US Says US-Bahrain FTA Requires 'Double Transformation' of Imports to Get FTA Perks
The United States-Bahrain Free Trade Agreement established a "double substantial transformation" test to qualify for preferential tr eatment under the FTA, the U.S. argued in a cross-motion for partial summary judgment at the Court of International Trade. The controlling authority regarding the test is General Note 30 to the Harmonized Tariff Schedule and not, as importer JBF Bahrain has argued, the executive agreement between the two countries or a side letter on tariff classification, the U.S. said (JBF Bahrain v. United States, CIT # 23-00067).
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JBF brought the suit in 2023 to challenge CBP's treatment of its polyethylene terephthalate (PET) film imports and the agency's refusal to deduct a post-import rebate from the price paid for PET chips, which are a component of PET film (see 2303160035). Discovery in the case was stayed to let the parties vie for summary judgment on the "threshold legal issue of the eligibility requirements for preferential treatment under the" U.S.-Bahrain FTA.
In its motion, JBF said CBP erred when applying the double substantial transformation test to the company's inputs, since actual language in the treaty instructed the agency to only look to whether 35% of the product at issue's value is attributable to Bahraini materials (see 2507090058).
In response, the U.S. said the rules of origin found in General Note 30 are controlling, and "require a dual transformation when applying its value content requirement." Under this note, if an import isn't wholly the product of Bahrain, the U.S. or both, a good will be found to be originating from Bahrain if the import is a "new or different article of commerce" and 35% of its value is made of Bahraini materials.
The government said these are "two separate and distinct prerequisites." First, to establish a "new or different article of commerce," a substantial transformation is required. Second, the 35% value content requirement "also requires a transformation," the brief said. "Only Bahra[i]ni materials can be counted towards the 35% value content threshold, and that means that foreign inputs must first be made into a Bahraini material and then that material is then used to make the imported good."
The U.S. said the only controlling authority on this issue, General Note 30, compels this result. "Neither the Executive Agreement nor the Side Letter," which JBF relies on to claim the only standard is the 35% value content requirement, "have any legal effect under U.S. Law," the government argued. Both Congress and the president "made clear that General Note 30, HTSUS, is the controlling authority that sets forth the eligibility criteria for preferential treatment," the brief said.