Application of the rule of origin to products to be imported into USA



According to U.S. laws and regulations, in principle, the country of origin which must be declared and marked for a product containing components of more than one country is the country in which the product was last “substantially transformed”, i.e., where such good has been substantially transformed through some processing operations beyond “minor manufacturing and combining operations or simple assembly” which result in a “new and different article of commerce” having a new name, features, and use (as held in the judgment of “Energizer Battery, Inc. v. United States”, 190 F. Supp. 3d 1308 (Ct. Int’l Trade 2016).


Because of the recent COVID-19 crisis and shortage problems caused thereby, manufacturers of products have been forced to change some suppliers of components, even from different countries than previously; however, changing production processes or component suppliers can affect the outcome of the above-cited analysis: i.e., if a key component of a product is manufactured in Malaysia, such that the Malaysian component serves as the “essence” or “essential character” of the finished good, in such case the substantial transformation may be deemed to have occurred in Malaysia, even though some additional components are manufactured in other countries and the ultimate assembly takes place in USA.


But if the sourcing of that key component changes from Malaysia to China as a result of some supply chain modification, that would change the outcome of the country-of-origin analysis, making China to be declared and marked as the actual country of origin, pursuant to Section 301 of the US Trade Regulations and some other current regulation recently issued in USA as a commercial obstacle against China: as a result, additional 7.5% to 25% import tariffs would become payable on the relevant goods at the time of import (in accordance with 83 Fed. Reg. 28710; Notice of Modification of Section 301 Action: China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation, 85 Fed. Reg. 3741, January 22, 2020).


Having the above in mind, due care and attention should be always paid in order to ensure that the proper country of origin is stated and determined for importation of products (in particular, when some key components in the manufacturing process has recently changed, because of any shortage of such components in the market where the final manufacturer was previously used to order and buy from) into USA, having in mind that such determination can actually affect:

  1. The definition of the rates of import duty and safeguard actions that may apply to goods (pursuant to General Note 3, Harmonized Tariff Schedule of the United States (HTSUS) (2021), outlining the rates of duty for “products of” different countries and regions);

  2. The determination of the country that should be marked on a product pursuant to the applicable marking rules;

  3. The determination of the relevant labeling requirements, such as “Made in USA”;

  4. The compliance with U.S. government procurement regulations, such as the Buy American Act (“BAA”), which provide for a very high percentage of U.S. contents (up to 60% and higher) to be allowed to bid for U.S. Government contracts.

In all the above-mentioned cases, even small changes as to the sourcing of inputs into finished products may result in analyses leading to different country-of-origin determinations, with relevant obstacles to the importation of products, higher tariffs being charged, or even prohibition to participate to U.S. Government procurement projects.


For imported products with mistaken, negligently or falsely disclosed country of origin declarations, depending on the level of culpability of the mistaken or negligent declaration, applicable sanctions can in fact vary from 20% of the dutiable value of the merchandise, to double and even up to four times the underpaid lawful duties, taxes, and fees, and furthermore up to even the actual U.S. domestic value of the merchandise.


Further penalties can apply if the fake or undue “Made in USA” mark could cause confusion among consumers.


To label a product as being “Made in USA”, therefore, “the final assembly or processing of the product” as well as “all significant processing” must occur in USA, and “all or virtually all ingredients or components of the product” must be made in USA: according to the Federal Trade Commission, only negligible, if any, foreign contents can be present in the end product (as per the “Complying with the Made in USA Standard”, Fed. Trade Comm’n, which can be found at https://www.ftc.gov/tips-advice/businesscenter/guidance/complying-made-usa-standard).

Under such rules, making an improper “Made in USA” claim on a label can be qualified as an “unfair or deceptive act or practice,” which would expose any negligent or improper labeler to a fine amounting up to US Dollars 43,792 per violation (according to 15 U.S.C. §§ 45(m), 57a; 16 C.F.R. §§ 323.2, 323.4; Adjustments to Civil Penalty Amounts, 85 Fed. Reg. 2014, January 14, 2020).


Finally and for a complete picture on this matter, in a recent case the U.S. Federal Trade Commission has also punished the use of the “Made in USA” mark in some advertising on a company’s website, imposing a US Dollars 146,249.24 judgment against Gennex Media LLC and its owner for “claiming on their…website that the products they sell are made in the United States, when in fact in numerous instances they are wholly imported from China” ( as per the Press Release, Fed. Trade Comm’n, FTC Approves Final Order Requiring Gennex Media LLC and Owner to Pay Monetary Judgment and Stop Making Deceptive Claims (April 14, 2021), which can be found at https://www.ftc.gov/news-events/press-releases/2021/04/ftcapproves-final-order-requiring-gennex-media-llc-owner-pay; Press Release, Fed. Trade Comm’n, FTC Order Requires Gennex Media LLC and Its Owner to Pay $146,249, and Stop Making Deceptive ‘Made in USA’ Claims (March 1, 2021), which can be found at https://www.ftc.gov/news-events/press-releases/2021/03/ftc-order-requires-gennex-media-llc-its-owner-pay-146249-stop).


Prof. Avv. Salvatore Vitale

The content of this article does not constitute legal advice, but has an informative function. For personalized legal advice, contact the firm by e-mail info@dongpartners.eu or by phone +39 06 916505710. © Dong & Partners International Law Firm, All rights reserved


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