Non-Preferential Origin Determinations for Merchandise Imported From Canada or Mexico for Implementation of the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA)

Published date06 July 2021
Citation86 FR 35422
Record Number2021-14265
SectionProposed rules
CourtTreasury Department,U.s. Customs And Border Protection
Federal Register, Volume 86 Issue 126 (Tuesday, July 6, 2021)
[Federal Register Volume 86, Number 126 (Tuesday, July 6, 2021)]
                [Proposed Rules]
                [Pages 35422-35429]
                From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
                [FR Doc No: 2021-14265]
                [[Page 35422]]
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                DEPARTMENT OF HOMELAND SECURITY
                U.S. Customs and Border Protection
                DEPARTMENT OF THE TREASURY
                19 CFR Parts 102 and 177
                [USCBP-2021-0025]
                RIN 1515-AE63
                Non-Preferential Origin Determinations for Merchandise Imported
                From Canada or Mexico for Implementation of the Agreement Between the
                United States of America, the United Mexican States, and Canada (USMCA)
                AGENCY: U.S. Customs and Border Protection, Department of Homeland
                Security; Department of the Treasury.
                ACTION: Notice of proposed rulemaking; request for comments.
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                SUMMARY: This document proposes to amend the U.S. Customs and Border
                Protection (CBP) regulations regarding non-preferential origin
                determinations for merchandise imported from Canada or Mexico.
                Specifically, this document proposes that CBP will apply certain
                tariff-based rules of origin in the CBP regulations for all non-
                preferential determinations made by CBP, specifically, to determine
                when a good imported from Canada or Mexico has been substantially
                transformed resulting in an article with a new name, character, or use.
                For consistency, this document also proposes to modify the CBP
                regulations for certain country of origin determinations for government
                procurement. Collectively, the proposed amendments in this notice of
                proposed rulemaking (NPRM) are intended to reduce administrative
                burdens and inconsistency for non-preferential origin determinations
                for merchandise imported from Canada or Mexico for purposes of the
                implementation of the Agreement Between the United States of America,
                the United Mexican States, and Canada (USMCA). Elsewhere in this issue
                of the Federal Register, CBP is publishing an interim final rule to
                amend various regulations to implement the USMCA for preferential
                tariff treatment claims. The interim final rule amends the CBP
                regulations, inter alia, to apply certain tariff-based rules of origin
                for determining the country of origin for the marking of goods imported
                from Canada or Mexico.
                DATES: Comments must be received by August 5, 2021.
                ADDRESSES: You may submit comments, identified by docket number USCBP-
                2021-00X25 by one of the following methods:
                 Federal eRulemaking Portal at http://www.regulations.gov.
                Follow the instructions for submitting comments.
                 Mail: Due to COVID-19-related restrictions, CBP has
                temporarily suspended its ability to receive public comments by mail.
                 Instructions: All submissions received must include the agency name
                and docket number for this rulemaking. All comments received will be
                posted without change to http://www.regulations.gov, including any
                personal information provided. For detailed instructions on submitting
                comments and additional information on the rulemaking process, see the
                ``Public Participation'' heading of the SUPPLEMENTARY INFORMATION
                section of this document.
                 Docket: For access to the docket to read background documents or
                comments received, go to http://www.regulations.gov. Due to the
                relevant COVID-19-related restrictions, CBP has temporarily suspended
                on-site public inspection of the public comments.
                FOR FURTHER INFORMATION CONTACT: Operational Aspects: Queena Fan,
                Director, USMCA Center, Office of Trade, U.S. Customs and Border
                Protection, (202) 738-8946 or [email protected].
                 Legal Aspects: Craig T. Clark, Director, Commercial and Trade
                Facilitation Division, Regulations and Rulings, Office of Trade, U.S.
                Customs and Border Protection, (202) 325-0276 or
                [email protected].
                SUPPLEMENTARY INFORMATION:
                I. Public Participation
                 Interested persons are invited to participate in this rulemaking by
                submitting written data, views, or arguments on all aspects of this
                notice of proposed rulemaking (NPRM). U.S. Customs and Border
                Protection (CBP) also invites comments that relate to the economic,
                environmental, or federalism effects that might result from this
                proposed rule. Comments that will provide the most assistance to CBP
                will reference a specific portion of the NPRM, explain the reason for
                any recommended change, and include data, information or authority that
                support such recommended change.
                II. Background
                 The country of origin of merchandise imported into the customs
                territory of the United States (the fifty states, the District of
                Columbia, and Puerto Rico) is important for several reasons. The
                country of origin of merchandise determines the rate of duty,
                admissibility, quota, eligibility for procurement by government
                agencies, and marking requirements. There are various rules of origin
                for goods imported into the customs territory of the United States,
                generally referred to as ``preferential'' and ``non-preferential''
                rules of origin. ``Preferential'' rules are those that apply to
                merchandise to determine eligibility for special treatment, including
                reduced or zero tariff rates, under various trade agreements or duty
                preference legislation, e.g., Generalized System of Preferences. ``Non-
                preferential'' rules are those that generally apply for all other
                purposes.\1\ CBP uses the substantial transformation standard to
                determine the country of origin of goods for non-preferential purposes.
                For a substantial transformation to occur, ``a new and different
                article must emerge, `having a distinctive name, character or use.'''
                Anheuser-Busch Brewing Ass'n v. United States, 207 U.S. 556, 562 (1908)
                (quoting Hartranft v. Wiegmann, 121 U.S. 609, 615 (1887)).
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                 \1\ The term ``non-preferential purposes'' generally refers to
                purposes set forth in laws, regulations, and administrative
                determinations of general application applied to determine the
                country of origin of goods not related to the granting of tariff
                preferences pursuant to a trade agreement or a trade preference
                program such as the Generalized System of Preferences. Non-
                preferential purposes include antidumping and countervailing duties;
                safeguard measures; origin marking requirements; and any
                discriminatory quantitative restrictions or tariff quotas. They also
                include rules of origin used for trade statistics and for
                determining eligibility for government procurement. See, e.g., Art.
