CBP Issues Guidance on New Marking Requirements for Goods from Hong Kong

ArentFox Schiff

Arent Fox

As discussed previously, President Trump issued an Executive Order on July 14, 2020, concerning certain import and export trade requirements between the US and China.

View Executive Order.

Goods produced in Hong Kong will be required to be marked with China as their country of origin in accordance with the requirements of 19 U.S.C.A. § 1304 and 19 C.F.R. Part 134 on September 25, 2020. On August 11, 2020, CBP published a notice in the Federal Register providing an effective date for the new marking and the penalties for incorrect marking. On August 12, 2020, CBP released further guidance on the origin of goods from Hong Kong for Section 301 China tariff purposes through the issuance of FAQs, which we describe below.

Marking Requirement Details

“Marking” for US import purposes means physically labeling the goods or their containers. We discuss the marking requirements in an earlier alert. According to the notice from US Customs and Border Protection, starting on September 25, 2020, goods produced in Hong Kong, which are entered or withdrawn from warehouse for consumption into the United States will have to be marked country of origin “China.” Marking requirements are covered by 19 U.S.C.A. § 1304 and 19 C.F.R. Part 134.

How will marking affect the country of origin for purposes of assessing duties under Chapters 1-97 of the HTSUS or temporary duties under Chapter 99?

Although goods imported from Hong Kong will soon have to be marked country of origin China, CBP has explained in their FAQs that the changes in marking requirements will have a limited impact for duties on such goods. Specifically, the change in marking requirements will not affect country of origin determinations for purposes of assessing (1) duties under Chapters 1-97 of the Harmonized Tariff Schedule of the United States (HTSUS), or (2) temporary or additional duties under Chapter 99 of the HTSUS, such as the China Section 301 duties. Accordingly, goods produced in Hong Kong that are imported into the United States should continue to report the International Organization for Standardization (ISO) country “HK” as the country of origin when required. Thus, Hong Kong-produced goods will need to be physically marked country of origin “China” but entry documentation should continue to report Hong Kong as the country of origin.

The Executive Order will only apply to marking requirements under 19 U.S.C § 1304. Significantly, CBP has also explained that there is no change regarding Hong Kong Outward Processing Arrangements (OPA), essentially meaning that even when goods are produced under an OPA, CBP will independently review the processes conducted in Hong Kong and the OPA country to determine the origin of the product under the applicable CBP rules. For example, CBP has issued several textile and apparel rulings involving Hong Kong’s OPA arrangement and in at least one, HQ 959425 (August 21, 1996) China was determined to be the country of origin under the applicable origin rules for textile and apparel products in 19 CFR 102.21. In general, these rulings state:

Each request for a country of origin determination is made on a case by case basis, which allows Customs to carefully consider the particulars of individual manufacturing scenarios.

CBP will likely continue to address such OPA-related imports on a case-specific basis, and thus, it is likely that there will continue to be situations where the country of origin for duty and marking purposes will be China even though a significant portion of the raw materials and or processing occurs in Hong Kong. However, pursuant to the Executive Order and CBP’s Interim Rule, even where the origin is determined to be Hong Kong, the goods will be required to be marked “China”, albeit duties will be applied based on Hong Kong origin. In sum, the entry summary procedures remain unchanged and filers should continue to file entry summaries and duty payments according to current US regulations and policies; only the marking requirements have changed.

Notwithstanding the current rules that have been issued, because US-China relations have and may continue to deteriorate, stakeholders should continue to monitor this situation for future changes, especially with regards to the imposition of duties.

Next Steps

CBP is expected to begin enforcing these marking requirements, on or around September 25, 2020. Shipments from Hong Kong are easily identified and thus could become an easy target for verification of compliance with the new marking rule. Although importers may be able to use FTZs to remedy marking issues, given the added cost and delays, it is important that companies act quickly to ensure compliance with this new requirement and continuity of business.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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