MAR-05: RR:CR:SM 561854 BLS
Richard C. King, Esq.
Fitch, King and Caffentzis
116 John Street
New York, N.Y. 10038
RE: Reconsideration of HRL 561209; country of origin marking of rebuilt
automotive parts
Dear Mr. Caffentzis:
This is in reference to your letter dated July 5, 2000, on behalf of Fenwick Automotive Products, Ltd. (“Fenwick”), requesting reconsideration of Headquarters Ruling Letter (HRL) 561209 dated May 4, 1999, concerning the country of origin of rebuilt automotive parts.
FACTS:
You state the following:
Fenwick is in the business of remanufacturing automotive parts in Canada that are in an unusable condition. Fenwick lists in its catalogues approximately 1,000 different parts, for U.S. and foreign makes of automobiles, in each of eight different “product lines” (e.g., brake calipers, CV drive shafts, water pumps).
The approximately 8,000 different parts available from Fenwick cover model years as recent as 1999, and dating back, in some cases, as far back as the 1940’s. Such parts are mechanical components of automobiles, which ordinarily wear and need to be repaired or replaced. The repair shop or home repairman simply removes and replaces the entire worn or defective unit, and, upon returning the worn part to the parts dealer, receives a credit for, or refund of, the value of the “core.”
Fenwick’s customers are primarily Canadian and U.S. distributors and auto parts dealers/stores. The used cores are returned to Fenwick in the boxes which contained the rebuilt parts. In some cases the cores have not been used, but are rebuilt units returned “as is,” still in the box. Customers are allowed to return for full credit up to 5% of total purchases during the
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previous year. Depending upon circumstances, good customers may be permitted to return more than this. If inventories on parts run below target levels, necessary cores are purchased from brokers.
New customers may return cores in boxes which contained the corresponding parts rebuilt by manufacturers other than Fenwick. Even though Fenwick had not sold these units, and thus never received a deposit on them, full credit is given, and these cores are physically treated the same as any other. If inventories on given parts run below target levels, necessary cores are purchased from brokers. The percentage of cores sourced in this manner varies over time, and at any given time also varies among the eight product lines.
A substantial portion of the plant is dedicated to the disassembly operations, which involve the use of heavy machinery as well as hand tools. Cores may be welded, sleeved, bored, drilled, or otherwise machined during the remanufacture process, and new parts in the form of seals, o-rings, bearings, facings, gaskets, boots, fasteners (including nuts, bolts, clips, snap rings, etc.) are always added.
You also state the following:
By reason of the various processes to which the articles are subjected, such as solvent cleaning, shot blasting, tumbling, etc., the different component parts from the returned units are not kept together during remanufacture.
Most of the used parts are not marked with any country designation. The markings which appear on a few of the parts (usually in the form of raised or sunken lettering in the body of the main casting) may include a country name. However, it is not known whether such country designation refers to the country where the casting was made, the country where the part was manufactured from the casting, or the country of origin of a component of the core. Further, a particular part may have been used and remanufactured one or more times before being sent to Fenwick.
Whether cores were originally installed in vehicles used in Canada or the
U.S. cannot be determined when purchases are made from a broker.
As a result of the 5% return privilege and return credit for other remanufacturer’s products extended to new and existing customers, cores
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returned from dealers in Canada may not necessarily have been installed in vehicles used in Canada, and cores returned from U.S. dealers may not have been installed in vehicles used in the U.S.
5) The source of cores or pieces thereof rejected during the remanufacturing
process cannot be ascertained. Such rejects, which may come at any time
during this process, are estimated overall to range from 10-15%.
ISSUE:
What are the country of origin marking requirements for the remanufactured auto
parts imported into the U.S.?
LAW AND ANALYSIS:
Section 304 of the Tariff Act of 1930, as amended (19 U.S.C. 1304), requires that, unless excepted, every article of foreign origin (or its container) imported into the U.S. shall be marked in a conspicuous place as legibly, indelibly and permanently as the nature of the article (or its container) will permit in such manner as to indicate to the ultimate purchaser the English name of the country of origin of the article. The regulations implementing the requirements and exceptions to 19 U.S.C. 1304 are set forth in Part 134, Customs Regulations (19 CFR Part 134).
Section 134.1(b), Customs Regulations (19 CFR 134.1(b)), defines “country of origin” as:
The country of manufacture, production, or growth of any article of
foreign origin entering the U.S. Further work or material added to
an article in another country must effect a substantial transformation in order to render such other country the “country of origin” within this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
Section 134.1(j) provides that the “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) defines a “good of a NAFTA country” as an article for which the
country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules. Consistent with the foregoing, the country of origin of the remanufactured automotive parts imported into the U.S. will be determined pursuant to the NAFTA Marking Rules.
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Part 102 of the regulations sets forth the "NAFTA Marking Rules" for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 sets forth the required hierarchy for determining country of origin for
marking purposes. Section 102.11(a) provides that "[t]he country of origin of a good is the country in which:
(1) The good is wholly obtained or produced;
(2) The good is produced exclusively from domestic materials; or
(3) Each foreign material incorporated in that good undergoes an
applicable change in tariff classification set out in section 102.20 and
satisfies any other applicable requirements of that section, and all
other requirements of these rules are satisfied.
