Importer Says CBP Properly Established Test for Preferential Access Under Bahrain FTA
CBP's regulations implementing the U.S.-Bahrain Free Trade Agreement are a "reasonable exercise of CBP's authority to implement the Agreement" and properly dictate the test for qualifying for preferential treatment under the FTA, importer JBF Bahrain argued in a Jan. 29 reply brief at the Court of International Trade. JBF said that despite asking the trade court to "ignore" the regulations and the "commitment the U.S. made to" Bahrain, the government hasn't claimed the regulations are illegal or "in conflict with the statute" (JBF Bahrain v. United States, CIT # 23-00067).
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The lawsuit concerns CBP's treatment of the importer's 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.
The U.S. is claiming the FTA established a "double substantial transformation" test, and that the controlling authority is General Note 30 to the Harmonized Tariff Schedule (see 2512170060). Meanwhile, JBF is claiming the executive agreement between the two countries, referred to as a side letter on tariff classification, as codified by CBP's regulations, establishes that CBP should only look to whether 35% of the value of the product at issue is attributable to Bahraini materials (see 2507090058).
Responding to the government's arguments that JBF relies on documents that don't have the force of law, the importer argued that its position is "based on the statute, i.e., GN 30, and the regulations that control origin determinations under the USBFTA." In addition, the text of the FTA and the side letter are "relevant legislative history demonstrating the intent of the President and of Customs, which Congress was aware of when it authorized Customs to implement the Agreement including the Side Letter," the brief said.
JBF argued that it's "evident" the U.S. and, presumably, Bahrain weren't satisfied that the "substantial transformation requirement in GN 30(d)(iv)(D) was sufficiently free of ambiguity and subjectivity." The side letter clearly says it indicates an agreement by the parties to clarify the meaning of "substantial transformation" by requiring the parties to adhere to CBP's regulations implementing the FTA, the brief said.
The importer argued that this development isn't surprising, since both CIT and the U.S. Court of Appeals for the Federal Circuit reached the same conclusion regarding the use of the preferential treatment rules under the North American Free Trade Agreement.
In Bestfoods v. U.S., the CAFC found tariff-shift rules to be the proper method for determining whether goods have undergone a substantial transformation. The appellate court ruled that "when Congress authorized the Secretary of Treasury to implement regulations defining 'articles of foreign origin,' it authorized an administrative change that replaced the substantial transformation test with a tariff-shift methodology."
Similarly, when the U.S. trade representative signed the side letter and CBP implemented its regulations, "they were aware of Bestfoods and the government’s desire to use tariff-shift rules rather than substantial transformation to determine the origin of goods and materials," JBF said.
The importer added that CBP's regulations don't limit the 35% content test to finished goods. Under the regulations, "materials produced in the territory of Bahrain count toward the 35% value-content requirement," and the regulation's reference to "imported goods" doesn't limit the application of the test to finished goods, the brief said.
In addition, JBF argued that a double substantial transformation test isn't required, noting that the government "fails to acknowledge that the phrase 'double' or 'dual substantial transformation' is nowhere in GN 30 nor in the USBFTA Rules of Origin regulations."