The U.S. Court of International Trade recently ruled in the case of JBF Bahrain W.L.L. v. United States (Docket No. 23-00067), affecting how imports from Bahrain are treated under the U.S.-Bahrain Free Trade Agreement (BFTA). The court's decision is significant for businesses involved in international trade, particularly those importing goods that include materials from third countries. The ruling clarifies the requirements for qualifying for duty-free treatment under the agreement.
The case arose after JBF Bahrain imported a type of film from Bahrain in 2015, which included materials sourced from a third country. Customs and Border Protection (CBP) denied the import's eligibility for duty-free treatment, stating that the third-country inputs did not undergo the necessary transformation to qualify under the BFTA. The dispute centered on the interpretation of the rules governing the origin of goods under the trade agreement.
Background
JBF Bahrain W.L.L., the plaintiff, is a company that imports goods from Bahrain. The defendant in this case is the United States government. The dispute began when JBF Bahrain imported biaxially oriented polyethylene terephthalate film, which was classified by Customs as ineligible for duty-free entry under the BFTA. Customs determined that the third-country inputs used in the film did not undergo a "double substantial transformation," a requirement for counting toward the 35 percent value threshold needed for preferential treatment.
The BFTA, signed in 2004, allows for preferential tariff treatment for goods produced in either Bahrain or the United States, provided they meet specific criteria. One of these criteria is that at least 35 percent of the product's value must come from materials and processing performed in either country. The agreement includes a definition of what constitutes a "new or different article of commerce," which is central to this case.
The case reached the U.S. Court of International Trade after JBF Bahrain filed a protest against Customs' ruling, which was denied. The company then sought partial summary judgment, arguing that the tariff-shift test, which allows for a less stringent requirement for determining the origin of goods, should apply in this situation.
The Ruling
On August 19, 2026, Judge M. Miller Baker issued the court's opinion, denying JBF Bahrain's motion for partial summary judgment and granting the government's cross-motion for partial summary judgment. The court ruled that the Harmonized Tariff Schedule of the United States (HTSUS) provisions governing the BFTA clearly require that a third-country input must undergo a double substantial transformation to count toward the 35 percent requirement.
The court stated, "The HTSUS—a statute—is clear. Unless the importer can show that a third-country input underwent a double substantial transformation, its cost doesn’t count toward the 35-percent requirement."
In its decision, the court emphasized that the agency regulation adopting the tariff-shift test, which JBF Bahrain argued should apply, was deemed invalid as it exceeded the authority granted by Congress. The court noted that the side letter accompanying the BFTA, which referenced the tariff-shift test, was not incorporated into the implementing legislation passed by Congress.
Impact
This ruling has significant implications for businesses engaged in trade under the BFTA. It reinforces the requirement that for goods to qualify for duty-free treatment, they must meet the stringent criteria set forth in the HTSUS, including the double substantial transformation requirement. This decision may affect how companies structure their supply chains and source materials to ensure compliance with trade regulations.
Additionally, the ruling clarifies the legal interpretation of the BFTA and the authority of Customs in determining the origin of goods. It establishes that the regulations must align with statutory language, limiting the ability of agencies to create rules that deviate from congressional intent.
What's Next
JBF Bahrain may consider appealing the court's decision, although details regarding any potential appeal were not available in the court filing. The outcome of this case could influence future disputes involving the BFTA and similar trade agreements, particularly concerning the treatment of goods with third-country inputs.