Tech Interests Concerned With Proposed Use of Part 102 Rules Under USMCA
CBP's proposed use of Part 102 marking rules to determine the country of origin for nonpreferential claims and procurement under USMCA (see 2107010045) should be made optional for importers or withdrawn by the agency, Cisco and the Computing Technology Industry Association (CompTIA) said in comments recently filed in the docket. While CBP says the use of tariff shift rules should result in the same origin finding as the alternative “case-by-case” review, “in practice there are cases where the two methods yield different origin determinations,” CompTIA said in its comments. “This is particularly the case with technology products where programming or software can have an impact on substantial transformation. The Part 102 rules consider only a tariff shift of hardware components and ignore any impact of programming and software on substantial transformation.”
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The trade group said multiple members report cases wherein the origin would differ “because of the impact of programming or software on the substantial transformation analysis, including fact patterns that have resulted in CBP rulings confirming that a finished product has been substantially transformed.” The proposed approach would mean declaring one country of origin on imports from Canada and Mexico into the U.S, “and a different country of origin on imports of the same goods into other countries,” CompTIA said. “For many of our member companies, this will involve modifying IT systems to hold two different countries of origin for products they produce in Mexico or Canada and selecting the country of origin printed in their commercial invoices based on the destination country. This will be very expensive and will require considerable lead time.”
While CBP seeks to address a problem of potentially having one origin for marking purposes and another for tariff and other purposes, importers “have already figured out how to address it. By changing the regulations at this point, CBP is introducing a new burden,” the group said. Comments were originally due Aug. 6, but CBP recently extended the deadline to Sept. 7 (see 2108040021).
The CBP proposal may have the unintended consequence of pushing manufacturing outside the USMCA area for vendors to the U.S. government, Cisco said. “Over the past several years we’ve implemented a significant restructuring of our business and our supply chain, premised in part on the Advisory Rulings and Final Determinations received from CBP,” it said. “Reliance on these decisions has also allowed Cisco to move significant portions of our product portfolio out of China to the U.S. and Mexico. CBP’s proposed regulation threatens this strategy and investment, as the manufacturing process described in our rulings would not meet the applicable tariff shift rule of Part 102. As a result, we will be required to move production to a [Trade Agreements Act] eligible location other than Mexico or Canada. Moreover, in this case and cases like it, adopting this rule would seem counter to the intent of USMCA to promote regional manufacturing; it would drive manufacturing out of the region.”
The disruption from the proposed use of Part 102 will be enormous, Cisco said. “If this rule became final, in order to continue to supply the federal government with any of these products, we would be required to move production to a TAA eligible country other than Canada and Mexico,” it said. “Our strategy of onshoring and near-shoring our manufacturing footprint would be severely disrupted if CBP adopts this rule. Aside from needing to replicate our investment, ongoing logistics costs would certainly increase, as would our carbon footprint, if Mexico and Canada are precluded from consideration as manufacturing locations.”
The company said it questions “whether CBP would be undertaking the required statutory analysis if it simply applied the tariff shift rules in Part 102,” but would be OK if CBP made the regulation optional. “If not made optional, however, we strongly urge that this proposal be abandoned,” it said. “Cisco opposes the proposal in its current form.”