What you need to know about the Federal Trade Commission's Made in USA guidelines and California's Made in the USA regulations.
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A legal way to avoid China 301 tariff is to source one essential component of an article from someplace other than China. We have assisted clients, with concurrence from Customs, to implement this mitigation strategy. It is a strategy many importers have employed.
For example, Yamaha Motor Corporation, USA, imports motorized bicycles assembled in China from the components
made in China, Japan, and Taiwan. The frame is from Taiwan, which makes the entire bike, assembled in the China with significant Chinese components, a
product of Taiwan.
This mitigation strategy works due to two CBP practices regarding country of origin determination.
1. Simple assembly does not confer origin. "Simple assembly means the fitting together of five or fewer parts all of which are foreign (excluding fasteners such as screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means without more than minor processing."
2. Substantial
transformation confers origin." The substantial transformation
criterion is based on a change in name/character/use method (i.e., an article
that consists in whole or in part of materials from more than one country is a
product of the last country in which it has been substantially
transformed into a new and different article of commerce with a name,
character, and use distinct from that of the article or articles from which was
so transformed)." The test for determining whether a
substantial transformation will occur is whether an article emerges from a
process with a new name, character or use, different from that possessed by the
article prior to processing.
When determining country of origin of an article that underwent a
simple assembly operation in the last countries of processing before
importation, Customs looks to the country of origin of the components of the
articles. Where the components were made determines the country of origin of
the article. When the components come from multiple countries, Customs will try
to determine what component imparts the "essential character" of the
article. In the case of the bikes assembled in China (simple assembly) of
components from China, Japan, and Taiwan, Customs ruled that when steel was
substantially transformed into a bike frame in Taiwan, that frame took on the
character of a bike. In general, Customs is able to determine the single
component that confers origin. Many importers of articles assembled in China
have relied on that practice to avoid China 301 tariffs by identifying the
single component that determines what the article is and relocating the
sourcing of that component out of China.
Recent (May 18, 2021) Customs guidance regarding imported golf
clubs raises questions.
Complete golf clubs are made of prefabricated components
consisting of a head, shaft, and grip. These components may be manufactured in
multiple countries and are subject to Section 301 duties if the country of
origin is China.
While the entire golf club has one tariff classification,
the country of origin of the components of the golf club may need to be
indicated.
Here's where it gets interesting. If either the
head or the shaft is of the same origin as the country where the assembly of
the golf club occurs, the country of origin of the entire club is the country
of its assembly.
But, where the origin of both the head and the
shaft is different from the country of assembly of the golf club, the golf club
will have multiple countries of origin, including the countries of origin of
the head and the shaft.
Where a golf club has multiple countries of origin, importers
must report the applicable trade remedies on each golf club component This will
allow reporting of the correct country or countries of origin, value and any
applicable Section 301 duties. Customs gives the example of a golf club
assembled in Mexico of head from Taiwan, shaft from China, and grip from
Mexico. The value of the Chinese-origin shaft is subject to 301 tariff.
The lessons?
Legal avoidance of China 301 tariffs may be possible, but
Customs is actively seeking ways to maximize tariff revenues under the 301
action.
Before you assume you can locate that one essential
character you need to research whether Customs might determine that there is
more than one essential component and potentially more than one country of
origin. In the case of golf clubs with components from multiple counties,
Customs reached back to old rulings from 1996 through 2005 that addressed the
issue. In those rulings, the question was country of origin marking. Multiple
countries had to be indicated. It had no effect on the tariff because it was
the same for each country. Now that China has a higher tariff, Customs has
become very interested in an old question of country of origin. This raises
questions about other articles with multiple essential components. Customs has
found a way to take some old ruling relating to marking and turn them in tariff
revenue. Will they be coming for your imports next?
Customs regulations are complex, and ever changing. Failure
to comply, even if not intentional, may result in unexpected tariff charges and
potential penalties. Don't try to go it alone, seek professional assistance
before you try to reduce or eliminate 301 tariffs
An initial analysis of your businesses' import patterns is offered free of
charge. This preliminary assessment will allow us to determine the best
strategy to mitigate 301 tariffs or other import costs. Contact Glenn at glenn@foreigntradezonesolutions.com or David david@agathonassociates.com or by calling
David at 617-285-6004 or Glenn at 603-957-8247.
On March 11, 2021, the Office of the United States Trade Representative published in the Federal Register (86 FR 13960) WTO Dispute Settlement Proceeding Regarding United States--Origin Marking Requirement (Hong Kong, China).
On October 30, 2020, Hong Kong, China, requested consultations with the United States concerning certain measures affecting marks of origin with respect to imported goods produced in Hong Kong, China. You can find the consultation request at www.wto.org in a document designated as WT/DS597/1. The United States and Hong Kong, China, held consultations on November 24, 2020. On January 14, 2021, Hong Kong, China, made its request to the WTO to establish a WTO dispute settlement panel. On February 22, 2021, the WTO established a dispute settlement panel to examine Hong Kong, China's complaint.
