CSMS Message: 94-000219

TO : ALL ABI BROKERS.

FROM : LISA CROSBY

SUBJECT : NAF-FACT SHEET 29

DATE : 03/04/94

4062071
MARCH 3, 1994

CATEGORY: NAF CO:TO:T:T LAC

TO : REGIONAL DIRECTORS FOR COMMERCIAL OPERATIONS, DISTRICT
AND PORT DIRECTORS

FROM : ACTING DIRECTOR, OFFICE OF TRADE OPERATIONS

SUBJECT: FACT SHEET 29: QS AND AS ON THE NAFTA MARKING RULES

PASS TO: NON-ABI BROKERS, IMPORTERS AND OTHER INTERESTED PARTIES

BACKGROUND:

THE FOLLOWING QUESTIONS AND ANSWERS ON THE NAFTA MARKING
RULES ARE DESIGNED TO ASSIST MEXICAN AND CANADIAN EXPORTERS AND
PRODUCERS TO UNDERSTAND HOW COUNTRY OF ORIGIN IS DETERMINED UNDER
THE NAFTA.

Q: WHAT ARE THE MARKING RULES AND WHAT'S THEIR PURPOSE?
A: FOR GOODS MADE IN ONE COUNTRY WITH NO FOREIGN INPUTS,
DETERMINATION OF THE COUNTRY OF ORIGIN IS EASY--IT IS THE
COUNTRY OF PRODUCTION. INCREASINGLY, HOWEVER, GOODS ARE
PROCESSED IN MULTIPLE COUNTRIES USING BOTH DOMESTIC AND
FOREIGN MATERIALS, THEREBY COMPLICATING DETERMINATION OF THE
COUNTRY OF ORIGIN. TO PROVIDE GREATER CERTAINTY TO THIS
DETERMINATION, THE NAFTA STATES THAT CANADA, MEXICO AND THE
UNITED STATES SHALL WRITE SPECIFIC RULES DEFINING "COUNTRY
OF ORIGIN." THESE RULES, WHICH ESSENTIALLY CODIFY THE
SUBSTANTIAL TRANSFORMATION TEST USED PREVIOUSLY IN THE
UNITED STATES, ARE DISTINCT FROM THE RULES OF ORIGIN THAT
ARE USED TO DETERMINE WHETHER A GOOD IS ORIGINATING UNDER
ARTICLE 401 OF THE AGREEMENT. IN THE UNITED STATES, THE
MARKING RULES WERE PUBLISHED IN THE FEDERAL REGISTER (SEE 59
FED. REG. 109 AND 59 FED. REG. 5082; TD 94-4) AS NEW PART
102 OF THE CUSTOMS REGULATIONS (19 C.F.R. 102). THE FEDERAL
REGISTER FOR JANUARY 3 AND FEBRUARY 3, WHICH CONTAIN THE
MARKING RULES, MAY BE PURCHASED FROM THE GOVERNMENT PRINTING
OFFICE (TELEPHONE: 202-783-3238) FOR US$6.00 EACH.

IT IS IMPORTANT TO ESTABLISH THE COUNTRY OF ORIGIN NOT ONLY
FOR COUNTRY-OF-ORIGIN MARKING PURPOSES BUT ALSO BECAUSE THE
DUTY REDUCTIONS THAT WERE NEGOTIATED UNDER THE CFTA WERE
RETAINED UNDER NAFTA. THUS, A GOOD PRODUCED BOTH IN MEXICO
AND CANADA MAY UNQUESTIONABLY ORIGINATE ACCORDING TO THE
TERMS OF ARTICLE 401, YET THERE MAY BE DOUBTS AS TO WHETHER
THE COUNTRY OF ORIGIN IS MEXICO OR CANADA. 19 C.F.R. 102
WILL DETERMINE WHICH IS THE COUNTRY OF ORIGIN AND WHETHER
THE "MX" OR THE "CA" RATE APPEARING IN THE TARIFF APPLIES.
IN ADDITION, ORIGINATING CANADIAN GOODS ARE NO LONGER
SUBJECT TO THE MPF WHEREAS MEXICAN GOODS ARE. ONCE AGAIN,
PART 102 WILL BE USED TO DETERMINE THE ORIGIN OF THE GOODS
AND, CONSEQUENTLY, WHETHER THEY ARE SUBJECT TO MPF.

