Rules for Determining the Country of Origin of a Good for Purposes of Annex 311 of the North American Free Trade Agreement; Rules of Origin Applicable to Imported Merchandise

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 102

RIN 1515-AB19; RIN 1515-AB34

Rules for Determining the Country of Origin of a Good for

Purposes of Annex 311 of the North American Free Trade Agreement; Rules

of Origin Applicable to Imported Merchandise

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: On May 5, 1995, Customs published in the Federal Register a

notice of proposed rulemaking that set forth proposed amendments to the

interim Customs Regulations, published in the Federal Register on

January 3, 1994, as T.D. 94-4, which established the rules for

determining when the country of origin of a good is one of the parties

to the North American Free Trade Agreement for purposes of Annex 311 of

that Agreement and republished, with some modifications, proposed

amendments to the Customs Regulations to set forth uniform rules

governing the determination of the country of origin of imported

merchandise, which had also been published in the Federal Register on

January 3, 1994. This document sets forth additional proposed

amendments to the T.D. 94-4 interim regulations that were omitted from

the May 5, 1995, notice of proposed rulemaking. Final action on the

additional proposals set forth in this document will be included in the

final action taken on the T.D. 94-4 interim regulations as discussed in

the May 5, 1995, document.

DATES: Comments must be received on or before August 28, 1995.

ADDRESSES: Written comments (preferably in triplicate) may be addressed

to the Regulations Branch, U.S. Customs Service, Franklin Court,

[[Page 35879]]

1301 Constitution Avenue NW., Washington, DC 20229. Comments submitted

may be inspected at the Regulations Branch, Office of Regulations and

Rulings, Franklin Court, 1099 14th Street NW., Suite 4000, Washington,

DC

FOR FURTHER INFORMATION CONTACT: Sandra Gethers, Office of Regulations

and Rulings (202-482-6980).

SUPPLEMENTARY INFORMATION:

Background

On January 3, 1994, Customs published T.D. 94-4 in the Federal

Register (59 FR 110) setting forth interim regulations to establish

rules for determining the country of origin of a good for purposes of

Annex 311 of the North American Free Trade Agreement (NAFTA). The

United States, Canada and Mexico entered into the NAFTA on December 17,

1992, and the provisions of the NAFTA were adopted by the United States

with the enactment of the North American Free Trade Agreement

Implementation Act, Public Law 103-182, 107 Stat. 2057. T.D. 94-4

stated that the interim regulations were effective on January 1, 1994,

and also provided for a 90-day public comment period which was

subsequently extended to July 5, 1994, by a notice published in the

Federal Register on March 11, 1994 (59 FR 11547). On February 3, 1994,

a notice was published in the Federal Register (59 FR 5082) setting

forth corrections to the interim regulations contained in T.D. 94-4.

On January 3, 1994, Customs also published a document in the

Federal Register (59 FR 141) which proposed to amend the Customs

Regulations to set forth uniform rules governing the determination of

the country of origin of imported merchandise; this notice of proposed

rulemaking represented a refinement and replacement of an earlier

proposal published in the Federal Register on September 25, 1991 (56 FR

48448). This January 3, 1994, document proposed: (1) To amend

Sec. 102.0 of the interim regulations published as T.D. 94-4 so that

those interim regulations would apply not only for the purposes stated

in Annex 311 of the NAFTA but would also apply in the broader context

of country of origin determinations ``for purposes of the Customs and

related laws and the navigation laws of the United States''; and (2) to

amend various provisions within parts 4, 10, 12, 134 and 177 of the

Customs Regulations (19 CFR parts 4, 10, 12, 134 and 177) to ensure

that the rules contained in interim part 102 would control wherever

language requiring a country of origin determination appears in those

other regulatory provisions. Thus, under this notice of proposed

rulemaking the interim rules set forth in T.D. 94-4 would apply

wherever a provision of the Customs and related laws or the navigation

laws or a regulation thereunder uses language such as ``new and

different article of commerce'', ``wholly the growth, product, or

manufacture'', ``product of'', or ``substantial transformation'' for

purposes of establishing the criteria for country of origin of a good.

The notice of proposed rulemaking provided for a 90-day public comment

period which was subsequently extended to July 5, 1994, by a notice

published in the Federal Register on March 10, 1994 (59 FR 11225).

Since the January 3, 1994, notice of proposed rulemaking presented

the same regulatory scheme as the rules contained in T.D. 94-4, each

document referred to the other and stated that public comments

submitted in response to either document would be considered in

connection with the review of both documents. The notice of proposed

rulemaking further indicated that the background section and interim

part 102 regulatory texts set forth in T.D. 94-4 were applicable to it.

Thus, it was intended that the two documents be read together so that,

following public notice and comment procedures, one final rule document

could be derived from the interim and proposed rule documents,

consistent with the overall goal of promulgating uniform rules of

origin for Customs and related purposes.