                I, Uruguay Round Agreement on Rules of Origin. They do not include
                the rules of origin used to determine eligibility for preferential
                tariff treatment under trade agreements unless otherwise explicitly
                specified in those agreements. Notwithstanding the above, under
                Title VII of the Tariff Act of 1930, as amended, merchandise within
                the scope of the Department of Commerce's antidumping and/or
                countervailing duty proceedings may be associated with a country of
                origin (for purposes of the scope of antidumping/countervailing
                duties) that is different from the country of origin determined by
                CBP for other purposes.
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                 CBP applies two different methods for determining if merchandise
                has been substantially transformed. One method involves case-by-case
                adjudication, relying primarily on tests articulated in judicial
                precedent and past administrative rulings. The other method consists of
                codified rules in part 102 of title 19 of the Code of Federal
                Regulations (19 CFR part 102) (referred to as the part 102 rules),
                which are primarily expressed through specified differences in the
                Harmonized Tariff Schedule of the United States (HTSUS) classification
                of the good and its materials. This method is often referred to as the
                ``change in tariff classification''
                [[Page 35423]]
                or ``tariff shift'' method. Both the case-by-case and tariff shift
                methods are intended to produce the same determinations as to origin
                because both apply the same substantial transformation standard.
                 CBP first promulgated the part 102 rules in 1994 to fulfill the
                commitment of the United States under Annex 311 of the North American
                Free Trade Agreement (NAFTA), which required the parties to establish
                rules for determining whether a good is a good of a NAFTA party (i.e.,
                the United States, Mexico, or Canada). In contrast to the case-by-case
                method, the part 102 rules were intended to provide for more certainty,
                transparency, and consistency in application of origin decisions. They
                codify, rather than constitute an alternative to, the substantial
                transformation standard and are intended to implement the standard
                consistently.\2\
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                 \2\ See ``Rules for Determining the Country of Origin of a Good
                for Purposes of Annex 311 of the North American Free Trade
                Agreement; Rules of Origin Applicable to Imported Merchandise,'' 60
                FR 22312, 22314 (May 5, 1995), citing, in part, ``Rules of Origin
                Applicable to Imported Merchandise,'' 59 FR 141 (Jan. 3, 1994).
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                Country of Origin Marking Requirements for Imported Merchandise From
                Canada or Mexico Pursuant to the Agreement Between the United States of
                America, the United Mexican States, and Canada (USMCA) \3\
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                 \3\ The Agreement Between the United States of America, the
                United Mexican States, and Canada is the official name of the USMCA
                treaty. Please be aware that, in other contexts, the same document
                is also referred to as the United States-Mexico-Canada Agreement.
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                 On November 30, 2018, the ``Protocol Replacing the North American
                Free Trade Agreement with the Agreement Between the United States of
                America, the United Mexican States, and Canada'' (the Protocol) was
                signed to replace the NAFTA. Section 601 of the United States-Mexico-
                Canada Agreement Implementation Act (USMCA Act), Public Law 116-113,
                134 Stat. 11 (19 U.S.C. Chapter 29), repealed the North American Free
                Trade Agreement Implementation Act (NAFTA Implementation Act), Public
                Law 103-182, 107 Stat. 2057 (19 U.S.C. 3301 et seq.), as of the date
                that the USMCA entered into force, July 1, 2020. The NAFTA provisions
                set forth in part 181 of title 19 of the CFR (19 CFR part 181) and in
                General Note 12, Harmonized Tariff Schedule of the United States
                (HTSUS), continue to apply to goods entered for consumption, or
                withdrawn from warehouse for consumption, prior to July 1, 2020. On
                July 1, 2020, CBP published an interim final rule (IFR) in the Federal
                Register (CBP Dec. 20-11) amending 19 CFR part 181 and adding a new
                part 182 of title 19 of the CFR (19 CFR part 182) containing several
                USMCA provisions, including the Uniform Regulations regarding rules of
                origin (appendix A to part 182). See 85 FR 39690 (July 1, 2020).
                 In another IFR published elsewhere in this issue of the Federal
                Register (``Agreement Between the United States of America, the United
                Mexican States, and Canada (USMCA) Implementing Regulations Related to
                the Marking Rules, Tariff-rate Quotas, and Other USMCA Provisions''
                (RIN 1515-AE56)), CBP is amending the CBP regulations to include
                additional USMCA implementing regulations in 19 CFR part 182 and to
                amend other portions of title 19 of the CFR. The IFR includes
                amendments to parts 102 and 134 of title 19 of the CFR (19 CFR parts
                102 and 134) to apply the rules of origin set forth in 19 CFR part 102
                for determining the country of origin for the marking of goods imported
                from Canada or Mexico. Those amendments facilitate the transition from
                the NAFTA to the USMCA by maintaining the status quo for country of
                origin for marking determinations.
                Non-Preferential Origin Determinations for Merchandise Imported From
                Canada or Mexico
                 Although the NAFTA Implementation Act was repealed by the USMCA Act
                as of July 1, 2020, the part 102 rules remain in 19 CFR part 102 and
                are applicable for country of origin marking determinations for goods
                imported from Canada or Mexico under the USMCA (pursuant to the IFR,
                being concurrently published, as explained above). The part 102 rules,
                specifically Sec. Sec. 102.21 through 102.25, are also to be used by
                CBP to determine the country of origin of textile and apparel products
                (imported from all countries except from Israel (see 19 CFR 102.22)),
                including the administration of quantitative restrictions, if
                applicable.
                 After the part 102 rules were promulgated in 1994, the rules were
                subsequently amended to also include references to specific U.S. trade
                agreements that incorporated those rules as part of the determination
                for trade preference eligibility, i.e., for preference purposes. For
                example, as indicated in the scope provision for part 102, the rules
                set forth in Sec. Sec. 102.1 through 102.21 also apply for purposes of
                determining whether an imported good is a new or different article of
                commerce under Sec. 10.769 of the United States-Morocco Free Trade
                Agreement regulations and Sec. 10.809 of the United States-Bahrain
                Free Trade Agreement regulations.