Q: HOW DOES PART 134 OF THE CUSTOMS REGULATIONS RELATE TO
PART 102?
A: PART 102 IS USED TO DETERMINE THE COUNTRY OF ORIGIN; PART
134 GOVERNS COUNTRY-OF-ORIGIN MARKING. THUS, ALL THE
PROVISIONS OF PART 134, INCLUDING THE EXCEPTIONS TO MARKING
PROVIDED FOR IN 134.32, APPLY TO GOODS WHOSE ORIGIN IS
DETERMINED IN ACCORDANCE WITH PART 102.

WHENEVER A GOOD UNDERGOES PROCESSING IN CANADA OR MEXICO,
PART 102 MUST BE USED TO DETERMINE THE COUNTRY OF ORIGIN OF
THAT GOOD. PART 102 CREATES A "HIERARCHY" OF RULES; ONE
PROCEEDS THROUGH THIS HIERARCHY OF RULES UNTIL A CONDITION
IS MET AND THE COUNTRY OF ORIGIN IS THEREBY ESTABLISHED.
FOR EXAMPLE, 19 C.F.R. 102.11(A)(1) SAYS THAT IF A GOOD IS
WHOLLY OBTAINED OR PRODUCED IN A COUNTRY, THAT COUNTRY IS
THE COUNTRY OF ORIGIN. IF THE COUNTRY OF ORIGIN CANNOT BE
DETERMINED UNDER 19 C.F.R. 102.11(A)(1), ONE PROCEEDS TO 19
C.F.R. 102.11(A)(2), WHICH STATES THAT IF THE GOOD IS
PRODUCED EXCLUSIVELY FROM DOMESTIC MATERIALS (I.E.,
MATERIALS WHOSE COUNTRY OF ORIGIN AS DETERMINED UNDER THE
MARKING RULES IS THE SAME COUNTRY OF ORIGIN AS THE COUNTRY
IN WHICH THE GOOD IS PRODUCED), THAT COUNTRY IS THE COUNTRY
OF ORIGIN. IF ORIGIN CANNOT BE DETERMINED UNDER 19 C.F.R.
102.11(A)(2), ONE CONTINUES THROUGH THE HIERARCHY UNTIL A
CONDITION IS MET AND THE ORIGIN ESTABLISHED. TRADERS SHOULD
CONSULT 102.11 FOR THIS HIERARCHY OF RULES.

Q: WHAT IS THE NAFTA PREFERENCE OVERRIDE?
A: THE NAFTA PREFERENCE OVERRIDE (19 C.F.R. 102.19) STATES THAT
IF APPLICATION OF THE MARKING RULES RESULTS IN A
DETERMINATION THAT THE COUNTRY OF ORIGIN OF THE GOOD IS NOT
A SINGLE NAFTA COUNTRY UNDER 19 C.F.R. 102.11(A) (WHOLLY
OBTAINED OR PRODUCED) OR (B) (PRODUCED EXCLUSIVELY FROM
DOMESTIC MATERIALS), THE COUNTRY OF ORIGIN IS THE LAST NAFTA
COUNTRY IN WHICH THE GOOD UNDERWENT PRODUCTION OTHER THAN
MINOR PROCESSING, PROVIDED THAT A CERTIFICATE OF ORIGIN HAS
BEEN COMPLETED AND SIGNED FOR THE GOOD.

Q: IS IT TRUE THAT NAFTA PROVIDES FOR MORE FLEXIBLE METHODS OF
MARKING OF THE COUNTRY OF ORIGIN?
A: YES. IF UNDER 19 C.F.R. 102 THE COUNTRY OF ORIGIN OF A GOOD
IS MEXICO OR CANADA, THE GOOD IS SUBJECT TO THE MORE
FLEXIBLE MARKING STANDARDS ESTABLISH IN ANNEX 311 OF THE
NAFTA AND SET FORTH UNDER THE AMENDMENTS TO PART 134 OF THE
CUSTOMS REGULATIONS BY T.D. 94-1 (SEE 58 FED. REG. 69,471).
THESE MORE FLEXIBLE STANDARDS, FOR EXAMPLE, ALLOW THE GOOD
TO BE MARKED IN SPANISH, ENGLISH OR FRENCH, USING ANY
REASONABLE METHOD, INCLUDING STICKERS, LABELS, TAGS, OR
PAINT. APPLICATION OF 19 C.F.R. 102, HOWEVER, MAY RESULT IN
A COUNTRY OF ORIGIN OTHER THAN MEXICO OR CANADA. WHEN THE
COUNTRY OF ORIGIN IS OTHER THAN MEXICO OR CANADA, THE
TRADITIONAL PROVISIONS ON COUNTRY-OF-ORIGIN MARKING APPLY.
THIS IS TRUE EVEN IF THE GOOD UNDERWENT SOME PROCESSING IN
MEXICO AND/OR CANADA.

