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Substantial Transformation: The Worst Rule for Determining Origin of Goods – Except for All the Rest


By: John M. Peterson


Determining the origin of an imported product for purposes of assessing Customs duties has gained exceptional importance in recent years due to the imposition of “retaliatory” duties on Chinese goods pursuant to Section 301 of the Trade Act of 1974 and “national security” duties on steel and aluminum imports pursuant to Section 232 of the Trade Expansion Act of 1962. Although United States courts, eight decades ago, pronounced a rule of “substantial transformation” based on manufacturing or processing that results in the creation of a new article of commerce, having a name, character, or use different than its ingredients or

materials, United States Customs and Border Protection has strayed from that rule, providing it lip service, but making origin determinations on such amorphous and subjective bases such as defining the “essential” component of a good or requiring “sufficient” working or processing. This Article discusses why the traditional “substantial transformation” rule best serves the needs of international commerce.

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George
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