HQ H087456
OT:RR:CTF:VS H087456 YAG
Mr. Mark K. Neville, Jr., Esq.
Smith, Gambrell & Russell, LLP
Suite 1900
250 Park Avenue
New York, New York 10177
RE: North American Free Trade Agreement (“NAFTA”); Regional Value Content; Automobiles
Dear Mr. Neville:
This is in response to your letter, dated November 12, 2009, requesting a ruling, on behalf of your client, [A] with respect to the company’s eligibility to claim NAFTA benefits under the fifty percent (50%) Regional Value Content (“RVC”) test for new and refitted plants for certain light-duty motor vehicles produced at the [A] plant located in [***].
You have asked that certain information submitted in connection with this ruling request be treated as confidential. Inasmuch as your request conforms to the requirements of 19 CFR §177.2(b)(7), your request for confidentiality is approved. The information contained within brackets will not be released to the public and will be withheld from published versions of this ruling.
FACTS:
[A] has a new motor vehicle assembly plant in [***], [***]. You state that the building and physical plant are brand new, and all of the manufacturing equipment is similarly brand new and newly-installed. The new machinery comprises [***] of the production machinery used in the [A] plant. [A] is planning to produce new light-duty motor vehicles, such as the [***] models, under its own marque, [***]. There are currently no other [A] plants in any of the NAFTA countries.
[A] is related to [B]. In fact, [A] is owned by [C], [D], and [E]. [D] in turn owns [***] of [B] and is part of [F]. [C] is owned by [G]. Both [F] and [G] are part of the [***] Automotive Group in [***] (“country”), with common ownership. Additionally, [A] has a four person board which includes two members from the [***] Automotive Group. Therefore, [A] and [B] are related parties under NAFTA. Accordingly, [A] and [B] would not have a separate status under the NAFTA.
Moreover, in the future, [A] may also produce the [***] model motor vehicle on behalf of its sister company, [B]. You state that so far, [B] has not produced any [***]-badged motor vehicles. [B] have been producing [***]-badged heavy-duty vehicles such as a [***] sport utility model, at its plant in [***]. Additionally, you state that the motor vehicles which [A] plans to produce at its plant share class (motor vehicles designed for the transport of persons), size category (less than 85 cubic feet of passenger and luggage interior volume), and underbody (floor plan configuration) with the [***] motor vehicle produced by [B]. Finally, the [***] vehicles produced in [***] and [***] vehicles produced in [***] would each be classifiable in the same two subheadings depending on the engine size, 8703.23 and 8703.24 of the Harmonized Tariff Schedule of the United States (“HTSUS”).
ISSUE:
Whether vehicles produced in the [A’s] new plant are eligible for the fifty percent (50%) RVC test for the first five (5) years after the date on which the first prototype of that motor vehicle is produced.
LAW AND ANALYSIS:
Section 13 of the Appendix to part 181 of the Customs Regulations, (19 CFR Pt. 181 App. §13) sets forth the rules for determining the RVC level for light-duty automotive goods, as follows:
(1) Notwithstanding the regional value-content requirement set forth in Schedule I, and except as otherwise provided in subsection (2), the regional value-content requirement for a good referred to in paragraph (a) or (b) is as follows:
(a) for the fiscal year of a producer that begins on the day closest to January 1, 1998 and for the three following fiscal years of that producer, not less than 56 percent, and for the fiscal year of a producer that begins on the day closest to January 1, 2002 and thereafter, not less than 62.5 percent, in the case of (i) a light-duty vehicle, and (ii) a good provided for in any of headings 8407 and 8408 and subheading 8708.40, that is for use in a light-duty vehicle . . .
Additionally, notwithstanding the regional value-content requirement set out in Schedule I, the regional value-content requirement for a light-duty vehicle or a heavy-duty vehicle that is produced in a plant is as follows:
(a) not less than 50 percent for five years after the date on which the first prototype of the motor vehicle is produced in the plant by a motor vehicle assembler, if (i) the motor vehicle is of a class, or marque or, except in the case of a heavy-duty vehicle, size category and type of underbody, that was not previously produced by the motor vehicle assembler in the territory of any of the NAFTA countries; (ii) the plant consists of, or includes, a new building in which the motor vehicle is assembled; and, (iii) the value of machinery that was never previously used for production, and that is used in the new building or buildings for the purposes of the complete motor vehicle assembly process with respect to that motor vehicle, is at least 90 percent of the value of all machinery used for purposes of that process; and,
(b) not less than 50 percent for two years after the date on which the first prototype of the motor vehicle is produced in the plant by a motor vehicle assembler following a refit of that plant, if the motor vehicle is of a class, or marque or, except in the case of a heavy-duty vehicle, size category and type of underbody, that was not assembled by the motor vehicle assembler in the plant before the refit. See also 19 U.S.C. §3332.
