Country of Origin Labeling

Under 19 U.S.C. 1304 every article of foreign origin importing into the United States must be marked in a conspicuous place as legibly and permanently as the nature of the article will permit. The goal is to inform the ultimate purchaser of the English name of the country of origin.

We advise clients on the technical aspects of this requirement. We analyze whether the marking is visible to the consumer at the point of sale. If a product is sold in a sealed blister pack the marking must appear on the packaging and not just the item itself. We also litigate the definition of the ultimate purchaser. In cases where the imported good is a raw material for a US manufacturer we argue that the manufacturer is the purchaser and therefore the consumer-facing packaging does not need the foreign marking.

The FTC enforces the standard for unqualified Made in USA claims. This is a much higher bar than the Customs standard. To claim a product is made in America the FTC requires that all or virtually all significant parts and processing are of US origin.

This creates a dangerous trap for businesses. An item might be substantially transformed in the US for Customs purposes (meaning it is not foreign) but still contain enough foreign content to violate the FTC all or virtually all standard. We audit marketing materials to prevent deceptive claims. We help clients draft qualified claims such as Assembled in USA with Global Materials to mitigate the risk of an FTC enforcement action or a consumer class action lawsuit.

One method Customs uses to evaluate transformation is the tariff shift rule. This looks at whether the manufacturing process caused the product to shift from one Harmonized Tariff Schedule (HTS) code to another.

We perform a detailed HTS analysis of the input components and the finished good. If the motor, the casing and the circuit board all fall under different chapters than the finished vacuum cleaner we use this tariff shift to support our argument for a change in origin. However we also advise clients that a tariff shift alone is not always sufficient. It must be accompanied by significant processing that adds real value to the item.

Customs also looks at the value added during the production process. If the cost of the processing in the second country is minimal compared to the cost of the foreign parts Customs will likely disregard the processing.

We prepare costed bills of materials to demonstrate the economic reality of the manufacturing. We highlight the sophisticated nature of the assembly. We argue that operations like firmware flashing, precision calibration and quality control testing are essential to the functionality of the device and represent a substantial transformation. By quantifying the skilled labor and capital investment in the manufacturing country we build a robust case for the desired origin.

If goods are released and later found to be mismarked CBP will issue a Notice to Redeliver. This orders the importer to return the goods to Customs custody. If the goods have already been sold and cannot be returned the importer faces a claim for liquidated damages.

This penalty is usually equal to the value of the shipment plus the duty. Additionally 19 U.S.C. 1304(f) imposes a special marking duty of ten percent ad valorem on goods that were not properly marked at the time of entry. We fight these penalties. We argue that the violation was a clerical error rather than negligence or fraud to mitigate the assessment of liquidated damages.

The most severe risk comes from the False Claims Act. If a competitor or a whistleblower discovers that you are intentionally mislabeling goods to avoid Section 301 tariffs they can file a lawsuit on behalf of the government.

These Qui Tam suits allow the whistleblower to share in the recovery which incentivizes insiders to report marking fraud. The damages are treble meaning three times the amount of the evaded duties. We defend companies against these allegations. We conduct internal investigations to verify the origin claims and demonstrate that the company acted in good faith reliance on the advice of counsel or customs brokers.

The law mandates labeling for specific items known as covered commodities. This includes muscle cuts of lamb and chicken and goat as well as wild and farm-raised fish and shellfish and fresh and frozen fruits and vegetables and peanuts and pecans and macadamia nuts and ginseng.

We advise clients on the proper designations. A label must specify where the animal was born and raised and slaughtered. This creates a complex data management challenge. We review the labels to ensuring they are compliant. For example commingled covered commodities must list the countries of origin in order of predominance by weight. We ensure that the font size and placement meet the legibility standards of the AMS.

The backbone of the USDA COOL program is the audit trail. Retailers and suppliers must maintain records for one year that verify the origin claims.

We help clients design recordkeeping systems that ensure traceability one step back and one step forward. In the event of a USDA audit we mobilize to present these records. We must be able to trace a specific package of ground beef back to the slaughterhouse and the country of birth of the animal. A failure to produce these records within five days of a request constitutes a violation. We defend against administrative enforcement actions by proving that the recordkeeping system is robust and that any gaps are de minimis.

The best defense is a proactive offense. When the origin of a product is ambiguous we advise clients to seek a binding ruling from CBP Regulations and Rulings.

We draft the ruling request to advocate for the favorable origin. We present the facts of the manufacturing process in the light most favorable to substantial transformation. Once issued a binding ruling provides certainty. It protects the importer from future enforcement actions as long as the facts of production remain unchanged. We use these rulings to lock in duty-free treatment or to confirm that a process confers a non-China origin to avoid punitive tariffs.

We work with operations teams to legally structure the supply chain to achieve the desired Country of Origin Labeling outcome. This is known as tariff engineering.

If a product is currently considered Chinese and subject to high tariffs we identify the specific manufacturing steps that need to be moved to a third country to shift the origin. We might advise moving the final assembly and the testing and the packaging to Vietnam or Mexico. We ensure that the new process meets the substantial transformation threshold. This allows the client to legally change the marking and lower their duty burden without engaging in fraud.