Q: 19 C.F.R. 134.45(A)(2) SAYS THE COUNTRY OF ORIGIN OF NAFTA
GOODS MAY BE MARKED IN SPANISH, ENGLISH OR FRENCH. DOES
THIS EXTEND TO ACCOMPANYING PHRASES SUCH AS "MADE IN,"
"PRODUCT OF," ETC. EXAMPLE: MAY A GOOD BE MARKED "PRODUCTO
DE MEXICO" OR "FAIT AU CANADA"?
A: THE OFFICE OF REGULATIONS AND RULINGS HAS NOT YET RULED ON
THIS MATTER.

Q: MAY GOODS BE MARKED "MADE IN NORTH AMERICA"?
A: NO.

Q: HOW ARE U.S. GOODS THAT ARE PROCESSED IN CANADA OR MEXICO
TREATED UPON THEIR RETURN TO THE U.S.?
A: 19 C.F.R. 102.14 PROVIDES THAT NO GOOD, LAST ADVANCED IN
VALUE OR IMPROVED IN CONDITION OUTSIDE THE U.S., HAS UNITED
STATES ORIGIN. THE VARIOUS PROVISIONS OF PART 102 WILL BE
USED TO DETERMINE THE COUNTRY OF ORIGIN, BUT IF APPLICATION
OF THOSE PROVISIONS RESULTS IN THE DETERMINATION THAT THE
GOOD WHICH IS BEING IMPORTED INTO THE U.S. IS OF U.S.
ORIGIN, 19 C.F.R. 102.14 WILL OVERRULE THAT DETERMINATION
AND PROVIDE THAT THE COUNTRY OF ORIGIN IS THE LAST FOREIGN
COUNTRY IN WHICH THE GOOD WAS ADVANCED IN VALUE OR IMPROVED
IN CONDITION.
EXAMPLE: UNASSEMBLED T-SHIRT COMPONENTS OF U.S. ORIGIN,
WHICH ARE EXPORTED TO MEXICO FOR ASSEMBLY INTO T-SHIRTS ARE
GOODS OF MEXICO UPON RETURN TO THE U.S., EVEN THOUGH UNDER
THE APPLICATION OF 102.11(A) AND 102.20, THE COUNTRY OF
ORIGIN OF THE ASSEMBLED T-SHIRTS WOULD REMAIN THE U.S.

Q: IF THE COUNTRY OF ORIGIN FOR GOODS ADVANCED IN VALUE OR
IMPROVED IN CONDITION OUTSIDE THE U.S. IS THE LAST FOREIGN
COUNTRY IN WHICH THE GOOD WAS ADVANCED IN VALUE OR IMPROVED
IN CONDITION, DOES THIS MEAN THAT GOODS SENT ABROAD FOR
REPAIRS OR ALTERATIONS MUST BE MARKED UPON THEIR RETURN TO
THE U.S.?
A: ALTHOUGH UNDER 19 C.F.R. 102.14 THE COUNTRY OF ORIGIN OF
THE GOOD SENT ABROAD FOR REPAIRS OR ALTERATIONS CHANGES TO
THAT OF THE COUNTRY WHERE THE REPAIR OR ALTERATION WAS
PERFORMED, THE GOOD NEED NOT BE MARKED WITH ITS NEW COUNTRY
OF ORIGIN BECAUSE 19 C.F.R. 134.32(R) (TD 94-4) EXEMPTS
THESE GOODS FROM COUNTRY-OF-ORIGIN MARKING.

Q: HOW CAN I GET AN ADVANCE RULING ON THE COUNTRY OF ORIGIN OF
A GOOD UNDER PART 102 OF THE CUSTOMS REGULATIONS?
A: BINDING RULINGS ON THE COUNTRY OF ORIGIN OF A GOOD, AS
DETERMINED UNDER 19 C.F.R. 102, AND WHETHER A GOOD OF MEXICO
OR CANADA SATISFIES COUNTRY-OF-ORIGIN MARKING REQUIREMENTS
UNDER PART 134 OF THE CUSTOMS REGULATIONS, MAY BE REQUESTED
IN ACCORDANCE WITH 19 C.F.R. 181.93.

QUESTIONS REGARDING THIS MESSAGE MAY BE DIRECTED TO THE
NAFTA HELP DESK AT (202)927-0066.

JANET L. LABUDA