Country of Origin

With the new tariffs going into effect, it will be important to be able to identify the country of origin for your imports, so you can properly calculate the effective tariff(s).

First of all, “country of origin” means the country of manufacture, production, or growth of any article of foreign origin entering the United States. If you are importing an article you bought from an air carrier in country “A” but it was actually manufactured wholly in country “B,” then it is a product of “B” – not “A” – for purposes of determining country of origin. The rules for this are found in the ‘country-of-origin-marking-requirements’ in 19 C.F.R. Part 134.

If the goods are subject to further work or if material is added to the goods in another country, then this must be a “substantial transformation” in order to render such other country the “country of origin.”

Example: Imagine that you have aircraft parts produced in the U.S., the UK and Japan. The parts are imported into France where they are assembled into an aircraft. The assembly into an aircraft in France is a complex assembly operation that is typically considered to be transformative. That means that the complete aircraft is a product of France in this case.

Once parts have been transformed because of a complex assembly operation, Customs has confirmed that they retain the country-of-origin upon disassembly. Thus, parts that were made in the U.S. but transformed into products of France when assembled into an aircraft will continue to be products of France even after they are removed from the aircraft.

There is case law suggesting that country of origin can sometimes shift: the connection to the country where an article was built may be broken due to the extended period of time that the article was in use in another country. Ashdown, U.S.A. Inc. v. United States, 696 F. Supp. 661 (CIT 1988). However, Customs has confirmed that this principle applies “primarily in instances where the country of origin of used articles cannot be determined.” With aviation products, we typically have adequate records to identify the country of origin so use for a long time in some other country typically does not change the country of origin.

There are special rules for products of Canada or Mexico. These goods are subject to the USMCA, and subject to the country-of-origin rules set forth in 19 C.F.R. Part 102. The USMCA rules allow for ‘foreign’ constituents that come from the US, Canada or Mexico, and they also allow for a certain percentage of other foreign materials without upsetting the proposition that the goods are a product of the US, Canada or Mexico.

The USMCA country-of-origin rules set forth in 19 C.F.R. Part 102 also apply to certain other free trade agreements, like the U.S. trade agreements with Bahrain and Morocco.

One important USMCA country-of-origin rule is that for products under heading 8807 (which applies to aircraft parts that cannot be identified more specifically under another tariff heading), constituent sub-components will become subject to the same country-of-origin as the complete assembly (they undergo a transformation) if their base tariff sub-heading changes. So, Chapter 73 fasteners can be transformed and change their country of origin when they are assembled into a new USMCA product.

Typically, US goods are not subject to a duty when they re-enter the United States. But they can be subject to a duty when they are “advanced in value” abroad. The duty in that case applies to the foreign advancement in value. If a US-produced aircraft part is repaired in a foreign country, but the advancement does not transform the aircraft part into something wholly different, then when the part returns to the U.S., the duty would be paid based on the value of the repair (typically, invoice price for the repair) so that the original U.S. value would not be considered as part of this equation.

Example: if a U.S. good is sent to Canada for repair, and then returned to the U.S., the value of the repair will be subject to the applicable import duty under HTSUS subheading 9802.00.50. The repair will be a product of Canada (but not a good of Canada that might be subject to the USMCA). The amount of the import duty applied to the value of the repair will be 25% (under the current tariff for products of Canada, subheading 9903.01.10).

Note that the application of this rule to complete aircraft may be different! Normally, aircraft are subject to the same tariff rules as vessels. Under the U.S. Code, the tariff rules that previously applied a duty to repairs performed on aircraft were changed by section 601 of the Trade Agreements Act of 1979. That exempted aircraft from the duties previously applicable to them (the exemption appears in the vessel rules because of the norm that vessel rules typically apply). The Customs and Border Protection has held that “U.S.-registered commercial aircraft that are repaired or overhauled foreign are not required to make formal entry and pay duty on repairs or overhaul when returning to the United States.”