Issue link: https://iconnect007.uberflip.com/i/1531014
JANUARY 2025 I SMT007 MAGAZINE 35 How do you define country of origin, and how much production has to be done there to become the country of origin? ere is not just one set of rules. ere are country-of-origin rules for free trade agree- ment purposes. e U.S.-Mexico-Canada Agreement (USMCA) has its own set of rules, for example. But for special tariffs—the Sec- tion 301 tariffs that have been placed on Chi- nese goods or the special tariffs on steel and aluminum—there is a different set of rules. Without getting into the legal weeds too deeply, there's a test applied called "substantial transformation." e basic test asks if what's being done in that country is enough to trans- form inputs into a new product. If I'm making a widget with components, is what I'm doing in that country enough to actually transform it into a product of that country's origin? at's the test for substantial transformation. It sounds subjective. If I'm a business owner whose profit margin is razor thin and my product gets finished in a country that doesn't have tariffs, I would call that substantial transformation. You want to have that substantial transfor- mation to claim that countr y as the coun- tr y of origin. But is that the case? I agree, it can feel ver y subjective. U.S. Customs makes that determination based on this large body of legal cases and rulings it has issued. It will look at rulings on similar types of products, considering the complexity of the produc- tion in that countr y, the origin of the different inputs, and a host of factors. Unfortunately, it's not a clear, bright-line type of test. It does feel very subjective at times, and it can make or break the difference between 25% tariffs. It could directly affect a company's bottom line. Let's consider a U.S. semiconductor fab. They make the wafers and then ship the die to Asia to be packaged. That's a substantial transfor- mation, and China could well be the country of origin. Then, that package fulfills a fab and assembly order in Thailand; that's another substantial transformation. That subassem- bly goes to a Maquiladora in Mexico for final assembly. That's yet another substantial transformation. Yeah, that scenario is very typical of a global supply chain. Nowadays, many things are made in multiple countries. You can have inputs from dozens of countries for your finished goods. e tariffs are assessed on the product that's imported, so that's when tariffs are assessed. For all the shipments prior to the shipment from Mexico, you won't be hit with U.S. tariffs. When a semiconductor die goes to China, it's actually exported, not imported. Now you may have export control issues there, but it's not a U.S. tariff issue. If the Chinese component goes to ailand, it's not imported into the U.S. ere might be tariffs into ailand, Mexico, or other foreign countries, but that's not a U.S. tariff issue. But when that fin- ished product made in Mexico is imported into the U.S., you would face potential tariffs. If tariffs exist in the different countries when it is ultimately imported as a finished product, could they potentially assess multiple tariffs? e U.S. only assesses tariffs on the finished item that's imported. Let's say the product is " e mere fact that you have production in a different country doesn't mean you're completely safe. "