Hong Kong, China's panel request appears to concern measures that goods produced in Hong Kong, China, be marked to indicate that their origin is in "China" rather than "Hong Kong". These measures include Executive Order 13936 on Hong Kong Normalization, which suspends the application of Section 201(a) of the United States-Hong Kong Policy Act of 1992 (22 U.S.C. 5721(a)) to Section 304 of the Tariff Act of 1930 (19 U.S.C. 1304), among other statutes; Section 304 of the Tariff Act of 1930; Part 134, Customs Regulations (19 CFR 134); Section 201(a) of the United States-Hong Kong Policy Act of 1992; and Country of Origin Marking of Products of Hong Kong, 85 FR 48551 (August 11, 2020). Hong Kong, China alleges that these measures are inconsistent with Articles I:1, IX:1, X:3(a) of the WTO General Agreement on Tariffs and Trade 1994; Articles 2(c), (d), and (e) of the WTO Agreement on Rules of Origin; and Article 2.1 of the WTO Agreement on Technical Barriers to Trade.
USTR invites written comments concerning the issues raised in this
dispute.
Although USTR will accept any comments during the course of the dispute settlement proceedings, you should submit your comment on or before April 12, 2021 to be assured of timely consideration by USTR.
Following a public comment period, the Federal Trade Commission has approved a final consent order settling charges that glue maker Chemence, Inc., and its company president, James Cooke, supplied pre-labeled and pre-packaged glues with deceptive “Made in USA” claims to its trade customers for use in marketing the strong, fast-acting glues under retailer brand names. As part of the settlement Chemence and Cooke are required to pay $1.2 million to the FTC, the highest monetary judgment ever for a Made in USA case.
First announced in December 2020, the FTC’s complaint alleges that Chemence and Cooke supplied glues in packages labeled with deceptive, unqualified “Made in USA” claims.
Under the terms of the final order, Chemence and Cooke are prohibited from making unqualified U.S.-origin claims for any product, unless they can show that the product’s final assembly or processing—and all significant processing—takes place in the United States and that all or virtually all ingredients or components of the product are made and sourced in the United States. Under the order, any qualified Made in USA claims must include a clear and conspicuous disclosure about the extent to which the product contains foreign parts, ingredients, components, or processing. Finally, to claim that a product is assembled in the United States, Chemence and Cooke must ensure that it is last substantially transformed in the United States, its principal assembly takes place in the United States, and U.S. assembly operations are substantial. The order also prohibits Chemence and Cooke from making any country-of-origin claim about a product or service unless the claim is not misleading and they have a reasonable basis that substantiates their claim.
The order also contains provisions requiring Chemence and Cooke to (1) notify certain third-party trade customers of the order and (2) provide compliance reports.
The Commission has an Enforcement Policy Statement on U.S. Origin Claims and other business guidance on how companies can comply with the Made in the USA standard. The FTC’s Made in USA page features cases, instructive closing letters, and the brochure Complying with the Made in USA Standard, which answers many of the questions companies ask.
Complying with the FTC rules can be complex and some manufacturers run afoul of the rules through ignorance, not the intent to deceive. I am pleased to announce that my business, Agathon Associates, offers a "Made in U.S.A. Certification" service. Manufacturers desiring to make a Made in U.S.A. claim can have me evaluate their manufacturing process and certify that under the FTC rules they can honestly say "Proudly Made in the U.S.A."
On February 11, 2021, U.S. Customs and Border Protection (CBP) officers in Cincinnati seized 450 boxes of counterfeit 3M surgical masks; each box contained 240 masks, for a grand total of 108,000 counterfeit items. The boxes were imported on 16 pallets, enough to fill an entire sea container.
Although the retail packaging was marked with “Made in the USA,” the merchandise was imported from a logistics company in Hong Kong. Other indicators of fraudulent activity included a “Peru Seal,” which is not a legitimate 3M seal, and the Model No. 1860S, Lot No. B20522, all features specifically noted by 3M to be counterfeit. Additionally, 3M does not manufacture those respirators in China. The masks were ultimately determined to be counterfeit by CBP’s Centers of Excellence and Expertise.
Read more HERE.
On February 8, 2021, the Federal Trade Commission published in the Federal Register (86 FR 8641) Agency Information Collection Activities; Proposed Collection; Comment Request; Extension
The Wool Products Labeling Act of 1939 (Wool Act) prohibits the misbranding of wool products. The Wool Rules establish disclosure requirements that assist consumers in making informed purchasing decisions and recordkeeping requirements that assist the Commission in enforcing the Rules. The FTC is providing this opportunity for public comment before requesting that OMB extend the existing clearance for the information collection requirements contained in the Commission's Wool Rules.
Estimated annual hours burden: 1,880,000 hours (160,000 recordkeeping hours + 1,720,000 disclosure hours).
Recordkeeping: Staff estimates that approximately 4,000 wool firms are subject to the Wool Rules' recordkeeping requirements. Based on an average annual burden of 40 hours per firm, the total recordkeeping burden is 160,000 hours.
