Shift to the Tariff-Shift: The Development of Country of Origin Tests from Gibson-Thomsen to NAFTA

Abstract

Marking the country of origin on imports into the United States is a critical component of international trade, but the proliferation of bilateral free trade agreements and the global sourcing of materials and processes from multiple countries by multinational corporations have made determining the country of origin more difficult, and arguably more important. The increase in free trade agreements is changing country of origin tests away from the more subjective traditional test of “substantial transformation” to more objective tests, like regional value content (RVC) or the tariff shift, in order to increase the predictability of tariff duties. More specifically, the advent of the North American Free Trade Agreement (NAFTA), the largest U.S. free trade agreement, bifurcated the U.S. country of origin tests into separate tests for NAFTA and non-NAFTA goods. This paper discusses the development of country of origin tests for determining import tariff duties from “substantial transformation” to the more objective country of origin tests under NAFTA. This paper discusses the development of the substantial transformation test through case law, the development of the RVC test under the Generalized System of Preferences (GSP) and NAFTA, and the development of the tariff shift test under NAFTA. The paper concludes that subjective tests will become increasingly impractical as the volume and complexity of global trade increases.