What is the country of origin and why does it matter for customs?

Importers need to know the country of origin so they can assign the correct customs duties to imported products. So, what is the country of origin for customs? What does origin mean when it comes to cross-border trade? How is the country of origin determined? This blog will answer these questions and explain how the country of origin affects tariffs.

• The country of origin is the country of manufacture, production, substantial transformation, or growth of imported articles.
• It can be difficult to determine the country of origin, especially for items comprised of components from multiple countries or items that pass through other countries before reaching their ultimate destination.
• The country of origin is one of four key pieces of information needed to assess the proper rate of duty; the others are the tariff code classification, the declared value, and whether a de minimis exemption applies.

The country of origin is governed by rules of origin (ROOs) implemented by governments, international trade agreements, and treaties. Rules of origin determine whether a good qualifies for preferential treatment under a free trade agreement. Tariffs are based in part on the country of origin.

For products entering the United States, the country of origin is the country of manufacture, production, or growth of the imported article (Code of Federal Regulations Title 19, Chapter 1, Part 177).

If an article consists in whole or in part of materials from another country or instrumentality (e.g., the European Economic Community), the U.S. considers the country of origin to be the country where the article was substantially transformed into a new and different article of commerce with a name, character, or use distinct from that of the original article(s).

Marking rules inform the ultimate purchaser of the country where the imported article was made. That’s why virtually all articles originating outside of the U.S. must be legibly identified as “made in” a particular country.

Determining the country of origin can be a simple or complex exercise, but it has to be done correctly, or incorrect tariffs could be applied to imported products.

For some items, like unaltered fruits and vegetables, determining the country of origin is relatively straightforward: The country of origin of an avocado produced in Mexico is Mexico. The country of origin of an avocado produced in Brazil that was shipped to Mexico before being trucked to California is Brazil.

But many products pass through more than one country before arriving at their ultimate destination and may be altered while in other countries. And many products are comprised of components originating in multiple countries. For such products, you need to know the country where the article was substantially transformed to determine the applicable rate of duty.

Per the International Trade Administration (ITA), “substantial transformation means that the good underwent a fundamental change in form, appearance, nature, or character. This fundamental change normally occurs as a result of processing or manufacturing in the country claiming origin. Additionally, this change adds to the good’s value at an amount or percentage that is significant, compared to the value which the good (or its components or materials) had when exported from the country where it was first made or grown.” The ITA gives the following examples (emphasis ours):

• Sugar from Country A, flour from Country B, dairy products from Country C, and nuts from Country D are taken to Country E, where these products are further manufactured into cookies. (The separate ingredients were substantially transformed into a product of Country E, in that a new type of goods resulted from processing).
• Fresh vegetables grown in various countries are taken to another country to be mixed together and frozen. (The vegetables were not substantially transformed into products of the country where mixing and freezing occurred; the mixture must be labeled with the origin of each ingredient).
• Repackaging, dilution with water, and similar minor processes usually do not cause a substantial transformation. Assembly or disassembly may result in a substantial transformation, depending on the nature of the products involved and the complexity of the operations.

Despite these guidelines, exactly what constitutes substantial transformation isn’t always clear. Does putting a handle on a pan substantially transform it? What about dyeing the material of a shirt?

As this Bloomberg Law article notes, “a country-of-origin determination can be a complicated question with an elusive answer.” Businesses often challenge determinations made by U.S. Customs and Border Protection (CBP), and substantial transformation questions often end up being decided by the courts.

When the country of origin is unclear, a country-of-origin advisory ruling or final determination may be requested by:

• A foreign manufacturer, producer, or exporter, or a U.S. importer of merchandise;
• A manufacturer, producer, or wholesaler in the U.S. of a like product;
• U.S. members of a labor organization or other association of workers whose members are employed in the manufacture, production, or wholesale in the U.S. of a like product; or
• A trade or business association a majority of whose members manufacture, produce, or wholesale a like product in the U.S.

The country of export (also known as the country of dispatch) is the country from which a product was shipped to the U.S. This may or may not be the same as the country of origin.

In our avocado example above, the country of export for both the Mexican and Brazilian avocados is Mexico, because all the avocados entered the U.S. from Mexico. The country of origin for the Mexican avocado is also Mexico. However, the country of origin for the Brazilian-grown avocado is Brazil.

CBP requires importers to identify the exporting country and the country of origin on Customs Form 7501.

Businesses that ship goods internationally must correctly identify the country of origin in order to determine applicable rates of duty and landed cost (the full cost of shipping goods across borders).

Avalara AvaTax Cross-Border is a tax automation solution that helps businesses efficiently manage cross-border sales. It automates tariff code classification and calculates customs duties, import taxes, and sales and use taxes in real time. To achieve this, Avalara requires customers to identify the country of origin of all imports.

Learn more about Avalara international trade compliance solutions.

Are tariffs based on the country of origin or country of export?
Tariffs are based on the country of origin, not the country of export (the country from which an item was shipped to its final destination).

Do all countries define country of origin the same?
Different countries determine the country of origin differently. According to the World Customs Organization (WCO), rules of origin are “the specific provisions applied by a country to determine the origin of goods and using principles established by national legislation or international agreements.” Rules of origin (ROOs) are often shaped by trade agreements that establish whether goods are eligible for preferential tariffs like reduced duties or duty-free treatment. The WCO has a global database of trade agreements and their rules of origin.

How do I find my rules of origin?
Many countries list rules of origin (ROOs) in free trade agreements (FTA) by Harmonized System (HS) product classifications codes. Some countries base ROOs on a percentage of the appraised value. The International Trade Administration lists the following ways to find ROOs:

• Visit the U.S. International Trade Commission website.
• Find the original ROOs in the guiding FTA.
• Use the International Trade Centre’s Rules of Origin Facilitator

• Check the U.S. Customs and Border Patrol (CBP) FTA comparison chart

Is the country of manufacture the same as the country of origin?
The terms “country of origin” and “country of manufacture” are sometimes used interchangeably. Since many imported items are manufactured in more than one country or are comprised of parts originating in multiple countries, it’s necessary to determine where the product was substantially transformed.