“The U.S. Department of Commerce imposed countervailing and anti-dumping duties (19 U.S.C. 1671) on the importation of solar cells and modules, laminates, and/or panels, containing solar cells imported or sold for importation from China. In defining the class or kind of merchandise within the scope of the orders, Commerce used a new test, rather than the typically-used “substantial transformation” test, to determine the country of origin. If Commerce had used the substantial transformation test, it would have concluded that the country of cell production confers origin because the process of assembling the solar cells into solar panels does not substantially transform those solar cells. The Court of International Trade and the Federal Circuit upheld that determination as supported by substantial evidence. The Tariff Act does not require Commerce to define the “class or kind of merchandise” in any particular manner. It is reasonable to use the country where the merchandise was assembled to define the class or kind of merchandise within the scope of the orders—especially where, as here, the very imports found to cause injury due to unfair pricing and/or subsidies were panels assembled in China containing cells produced in other countries.”
On November 10, 2017 at the APEC Summit in Da Nang, Vietnam, President Trump announced in a speech to the APEC leaders an “Indo-Pacific Dream” based upon bilateral agreements that addressed trade imbalances by stating:
“…I will make bilateral trade agreements with any Indo-Pacific nation that wants to be our partner and that will abide by the principles of fair and reciprocal trade. What we will no longer do is enter into large agreements that tie our hands, surrender our sovereignty, and make meaningful enforcement practically impossible…”
Trade developments affecting Vietnam are occurring rapidly, stimulating both optimism and interest in future developments, while creating uncertainties for longer-term planning by enterprises and investors. We can provide a useful “navigational aid” for the period ahead concerning a new “meaningful enforcement” development in U.S. Customs law with this newsletter.
What does “Substantial Transformation” mean for imports into the U.S.?
The term “substantial transformation” involves court cases that have applied the concept to situations involving goods made in more than one country, before being imported into the U.S. An example to illustrate the situation involves goods that were made in China but, were shipped to Vietnam for assembly, testing and packaging in retail packages before being shipped to the U.S. When the goods are imported into the U.S., are they treated as Chinese or Vietnamese? It matters because all imported goods must be accurately marked or labeled with their country of origin in accordance with U.S. Customs requirements and, the import documentation that declares country of origin that is filed when they are imported must be accurate.
When U.S. Customs scrutinizes such imports in detail, it has long applied the rule that the goods had to have been further manufactured in the second country into “a new and different article of commerce,” in order to be treated as goods of the second country. Thousands of binding U.S. Customs rulings have been published concerning such determinations for various kinds of goods and, these can be researched at the U.S. Customs and Border Protection website at: https://rulings.cbp.gov/home. It is best to consult with a licensed U.S. customs broker or customs attorney concerning application of these rulings to an importer’s specific situation.
This is now more important than ever, given the Special tariffs being applied in the U.S. on $250 billion worth of imports from China. An importer would not want to be found in violation of origin marking or declaration requirements as this would subject the importer to the risk of very serious U.S. Customs penalties.
What has changed?
A March, 2019 case in the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. breaks new legal ground concerning country of origin for U.S. Customs purposes. (Read the decision at: https://law.justia.com/cases/federal/appellate-courts/cafc/17-2577/17-2577-2019-03-12.html.) In brief, the decision of the U.S. Commerce Dept. in an antidumping and countervailing duty case used a “country of assembly” determination that departs from the traditional “substantial transformation” test, first set forth by the U.S. Supreme Court in Anheuser-Busch Brewing Ass’n v. United States, 207 U.S. 556, 562 (1908).
The Court of Appeals held that the Commerce Dept. has the discretion to use the broader “country of assembly” test when the harm suffered by the domestic industry justifies such alteration of practice. This decision most likely was influenced by the fact that the Commerce Dept. had previously determined that solar panels and solar cells from China were covered by antidumping and countervailing duty orders, while solar panels assembled in China using non-Chinese solar cells were not. By using non-Chinese solar cells in assembly of panels, the parties involved sought to escape or “circumvent” the U.S. antidumping and countervailing duty orders.
The traditional rule of “substantial transformation” into a “new and different article of commerce” did not apply in many situations where the imported item was merely “assembled and packaged” in a neighboring foreign country before being imported into the U.S. Usually, the item ultimately imported had to be classified under a different U.S. customs tariff classification number applying complex U.S. customs tariff rules. If the imported item was determined by U.S. Customs to have met this test, it was given more advantageous tariff treatment when imported. However, under the new standard of “country of assembly,” many imports will no longer receive the more favorable treatment applied to having a country of origin different from China. As a result, the additional special import duties levied by the Trump Administration will be applied.
Growing trade tensions and disputes between the U.S. and China have added to concerns by U.S. importers. In the meantime, Vietnam is moving forward for sound reasons of national interest, led by able leaders at an accelerating pace. As far as can be foreseen, the progress being made provides more confidence to business and investment planners to bet on Vietnam – it’s the “right time.”
All information provided is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future.
No one should act upon such information without appropriate professional advice after a thorough examination of the facts of their particular situation. Liability claims regarding damage caused by the use or disuse of any information provided, including any kind of information which is incomplete or incorrect, will therefore be rejected.
NOTE: The U.S. Customs and Border Protection (CBP) requires that importers use “reasonable care“ when importing.
“For example, under Section 484 of the Tariff Act, as amended (19 U.S.C. § 1484), the importer of record is responsible for using reasonable care to enter, classify and determine the value of imported merchandise and to provide any other information necessary to enable CBP to properly assess duties, collect accurate statistics, and determine whether other applicable legal requirements, if any, have been met. CBP is then responsible for fixing the final classification and value of the merchandise. An importer of record’s failure to exercise reasonable care could delay release of the merchandise and, in some cases, could result in the imposition of penalties or, in certain instances, referral for criminal enforcement.”
“Have you consulted with a customs ‘expert’ (e.g., an attorney, licensed customs broker, or a customs consultant) to assist in the description and/or classification of the merchandise?”
For assistance, please contact the author, Nestor Scherbey, Licensed U.S. Customs Broker, at:
CTRMS Viet Nam
Ho Chi Minh City, Vietnam
Tel: +84 (0) 9 7772 2979