RR:IT:VA 547073 KCC
Mr. Greg Masse
FAG Bearings Limited
P.O. Box 640
Stratford, Ontario
Canada N5A 6T2
RE: Article 509; NAFTA; bearing; automotive good; originating good; non-originating good; tariff shift requirement; §2, §8 and 9(1) of the NAFTA Rules of Origin Regulation; traced material; light-duty automotive good; Schedule IV of NAFTA Rules of Origin Regulation
Dear Mr. Masse:
This is in regard to your letter dated March 12, 1998, concerning the applicability of the North American Free Trade Agreement (“NAFTA”) to “Double Row Angular Contact Wheel Bearing (no flange)” when imported into the United States. We regret the delay in responding to your request.
FACTS:
You have historically purchased components and raw materials, such as steel, to manufacture into sub-components and assembly finished bearings. You are now considering purchasing finished rings from Germany and/or the U.S. The bearings are to be used as original equipment (“OEM”) in light duty vehicles.
The following is a realistic bill of materials for a typical bearing which you could produce using purchased finished inner and outer rings from Germany and the U.S.
Component
Description
HTS
Country of Production
Cost
Cage
KF.801136TVP
8482.99.19
Germany
$0.11
Ball
KU.11,112G16.M26
8482.91.91
US
$0.97
Molded Seal
DSH.801136RSR
8482.99.90
Japan
$0.98
Grease
L71
2710.00
Germany
$0.04
Seal
DH.801136
8482.99.19
Japan
$0.70
Outer Ring
AR.80116.W21F.D50
8482.99.11
Germany
$1.79
Inner Ring
JR.801136.W21F.D40T
8482.99.11
US
$1.19
Inner Ring
JR.801136.W21F.D50
8485.99.11
Germany
$1.52
$7.29 total
We note that some of your HS subheadings listed above do not correlate to the subheadings within the Harmonized Tariff Schedule of the United States (“HTSUS”). Without an exact description of the component, we can not accurately determine proper classification. However, we can assume the classifications are as follows: the ball is classified under subheading 8482.91.10, HTSUS; the molded seal is classified under subheading 8482.99.65, HTSUS, and the seal and rings can be classified under either subheadings 8482.99.05, 8482.99.15 or 8482.99.25, HTSUS. Thus, our analysis will proceed based on these classifications.
You state that your labor and material cost is $2.24 for a total cost of $9.53 per bearing. The bearings are classified under subheading 8482.10.10, HTSUS.
ISSUE:
Based on the facts presented above, are the bearings considered to be “originating goods” in accordance with NAFTA?
LAW AND ANALYSIS:
§4 of the NAFTA Rules of Origin Regulations, Appendix to Part 181, Customs Regulations (19 CFR Appendix to Part 181) sets forth the rules for determining whether a good originates in the territory of a NAFTA Party. For example, a good will originate if it was “wholly obtained or produced” in accordance with §4(1) of the NAFTA Rules of Origin Regulations, or if it satisfies the applicable change in tariff classification, the applicable regional value calculation (“RVC”) requirement or combination thereof under §4(2) of the NAFTA Rules of Origin Regulations, to cite but a few possibilities.
As the bearings are classified under subheading 8582.10.10, HTSUS, a transformation is authorized by Schedule I of the NAFTA Rules of Origin Regulations, specifically, General Note 12(t)/85.241, HTSUS, which states:
(A) A change to subheadings 8482.10 through 8482.80 from any subheading outside that group, except from tariff items 8482.99.05, 8482.99.15 or 8482.99.25; or
(B) A change to subheadings 8482.10 through 8482.80 from tariff items 8482.99.05, 8482.99.15 or 8482.99.25, whether or not there is also a change from any subheading outside that group, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
In this situation, the non-originating materials are the cage, molded seal, grease, seal, one inner rings and the outer ring. The remaining components, ball and one inner ring, are considered to be “originating goods.” Some of the non-originating components, seal, outer ring and inner ring, are classified within subheadings 8482.99.05, 8482.99.15 or 8482.99.25, HTSUS. Thus, a change in tariff classification does not occur for these items pursuant to General Note 12(t)/85.241(A), HTSUS. Therefore, the bearings are not considered “originating goods” pursuant to General Note 12(t)/85.241(A), HTSUS.