                 Unlike the NAFTA, the USMCA does not refer to a marking
                requirement, except with regard to certain agricultural goods. For
                certain agricultural goods, the USMCA does contain a requirement that a
                good must first qualify to be marked as a good of Canada or Mexico in
                order to receive preferential tariff treatment under the USMCA. For
                most goods, only the general Uniform Regulations regarding rules of
                origin set forth in Appendix A of part 182 of title 19 (19 CFR part
                182) and the product-specific rules of origin contained in General Note
                11, HTSUS, are needed to determine whether a good is an originating
                good under the USMCA and therefore is eligible to receive preferential
                tariff treatment.
                 The Secretary of the Treasury has general rulemaking authority,
                pursuant to 19 U.S.C. 1304 and 1624, to make such regulations as may be
                necessary to carry out the provisions of section 304(a) of the Tariff
                Act of 1930, as amended, related to the country of origin requirements
                for imported articles of foreign origin. The Department of the Treasury
                and CBP have concluded that extending application of the well-
                established part 102 rules to goods imported from the USMCA countries
                of Canada and Mexico will provide continuity for the importing
                community because those rules have been applied to all imports from
                these countries since 1994.\4\ The importing community has made
                extensive efforts to comply with the part 102 rules and CBP has
                significant experience in applying those rules to imported merchandise
                from Canada and Mexico. The part 102 rules, as codified, are a
                reliable, simplified, and standardized method for CBP when determining
                the country of origin for customs purposes.
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                 \4\ This rule does not apply for purposes of determining whether
                merchandise is subject to the scope of antidumping and
                countervailing duty proceedings under Title VII of the Tariff Act of
                1930, as amended, as such determinations fall under the authority of
                the Department of Commerce. Specifically, notwithstanding a CBP
                country of origin determination, that merchandise may be subject to
                the scope of antidumping and/or countervailing duty proceedings
                associated with a different country.
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                 When promulgating the part 102 rules in 1994, the U.S. Customs
                Service (now CBP) explained:
                 . . . the long history of the substantial transformation rule,
                [and] its administration has not been without problems. These
                problems devolve from the fact that application of the substantial
                transformation rule is on a case-by-case basis and often involves
                subjective judgments as to what
                [[Page 35424]]
                constitutes a new and different article or as to whether processing
                has resulted in a new name, character, and use. As a result,
                application of the substantial transformation rule has remained
                essentially non-systematic in that a judicial or administrative
                determination in one case more often than not has little or no
                bearing on another case involving a different factual pattern. Thus,
                while judicial and administrative decisions involving the
                substantial transformation rule may have some value as restatements
                or refinements of the basic rule, they are often of little
                assistance in resolving individual cases involving the myriad of
                issues or tests that have arisen, such as the distinction between
                producer's goods and consumer's goods, the significance of further
                manufacturing or finishing operations, and the issue of dedication
                to use. The very fact that the substantial transformation rule has
                been the subject of a large number of judicial and administrative
                determinations is testament to the basic problem: The case-by-case
                approach, involving application of the rule based on specific sets
                of facts, has led to varied case-specific interpretations of the
                basic rule, resulting in a lack of predictability which in turn has
                engendered a significant degree of uncertainty both within Customs
                and in the trade community as regards the effect that a particular
                type of processing should have on an origin determination.
                ``Rules for Determining the Country of Origin of a Good for Purposes of
                Annex 311 of the North American Free Trade Agreement,'' 59 FR 110, 141
                (January 3, 1994).
                 Importers of goods from Canada and Mexico are well-versed in the
                part 102 rules, and the greater specificity and transparency those
                rules provide will facilitate the determination of eligibility for
                USMCA tariff preferences for certain agricultural goods, as noted
                above. Accordingly, to make the transition from the NAFTA to the USMCA
                as smooth as possible for the importing community, CBP is amending 19
                CFR parts 102 and 134, in the IFR concurrently published today, to
                continue application of the part 102 rules to determine the country of
                origin for marking purposes of a good imported from Canada or Mexico.
                 CBP has not previously applied the part 102 rules for non-
                preferential origin determinations involving goods imported from Canada
                and Mexico other than for textile products and for purposes of
                determining country of origin marking. CBP has, instead, used case-by-
                case adjudication for other non-preferential origin determinations. CBP
                makes such non-preferential origin determinations for purposes such as
                admissibility, quota, procurement by government agencies, and
                application of duties imposed under sections 301 to 307 of the Trade
                Act of 1974, as amended (19 U.S.C. 2411-2417, commonly referred to as
                ``Section 301''). This means that importers of goods from Canada and
                Mexico are subject to two different non-preferential origin
                determinations for imported merchandise: One for marking; and, another
                for determining origin for other purposes. Consequently, these
                importers must also potentially comply with requirements to declare two
                different countries of origin for the same imported good (e.g., Canada
                and China). This burdens importers with unnecessary additional
                requirements, creates inconsistency, and reduces transparency.
                 To address these burdens, CBP is proposing to amend the scope
                section of part 102 of title 19 of the CFR so that the substantial
                transformation standard will be applied consistently across all non-
                preferential origin determinations that CBP makes for merchandise
                imported from Canada and Mexico. This purpose is accomplished by adding
                new language to the scope provision of the part 102 rules. The proposed
                regulatory change will obviate the need for importers of merchandise
                from Canada and Mexico wishing to comply with the various laws that
                require CBP origin determinations from having to request multiple non-
                preferential country of origin determinations from CBP for a particular
                good. The proposed regulatory change also means that CBP will no longer
                need to issue rulings with multiple non-preferential origin
                determinations goods imported from Canada or Mexico, and there will no
                longer be rulings that conclude that a good imported from Canada or
                Mexico has two different origins under the USMCA (i.e., one for marking
                and one for other, customs non-preferential purposes). CBP's
                application of the part 102 rules would not, however, affect similar
                determinations made by other agencies, such as the Department of
                Commerce's scope determinations in antidumping or countervailing duty
                proceedings (see 19 CFR 351.225), determinations by the Agricultural
                Marketing Service under the Country of Origin Labeling (``COOL'') law
                (see 7 CFR part 65), or origin determinations made by other agencies
                for purposes of government procurement under the Federal Acquisition
                Regulation (see 48 CFR chapter 1).
