All imported and exported goods are classified under HS codes, and the authorities have traditionally determined the country of origin of domestically processed products based on changes in the applicable HS code. Where the HS codes for imported semi-finished goods and domestically processed products remained identical, the authorities generally regarded such domestic processing as “simple processing,” thereby imposing country-of-origin marking obligations applicable to imported goods. Violations of such obligations were subject to criminal penalties under the Foreign Trade Act. On this basis, Company A was prosecuted for allegedly violating these country-of-origin marking requirements.

In this case, D&A argued that the domestic processing could not be regarded as mere simple processing, even though there was no change in the HS code, because it involved the incorporation of proprietary software independently developed by the company, as well as Internet-of-Things (IoT) communication devices and other technological elements into the manufacturing process. The firm further emphasized the exception provisions under the complex rules governing the determination of origin under the Foreign Trade Act and related regulations.

Furthermore, given the highly technical nature of the case, we anticipated that the court would find it difficult to reach a decision based solely on courtroom arguments. We therefore persuaded a government authority with specialized expertise to provide an authoritative interpretation supporting our position. In addition, rather than relying solely on domestic case law, we identified and submitted comparative materials involving country-of-origin disputes from the U.S. Court of International Trade.

The first instance court accepted our arguments and acquitted the client of all charges of violating the Foreign Trade Act. Although the prosecution appealed and vigorously challenged the ruling by citing contrary precedents, the appellate court also reaffirmed the validity of the legal arguments presented by our law firm with detailed reasoning.

This case is significant because it confirmed that domestic processing cannot automatically be regarded as “simple processing” merely due to the absence of any change in HS code between imported semi-finished products and the finished products resulting from domestic processing. As global free trade systems continue to weaken and international trade disputes become increasingly frequent, the importance of non-preferential rules of origin has grown substantially. Given the interpretative uncertainties surrounding non-preferential origin determination standards under the Foreign Trade Act and related regulations, importers and exporters alike should devote considerable attention both to preventive compliance measures and to responsive strategies in the event disputes arise.

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