4.1 eCommerce Country of OrigineCommerce-Country-of-Origin
HS CodesHS codes are one criterion used to determine the tariff on goods entering a country; country of origin is another. A certificate of origin is an official statement that indicates in which country the product was produced.
Country-of-origin determinations are governed by many rules; in certain circumstances, discerning a product’s origin is difficult. For example, if you import raw plastic pellets but then process them to manufacture a telephone handset in a U.S. facility, is the handset considered to be of U.S. origin? Or, if you import telephone handset parts but then assemble and paint the finished product in the United States, what is that product’s country of origin? It depends. We’ll discuss why we need to determine country of origin first, and then we’ll discuss strategies for how to do it.
Why Do You Need to Specify Country of Origin?Countries form trade agreements with one another in order to lower tariffs on items produced in those countries. For example, Country A and Country B sign a trade agreement that lowers the tariffs on goods produced in those countries to 0 percent. As a result of the agreement, in order to get the lower rate, manufacturers must certify that their products originated in Country A or B. If a product originated in Country C, then was shipped to Country B, and then was re-shipped to Country A, that product is not eligible for the lower tariff, because the lower rate applies only to items originating in Country A or B.
The United States, Canada, and Mexico are members of the North American Free Trade Agreement (NAFTA), which offers preferential (i.e., lower) tariffs for items produced in those three countries. For example, Canada wants to ensure that items coming from the United States were actually produced there and not simply shipped to the United States from a non-NAFTA country, only to be forwarded to Canada. Therefore, Canada demands certificates of origin for all imports and a specific NAFTA Certificate of Origin for items produced in the three NAFTA countries.
Each country participates in multiple trade agreements, so each must determine a product’s country of origin in order to apply the appropriate tariff rate. In addition, many countries restrict imports or have quotas on imports from certain regions, so certificates of origin are used to ensure compliance with those regulations.
Strategies for Determining Your Product’s Country of Origin:
- Wholesale Products- If you’re a retailer, not a manufacturer, then determining a product’s country of origin should be fairly simple: ask the manufacturer to provide that information. The manufacturer will know the source(s) of the product’s raw materials and will have the most accurate information for determining the country of origin; sometimes, the manufacturer is the only one who can determine a product’s country of origin.
If the inventory you purchase is imported and shipped directly to you, the country-of- origin information should be noted on the import documentation. In such cases, you can simply enter that information in your inventory-management system. If you use multiple suppliers from different countries (e.g., you’ve been using a supplier from Mexico and then decide to buy from one in Japan), you need to separate your inventory by country of origin, keep all necessary documentation, and make sure that your inventory-management system accurately reflects the country of origin for every item.
- Manufactured Products- Determining the country of origin of the products you manufacture requires you to identify, assign a value to, and determine the country of origin of every component of your product. You then calculate the value of the foreign parts used in your product as a percentage of the total cost of all components. The resulting percentage can be used to determine from which country your product originates. An alternative method is to indicate the country where the components underwent the substantial transformation that turned them into the finished product. You can find more info about classifying your product by searching export.gov.
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