Thus, while the general requirement is that motor vehicles must meet a 62.5% RVC to attain eligibility for NAFTA benefits, in the case of new or refitted plants, a lesser 50% RVC threshold is applicable if the requirements of 19 CFR Pt. 181 App. §13(2) are met. You state that [A’s] building and physical plant are brand new, and that all of the manufacturing equipment is similarly brand new and newly-installed. Specifically, the new machinery comprises [***] of the production machinery used in the [A] plant. Therefore, [A] meets the requirement that the plant consists of, or includes, a new building in which the motor vehicles are assembled and that the value of machinery that was never previously used for production, and that is used in the new building or buildings for the purposes of the complete motor vehicle assembly process with respect to that motor vehicle, is at least 90 percent of the value of all machinery used for purposes of that process. See 19 CFR Pt. 181 App. §13(2)(a)(ii) and (iii). Nevertheless, the motor vehicles produced by the [A’s] new plant must be of a class, or marque, or size category and type of underbody that was not previously produced by the motor vehicle assembler in the territory of any of the NAFTA countries. The terms class, marque, size category, and type of underbody are all defined in 19 CFR Pt. 181, App. §8, as follows:
“class of motor vehicles” means any one of the following categories of motor vehicles: (a) motor vehicles provided for in any of subheading 8701.20, tariff items 8702.10.30 and 8702.90.30 (vehicles for the transport of 16 or more persons), subheadings 8704.10, 8704.22, 8704.23, 8704.32, and 8704.90 and headings 8705 and 8706; (b) motor vehicles provided for in any of subheadings 8701.10 and 8701.30 through 8701.90; (c) motor vehicles provided for in any of tariff items 8702.10.60 and 8702.90.60 (vehicles for the transport of 15 or fewer persons) and subheadings 8704.21 and 8704.31; and (d) motor vehicles provided for in any of subheadings 8703.21 through 8703.90.
“marque” means a trade name used by a marketing division of a motor vehicle assembler that is separate from any other marketing division of that motor vehicle assembler.
“size category” with respect to a light-duty vehicle, means that the total of the interior volume for passengers and the interior volume for luggage is (a) 85 cubic feet or less; (b) more than 85 cubic feet but less than 100 cubic feet; (c) 100 cubic feet or more but not more than 110 cubic feet; and (d) more than 110 cubic feet but less than 120 cubic feet; or, (e) 120 cubic feet or more.
“underbody” means the floor plan of a motor vehicle. See also 19 U.S.C. §3332(p)(1), (10), (30), and (34).
As specified in the FACTS section, the motor vehicles which [A] plans to produce at its plant share class (the [***] vehicles produced in [***] and [***] vehicles produced in [***] would each be classifiable in the same two subheadings depending on the engine size, 8703.23 and 8703.24 of the HTSUS), size category (less than 85 cubic feet of passenger and luggage interior volume), and underbody (floor plan configuration) with the [***] motor vehicle currently produced by [B] in [***]. Nevertheless, pursuant to 19 U.S.C. §3332(c)(6), if the motor vehicle meets any one of the criteria, i.e., if it is a new class, or a new marque, or a new size and underbody, and it is a motor vehicle produced in a new plant, it will qualify for the 50% RVC. In this case, any and all light-duty motor vehicles produced at the new plant in [***] with the [***] brand name, including the [***] models, will bear a new marque, since the [***] trade name used is separate from any other marketing division of the motor vehicle assembler.
Nonetheless, if [A] was to produce any vehicles bearing the [***] marque, such as the [***] model, currently produced by [B] in [***], such vehicles would not qualify for the 50% RVC after the applicable 5-year term expires for [B], unless it can be shown that class or size category and underbody characteristics differ from the previously produced vehicles either by [B] and/or [A].
HOLDING:
Based on our review of the facts presented, we find that all [***]-badged motor vehicles, including [***] models, produced at the [A] plant qualify for the fifty percent (50%) RVC test for NAFTA eligibility for the first five (5) years after the date on which the first prototype of that motor vehicle is produced. However, specific [***]-badged vehicles produced by [A] may qualify for the fifty percent (50%) test if it can be shown that certain statutory requirements such as class or size category and underbody differ from those vehicles previously produced by [B] and/or [A].
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents are filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch