the 'substantial transformation' that occur in these contexts."

CBP's proposal would be useful because it would "close loopholes that currently allow steel manufacturers outside of North America to avoid" Section 232 and Section 301 duties, AISI said. "Given that Section 232 and Section 301 duties are not currently applicable to goods of Canada and Mexico, this situation incentivizes non-North American steel producers’ relocation of relatively minor processing operations to Canada and Mexico in a bid to avoid Section 232 and Section 301 duties that would otherwise be owed. CBP’s proposal to extend its use of the Part 102 rules would effectively close this loophole."

The current use of multiple rules of origin tests "results in incongruous treatment of products like lithium-ion batteries," Inventus said in support of the changes. "The use of multiple tests does not appear to have any parallel elsewhere in the customs laws, and puts companies like Inventus at a disadvantage compared to importers who may be unaware that the Part 102 rules do not currently apply for non-preferential origin purposes," the company said. "Such companies may import batteries that, like Inventus’s, are assembled in Mexico using Chinese-origin cells, but fail to declare Section 301 duties simply because they are unaware that goods eligible to be marked as goods of Mexico under the Part 102 rules may yet be treated as non-Mexican for other purposes."

Similar to other tech interest filers (see 2108090027), IBM said the proposed use of Part 102 rules would broadly affect goods that require programming. "The Part 102 rules consider only a tariff shift of hardware components and ignore any impact of programming and software on substantial transformation," it said. Foxconn subsidiary Cloud Network Technology USA said it made several supply chain changes in recent years and the proposal would "undermine" its previous reliance on guidance from the government. "All of these efforts, in our view at the time, were consistent with the stated policy aims of the U.S. government regarding both China and the new USMCA," it said.

The United States Council for International Business said it objects to the proposal and that some expect CBP to eventually make broader changes. "[T]his proposal is limited to products imported from Canada and Mexico; however, it is viewed by some parties as likely that this may be the first step to more broadly apply the Part 102 rules," USCIB said.

While the comment deadline ended Sept. 7, more comments may be posted to the docket.