Based on a review of the comments received in response to the

interim and proposed rule documents published in the Federal Register

on January 3, 1994, and as a result of independent internal review of

the interim and proposed texts, Customs determined (1) that some

clarification and further explanation of the intent behind the proposed

uniform rule concept should be provided and (2) that some changes

should be made to the interim and proposed texts and that those changes

should be the subject of public notice and comment procedures before

proceeding to the final rule stage in this matter; the interim texts as

published in T.D. 94-4 (and as subsequently corrected) were to remain

in effect pending completion of such final rule action. In addition,

Customs concluded that public comments should be solicited regarding

the appropriate use of a delayed effective date for any final rule that

results from the interim and proposed rules, including any new proposed

changes thereto.

Accordingly, on May 5, 1995, Customs published in the Federal

Register (60 FR 22312) a document that (1) provided supplemental

background information regarding the proposed uniform rule concept, (2)

set forth proposals to amend the interim regulatory texts contained in

T.D. 94-4 published at 59 FR 110 and corrected at 59 FR 5082, (3)

republished (and thus replaced) all of the proposed regulatory

amendments published at 59 FR 141 on January 3, 1994, with certain

changes thereto, and (4) invited public comments on the appropriate

effective date for a final rule on this matter. This May 5, 1995,

document stated that it was the intention of Customs to address in that

document only those comments submitted in response to the January 3,

1994, notices that involved substantive changes to the interim or

proposed texts requiring further public comment procedures; other such

previously submitted comments would be addressed in an appropriate

final rule or other document to be published at a later date. Comments

would be accepted and considered in response to that document only in

regard to (1) the proposed changes to the interim regulatory texts as

discussed and set forth therein, (2) all other proposed regulatory

amendments as discussed and set forth therein which represented a

substantive change to the proposals published on January 3, 1994, and

(3) the final rule delayed effective date issue. Therefore, comments

which concerned other issues involved in the January 3, 1994,

documents, or which did not otherwise relate to the new proposals set

forth in the May 5, 1995, document, would not be accepted and

considered by Customs. The May 5, 1995, document also stated that, for

purposes of that document, the background sections of the January 3,

1994, interim and proposed rule documents were applicable except where

otherwise required by a change set forth in that document.

After publication of the May 5, 1995, notice of proposed

rulemaking, additional issues came to the attention of Customs that

warrant publication of additional proposed changes to the interim

regulatory texts published in T.D. 94-4, with opportunity for public

comment thereon. Final action on the additional proposals set forth

herein will be reflected in the single final rule document intended, as

stated in the May 5, 1995, document, to cover both the T.D. 94-4

interim regulations and the proposals set forth in the May 5, 1995,

document. Since the present document sets forth proposals that are

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in addition to the proposed changes to the T.D. 94-4 interim

regulations contained in the May 5, 1995, proposed rule document, the

background section of that May 5, 1995, document is applicable for

purposes of this document except where otherwise required by a change

set forth herein. Comments submitted in response to this document will

be accepted and considered only to the extent that they address

specific proposals set forth herein; comments submitted in regard to

matters raised in the May 5, 1995, proposed rule document that are not

related to a specific proposal contained herein will remain subject to

the public comment period specified in that earlier document. The

additional proposed changes set forth in this document are discussed

below.

Additional Proposed Changes to the Interim Texts

Subheadings 3808.10 and 3808.20-3808.90 (Insecticides, Fungicides,

Herbicides, Rodenticides, and Pesticides)

The interim rule for subheading 3808.10 allows a change to this

subheading from any other subheading, except from subheading 1302.14,

2916.19 or 2917.19. On the other hand, the interim rule for subheadings

3808.20 through 3808.90 allows a change to these subheadings from any

other subheading, including any subheading within the group. Except in

the case of mixtures of two or more active ingredients of Chapter 28 or

29, the production process for goods of heading 3808 involves

standardized dilution. The bulk insecticide, fungicide, herbicide,

rodenticide, or pesticide of Chapter 28 or 29, i.e., the active

ingredient, is diluted with inert ingredients or solvents and packaged

for retail sale. However, the essential character of these products of

heading 3808 is imparted by the bulk organic chemical compounds of

Chapter 28 or 29. Therefore, it is proposed to revise the rules for

subheadings 3808.10, 3808.20, 3808.30 and 3808.90 to disallow changes,

to products of heading 3808 consisting of only one active ingredient,

from insecticides, fungicides, herbicides, rodenticides, or pesticides

of Chapter 28 or 29 (the rule for disinfectants of subheading 3808.40

would remain the same as in the interim texts). This proposed change

makes clear that Customs is maintaining its longstanding position that

origin changes will not result from the mere dilution, with inert

ingredients, of these chemicals which are classified in bulk, undiluted

form in Chapter 28 or 29, whether or not the standardized dilution is

coupled with packaging for retail sale. See, e.g., HRL 555604 dated

March 29, 1990. In fact, operations consisting of ``mere dilution with

water or another substance that does not materially alter the

characteristics of the material'' and ``simple * * * packaging without

more than minor processing'', are already identified under interim

Sec. 102.17 as non-qualifying operations, and thus any tariff shifts

resulting solely from the operations described above would not confer

origin. Hence, these proposed changes merely clarify and make more

predictable the origin results that would be reached in the tariff

shift circumstances described above.

