Tariff war between Trump and rules of origin that should not be missed [Daeryun’s Biz law forum]

Possibility of targeting Korean exports following the US and EU
Different standards for determining country of origin… Additional tariff risk
A strategic response is needed that takes into account actual transformation standards.

U.S. President Donald Trump (pictured) announced on the 11th that a 25% tariff would be imposed on all steel and aluminum products imported from foreign countries. Just over a week after signing an executive order imposing an additional tariff of 10% on Chinese products and 25% on products from Mexico and Canada based on the International Emergency Economic Powers Act (IEEPA), and abolishing the duty exemption for small items (under $800), another additional measure was decided. The 'Trump-initiated tariff war' appears to be gradually intensifying because the target does not discriminate between hostile countries and allies and friendly countries.

President Trump has adopted a tariff retaliation strategy since his first term in office. During the first term of office, additional tariffs were imposed based on Articles 201 (emergency import restrictions) and 301 (response to unfair trade practices) of the Trade Act, and Article 232 (tariffs related to national security) of the Trade Expansion Act. The second administration is using more diverse laws in the tariff war, including imposing additional tariffs based on IEEPA.

The imposition of additional tariffs by the United States is determined by the country of origin of the goods. Accordingly, we would like to take a look at the standards for determining the country of origin in the United States.

Criteria for determining the origin of goods subject to additional tariffs

The criteria for determining the origin of goods subject to additional tariffs are determined in accordance with the ‘substantial modification standard’ principle of the US Code of Federal Regulations (CFR). The standard for substantial transformation is the principle that when manufacturing processes in two or more countries are connected, the country where the last substantial transformation occurred is the country of origin. Key considerations include:

① Whether there is a change in the name, characteristics, or use of intermediate goods
② Does the intermediate good already contain the essential characteristics of the final good?
③ Is the use of intermediate goods predetermined to be used in final goods?
④ Did the intermediate goods lose their identity during the subsequent processing process?
⑤ Is the assembly/processing process equivalent to simple assembly/processing?

What is commonly missed at the practical stage is that even if a certificate of origin is legally issued for goods exported from Korea under the Korea-US FTA, they may be determined to be made in China according to the US's substantive modification standards and additional tariffs may be imposed. Not only must it be recognized that the origin determination criteria (tariff change, value-added standards, etc.) under the Korea-US FTA Agreement are different from the origin determination criteria for additional tariff imposition measures, but it is also necessary to determine the origin by confirming the main considerations of the substantive modification criteria in preparation for the origin verification by the U.S. Customs Service.

Case of U.S. Customs and Border Protection (CBP) determination of origin

① Determination of origin of forklift (N302755)

Let's look at the case of determining the country of origin for a forklift, where the engine, an intermediate good, is made in the United States, and the remaining parts are made in China. Although manufactured in China, the U.S. importer explained that the engine is the core component that gives the forklift its essential characteristics and that the processing in China is merely an auxiliary means of assembling the components. However, CBP determined that the final country of origin was China, saying that the engine does not possess the essential characteristics of a forklift, and that a forklift cannot operate without various components produced in China, so the engine should be considered at the same level as these.

② Determination of country of origin for digital thermometer (N302764)

The dual probe sensor, which is an intermediate product, is made in Israel, and the digital thermometer, with all remaining electrical components made in China, was confirmed to be made in Israel during the country of origin determination process. This is because determining the country of origin of products produced in multiple countries requires a comprehensive review of whether new product names, characteristics, and uses have been created. It was recognized that the Israeli-made sensor embodies the core technology to perform the essential functions of a thermometer and possesses the essential characteristics of a thermometer.

President Trump is threatening to impose additional tariffs on the European Union (EU) due to the trade deficit. Korea, one of the major exporting countries, recorded a surplus of $127.8 billion in exports to the United States last year and a trade balance of $55.69 billion, so Trump's attention is expected to turn to Korea soon. Domestic import and export companies will need to pay attention to and manage not only 'preferential origin' regulations such as FTA, but also 'non-preferential origin' regulations, which are the basis for additional tariff imposition measures by the United States.

Kim Dae-ryun, customs expert at Dae-ryun Law Firm

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Trump-era tariff war, rules of origin that should not be missed [Daeryun's Biz law forum] (Shortcut)