                 CBP is also proposing to make corresponding edits to part 177 of
                title 19 of the CFR, which sets forth the requirements for various
                types of administrative rulings. Specifically, subpart B of part 177
                applies to the issuance of country of origin advisory rulings and final
                determinations relating to government procurement for purposes of
                granting waivers of certain ``Buy American'' restrictions in U.S. law
                and practice for products from eligible countries. As noted in 19 CFR
                177.21, the subpart is intended to be applied consistent with the
                Federal Acquisition Regulation (48 CFR chapter 1) and the Defense
                Acquisition Regulations System (48 CFR chapter 2). It is also noted
                that Chapter 13 of the USMCA provides that the United States will apply
                the same rules of origin to Mexican imports for government procurement
                as it does for other trade. The United States has the same obligation
                to Canada under Article IV:5 of the WTO Agreement on Government
                Procurement. While the substantial transformation standard already
                applies by statute (19 U.S.C. 2518(4)(B)), CBP's proposed application
                of the part 102 rules to make these substantial transformation
                determinations would ensure the consistency of CBP determinations for
                goods imported from Mexico and Canada. The proposed regulatory change
                will specifically provide that, when making country of origin
                determinations for purposes of subpart B of part 177, the part 102
                rules will be applied by CBP to determine whether goods imported into
                the United States from Canada or Mexico previously underwent a
                substantial transformation in Canada or Mexico. The proposed regulatory
                change would not affect the origin determinations other agencies make
                related to procurement.
                III. Discussion of Proposed Amendments
                 Pursuant to 19 U.S.C. 4535(a), the Secretary of the Treasury has
                the authority to prescribe such regulations as may be necessary to
                implement the USMCA. Section 103(b)(1) of the USMCA Act (19 U.S.C.
                4513(b)(1)) requires that initial regulations necessary or appropriate
                to carry out the actions required by or authorized under the USMCA Act
                or proposed in the Statement of Administrative Action approved under 19
                U.S.C. 4511(a)(2) to implement the USMCA shall, to the maximum extent
                feasible, be prescribed within one year after the date on which the
                USMCA enters into force. The Secretary also has general rulemaking
                authority, pursuant to 19 U.S.C. 1304 and 1624, to make such
                regulations as may be necessary to carry out the provisions of the
                Tariff Act of 1930, as amended, related to the country of origin
                requirements for imported articles of foreign origin. The Secretary
                also has authority under 19 U.S.C. 1502 to regulate the procedures for
                issuing binding rulings, and 19 U.S.C. 2515(b)(1) requires the
                Secretary to make rulings and determinations as to
                [[Page 35425]]
                substantial transformation under 19 U.S.C. 2518(4)(B).
                 CBP is proposing to amend the scope provision in 19 CFR part 102 to
                apply the substantial transformation standard consistently across
                country of origin determinations CBP makes for imported goods from the
                USMCA countries of Canada and Mexico for non-preferential purposes.\5\
                Specifically, CBP proposes to amend section 102.0 to extend the scope
                of part 102 to state that the rules set forth in Sec. Sec. 102.1
                through 102.18 and 102.20 are intended to apply to CBP's country of
                origin determinations for non-preferential purposes for goods imported
                from Canada and Mexico.
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                 \5\ See supra footnote 4.
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                 CBP is also proposing to amend subpart B of 19 CFR part 177 to add
                a cross-reference to clarify that, for ``country of origin'' in Sec.
                177.22(a), the determination pursuant to 19 U.S.C. 2515(b)(1) as to
                whether an article has been substantially transformed into a new and
                different article of commerce with a name, character, or use distinct
                from that of the article or articles from which it was so transformed,
                for purposes of granting waivers of certain ``Buy American''
                restrictions, must be made using the rules set forth in Sec. Sec.
                102.1 through 102.18 and 102.20 of title 19 of the CFR for goods from
                Canada and Mexico.
                IV. Statutory and Regulatory Authority
                A. Executive Orders 13563 and 12866
                 Executive Orders 13563 and 12866 direct agencies to assess the
                costs and benefits of available regulatory alternatives and, if
                regulation is necessary, to select regulatory approaches that maximize
                net benefits (including potential economic, environmental, public
                health and safety effects, distributive impacts, and equity). Executive
                Order 13563 emphasizes the importance of quantifying both costs and
                benefits, of reducing costs, of harmonizing rules, and of promoting
                flexibility. This rulemaking is a ``significant regulatory action,''
                although not an economically significant regulatory action, under
                section 3(f) of Executive Order 12866. Accordingly, the Office of
                Management and Budget (OMB) has reviewed this regulation.
                Background and Purpose of Rule
                 All merchandise of foreign origin imported into the United States
                must generally be marked with its country of origin, and it is subject
                to a country of origin determination by CBP.\6\ The country of origin
                of imported goods may be used as a factor to determine preferential
                trade treatment, such as eligibility under various trade agreements and
                special duty preference legislation, like the Generalized System of
                Preferences. The country of origin of imported goods is also used to
                determine non-preferential trade treatment, such as admissibility,
                marking, and trade relief.\7\ Importers must exercise reasonable care
                in determining the country of origin of their goods and often make this
                determination on their own. However, some importers may seek advice
                from CBP to determine the country of origin for their goods for
                preferential and/or non-preferential purposes.
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                 \6\ See 19 U.S.C. 1304 and 19 CFR part 134.
                 \7\ See supra footnote 4.
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                 CBP applies two methods for determining the country of origin of
                imports for non-preferential purposes, as stated above. One method
                involves case-by-case adjudication to determine whether the goods have
                been substantially transformed in a particular country, relying
                primarily on judicial precedent and past administrative rulings. The
                other method consists of codified rules in part 102 of title 19 of the
                Code of Federal Regulations (19 CFR part 102) (referred to as the part
                102 rules), which are also used to determine whether the goods have
                been substantially transformed, but are primarily expressed through
                specific changes in the Harmonized Tariff Schedule of the United States
                (HTSUS) classification, often referred to as a ``tariff shift.'' Both
                the case-by-case and tariff shift methods implement the substantial
                transformation standard and are intended to lead to the same result.