In addition, in the case of a mixing of different types of active

ingredients of Chapter 28 or 29 which become a product of subheading

3808.30 or 3808.90, it is further proposed to revise the rules for

these subheadings to also allow a change from any other subheading in

cases where a Chapter 28 or 29 ingredient of domestic origin

constitutes no less than 40 percent by weight of the total Chapter 28

or 29 chemical compound.

New Chapter 72 Note

It is proposed to add a Note to the Chapter 72 rules to allow a

change of origin as a result of cold reduction (cold rolling) of hot-

rolled, flat-rolled steel products. Cold reduction is a cold-working

process which causes a significant reduction in the thickness of hot-

rolled, flat-rolled products and which changes the crystalline

structure of the steel product by elongating it. As consistently

expressed in rulings issued over the past 10 years, it is the position

of Customs that this operation results in a substantial transformation

of the hot-rolled, flat-rolled steel product. Thus, under the foregoing

circumstances, notwithstanding the specific tariff shift rules for

these goods, when cold-rolled steel is produced from cold reduction of

hot-rolled, flat-rolled steel, the country of origin of the steel

product will be the country in which the cold reduction (cold rolling)

process occurred.

Comments

Before adopting the proposed amendments as a final rule,

consideration will be given to any written comments (preferably in

triplicate) timely submitted to Customs. Comments submitted will be

available for public inspection in accordance with the Freedom of

Information Act (5 U.S.C. 552), Sec. 1.4, Treasury Department

Regulations (31 CFR 1.4), and Sec. 103.11(b), Customs Regulations (19

CFR 103.11(b)), on regular business days between the hours of 9:00 a.m.

and 4:30 p.m. at the Regulations Branch, Office of Regulations and

Rulings, Franklin Court, 1099 14th Street, N.W., Suite 4000,

Washington, D.C.

Executive Order 12866

This document does not meet the criteria for a ``significant

regulatory action'' as specified in E.O. 12866.

Regulatory Flexibility Act

Pursuant to the provisions of the Regulatory Flexibility Act (5

U.S.C. 601 et seq.), it is certified that, if adopted, the proposed

amendments will not have a significant economic impact on a substantial

number of small entities. Accordingly, the proposed amendments are not

subject to the regulatory analysis or other requirements of 5 U.S.C.

603 and 604.

Drafting Information

The principal author of this document was Francis W. Foote, Office

of Regulations and Rulings, U.S. Customs Service. However, personnel

from other offices participated in its development.

List of Subjects in 19 CFR Part 102

Customs duties and inspections, Imports, Reporting and

recordkeeping requirements, Rules of origin, Trade agreements.

Proposed Amendments to the Regulations

For the reasons stated above, it is proposed to amend part 102,

Customs Regulations (19 CFR part 102), as set forth below.

PART 102--RULES OF ORIGIN

1. The authority citation for part 102 is revised to read as

follows:

Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized

Tariff Schedule of the United States), 1624, 3314.

2. In Sec. 102.20, the table is amended by removing the entry for

HTSUS 3808.20-3808.90 under Section VI, by adding a Chapter 72 Note

under Section XV, and by adding and revising the following HTSUS

entries in numerical order to read as follows:

Sec. 102.20 Specific rules by tariff classification.

* * * * *

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HTSUS Tariff shift and/or other requirements

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* * * * *

3808.10.. A change to subheading 3808.10 from any other subheading,

except from subheading 1302.14 or from any insecticide of

Chapter 28 or 29.

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3808.20.. A change to subheading 3808.20 from any other subheading,

except from fungicides of Chapter 28 or 29.

3808.30.. A change to subheading 3808.30 from any other subheading,

except from herbicides, antisprouting products and plant-

growth regulators of Chapter 28 or 29; or

A change to a mixture of subheading 3808.30 from any other

subheading, provided that the mixture is made from two or

more active ingredients and a domestic active ingredient

constitutes no less than 40 percent by weight of the total

active ingredients.

3808.40.. A change to subheading 3808.40 from any other subheading.

3808.90.. A change to subheading 3808.90 from any other subheading,

except from rodenticides and other pesticides of Chapter 28

or 29; or

A change to a mixture of subheading 3808.90 from any other

subheading, provided that the mixture is made from two or

more active ingredients and a domestic active ingredient

constitutes no less than 40 percent by weight of the total

active ingredients.

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* * * * *

Chapter 72 Note: Notwithstanding the specific rules of this

chapter, hot-rolled flat-rolled steel which is cold-reduced (by cold

rolling) shall be treated as a good of the country in which the

cold-rolled steel is produced.

* * * * *

George J. Weise,

Commissioner of Customs.

Approved: June 19, 1995.

John P. Simpson,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 95-17064 Filed 7-11-95; 8:45 am]

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