By Harold Jackson, Associate Attorney, Braumiller Law Group
You’ve probably heard about the many recent changes to the “Buy America” and procurement rules, starting with Executive Orders in the late 2010’s under then President Trump, several sessions of Congress, and modifications by President Biden. These changes have prompted questions from importers. What is Buy America? What sort of waivers will, or will not, apply to my imported merchandise? Can I still put “made in USA” on it? Do I really have to do this to avoid China tariffs? Does my product really need to be 95% domestic iron or steel? The answer to the last one is ‘yes’ – but only if you’re selling to a project funded by the government. If not, like the other questions, ‘Buy America’ probably doesn’t apply to you. The United States has different and sometimes muddled ‘origin’ related requirements depending on the subject matter of the transaction. Below are summaries of those requirements that are intended to make clear distinctions between them, depending on the subject matter of the transaction.
What Is Buy America?
The Buy America Act historically applied only to mass-transit procurements for state and local government projects, such as the construction of highways, railways, or transit systems. However, Title IX of the Infrastructure Investment and Jobs Act, “Build America, Buy American” (the “BABA”) drastically expanded Buy America preferences in public procurements to all “infrastructure” projects, which includes, the structures, facilities, and equipment for, in the United States, roads, highways, bridges, public transportation, dams, ports, harbors, and other maritime facilities; intercity passenger and freight railroads, freight and intermodal facilities, airports, water systems, including drinking water and wastewater systems, electrical transmission facilities and systems, utilities, broadband infrastructure, buildings and real property – and even electric vehicle (EV) charging stations.
The BABA implemented a number of domestic content requirements for iron and steel products, manufactured products, and construction materials. All iron and steel products, as well as construction materials, must 100% originate in the United States, meaning the iron or steel is smelted in the U.S. For manufactured products going to infrastructure projects, (1) the manufactured product must be manufactured in the United States, and (2) 55% or more of the total cost of components must be components mined, produced, or manufactured in the United States.
However, ‘Buy America’ requirements only apply in the context of government procurement. If your imported goods are not destined to satisfy a government contract in an infrastructure project, you can forget ‘Buy America.’
What About Buy American?
‘Buy American’ is different from ‘Buy America,’ though the Buy American requirements are still applicable only in the government procurement arena. Domestic content requirements for government procurement that are not for infrastructure projects are governed by Buy American requirements, the Federal Acquisition Regulations, the Defense Federal Acquisition Regulations, and other regulations and waivers on an agency-by-agency basis. The Federal Acquisition Regulations (“FAR”) under 48 CFR 25.003 define a “U.S.-made end product” as follows: an article that is mined, produced, or manufactured in the United States or that is substantially transformed in the United States into a new and different article of commerce with a name, character, or use distinct from that of the article or articles from which it was transformed. Under the same regulation, an “end product” is defined as the supplies delivered under a line item of a government contract, while a “component” is any item supplied to the government as part of an end item or of another component.
Under 48 CFR 25.101, the Buy American statute restricts the government purchase of supplies that are not domestic end products. To qualify as a domestic end product, the manufactured product must meet two district requirements: The end product must be “manufactured” in the United States. The end product must be made of “substantially all” U.S.-sourced components. The “substantially all” requirement is satisfied if either (a) the cost of the components mined, produced, or manufactured in the United States exceeds 60% of the cost of all components, or (b) the end product is a commercially available off-the-shelf (COTS) item.
However, if your transaction is not in the government procurement context, then Buy American doesn’t apply either.
Made in the U.S. for Customs Purposes?
Duties, China Tariffs, Quotas
This is the primary origin concern for imported merchandise. For purposes of assessing the accurate country of origin for U.S. Customs and Border Protection (CBP) declaration and marking purposes, the merchandise must originate or be substantially transformed in the United States. Pursuant 19 USC 1304 and 19 CFR Part 134, for a product to originate in the Untied States for Customs purposes, the components must undergo further work or material added that effects a substantial transformation. The test for determining whether a substantial transformation has occurred is whether an article emerges from a process with a new name, character, or use, different from that possessed by the articles prior to processing.