                 Prior to the USMCA, under the NAFTA, country of origin marking
                determinations were made using the NAFTA marking rules codified in 19
                CFR part 102 that specify whether a good imported from Canada or Mexico
                that is not entirely of Canadian or Mexican origin has been
                substantially transformed through processes that resulted in changes in
                the tariff classification (i.e., tariff shifts) in Canada or Mexico. To
                determine the country of origin of goods imported from Canada or Mexico
                for other non-preferential purposes (i.e., purposes other than
                marking), CBP employed case-by-case adjudication to determine whether
                such goods were substantially transformed in those NAFTA countries.
                These different non-preferential country of origin-determination
                methods required some importers to determine and declare two different
                countries of origin for the same imported good (e.g., Canada and
                China).
                 The USMCA, which recently superseded the NAFTA, was generally
                silent as to how the country of origin should be determined for goods
                imported from Canada and Mexico for marking and other non-preferential
                purposes. However, CBP is concurrently publishing an IFR in this issue
                of the Federal Register that, among other things, continues to apply
                the existing part 102 rules for determining the country of origin for
                marking of goods imported from Canada or Mexico. In this proposed rule,
                CBP proposes to expand the scope of the part 102 rules to provide that
                those rules are also to be generally applicable for all other (i.e.,
                other than marking) non-preferential origin determinations made by CBP
                for goods imported from the USMCA countries of Canada and Mexico. CBP's
                application of the part 102 rules would not, however, affect similar
                determinations made by other agencies, such as the Department of
                Commerce's scope determinations in antidumping or countervailing duty
                proceedings (see 19 CFR 351.225).
                 With this regulatory change, all non-preferential country of origin
                determinations by CBP for goods imported from Canada or Mexico would be
                based on substantial transformation pursuant to the tariff shift rules
                required by 19 CFR part 102. This would eliminate the need for some
                importers of products from Canada or Mexico to request two different
                non-preferential determinations--one for country of origin marking and
                one for case-by-case adjudication for other non-preferential purposes--
                to confirm CBP's treatment of their imports and avoid potentially
                different determinations. The rulemaking would also eliminate the need
                for some importers to comply with requirements to declare two different
                countries of origin for the same imported good (e.g., Canada and
                China). CBP is proposing these changes to simplify and standardize
                country of origin determinations by CBP for all non-preferential
                purposes for goods imported from Canada or Mexico.
                Population Affected by Rule
                 This rulemaking would directly affect certain importers of goods
                from Canada and Mexico and the U.S. Government (particularly CBP). In
                fiscal year (FY) 2019, 38,832 importers \8\ made 2.6 million non-NAFTA-
                preference entries
                [[Page 35426]]
                of goods from Canada and Mexico.\9\ All of these entries were subject
                to non-preferential country of origin marking requirements, while some
                of these goods were also subject to other non-preferential country of
                origin determinations, like trade remedies, that involve case-by-case
                adjudication. Around the same time, in FY 2020 and the start of FY
                2021, CBP issued 52 rulings determining the origin of goods imported
                from Canada and Mexico for non-preferential purposes.\10\ These
                rulings, except for those involving the importation of certain textile
                and apparel products, employed case-by-case adjudication to determine
                whether such goods were substantially transformed in Canada or Mexico
                or other countries.
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                 \8\ Based on unique importer of record (IOR) numbers of
                importers who entered goods in FY 2019. In some cases, multiple IOR
                numbers correspond to the same entity.
                 \9\ These goods were not eligible for the generalized system of
                preferences.
                 \10\ Based on data from October 1, 2019, to December 16, 2020.
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                 In the future, CBP projects that around 38,832 importers would
                continue to make around 2.6 million entries of goods from Canada and
                Mexico that are subject to non-preferential trade treatment, with or
                without this rule, each year. An unknown share of these importers would
                enter goods subject to non-marking-related non-preferential treatment.
                CBP also projects that about 52 case-by-case non-preferential country
                of origin determinations would be requested and issued each year in the
                absence of this rulemaking based on the historical number of case-by-
                case adjudications. This rulemaking would eliminate such case-by-case
                determination requests and the issuance of such rulings.
                Costs and Revenue Impacts of Rule
                 This rulemaking may introduce changes in non-preferential payments
                from importers to the U.S. Government. In addition, there may be
                minimal costs for some importers, as discussed in this section.
                Changing from case-by-case adjudications for other non-preferential
                origin purposes to part 102's tariff shift rules may impose some costs
                on importers with goods from Canada and Mexico. Importers who switch
                from using these two determination methods for non-preferential origin
                purposes to just the part 102 rules with this rulemaking may, for
                example, incur some one-time, minor costs to adjust their inventory
                tracking systems and Automated Commercial Environment (ACE) entries to
                reflect the part 102-based non-marking, non-preferential country of
                origin for their goods in those cases where origin determinations under
                the current practice have been inconsistent.\11\ In such instances,
                importers may also need to adjust their business practices to ensure
                that they properly use the part 102 rules for all non-preferential
                country of origin purposes when the goods are sourced from Canada or
                Mexico under this proposed rule. These same importers must also ensure
                that they use case-by-case adjudications for any goods sourced outside
                of Canada or Mexico that are subject to non-preferential treatment. The
                extent of these costs on importers is unknown, but likely to be
                minimal. CBP requests public comments on these costs and any other
                costs of this rule to importers. This rule would not introduce costs to
                CBP.
                ---------------------------------------------------------------------------
                 \11\ As an example, if an importer has an inventory tracking
                system that identifies the non-marking, non-preferential country of
                origin for its goods from Canada and Mexico based on existing case-
                by-case adjudication rules, with this rule, that importer may need
                to revise the system to ensure that it identifies the goods based on
                the part 102 rules if the importer is importing goods subject to
                inconsistent origin determinations under the current practice.
                ---------------------------------------------------------------------------
                 In addition to costs, applying the part 102 (tariff shift) rules of
                origin rather than case-by-case adjudications to determine the origin
                for other non-preferential purposes could lead to trade policy outcomes
                different from historical and current practice. If an importer's goods
                are subject to inconsistent origin determinations under the current
                practice, this proposed rule may lead to a change in non-preferential
                payments from importers to the U.S. Government, which would result in
                an equal change in U.S. Government revenue. The number of instances
                where an importer would receive a different non-preferential country of
                origin determination under this rulemaking compared to current practice
                would likely be low, especially considering both methods apply the same
                substantial transformation standard and are intended to reach the same
                results. The specific effects of these different determinations on
                revenue are unknown. Any change in payments from importers to the U.S.
