North American Free Trade Agreement; Preference Override, 44555-44557 [2016-16088]

Agencies

• DEPARTMENT OF HOMELAND SECURITY
• U.S. Customs and Border Protection
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 81, Number 131 (Friday, July 8, 2016)]
[Proposed Rules]
[Pages 44555-44557]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16088]


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Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

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Federal Register / Vol. 81, No. 131 / Friday, July 8, 2016 / Proposed 
Rules

[[Page 44555]]



DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection

DEPARTMENT OF THE TREASURY

19 CFR PART 102

[Docket No. USCBP-2016-0041]
RIN 1515-AD78


North American Free Trade Agreement; Preference Override

AGENCY: U.S. Customs and Border Protection, Department of Homeland 
Security; Department of the Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The United States, Canada and Mexico have agreed to liberalize 
provisions of the North American Free Trade Agreement (NAFTA) 
preference rules of origin that relate to certain goods, including 
certain spices. However, such liberalization cannot take effect unless 
U.S. Customs and Border Protection (CBP) amends its regulations to 
allow the NAFTA preference override to apply to certain spice products 
and other food products. This document proposes such an amendment.

DATES: Comments must be received on or before September 6, 2016.

ADDRESSES: You may submit comments, identified by docket number, by one 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments via docket number 
USCBP-2016-0041.
     Mail: Trade and Commercial Regulations Branch, Regulations 
and Rulings, Office of International Trade, Customs and Border 
Protection, 90 K Street NE., 10th Floor, Washington, DC 20229-1177.
    Instructions: All submissions received must include the agency name 
and docket number for this rulemaking. All comments received will be 
posted without change to https://www.regulations.gov, including any 
personal information provided. For detailed instructions on submitting 
comments and additional information on the rulemaking process, see the 
``Public Participation'' heading of the SUPPLEMENTARY INFORMATION 
section of this document.
    Docket: For access to the docket to read background documents or 
comments received, go to https://www.regulations.gov. Submitted comments 
may be inspected during regular business days between the hours of 9 
a.m. and 4:30 p.m. at the Trade and Commercial Regulations Branch, 
Regulations and Rulings, Office of International Trade, Customs and 
Border Protection, 90 K Street NE., 10th Floor, Washington, DC. 
Arrangements to inspect submitted comments should be made in advance by 
calling Mr. Joseph Clark at (202) 325-0118.

FOR FURTHER INFORMATION CONTACT: Monika Brenner, Chief, Valuation and 
Special Programs Branch, Regulations and Rulings, Office of 
International Trade, (202) 325-0038.

SUPPLEMENTARY INFORMATION:

Public Participation

    Interested persons are invited to participate in this rulemaking by 
submitting written data, views, or arguments on all aspects of the 
proposed rule. CBP also invites comments that relate to the economic, 
environmental, or federalism effects that might result from this 
proposed rulemaking. Comments that will provide the most assistance to 
CBP will reference a specific portion of the proposed rulemaking, 
explain the reason for any recommended change, and include data, 
information, or authority that support such recommended change. See 
ADDRESSES above for information on how to submit comments.

Background

    On December 17, 1992, the United States, Canada, and Mexico (the 
parties) entered into the North American Free Trade Agreement (NAFTA). 
The provisions of the NAFTA were adopted by the United States with 
enactment of the North American Free Trade Agreement Implementation 
Act, Public Law 103-182, 107 Stat. 2057 (December 8, 1993). Under 
Article 401 of the NAFTA, an imported good qualifies as an originating 
good of a NAFTA party if: (1) It is wholly obtained or produced in one 
or more of the NAFTA parties; (2) it is produced entirely in one or 
more of the NAFTA parties exclusively from materials that originate in 
those parties; or (3) each of the non-originating materials used in the 
production of the good undergoes an applicable change in tariff 
classification as a result of production occurring entirely in the 
territory of one or more of the parties and satisfies any other 
applicable requirement (which may include a regional value-content 
requirement). The NAFTA preference change in tariff classification (or 
``tariff-shift'') rules are set forth in General Note 12(t) of the 
Harmonized Tariff Schedule of the United States (HTSUS).
    General Note 12(a), HTSUS, provides that an imported good is 
eligible for preferential tariff treatment under the NAFTA only if it 
is an originating good of a NAFTA party and it qualifies to be marked 
as a good of Canada or Mexico under the rules for determining the 
country of origin of a good for purposes of Annex 311 of the NAFTA. The 
rules for determining the country of origin for marking in such cases 
are included in part 102, CBP regulations (19 CFR part 102). In 
situations in which an imported good is determined under Article 401 of 
the NAFTA to be originating but fails to qualify as a good of Canada or 
Mexico under the other applicable provisions set forth in 19 CFR part 
102, the NAFTA preference override in Sec.  102.19 may provide a basis 
for enabling the good to qualify as a good of Canada or Mexico. Under 
Sec.  102.19, if a good which has NAFTA originating status is not 
determined to be a good of Canada or Mexico under Sec.  102.11(a) or 
(b) or Sec.  102.21, the country of origin of the good is determined to 
be the last NAFTA country in which the good underwent production other 
than minor processing, provided that a NAFTA Certificate of Origin has 
been completed and signed for the good (emphasis added). ``Production'' 
is broadly defined in Sec.  102.1(n) as ``growing, mining, harvesting, 
fishing, trapping, hunting, manufacturing, processing or assembling a 
good.'' ``Minor processing'' is defined in Sec.  102.1(m) and includes 
``[p]utting up in measured doses, packing, repacking, packaging, 
repackaging.''

