flags of world.JPG

Country of Origin Issues

Origin arises as a material in many different contexts in international trade. For example:

  • Origin must be accurately declared as a requirement of entry.  

  • Origin determinations are frequently a prerequisite for the qualification of goods for preferential duty treatment (i.e. NAFTA, CAFTA, GSP, CBERA, AGOA, and other similar free trade agreements). 

  • Origin is also frequently at issue in government procurement contracts.

  • Origin can be a critical aspect in determination of quotas and/or tariffs (such as section 232 or 301 tariffs).

  • Origin can be a critical aspect behind antidumping and/or countervailing duty liabilities.

  • False origin (transshipment) can give rise to civil/criminal liabilities.

  • Changes in Origin can be a subject nuanced analysis under the “substantial transformation” rule, and may subject to interpretive disputes.

  • Goods may (or may not) be subject to specific marking and labeling requirements (either on the goods themselves, or on their packaging).

  • “Made in USA” claims are separately administered under the FTC and various state law (such as California).

In sum, the failure to accurately label and declare goods may be the basis for customs seizure actions against importers, as well as private lawsuits and/or class action lawsuits directed against the downstream distributors and retailers.  

Substantial Transformation

The term “substantial transformation” is a term of art that bears a nuanced definition under numerous U.S. judicial decisions.    Under U.S. case law, a “substantial transformation” contemplates a “change in name, character, and use that is sufficient to create a new article of commerce that is distinct from the article(s) from which it was transformed.[1] 

When an imported article is made from multiple components with potentially different countries of origin, then this analysis of the “substantial transformation” can become complex.  In determining whether the combining of parts or materials constitutes a substantial transformation, a consideration, in addition to the extent of operations performed, is whether the parts lose their identity and become an integral part of the new article.[2]

Such complex operations are reviewed by U.S. Customs on the basis of detailed case-by-case analyses which can sometimes hinge on either very specific operations, or as commercial evidence, such as the existence of “intermediate articles of commerce.”

[1]  See, e.g., Torrington Co. v. United States, 764 F.2d 1563, 1568 (Fed. Cir. 1985).  See also, Texas Instruments Incorporated v. United States, 2 CIT 36, 520 F. Supp. 1216 (CIT 1981), rev'd, 681 F.2d 778, 69 CCPA 151 (CCPA 1982), Koru North America v. United States, 12 CIT 1120, 701 F. Supp. 229 (CIT 1988); and U.S. v. Gibson-Thomsen Co., Inc., 27 C.C.P.A. 267 (C.A.D. 98) (1940).

[2] See, Belcrest Linens v. United States, 741 F.2d 1368 (Fed. Cir. 1984).

Made in USA

Labeling claims of "Made in USA" are specifically regulated by both federal (15 U.S.C. §45a) and state law (California Bus. & Prof. Code §17533.7).   The Federal Trade Commission enforces the federal law, and allows that Made in the USA" claims even where small (de minimis) amounts of foreign content are present (known in the trade as the "all or virtually all" standard).  

For a period, California's laws were stricter than the federal standard, and would not allow for any foreign content unless "the product and all articles, units and parts thereof has been entirely or substantially made, manufactured or produced in the United States."   The period gave rise to various class actions, such as in AG Adriano Goldschmeid, Inc. (“AG”) and Nordstrom, Inc., plaintiffs alleged that certain jeans contained fabric, thread, buttons, rivets, and/or certain subcomponents of the zipper assembly which were not of US origin.  See, Paz v. AG Adriano Goldschmeid, Inc. et al.   See, also Kwikset Corp. v. Superior Court, 51 Cal. 4th 310 (2011);  Colgan v. Leatherman Tool Group, Inc., 135 Cal. App. 4th 663 (2006). These class actions prompted renewed concern and a revision of the California statute.

Therefore, on September 1, 2015, California re-aligned its requirement to more closely match the federal approach and that of many other states.   Under the new state law (set out in Senate Bill 633), merchandise made, manufactured, or produced in the United States can be labeled “Made in the U.S.A” so long as “all of the articles, units, or parts of the merchandise obtained from outside the United States constitute not more than 5 percent of the final wholesale value of the manufactured product.” Additionally, merchandise can be labeled “Made in the U.S.A.” “if the manufacturer makes a showing that it cannot produce or obtain a certain article, unit, or part” within the United States for reasons other than cost, and that the article, unit, or part does not constitute more than ten (10) percent of “the final wholesale value of the manufactured product.” It is suggested that manufacturers may wish to obtain due diligence memos from law firms when proceeding under the second of these two exceptions. 

Curated News Related to Origin:

August, 2019: CBP: Origin ruling re: compiled software under the TAA.

April 17, 2019: FTC announcement: Made in USA Final Consent settlements on “Made in USA” claims against =different importers of hockey pucks, backpacks, travel bags, wallets, and other products.

April 17, 2019: Statement by FTC Commissioner Rebecca Kelly Slaughter on Sandpiper/PiperGear and Patriot Puck consent orders for “Made in USA” claims: “…I am persuaded that, for brazenly deceptive representations that a wholly imported product is “Made in U.S.A.,” consent orders without disgorgement or admissions fail to exact a meaningful cost from the lawbreaking company and its executives sufficient for effective general deterrence.”

April 15, 2019: FTC: $110,000 civil penalty for “Made in USA” violation on water filtration equipment. Complaint in the matter.

September 6, 2018: FTC complaint against importers (and owner) of hockey pucks for false “Made in USA” claims.

September 5, 2018: FTC complaint against Sandpiper and Piper companies for false “Made in USA” claims.

July 6, 2018: LIST 1 section 301 tariffs go into effect, creating an incentive for importers to move complex assembly operations out of China for COO purposes.

December 7, 2016 : CIT: Energizer Battery v. US, Slip Op. 16-116: The CIT holds a simple assembly of flashlights is insufficient for justify a substantial transformation of the goods for Country of Origin purposes. The components shipped to Mexico for assembly were determined to have been dedicated to use in this final flashlight product.

September 1, 2015: California amends “Made in USA” provisions to more closely match federal standard.

March 11, 1980: United States v. Murray (1st Cir Ct. App.) upholds an early criminal conviction of an importer for false origin claims re: Chinese glue alleged to have undergone a “substantial transformation” in Holland.

December 1, 1997: FTC: Enforcement Policy Statement on U.S. Origin Claims

FTC Legal docket (here).