Approximately 8,000 wool firms, producing or importing about 600,000,000 wool products annually, are subject to the Wool Rules' disclosure requirements. Staff estimates the burden of determining label content to be 30 hours per year per firm, or a total of 240,000 hours, and the burden of drafting and ordering labels to be 60 hours per firm per year, or a total of 480,000 hours. Staff believes that the process of attaching labels is now fully automated and integrated into other production steps for about 40 percent of all affected products. For the remaining 360,000,000 items (60 percent of 600,000,000), the process is semi-automated and requires an average of approximately ten seconds per item, for a total of 1,000,000 hours per year. Thus, the total estimated annual burden for all firms is 1,720,000 hours (240,000 hours for determining label content + 480,000 hours to draft and order labels + 1,000,000 hours to attach labels).
The AAFA, a national trade association which represents U.S. apparel, footwear and other sewn products companies and their suppliers, has stated that "[t]he use of labels on textiles and apparels is beneficial to consumers, manufacturers, and business in general as it allows for the necessary flow of information along the supply chain."
DATES: Comments must be received on or before April 9, 2021.
A Florida-based corporation that manufactures, imports, and distributes products used in residential and commercial construction has agreed to pay the United States $160,933 to resolve allegations that it imported roofing underlayment product manufactured in China without country of origin markings, announced U.S. Attorney Brian T. Moran. The United States alleges that between December 2017 and July 2019, Gardner-Gibson, Inc., violated customs laws by importing products that did not bear any mark indicating to the ultimate purchaser in the United States the country of origin of the article.
The settlement with Gardner-Gibson resolves a lawsuit filed under the qui tam provisions of the False Claims Act. The False Claims Act permits a private individual, called a relator, to sue on behalf of the government for false claims and to share in any recovery. The relator in this case alleged that Gardner-Gibson violated the False Claims Act by evading customs duties owed to the United States as a result of Gardner-Gibson’s knowing failure to mark properly imported products with their country of origin. The relator will receive approximately 20% of the $160,933 settlement. Gardner-Gibson will also pay the relator’s attorney fees of more than $40,000.
The resolution in this matter is the result of a coordinated effort between the U.S. Attorney’s Office for the Western District of Washington, U.S. Customs and Border Protection, and the U.S. Department of Homeland Security Office of Inspector General.
Under the terms of the final order, Williams-Sonoma is required to pay $1 million to the FTC. The company also is prohibited from making unqualified U.S.-origin claims for any product, unless it can show that the product’s final assembly or processing—and all significant processing—takes place in the United States, and that all or virtually all components of the product are made and sourced in the United States. Under the order, any qualified Made in USA claims must include a clear and conspicuous disclosure about the extent to which the product contains foreign parts, components, and/or processing. To claim that a product is assembled in the United States, Williams-Sonoma must ensure that it is last substantially transformed in the United States, its principal assembly takes place in the United States, and its United States assembly operations are substantial.
 Complying with the FTC rules can be complex and some manufacturers run afoul of the rules through ignorance, not the intent to deceive. I am pleased to announce that my company, Agathon Associates, offers a "Made in U.S.A. Certification" service. Manufacturers desiring to make a Made in U.S.A. claim can have me evaluate their manufacturing process and certify that under the FTC rules they can honestly say "Proudly Made in the U.S.A."
On June 22, 2020, The Federal Trade Commission issued a staff report on an FTC workshop on Made in USA claims that was held last fall, and a notice of proposed rulemaking for a Made in USA Labeling Rule (proposed Rule).
The proposed Rule will apply to product labels making Made in USA and other unqualified U.S.-origin claims. The proposed Rule incorporates guidance set forth in the Commission’s previous Decisions and Orders and its 1997 Enforcement Policy Statement on U.S. Origin Claims.
To read more CLICK HERE.
The American Apparel and Footwear Association has proposed to the U.S. Federal Trade Commission a regulatory update the apparel, footwear, and travel goods labeling rules to provide "flexible to accommodate new methods of conveying information, especially using digital labels to address the shortcomings of physical markings. We think that the future of apparel labeling will take the shape of a QR code, human-readable URL, other scanning technology, or some combination of these technologies printed on or embedded in a label."
The proposal is available online HERE
On February 5, 2020, U.S. Customs ruled (Ruling N308718) that a cashmere scarf assembled into a finished item in China of panel knit-to-shape in Hong Kong, is a product of Hong Kong. The manufacturing processes were--
The cashmere yarns are imported from China into Hong Kong
In Hong Kong, the yarns are knit-to-shape into a scarf panel with lines of demarcation and two tubular binding hems. The long edge of the scarf panel is finished with half-milano stitch hem.
The panel and hems are shipped to China and assembled into the finished item.
CBP ruled "As the good is knit to shape and a change to 6117.10 from yarn occurs in Hong Kong, origin is conferred in Hong Kong."
On February 25, 2020, U.S. Customs ruled (Ruling N309575) that a cashmere pullover assembled into a finished item in China of panels knit-to-shape in Hong Kong, is a product of Hong Kong.
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