                Government as a result of this rulemaking are considered transfers
                rather than costs or benefits as they are moving money from one part of
                society to another.\12\ CBP requests public comments on the potential
                number of instances where a good would be treated differently under
                trade remedy laws and relief under the new rule compared to historical
                and current practice and any related effects on revenue.
                ---------------------------------------------------------------------------
                 \12\ As described in OMB Circular A-4, transfer payments occur
                when ``. . . monetary payments from one group [are made] to another
                [group] that do not affect total resources available to society.''
                Examples of transfer payments include payments for insurance and
                fees paid to a government agency for services that an agency already
                provides.
                ---------------------------------------------------------------------------
                Benefits of Rule
                 Besides costs and revenue impacts, this rulemaking would introduce
                benefits to importers and the U.S. Government. Importers must exercise
                reasonable care when determining the country of origin for their goods,
                which can include researching previous case-by-case adjudications on
                substantial transformation. This rulemaking would enhance the
                consistency of country of origin marking and non-preferential country
                of origin determinations for goods imported from Canada and Mexico. All
                determinations made by CBP would be based on substantial transformation
                through application of the part 102 rules. This change would allow
                importers of goods from Canada and Mexico to comply with just one non-
                preferential country of origin determination made by CBP for their
                goods rather than two.
                 The overall benefit to importers of complying with just one country
                of origin determination method from CBP for their goods from Canada and
                Mexico is unknown. Some importers who require CBP ruling requests to
                determine the country of origin for non-preferential purposes would
                enjoy greater benefits from the transition to just one non-preferential
                determination method. As previously described, importers of goods from
                Canada and Mexico must currently request two country of origin rulings
                from CBP if they cannot determine the country of origin for non-
                preferential purposes--one for country of origin marking and one for
                case-by-case adjudication for other non-preferential purposes. CBP
                estimates that a case-by-case determination request takes an importer
                at least 8 hours on average to request, at a time cost of $250.96 per
                request according to an importer's average hourly time value of
                $31.37.\13\ Based on
                [[Page 35427]]
                this time cost and the historical average of about 52 case-by-case
                adjudication requests for non-preferential country of origin
                determinations for goods imported from Canada and Mexico, CBP estimates
                that importers would save at least $13,050 in research time costs each
                year from no longer submitting case-by-case adjudication requests to
                CBP for their non-preferential country of origin requests for goods
                from Canada and Mexico. These requests may impose an unknown amount of
                additional time and resource costs on importers from an importer's
                gathering of information for the process and drafting the request,
                which could be avoided with this rulemaking.
                ---------------------------------------------------------------------------
                 \13\ CBP bases this $31.37 loaded wage rate on the Bureau of
                Labor Statistics' (BLS) 2020 median hourly wage rate for Cargo and
                Freight Agents ($21.04), which CBP assumes best represents the wage
                for importers, multiplied by the ratio of BLS' average 2020 total
                compensation to wages and salaries for Office and Administrative
                Support occupations (1.4912), the assumed occupational group for
                importers, to account for non-salary employee benefits. Source of
                median wage rate: U.S. Bureau of Labor Statistics. Occupational
                Employment Statistics, ``May 2020 National Occupational Employment
                and Wage Estimates United States- Median Hourly Wage by Occupation
                Code- Occupation Code 43-5011.'' Updated March 31, 2020. Available
                at https://www.bls.gov/oes/2020/may/oes_nat.htm. Accessed June 1,
                2021. The total compensation to wages and salaries ratio is equal to
                the calculated average of the 2020 quarterly estimates (shown under
                Mar., June, Sep., Dec.) of the total compensation cost per hour
                worked for Office and Administrative Support occupations ($28.8875)
                divided by the calculated average of the 2020 quarterly estimates
                (shown under Mar., June, Sep., Dec.) of wages and salaries cost per
                hour worked for the same occupation category ($19.3725). Source of
                total compensation to wages and salaries ratio data: U.S. Bureau of
                Labor Statistics. Employer Costs for Employee Compensation. Employer
                Costs for Employee Compensation Historical Listing March 2004-
                December 2020, ``Table 3. Civilian workers, by occupational group:
                employer costs per hours worked for employee compensation and costs
                as a percentage of total compensation, 2004-2020.'' March 2021.
                Available at https://www.bls.gov/web/ecec/ececqrtn.pdf. Accessed
                June 1, 2021.
                ---------------------------------------------------------------------------
                 Furthermore, CBP's country of origin determinations sometimes
                result in an imported good being determined to be a product of Canada
                or Mexico for some customs purposes and a good of a third country for
                other purposes. This rulemaking would eliminate these different
                determinations, which would standardize country of origin
                determinations for non-preferential purposes for goods imported from
                the USMCA countries of Canada and Mexico. CBP's application of the part
                102 rules would not, however, affect similar determinations made by
                other agencies, such as the Department of Commerce's scope
                determinations in antidumping or countervailing duty proceedings (see
                19 CFR 351.225). This standardized approach would provide additional
                benefits to importers, but the extent of these benefits is unknown. CBP
                requests public comments on the benefits of this change to importers.
                Although this rulemaking would eliminate the need for some importers to
                request case-by-case country of origin determinations for non-
                preferential purposes, it may require such importers to now request
                classification determinations for their goods imported from Canada and
                Mexico. The extent of these new classification requests is unknown. To
                the extent that importers would need to request additional
                classification determinations in place of case-by-case adjudications,
                the benefits of this rulemaking to importers would be lower. CBP
                requests public comments on any other benefits of this rulemaking to
                importers.
                 As previously stated, CBP issued 52 non-preferential determinations
                adjudicated on a case-by-case basis for goods imported from Canada and
                Mexico from October 2019 to December 2020. This rulemaking would
                eliminate the need for CBP to make such case-by-case determinations for
                similar goods imported from Canada and Mexico in the future. The
                current method for CBP to determine country of origin on a case-by-case
                basis for non-preferential purposes is generally more time and
                resource-intensive than the tariff-shift method. For CBP, country of
                origin determinations for non-preferential purposes based on case-by-
                case adjudications are highly individual, fact-intensive exercises.
