US Free Trade Agreement With Bahrain Doesn't Allow Double Transformation Test, Importer Says
CBP erred when it applied a double substantial transformation test to importer JBF Bahrain's inputs when treaty language explicitly instructed it to use an alternative, JBF argued July 2 (JBF Bahrain v. United States, CIT # 23-00067).
Sign up for a free preview to unlock the rest of this article
Timely, relevant coverage of court proceedings and agency rulings involving tariffs, classification, valuation, origin and antidumping and countervailing duties. Each day, Trade Law Daily subscribers receive a daily headline email, in-depth PDF edition and access to all relevant documents via our trade law source document library and website.
The importer moved for partial summary judgment in its polyethylene terephthalate (PET) film classification case, asking the Court of International Trade to make a ruling on only the legal issue. It said it has a good-faith belief that a settlement can be reached once the issue is resolved; the parties have previously noted they are progressing toward settlement (see 2503120028).
According to the terms of a U.S.-Bahrain trade agreement, a product will be considered to be substantially transformed in Bahrain, and thus of Bahraini origin, when at least 35% of its value is attributable to Bahraini materials.
JBF said it produces PET film at a facility in Bahrain. To do so, it imports two chips -- “Super Bright” chips and “Silica” chips -- from India.
It says it is challenging CBP’s decision that these chips will count only toward that 35% figure if they pass a “double transformation” test. In other words, the two chips would first need to be substantially transformed into another, intermediate good in Bahrain before they could be considered of Bahraini origin. As CBP told JBF, the “intermediate article itself must be an article of commerce that is 'commercially recognizable as a different article,’” or one unrelated customers might buy.
But this isn’t the test provided in the U.S.- Bahrain treaty, JBF argued. Rather, the treaty outlines that inputs imported from outside Bahrain are considered of Bahraini origin once, after being processed in-country, they have shifted from being covered under one Harmonized Tariff Schedule heading to another.
“For HTSUS subheadings 3920.10 through 3921.90, the tariff shift regulations require ‘[a] change to any other good of subheading 3920.10 through 3921.90 from any other subheading, including another subheading within that group,’” it said.
It said the chips it imports undergo processing to become an intermediate product, amorphous PET film. As a result, they move out from under the heading for PET chips, heading 3907.60, to become amorphous PET film under heading 3920.62.
It noted that “[t]he United States was aware of the double substantial transformation standard when proclaiming the USBFTA [United States-Bahrain Free Trade Agreement] implementation regulations,” but still instead chose to establish the tariff shift standard.