Next, we must consider whether the bearings are “originating goods” pursuant to General Note 12(t)/85.241(B), HTSUS. We are of the opinion that the bearings do meet the tariff shift requirement of General Note 12(t)/85.241(B), HTSUS. However, the bearings must also meet the regional value content requirement, i.e., "(a) 60 percent where the transaction value method is used, or (b) 50 percent where the net cost method is used."
§9(1) of the NAFTA Rules of Origin Regulations provides the following guidance regarding the regional value content of automotive goods:
For purposes of calculating the regional value content of a light-duty automotive good under the net cost method, the value of non-originating materials used by the producer in the production of the good shall be the sum of the values of the non-originating materials that are traced materials and are incorporated into the good.
Traced material is defined in §8 of the NAFTA Rules of Origin Regulations as:
a material, produced outside the territories of the NAFTA countries, that is imported from outside the territories of the NAFTA countries and is, when imported, of a tariff provision listed in Schedule IV.
Light-duty automotive good is defined in §2 of the NAFTA Rules of Origin Regulations as:
a light-duty vehicle or a good of a tariff provision listed in Schedule IV that is subject to a regional value-content requirement and is for use as original equipment in the production of a light-duty vehicle.
Light-duty vehicle is defined in §2 of the NAFTA Rules of Origin Regulations as:
a motor vehicle provided for in any of tariff items 8702.10.60 and 8702.10.60 (vehicles for the transport of 15 or fewer persons) and subheadings 8703.21 through 8703.90, 8704.21 and 8704.31.
Schedule IV (LIST OF TARIFF PROVISIONS FOR THE PURPOSES OF SECTION 9 OF THE APPENDIX) of the NAFTA Rules of Origin Regulations lists subheading 8482.10, HTSUS. Therefore, the bearings meet the definition of a light duty automotive good pursuant to §2 of the NAFTA Rules of Origin Regulations. To calculate the regional value content of the bearings under the net cost method, we must calculate the value of the non-originating materials. Pursuant to §9(1) of the NAFTA Rules of Origin Regulations, the value of the non-originating materials is the sum of the values of the non-originating materials that are traced materials incorporated into the bearings. In this situation the non-originating materials are the cage, molded seal, grease, seal, outer ring and inner ring. None of these materials are listed in Schedule IV of the NAFTA Rules of Origin Regulations and, therefore, are not traced materials. Thus, the value of the non-originating materials, cage, molded seal, grease, seal, outer ring and inner ring, are not included in the value of the non-originating materials when calculating the regional value content but they are included in the net cost of the bearings.
Based on the cost information you submitted, the value of the non-originating materials is $0.00. The regional value content is the net cost minus the value of the non-originating materials divided by the net cost times 100. Your cost information indicates the following calculation:
($9.53 - $0.00) x 100 = 100%
$9.53
The bearings in this situation meet the requirements of General Note 12(t)/85.241(B), HTSUS, and are considered "originating goods" pursuant to General Note 12(b)(ii), HTSUS.
HOLDING:
Based on the presented facts, the bearings are found to be “originating goods” in accordance with NAFTA, provided all other applicable requirements are met.
This holding applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in §181.100(a)(2), Customs Regulations, which states that a NAFTA ruling letter is issued on the assumption that all the information furnished in connection with the ruling request and incorporated therein, directly, by reference, or by implication, is accurate and complete in every respect. Should it subsequently be determined that the information furnished is not complete and/or does not comply with 19 CFR §181.100(a)(2), this ruling will be subject to modification or revocation. In addition, any change in the facts furnished in connection with this ruling may affect the outcome of the regional value content determination. In such a case, it is recommended that a new ruling request be submitted in accordance with 19 CFR §181.93.
Sincerely,
Thomas L. Lobred
Chief, Value Branch