[[Page 44556]]

    Thus in certain instances Sec.  102.19 allows the originating 
status of a good to ``override'' a determination that it is not a good 
of Canada or Mexico. In other words, it allows NAFTA preferential 
tariff treatment to be granted to certain goods that otherwise would be 
ineligible for such treatment due to the General Note 12(a)'s 
requirement that originating goods qualify to be marked as goods of 
Canada or Mexico under the NAFTA Marking Rules. However, under Sec.  
102.19, as it currently reads, minor processing would not be a type of 
production that would qualify a good to be labeled as a product of the 
country in which the labeling took place and thus would not enable the 
good to take advantage of NAFTA tariff preferences.

Explanation of Amendments

    Since the NAFTA entered into effect, the three parties to the 
Agreement have agreed to liberalizations to the NAFTA preference rules 
of origin for various goods. As a result, a lesser degree of processing 
in a NAFTA party is required to constitute ``production'' which will 
confer originating status to certain non-NAFTA materials. The United 
States took steps to implement these changes by amending the NAFTA 
preference tariff-shift rules in General Note 12(t), HTSUS, through 
Presidential Proclamations 7870 dated February 9, 2005 (published in 
the Federal Register on February 14, 2005 (70 FR 7611)), 8067 dated 
October 11, 2006 (published in the Federal Register on October 13, 2006 
(71 FR 60649)), and 8405 dated August 31, 2009 (published in the 
Federal Register on September 2, 2009 (74 FR 45529)).
    For spices and certain other food products, Presidential 
Proclamation 7870 specifically liberalized various rules of origin in 
General Note 12(t) to permit minor processing operations in a NAFTA 
party, such as packaging, to confer originating status on a good. For 
example, the NAFTA preference rule for tea (heading 0902, HTSUS) was 
changed to permit blending and/or packaging to confer NAFTA originating 
status. Similarly, changes to the preference rules of origin for 
products such as peppers (subheading 0904.12, HTSUS), cloves (heading 
0907, HTSUS), poppy seeds (subheading 1207.91, HTSUS), and certain 
other spices were also liberalized by Proclamation 7870 to allow these 
goods to become NAFTA originating as a result of packaging operations 
in a NAFTA party. It is noted that blending is considered to be more 
than a minor processing operation for purposes of the NAFTA Marking 
Rules. See, for example, CBP Headquarters Ruling Letter (HQ) 561986 
dated August 21, 2001.
    However, contrary to the intentions of the NAFTA parties, these 
goods are not receiving NAFTA preferential tariff treatment when 
imported into the United States from Canada or Mexico because they do 
not qualify to be marked as goods of Canada or Mexico under the NAFTA 
Marking Rules in 19 CFR part 102, as required by General Note 12(a), 
HTSUS. This anomalous result stems, in part, from the fact that, in 
regard to those goods that obtain originating status as a result of 
minor processing in a NAFTA party, the pertinent NAFTA marking rules in 
19 CFR 102.20 are more stringent than the comparable liberalized NAFTA 
preference rules set forth in General Note 12(t), HTSUS. As discussed 
above, the NAFTA preference override provision in Sec.  102.19(a) fails 
to resolve this problem since, as discussed above, this provision 
overrides a determination that a good is not a good of Canada or Mexico 
only in situations in which the good undergoes production other than 
minor processing, in a NAFTA country.
    CBP notes that 19 CFR 102.17 provides that a foreign material will 
not be considered to have undergone an applicable change in tariff 
classification specified in Sec.  102.20 or Sec.  102.21 or to have met 
any other applicable requirements of those sections merely by reason of 
having been subjected to certain specified operations, including 
``[s]imple packing, repacking or retail packaging without more than 
minor processing.'' This provision clearly is not an impediment to the 
proposed amendment set forth in this document as the ``non-qualifying 
operations'' specified in Sec.  102.17 relate only to the application 
of the rules set forth in Sec. Sec.  102.20 and 102.21 and not to the 
NAFTA preference override in Sec.  102.19.
    CBP understands that, as a result of actions taken or 
interpretations adopted by the Governments of Canada and Mexico, the 
above-referenced spices and other food products subject to the NAFTA 
liberalizations are receiving NAFTA preferential tariff treatment when 
imported from the United States into Canada and Mexico (assuming 
compliance with all applicable requirements). To rectify the problem 
discussed above with respect to imports from Canada and Mexico, CBP is 
proposing to amend Sec.  102.19 by adding a new paragraph (c) to allow 
the NAFTA preference override to apply to these specific goods. This 
proposed change, if finalized, will give effect to the intentions of 
the NAFTA parties by extending NAFTA preferential tariff treatment to 
certain goods imported from Canada and Mexico that, under the 
liberalized rules of origin in General Note 12(t), are considered NAFTA 
originating as a result of minor processing operations (e.g., 
packaging) performed in a NAFTA party.