The imported remanufactured parts are neither “wholly obtained or produced,” or “produced exclusively from domestic (Canadian) materials.” Therefore, for purposes of determining the origin of the imported good, section 102.11(a)(3) is the applicable rule that first must be applied. Under this rule, the country of origin of a good is the country in which each foreign material incorporated in that good undergoes an applicable
change in tariff classification set out in section 102.20. Section 102.20 of the rules sets forth the specific tariff classification changes and/or other operations which are specifically required in order for country of origin to be determined on the basis of operations performed on the foreign materials contained in a good. As it appears from the description of the disassembly and remanufacturing operations that the classification of the exported used cores does not change as a result of the processing in Canada, section 102.11(a)(3) is not applicable.
Accordingly, 19 CFR 102.11(b) of the hierarchal rules must next be applied. This subsection provides as follows:
Except for a good that is specifically described in the Harmonized Tariff
Schedule as a set, or is classified as a set pursuant to General Rule of
Interpretation 2, where the country of origin cannot be determined under
paragraph (a), the country of origin of the good:
(1) Is the country or countries of origin of the
single material that imparts the essential
character of the good, or
(2) If the material that imparts the essential
character of the good is fungible, has been
commingled, and direct physical identification of
the origin of the commingled material is not
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practical, the country or countries of origin may
be determined on the basis of an inventory
management method provided under the appendix to
part 181 of this chapter.
("Fungible" goods or materials are defined as "goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical.") See section 102.1(f), Customs Regulations (19 CFR 102.1(f)).
Pursuant to section 102.18(b)(2):
for purposes of applying section 102.11, only domestic and foreign materials (including self produced materials) that are classified in a tariff provision from which a change in tariff classification is not allowed in the rule for the good set out in section 102.20 shall be taken into consideration in determining the parts or materials that determine the essential character of the good.
Applying 19 CFR 102.18(b), we find that the material that imparts the essential character to the imported parts in each case is the used core, i.e., the used brake caliper, master cylinder, water pump, etc. Therefore, the country of origin of the
reconditioned parts imported into the U.S. is the country of origin of the used cores.
In HRL 561209, based on the facts as stated in the submission of October 30, 1999, we found that the country of origin marking on the cores (where the cores were marked) properly identified the country of origin of the articles. We also applied the principles of Ashdown, U.S.A. v. United States, 12 C.I.T. 808, 696 F. Supp. 661 (1988), and held that used parts taken from vehicles in use in the U.S. and not marked with a country of origin are considered to be of U.S. origin, and that used unmarked parts taken from vehicles in use in Canada are considered to be of Canadian origin. We held that as used parts of U.S. origin were commingled with used parts of Canadian origin, and these parts are fungible, pursuant to 19 CFR 102.11(b)(2) the country of origin (of the unmarked parts) may be determined on the basis of an inventory management method provided under the Appendix to Part 181 of the Customs Regulations. Customs determination in HRL 561209 was based on the information contained in the prior submission provided on behalf of Fenwick.
You state in your submission of July 5 that a country of origin marking on the core may not necessarily reflect the country of origin of this part, as it may indicate only the country of origin of a component of the core, or may otherwise not relate to its actual
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country of origin. Further, you state that Fenwick cannot establish with any certitude whether cores sourced from their customers were taken from vehicles used in the U.S. or Canada.
Accordingly, under the circumstances set forth in Fenwick’s most recent submission, we find that 19 CFR 102.11(b) cannot be used to determine the origin of the imported parts, as there is insufficient information to use an inventory management method of accounting as set forth under section 102.11(b)(2). Further, 19 CFR 102.11(c) cannot be used to determine origin as the imported product is not a set
or mixture, or classified as a set, mixture or composite good pursuant to GRI 3, HTSUS.
Section 102.11(d) provides that where the country of origin cannot be determined under paragraph (a), (b) or (c), the country of origin of the good shall be determined as follows:
if the good was produced only as a result of minor processing, the country of
origin of the good is the country or countries of origin of each material that
merits equal consideration for determining the essential character of the good;
if the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the essential character of the good
are from the same country, the country of origin of the good is the country of origin of those parts; or
if the country of origin of the good cannot be determined under paragraph
(d)(1) or (d)(2) of this section, the country of origin of the good is the last country in which the good underwent production.
In this case, the production of the good in Canada constitutes more than a “minor processing” operation and exceeds a “simple assembly.” See 19 CFR 102.1(m) and (o). Therefore, we must apply paragraph (3) to determine the country of origin of the good. Under this paragraph, the country of origin is Canada, the last country in which the used core underwent production. Provided the ultimate purchasers will receive the reconditioned part in a properly marked sealed container, the article will be excepted from the country of origin marking requirements. See 19 CFR 134.32(d). The marking “Remanufactured Automotive Parts – PRODUCT OF CANADA” is an acceptable marking, provided it otherwise complies with the conspicuous, legible and permanency requirements of 19 U.S.C. 1304. Any questions you might have concerning Federal Trade Commission (FTC) requirements should be addressed to that Agency. The FTC address is: Federal Trade Commission, Division of Enforcement, 6th and Pennsylvania Avenue, N.W., Washington, D.C. 20508.
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HOLDING:
Based on the information provided, the country of origin of reconditioned automotive cores imported from Canada cannot be determined under 19 CFR 102.11(a), (b) or (c). Therefore, 19 CFR 102.11(d) must be applied to determine origin under the 19 CFR 102.11 hierarchy. As production of the reconditioned parts in Canada constitutes more than a “minor assembly” (see 19 CFR 102.11(m) and (o)), the country of origin of the good is Canada, the last country in which the used automotive cores underwent production.
As the facts presented in this submission are materially different than the facts presented in the prior submission, Customs finds no reason to revoke or modify HRL 561209, as Customs believes that the ruling based on the submitted facts in that case reflects applicable law and regulation.
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division