NAFTA marking issues are complicated. One problem is that people tend not to focus on the marking regulations. They seem to think that once they have determined whether the item is originating, they are done. Often, the marking is obvious, but sometimes it is not. A recent Customs and Border Protection ruling (HQ H0129256, Mar. 31, 2009) is an example of a case where the marking is not obvious. I'm discussing it here not because the analysis is new or the result is surprising. Rather, it is a good example of how this analysis works. Because NAFTA marking issues are often overlooked, it is what President Obama might call a "teaching moment."
The ruling involved the marking of remanufactured Xerox photoreceptor cartridges for laser printers. The remanufactured cartridges were produced in Canada from old cartridges and new replacement parts. Some of the parts were non-Canadian in origin. Customs had issued two previous rulings to Xerox. In this ruling, those were subject to reconsideration.
The marking analysis in NAFTA involves the regulations at 19 CFR Part 102. The application of these rules goes in a straight line from one to the next until a single country of origin is determined. In this case sec. 102.11(a)(1) and (2) do not provide the answer because the remanufactured cartridges were not wholly obtained in Canada and were not produced exclusively from Canadian materials. This raises an important point, when you get to the country of origin determination, it is no longer enough to know that goods are NAFTA originating. The issue now is, what is the country of origin of materials?
Rule 102.11(a)(3) requires that foreign (i.e., non-Canadian) material undergo a required tariff shift. This part of the analysis was complicated by changes to the 2007 Tariff Schedule. For purposes of this discussion, I'm just going to ignore that. Suffice it to say that when looking at the used cartridge and the new replacement parts, some non-Canadian components failed to make the required tariff shift.
Customs noted that under 102.17, the disassembly of the used cartridges does not constitute a qualifying tariff shift. This is in contract to the disassembly rule for purposes determining NAFTA status. That rule is at sec. 181.132 and is something for which I claim some degree of credit. It does appear that there is some inconsistency in the treatment of disassembly operations for purposes of determining origin and for determining marking. Nevertheless, Customs correctly noted the lack of a disassembly rule in the marking regulations.
Moving on to 102.11(b), the country of origin might be the country of the single material that imparts the essential character to the finished good. The often overlooked part of this rule is that sec. 102.18(b)(1) says that the material that imparts the essential character must be something from which a tariff shift is not permitted. This strikes people as counter intuitive, but it's not. The items that are not permissible tariff shifts to confer origin are those things that generally must be originating for the finished article to qualify. Thus, it makes sense that one of those must impart the essential character. Customs looked at the available parts and found that no single item imparted the essential character.
Section 102.11(c) is inapplicable because the cartridges are not sets or composite goods.
The next place to go is sec. 102.11(d), under which there are three tests. In this case, the remanufacturing process was not "minor processing," so that did not apply. Next, the operations involved were more than "simple assembly," meaning that rule did not apply. Consequently, by process of elimination, the country of origin for the remanufactured cartridges was the country in which they last underwent production. That was Canada.
