CBP Extends Transition Period for Companies to Comply With New Hong Kong Marking Requirements
What Is Happening?
As previously reported, on July 14, 2020, the President signed Executive Order 13936 on Hong Kong Normalization. As a result, CBP has issued a new marking requirement for goods that are produced in Hong Kong which enter United States customs territory. Currently, such goods are marked as “Made in Hong Kong.” However, according to an August 11, 2020, CBP Federal Register Notice, goods produced in Hong Kong will be required to be marked with China as their country of origin pursuant to 19 U.S.C.A § 1304 and 19 C.F.R. Part 134. Specifically, the notice stated that goods produced in Hong Kong, which are entered or withdrawn from warehouse for consumption into the United States will have to be marked country of origin “China” starting 45 days after the notice was published in the Federal Register. However, with CBP’s updated guidance, this transition period has effectively been doubled.
Why Compliance Matters and How Importers Can Comply With the New Marking Rule
Given the time necessary to mark goods, it is important that importers of goods produced in Hong Kong act quickly to ensure that they come into compliance with the marking requirements. Marking under 19 U.S.C.A. § 1304 requires that unless excepted, every article of foreign origin (or its container) imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a many as to indicate to the ultimate purchaser in the United States the English name of the country of origin of the article. Further, a 10% ad valorem duty will be applied to articles that are not properly marked in accordance with the requirements of 19 U.S.C.A. § 1304 and 19 C.F.R. Part 134.
One significant clarification that CBP has provided on this new rule is that although goods imported from Hong Kong will soon have to be marked country of origin China, this 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. Despite this clarification, it is important to note that goods produced in Hong Kong that are imported into the United States should continue to report the International Organization for Standardization 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.
How Will the New Marking Requirement Affect Country of Origin Determinations?
Currently, the Executive Order only applies to marking requirements under 19 U.S.C § 1304. CBP has also explained that there is no change regarding Hong Kong Outward Processing Arrangements (OPA). Thus, 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. Significantly, 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. Such a finding could create significant duty liability. According to CBP, these are case-specific findings, so stakeholders should seek advice regarding complex situations where significant portions of raw materials and processing occur outside of Hong Kong.
CBP is expected to begin enforcing the marking requirements, on or around November 9, 2020. Further, because the United States has continued a high-pressure campaign against Hong Kong and CBP has extended the timeline for application of the new rule, it is imperative that importers act to comply within the allotted timeframe, as CBP may be expected to strictly enforce the rule.