A quick explanation of substantial transformation:
As mentioned in the earlier post – Country of Origin – substantial transformation is the degree to which processing of an article leads to a new article, with a different name, character, and use. In addition, Customs uses a second method known as the “tariff shift” i.e. change in tariff classification, which is also used to determine substantial transformation. As of now, there are no uniform rules that settle country of origin questions.
As a result, substantial transformation can be highly subjective and tend to be based on political considerations. There has been much litigation in this area and have case-specific interpretations. Further, determinations as to what is considered a substantial transformation change periodically. Thus, it would be wise to discuss the nature of the product with Customs prior to importation because you are not excused from exercising reasonable care when determining the proper country of origin for your goods.