Statutory and Regulatory Requirements

A. Executive Order 13563 and Executive Order 12866

    Executive Orders 13563 and 12866 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rulemaking is not a ``significant regulatory 
action,'' under section 3(f) of the Executive Order 12866. Accordingly, 
OMB has not reviewed this proposed rule.

B. Regulatory Flexibility Act

    This section examines the impact of the rule on small entities as 
required by the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), as 
amended by the Small Business Regulatory Enforcement and Fairness Act 
of 1996 (SBREFA). A small entity may be a small business (defined as 
any independently owned and operated business not dominant in its field 
that qualifies as a small business per the Small Business Act); a small 
not-for-profit organization; or a small governmental jurisdiction 
(locality with fewer than 50,000 people).
    The proposed rule, if finalized, will extend NAFTA preferential 
tariff treatment to certain goods imported from Mexico and Canada that 
currently are not receiving such treatment, despite the fact that these 
goods presently qualify as NAFTA originating under General Note 12(t), 
HTSUS. Therefore, the proposed amendment would benefit importers of 
such goods from Canada and Mexico by eliminating the customs duties and 
merchandise processing fees that presently are due for these 
importations. To the extent that this rulemaking affects small 
entities, these entities would experience a cost savings. Therefore, 
CBP certifies that the proposed rule would not have a significant 
economic impact on a substantial number of small entities.

[[Page 44557]]

Paperwork Reduction Act

    As there is no collection of information proposed in this document, 
the provisions of the Paperwork Reduction Act (44 U.S.C. 3507) are 
inapplicable.

Signing Authority

    This document is being issued in accordance with Sec.  0.1(a)(1) of 
the CBP Regulations (19 CFR 0.1(a)(1)) pertaining to the authority of 
the Secretary of the Treasury (or his/her delegate) to approve 
regulations related to certain customs revenue functions.

List of Subjects in 19 CFR Part 102

    Canada, Customs duties and inspections, Imports, Mexico, Reporting 
and recordkeeping requirements, Trade agreements.

Proposed Amendments to the CBP Regulations

    For the reasons set forth above, part 102 of title 19 of the Code 
of Federal Regulations (19 CFR part 102) is proposed to be amended as 
set forth below.

PART 102--RULES OF ORIGIN

0
1. The authority citation for part 102, CBP regulations, continues to 
read as follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized 
Tariff Schedule of the United States (HTSUS)), 1624, 3314, 3592.


Sec.  102.19  [Amended]

0
2. In Sec.  102.19:
0
a. Paragraph (a) is amended by adding the words ``or (c)'' after the 
words ``paragraph (b)''; and
0
b. Paragraph (c) is added to read as follows:
    (c) If a good classifiable under heading 0907, 0908, 0909, or 
subheading 0910.11, 0910.12, 0910.30, 0910.99 or 1207.91, HTSUS, is 
originating within the meaning of section 181.1(q) of this chapter, but 
is not determined under section 102.11(a) or (b) to be a good of a 
single NAFTA country, the country of origin of such good is the last 
NAFTA country in which that good underwent production, provided that a 
Certificate of Origin (see Sec.  181.11 of this Chapter) has been 
completed and signed for the good.

R. Gil Kerlikowske,
Commissioner, U.S. Customs and Border Protection.
    Approved: July 1, 2016.
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 2016-16088 Filed 7-7-16; 8:45 am]
 BILLING CODE P