How is country of origin determined for U.S. imports?
Country of origin for customs purposes is determined by the substantial transformation test. A product's country of origin is the last country in which it underwent a substantial transformation, meaning a fundamental change in the character, name, or use of the article through manufacturing or processing.
For example, if raw cotton is grown in India, spun into yarn in Vietnam, and sewn into t-shirts in Bangladesh, the country of origin is Bangladesh because that is where the final substantial transformation occurred (yarn became a finished garment). The cotton and yarn stages are intermediate processing steps.
U.S. Customs and Border Protection (CBP) applies this test on a case-by-case basis. Simple assembly, repackaging, labeling, or minor processing generally does not constitute substantial transformation. The key question is whether the processing created a new and different article of commerce with a distinct name, character, or use.
Why does country of origin matter for tariff calculations?
Country of origin directly determines which tariff layers apply to your import. Section 301 tariffs apply only to goods originating in China. Section 232 tariffs on steel and aluminum have country-specific exemptions and quotas. Section 122 auto tariffs have USMCA carve-outs for qualifying goods from Canada and Mexico.
A concrete example: a laptop computer (HTS 8471.30.01) assembled in China faces MFN Free + Section 301 25% + IEEPA 10% = 35.0% total duty. The identical laptop assembled in Vietnam faces only MFN Free + IEEPA 10% = 10.0%. The origin determination creates a 25-percentage-point difference in the duty rate.
This is why supply chain restructuring has accelerated since 2018. Companies are moving final assembly operations from China to countries like Vietnam, Thailand, and Mexico to avoid Section 301 tariffs. However, CBP actively scrutinizes these arrangements for transshipment, which occurs when goods are routed through a third country without genuine substantial transformation.
What is transshipment and how does CBP enforce origin rules?
Transshipment occurs when goods are shipped through an intermediate country to avoid tariffs, without undergoing a genuine substantial transformation in that country. For example, shipping Chinese-made electronics through Vietnam with only repackaging or relabeling does not change the country of origin from China. The goods remain subject to Section 301 tariffs.
CBP uses several enforcement tools to detect transshipment. These include import pattern analysis (sudden spikes in exports from third countries that coincide with tariff imposition), on-site factory inspections, document verification, and cooperation with foreign customs authorities. Penalties for transshipment can include seizure of goods, additional duties, and civil or criminal penalties.
To properly change country of origin, the processing in the new country must be genuine and substantial. CBP has issued guidance that for electronics, substantial transformation typically requires the assembly of key components such as printed circuit board assembly (PCBA) and final product testing. For textiles, the cut-and-sew operation generally establishes origin. Importers should obtain advance rulings from CBP to confirm origin determinations before shifting supply chains.