VAL R:C:V 545891 CRS
Mr. Walt Koppelaar
Curtainsider, Inc.
1318 Rymal Road East
Hamilton, Ontario L8W 3N1
RE: Article 509; NAFTA; modification of HRL 956604; section 5, NAFTA Rules of Origin Regulations; de minimis
Dear Mr. Koppelaar:
This is to advise you that we have had occasion to review Headquarters Ruling Letter (HRL) 956604, dated September 26, 1994, with respect to that portion of the ruling that concerns the de minimis rule for determining whether a good produced with non-originating materials that do not undergo a change in classification nevertheless qualifies as an originating good under the North American Free Trade Agreement (NAFTA). As the result of our review we have determined that HRL 956604 should be modified. Pursuant to section 625(c)(1), Tariff Act of 1930 (19 U.S.C. § 1625(c)(1)), as amended by section 623 of Title VI (Customs Modernization) of the North American Free Trade Agreement Act (Pub. L. 103-182, 103 Stat. 2057), Customs published a notice of the proposed modification on May 17, 1995, in the Customs Bulletin, Vol. 29, No. 20.
FACTS:
HRL 956604 concerned a "Tautliner" tarpaulin system, classified in tariff item 8716.90.50, Harmonized Tariff Schedule of the United States (HTSUS), that was designed to convert a flat-bed trailer or semi-trailer into a van. The tarpaulin system, which is made from both originating and non-originating materials, is imported into the United States either separately, or as part of, and permanently mounted onto, a trailer or semi-trailer.
Nevertheless, because some of the materials used in the production of the tarpaulin system did not undergo the required change in tariff classification, it was determined that system did not qualify as an originating good for NAFTA purposes. In this regard, HRL 956604 stated in pertinent part:
However, originating status is conferred on the system because the value of the tensioning device - 0.62 percent of the total cost or value - is considered de minimis, that is, it is not more than 7 percent of the transaction value of the tarpaulin system under section 402(b) of the Tariff Act of 1930, as amended, adjusted to an F.O.B. basis, or if transaction value is unacceptable, the value of the tensioning device is not more than 7 percent of the total cost of the tarpaulin system. General Note 12(f)(I), HTSUS. The tarpaulin systems, therefore, qualify as originating goods for NAFTA purposes.
HRL 956604, at 3-4. Similarly, HRL 956604 concluded that the tarpaulin system, imported as part of a trailer or semi-trailer, qualified as an originating good under the de minimis rule. However, this determination was incorrect since the information submitted in support of the de minimis calculation was subsequently determined to be based on a breakdown by weight of the materials used in the production of the tarpaulin system, rather than on the transaction value of the tarpaulin system as required by the Customs Regulations.
ISSUE:
The issue presented is whether the tarpaulin system qualifies as an originating good pursuant to the de minimis rule.
LAW AND ANALYSIS:
Section 181.100, Customs Regulations (19 C.F.R. § 181.100), provides that any NAFTA advance ruling letter may be modified or revoked if, inter alia, it reflects or is based on an error of fact. HRL 956604 was based on incorrect factual information as to the transaction value of the tarpaulin system for purposes of determining de minimis. Accordingly, that portion of the ruling dealing with de minimis is modified in conformity with the following.
The Appendix to part 181.131, Customs Regulations (19 C.F.R. § 181.131; the NAFTA Rules of Origin Regulations (the "ROR")), provides in relevant part at section 5:
(1) Except as otherwise provided in subsection (4), a good shall be considered to originate in the territory of a NAFTA country where the value of all non originating materials that are used in the production of the good and that do not undergo an applicable change in tariff classification as a result of production occurring entirely in the territory of one or more of the NAFTA countries is not more than seven percent
(a) of the transaction value of the good determined in accordance with Schedule II with respect to the transaction in which the producer of the good sold the good, adjusted to an F.O.B. basis, . . .
ROR, section 5(1)(a). Thus in order for the "Tautliner" tarpaulin system (the "good"), whether imported separately or as part of trailer, to qualify as an originating good under section 5(1)(a), it is necessary to determine the transaction value of the good in accordance with Schedule II, then determine in accordance with Schedule VIII whether the value of the non-originating materials used in the production of the good is not more than seven percent of the good's transaction value.
We have enclosed copies of section 5(1), Schedule II and Schedule VIII in order to assist you in determining whether the Tautliner tarpaulin system qualifies as an originating good under NAFTA. If you wish U.S. Customs to make this determination, in resubmitting your ruling request, please provide us with sufficient information to calculate the transaction value of the good in accordance with Schedule II, and the value of non-originating materials in accordance with Schedule VIII. 19 C.F.R. § 181.93(b)(2)(i).
HOLDING
If the value of the non-originating materials used in the production of the good that do not undergo a change in classification is not more than seven percent of the transaction value of the tarpaulin system, determined in accordance with Schedule II, the system qualifies as an originating good in accordance with section 5(1)(a) of the ROR.
HRL 956604, dated September 26, 1994, is modified in conformity with the foregoing. In accordance with section 625(c)(1), this ruling will become effective sixty days after its publication in the Customs Bulletin. The publication of rulings or decisions pursuant to section 625 of the Tariff Act of 1930, as amended, does not establish a practice or position.
Sincerely,
John Durant, Director
Commercial Rulings Division
Enclosure