                This rulemaking would largely make it easier for CBP to administer
                rules of origin for non-preferential country of origin determinations
                for goods imported from Canada and Mexico by employing the codified
                part 102 rules for both country of origin marking and other non-
                preferential purposes. By eliminating the need for importers to request
                non-preferential case-by-case determinations of their goods from Canada
                and Mexico, CBP would save an average of 5 hours to 40 hours currently
                dedicated to each case-by-case adjudication. This would translate to a
                time cost saving of between $494.90 and $3,959.20 based on a CBP
                attorney's average hourly time value of $98.98.\14\ CBP estimates that
                with this proposed rule, CBP would no longer have to make 52 case-by-
                case rulings determining the origin of goods imported from Canada or
                Mexico for non-preferential purposes according to historical data.
                Considering these forgone determinations and the average time cost per
                determination, CBP would save approximately $25,735 to $205,878 per
                year from this rulemaking. These benefits would represent time cost
                savings to CBP rather than budgetary savings, meaning that CBP could
                use the savings to perform other agency missions, such as facilitating
                trade. As previously stated, this rulemaking may increase requests for
                classifications of goods imported from Canada and Mexico, though the
                extent of these requests is unknown. To the extent that CBP would need
                to conduct additional classifications in place of case-by-case
                adjudications, the benefits of this rulemaking to CBP would be lower.
                ---------------------------------------------------------------------------
                 \14\ CBP bases this wage on the FY 2019 salary, benefits, and
                non-salary costs (i.e., fully loaded wage) of the national average
                of CBP attorney positions.
                ---------------------------------------------------------------------------
                Net Impact of Rule
                 In summary, this rulemaking would introduce costs, revenue changes,
                and benefits to importers and the U.S. Government. Some importers, for
                example, whose goods are subject to inconsistent origin determinations
                under the current practice, may incur minor costs to adjust their
                inventory tracking systems, ACE entries, and business practices to
                reflect the new country of origin determination for other non-
                preferential purposes, as described above. Transitioning to the
                proposed tariff shift system could also lead to an increase or decrease
                in non-preferential payments from importers, which would lead to an
                equal increase or decrease in revenue to the U.S. Government. The exact
                amounts of these costs and revenue changes are unknown, but they should
                be small considering the tariff shift methodology implements the same
                substantial transformation standard as the existing case-by-case
                method. Additionally, the rule would implement a simpler, standardized
                administration system for country of origin determinations made by CBP
                for all non-preferential purposes for goods imported from Canada and
                Mexico that would save importers and the U.S. Government time and
                resources. Importers could save at least an estimated $13,050 in time
                costs annually from this rulemaking, while the U.S. Government could
                save between $25,735 and $205,878 in time costs each year. Overall, CBP
                believes this rulemaking's benefits would outweigh the costs.
                B. Regulatory Flexibility Act
                 The Regulatory Flexibility Act (RFA; 5 U.S.C. 601 et. seq.), as
                amended by the Small Business Regulatory Enforcement and Fairness Act
                of 1996, requires agencies to assess the impact of regulations on small
                entities. A small entity may be a small business (defined as any
                independently owned and operated business not dominant in its field
                that qualifies as a small business per the Small Business Act); a small
                not-for-profit organization; or a small governmental jurisdiction
                (locality with fewer than 50,000 people).
                 This rulemaking proposes to expand the scope of the 19 CFR part 102
                rules to provide that those rules are to be generally applicable to all
                non-preferential country of origin determinations made by CBP for goods
                imported from the USMCA countries of Canada and Mexico. With this
                change,
                [[Page 35428]]
                country of origin marking and all other non-preferential country of
                origin determinations made by CBP for goods imported from Canada or
                Mexico would be based on substantial transformations occurring with
                tariff shifts as defined under part 102. CBP's application of the part
                102 rules would not, however, affect similar determinations made by
                other agencies, such as the Department of Commerce's scope
                determinations in antidumping or countervailing duty proceedings (see
                19 CFR 351.225).
                 In FY 2019, 38,832 importers \15\ made 2.6 million non-NAFTA-
                preference entries of goods from Canada and Mexico, valued at $155
                billion.\16\ All of these entries were subject to non-preferential
                country of origin marking requirements, while some were also subject to
                other non-preferential country of origin determinations, like trade
                remedies, that involve case-by-case adjudication. CBP does not have
                precise data on the number of importers who entered goods from Canada
                and Mexico that were subject to country of origin requirements for
                marking and another non-preferential purpose that would be affected by
                this rulemaking. Based on available FY 2019 data on goods from Canada
                and Mexico subject to part 102 rules for marking and that involve case-
                by-case adjudication for the non-preferential purposes of Section 201
                and Section 232 duties and quotas, as well as the 38,832 importers who
                entered non-NAFTA preference goods from Canada and Mexico in FY 2019,
                CBP estimates that this rulemaking could affect between approximately
                10,000 and 38,832 unique importers entering goods from the USMCA
                countries of Canada and Mexico each year. These importers would range
                from individual buyers (households or businesses) to large businesses
                across many different industries. Some industries and businesses may be
                more affected than others, depending on the ultimate country of origin
                determination and the classification of the merchandise being imported.
                The exact number of small importers affected by this rulemaking is
                unknown. However, according to a separate CBP analysis, the vast
                majority of importers are classified as small businesses. Because this
                rulemaking would directly affect importers and the vast majority of
                importers are small businesses, the rule could affect a substantial
                number of small entities.
                ---------------------------------------------------------------------------
                 \15\ Based on unique importer of record numbers of importers who
                entered goods in FY 2019. In some cases, multiple IOR numbers
                correspond to the same entity.
                 \16\ These goods were not eligible for the Generalized System of
                Preferences.