For example, in NY N313302 of August 4, 2020, CBP held that a kitchen faucet underwent a substantial transformation in Vietnam when its valve body was manufactured in Vietnam and nearly all the components were assembled in Vietnam. The manufacturing process began in Vietnam, yet the faucet was later processed in China, Taiwan, and Germany. Many of the components were of Chinese-origin, and there were some Vietnamese and Taiwanese originating minor components. CBP explained that during the assembly in Vietnam, when less significant foreign components are combined with the Vietnamese-origin valve body, the “individual parts lose their separate identities to become a new article, i.e., a kitchen faucet.” See also Energizer Battery, Inc. v. U.S., 190 F.Supp.3d 1308 (Ct Int’l Trade 2016); HQ H302821 (July 26, 2019) (Customs Headquarters “Volvo Ruling”); Texas Instruments Inc. v. United States, 69 C.C.P.A. 151 (CCPA 1982).
When determining the country of origin for purposes of applying current trade remedies (such as Section 301, Section 232, Section 201), general marking, or assessing ad valorem duties, the Customs substantial transformation analysis is applicable.
Commerce Uses a Different Test?
Antidumping and Countervailing Duties
It is important to note that the U.S. Department of Commerce uses a different substantial transformation test when determining the country of origin for Antidumping and Countervailing Duty (AD/CVD) purposes, which is different from the name, character, and use test. The Court of International Trade has upheld Commerce’s different substantial transformation test, which consists of the following five factors: (1) Whether the processed downstream product is a different class or kind of merchandise than the upstream product; (2) The characteristics (including technical, physical, chemical or otherwise) and intended end-use of the product; (3) The cost of production/value added of further processing in the third country or countries; (4) The nature and sophistication of processing in the third country or countries; and (5) The level of investment in the third country or countries. Further, Commerce can specify a unique method for determining the country of origin of products subject to AD/CVD scope. For example, in A-570-010 and C-570-011 cases, Certain Crystalline Silicon Photovoltaic Products From the People’s Republic of China, Commerce declined to use the substantial transformation test and concluded that the country of assembly confers origin regardless of whether the assembly process substantially transforms the merchandise under the Customs definition.
Marking and Duty-Free under USMCA?
The USMCA and other Free Trade Agreements and Duty Preference Programs have their own unique origin, marking and documentary requirements. For example, the USCMA, like NAFTA, allows for marking and tariff preference claims based on a tariff shift (i.e., change in tariff code), regional content value (by equation), or by originating in a country. However, it is important to understand the complexities of a free trade agreement or other preference claim if made, which are usually document-intensive. Before making a USMCA or other duty-preference claim, outside customs and trade expertise should be consulted.
Can I Claim ‘Made In USA’?
Whether a product can be claimed “Made in USA” is also a unique arena of the law, which is derived from the Lanham Act – the same legislation that addresses Trademarks and False Advertising. Products that claim “Made in USA” are regulated by the Federal Trade Commission (“FTC”), which requires that the products under (1) final assembly or processing of the product occurs in the United States, (2) all significant processing that goes into the product occurs in the United States, and (3) all or virtually all ingredients or components of the product are made and sourced in the United States – arguably a more intensive requirement than a Customs transformation and can be easily confused with the Buy America domestic content “substantially all” requirements. Qualified claims, such as “Assembled in the USA,” can also be made. The FTC reviews claims of “Made in USA” – if prompted by referral or suspicion – on a case-by-case basis. These claims are primarily critical from an advertising and marketing strategic standpoint, and are different from the marking origin for Customs under statute or trade agreement.
Other Laws and Agencies That Consider Origin
There are many other U.S. laws whose application depends on the origin of imported merchandise. Under the recent Uyghur Forced Labor Prevention Act and CBP Withhold Release Orders and Forced Labor findings, CBP is actively reviewing the origin of imported merchandise for concerns of use of forced labor. When importing products that contain wildlife or animal products, the U.S. Fish and Wildlife Service requires certain entry declarations and permits that require the description of the origin and species of the wildlife components or materials included in the imported merchandise. For food imports, the U.S. Food and Drug Administration requires prior notice and registration of the foreign food facility that produces the imported food – down to the country and address of the facility.
Conclusion
Even if you know that the ‘Buy America’ requirements do not apply to your imported merchandise, the importer will still be responsible for understanding the origin of their products and meeting the requirements under the applicable law. Sometimes, multiple origin requirements can apply at once (for example, China Tariffs and Antidumping Duties on goods marked as USMCA originating). Companies that are intending to import merchandise but are unsure of certain origin requirements should do their due diligence to ensure the applicable rules are met.
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