On 14 July 2020 President Trump issued an executive order concerning certain import and export trade requirements between the United States and China (for further details please see "Importers must act quickly to meet new marking requirements for goods from Hong Kong").
Goods produced in Hong Kong will be required to be marked with China as their country of origin from 25 September 2020 in accordance with 19 US Code Annotated (USCA) Section 1304 and 19 Code of Federal Regulations (CFR) Part 134. On 11 August 2020 US Customs and Border Protection (CBP) published a notice in the Federal Register providing an effective date for the new marking and the penalties for incorrect marking. On 12 August 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 are described below.
'Marking' for US import purposes means physically labelling the goods or their containers (for further details please see "Importers must act quickly to meet new marking requirements for goods from Hong Kong"). According to the CBP notice, as of 25 September 2020, goods which are produced in Hong Kong and entered or withdrawn from a warehouse for consumption into the United States must be marked with China as their country of origin. Marking requirements are covered by 19 USCA Section 1304 and 19 CFR Part 134.
How will marking affect country of origin for purposes of assessing duties or temporary duties?
Although goods imported from Hong Kong will soon have to be marked with China as their country of origin, CBP has explained in its 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 the purposes of assessing:
- duties under Chapters 1 to 97 of the Harmonised Tariff Schedule of the United States (HTSUS); or
- temporary or additional duties under Chapter 99 of the HTSUS, such as the China Section 301 duties.
Accordingly, goods which are produced in Hong Kong and imported into the United States should continue to report the International Organisation for Standardization country 'HK' as the country of origin when required. Thus, Hong Kong-produced goods will need to be physically marked 'China' with respect to the country of origin, but entry documentation should continue to report Hong Kong as the country of origin.
The executive order will apply only to marking requirements under 19 USC Section 1304. Significantly, CBP has also explained that there is no change regarding Hong Kong outward processing arrangements (OPAs), 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 product's origin 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 (21 August 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 that 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; 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 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 must be marked 'China' even though 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 regard to the imposition of duties.
CBP is expected to begin enforcing these marking requirements on or around 25 September 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 free trade zones 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.