                ---------------------------------------------------------------------------
                 The Regulatory Flexibility Act does not specify thresholds for
                economic significance but instead gives agencies flexibility to
                determine the appropriate threshold for a particular rule. Changing
                from case-by-case adjudications for other non-preferential origin
                purposes to part 102's tariff shift rules may impose some costs on
                importers with goods from Canada and Mexico. Importers who switch from
                using these two determination methods for non-preferential origin
                purposes to just the part 102 rules with this rulemaking may incur some
                one-time, minor costs to adjust their inventory tracking systems and
                Automated Commercial Environment entries to reflect the part 102-based
                non-marking-related, non-preferential country of origin for their
                goods. As an example, if an importer has an inventory tracking system
                that identifies the non-marking, non-preferential country of origin for
                its goods from Canada and Mexico based on existing case-by-case
                adjudication rules, with this rulemaking, that importer may need to
                revise the system to ensure that it identifies the goods based on the
                part 102 rules if the importer is importing goods subject to
                inconsistent origin determinations under the current practice. These
                determinations should match the country of origin determinations that
                importers must already make for non-preferential marking purposes.
                According to representatives of the Commercial Operations Advisory
                Committee, these costs will be approximately $2,000-$3,000 per company.
                 Some importers who source the same goods from Canada or Mexico and
                another country may also need to adjust their business practices to
                ensure that they properly use the part 102 rules for customs non-
                preferential country of origin purposes when the good is sourced from
                Canada or Mexico once this rulemaking is in effect and use case-by-case
                adjudications for any goods sourced outside of Canada or Mexico that
                are subject to non-preferential treatment. According to representatives
                of the Commercial Operations Advisory Committee, these costs are
                minimal. For mid to large companies, these costs would total at most
                $2,000 to $3,000 (note that this is in addition to a similar estimate
                above). Smaller companies would have smaller costs.
                 CBP does not believe that these costs, a maximum of $4,000-$6,000,
                would have a significant economic impact on importers, including those
                considered small under the RFA. The annual value of importations
                average $4 million per importer, so these one-time costs make up less
                than one percent of the value of their importations. In addition, trade
                members have expressed that the non-monetized benefits of operating
                under a single set of rules well outweigh the minimal costs to comply
                with this rulemaking. Therefore, CBP certifies that this rulemaking, if
                finalized, will not have a significant economic impact on a substantial
                number of small entities. CBP welcomes comments on this conclusion.
                C. Paperwork Reduction Act
                 The Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) requires
                that CBP consider the impact of paperwork and other information
                collection burdens imposed on the public. CBP has determined that there
                is no collection of information that requires a control number assigned
                by the Office of Management and Budget.
                Signing Authority
                 This rulemaking is being issued in accordance with 19 CFR
                0.1(a)(1), pertaining to the authority of the Secretary of the Treasury
                (or that of his or her delegate) to approve regulations related to
                certain customs revenue functions.
                List of Subjects
                19 CFR Part 102
                 Canada, Customs duties and inspections, Imports, Mexico, Reporting
                and recordkeeping requirements, Trade agreements.
                19 CFR Part 177
                 Administrative practice and procedure, Customs duties and
                inspection, Government procurement, Reporting and recordkeeping
                requirements.
                Proposed Amendments to the Regulations
                 For the reasons given above, it is proposed to amend parts 102 and
                177 as set forth below:
                PART 102--RULES OF ORIGIN
                0
                1. The general authority citation for part 102 is revised to read as
                follows:
                 Authority: 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized
                Tariff Schedule of the United States), 1624, 3592, 4513.
                0
                2. Amend Sec. 102.0 by revising the second sentence and adding four
                sentences after the second sentence to read as follows:
                Sec. 102.0 Scope.
                 * * * For goods imported into the United States from Canada or
                Mexico and entered for consumption, or
                [[Page 35429]]
                withdrawn from warehouse for consumption, before [EFFECTIVE DATE OF
                FINAL RULE], these specific purposes are: country of origin marking;
                determining the rate of duty and staging category applicable to
                originating textile and apparel products as set out in Section 2
                (Tariff Elimination) of Annex 300-B (Textile and Apparel Goods) under
                NAFTA; and determining the rate of duty and staging category applicable
                to an originating good as set out in Annex 302.2 (Tariff Elimination)
                under NAFTA. CBP will determine the country of origin for all non-
                preferential purposes for goods imported into the United States from
                Canada or Mexico and entered for consumption, or withdrawn from
                warehouse for consumption, on or after [EFFECTIVE DATE OF FINAL RULE],
                using the rules set forth in Sec. Sec. 102.1 through 102.18 and
                102.20. The rules in this part regarding goods wholly obtained or
                produced in a country are intended to apply consistently for all such
                purposes. The rules in this part which determine when a good becomes a
                new and different article or a new or different article of commerce as
                a result of manufacturing processes in a given country are also
                intended to apply consistently for all purposes where this requirement
                exists for ``country of origin'' or ``product of'' determinations made
                by CBP for goods imported from Canada or Mexico. The rules in this part
                do not affect similar determinations made by other agencies, such as
                the Department of Commerce's scope determinations in antidumping or
                countervailing duty proceedings (see 19 CFR 351.225). * * *
                PART 177--ADMINISTRATIVE RULINGS
                0
                3. The general authority citation for part 177 is revised to read as
                follows:
                 Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 3(i),
                Harmonized Tariff Schedule of the United States), 1502, 1624, 1625,
                2515.
                0
                4. Amend Sec. 177.22 by adding a sentence to the end of paragraph (a)
                to read as follows:
                Sec. 177.22 Definitions.
                 (a) * * * (For goods imported into the United States after
                processing in Canada or Mexico and entered for consumption, or
                withdrawn from warehouse for consumption, on or after [EFFECTIVE DATE
                OF FINAL RULE], substantial transformation will be determined using the
                rules set forth in Sec. Sec. 102.1 through 102.18 and 102.20.)
                * * * * *
                 Troy A. Miller, the Senior Official Performing the Duties of the
                Commissioner, having reviewed and approved this document, is delegating
                the authority to electronically sign this document to Robert F. Altneu,
                who is the Director of the Regulations and Disclosure Law Division for
                CBP, for purposes of publication in the Federal Register.
                Robert F. Altneu,
                Director, Regulations & Disclosure Law Division, Regulations & Rulings,
                Office of Trade, U.S. Customs and Border Protection.
                 Approved:
                Timothy E. Skud,
                Deputy Assistant Secretary of the Treasury.
                [FR Doc. 2021-14265 Filed 7-1-21; 11:15 am]
                BILLING CODE 9111-14-P
                

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