OT:RR:CTF:VS H301726 YAG
Donghyun Lee
Sein Customs & Auditing Corp.
4th Floor, 710, Eonju-ro, Gangnam-gu
Seoul N/A 06058
South Korea
RE: United States-Korea Free Trade Agreement (“UKFTA”); Automobile Body (Heading 8707, HTSUS); Self-Produced Materials
Dear Donghyun Lee:
This is in response to your correspondence, dated October 22, 2018, in which you request a ruling on behalf of your client, Renault Samsung Motors (“Renault Samsung”) concerning the originating status of a certain automobile body of heading 8707, Harmonized Tariff Schedule of the United States (“HTSUS”), which will be assembled during the manufacturing process of automobiles to be exported to the United States under the U.S.-Korea Free Trade Agreement (“UKFTA”).
FACTS:
In your request, you state that Company A intends to issue a certificate of origin under UKFTA for motor vehicles produced in South Korea for export to the United States and classified under heading 8703, HTSUS. You state the finished automobile is produced though a four-step continuous manufacturing process: (1) stamping; (2) body welding; (3) painting; and, (4) assembly. During the stamping process, the sheet metal operation is carried out where the different panels of the car are made such as the engine compartment, the front floor, the rear floor, etc. Then, various stamped steel panels are welded together and multiples layers of paint are applied. During the assembly stage, multiple parts are attached to the painted body. The item you would like to designate as a self-produced material is the automotive body that is created during the body welding process. You claim that presently the vehicles do not qualify as originating under the product specific rules of heading 8703, HTSUS. Therefore, you seek to increase the value of originating materials by designating the automotive body as a self-produced material under the UKFTA.
ISSUES:
Whether the automotive body may be designated as a self-produced material under the UKFTA, and whether the method of calculating the value of the self-produced material by adding up only the value of materials used to manufacture the automotive body is appropriate in determining the origin of the automobile under the UKFTA.
LAW AND ANALYSIS:
The requirements for eligibility for preferential tariff treatment under the UKFTA are set forth in General Note (“GN”) 33 of the HTSUS (19 U.S.C. § 1202). GN 33 provides in pertinent part:
For the purposes of this note subject to the provisions of subdivisions (c), (d), (n) and (o) thereof, a good imported ... is eligible for treatment as an originating good of a UKFTA country under the terms of this note if-
The good is wholly obtained or produced entirely in the territory of Korea or of the United States, or both.
The good is produced entirely in the territory of Korea or of the United States, or both, and-
Each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (o) of this note; or
The good otherwise satisfies any applicable regional value-content or other requirements set forth in such subdivision (o); and satisfies all other applicable requirements of this note and of applicable regulations; or
The good is produced entirely in the territory of Korea or of the United States, or both, exclusively from materials described in subdivisions (i) or (ii), above.
When determining the originating status of the merchandise, which incorporates a self-produced material, we must determine the rules of origin for the finished good. If the finished good is subject to a tariff shift rule, there is no need to determine the value of self-produced materials. If the finished good is subject to a regional value content (“RVC”) rule, it will be necessary to determine the value of the intermediate self-produced materials.
Pursuant to GN 33(o), Chapter 87/1, the applicable rule for vehicles classified under heading 8703, HTSUS, is as follows:
No change in tariff classification to a good of headings 8701 through 8706 is required, provided that there is a regional value content of not less than: (A) 35 percent under the build-up method; or (B) 55 percent under the build-down method; or (C) 35 percent under the net cost method.
The first issue is whether an automotive body may be designated as a self-produced material. A “self-produced material” is an originating material that is produced by a producer of a good and used in the production of that good. See 19 C.F.R. § 10.1013(v). The UKFTA provisions related to self-produced materials are intended to ensure that vertically integrated producers are not disadvantaged in meeting the relevant UKFTA rules of origin for their respective goods. There is no requirement for a self-produced material to be produced in a separate production process or to be marketed as a finished good, in and of itself, for it to be considered as a self-produced material. Self-produced materials may be used to satisfy both a regional value content and a tariff-shift rule of origin. A producer of a self-produced material is not required to create or maintain a separate accounting process for the self-produced material as long as information relevant to the type of claim being made can be provided to CBP upon request during the verification process.
Taking into account these principles, we are of the view that an automotive body of heading 8707, HTSUS, may be considered a self-produced material if it meets the rule of origin for goods of heading 8707, HTSUS. In other words, if an automobile manufacturer produces a body by assembling imported materials, and produces a finished automobile using the body part it assembles into the finished automobile, the entire body may be recognized as originating under the concept of self-produced material, if it satisfies the product specific rule requirements applicable to the material.
The applicable rule to determine whether the automobile body, classified under heading 8707, HTSUS, is originating is set forth in GN 33(o), Chapter 87/2, which provides as follows:
(A) A change to heading 8707 from any other heading; or
(B) No change in tariff classification to a good of such heading is required, provided that
there is a regional value content of not less than: (1) 35 percent under the build-up method; (2) 55 percent under the build-down method; or (3) 35 percent under the net cost method.
While you have not submitted information concerning the tariff classification or value of the materials used to make the automotive body, provided your bill of materials and other relevant records show that the tariff shift or the RVC rules will be satisfied, the self-produced automotive body may be considered as originating.
The second issue in this case concerns the method of calculating the value of the self-produced material. Pursuant to 19 C.F.R. § 10.1016(a)(3), the value of the self-produced material is the sum of all the costs incurred in the production of the material, including general expenses and an amount for profit equivalent to the profit added in the normal course of trade. We note that your proposal of calculating the value of the self-produced material only on the basis of the value of the materials used in the manufacture of an automotive body would not be acceptable under 19 C.F.R. § 10.1016(a)(3), and therefore, this would require recalculation based on all the costs incurred in the production of the material, including general expenses and an amount for profit equivalent to the profit added in the normal course of trade.
HOLDING:
Based on the above referenced facts, we find it is possible to designate the automotive body as a self-produced material under the UKFTA. However, the method of calculating the value of the self-produced material by adding up only the value of materials used to manufacture the automotive body is not appropriate in determining the origin of the vehicle under the UKFTA and will require recalculation using all the costs incurred in the production of the material, including general expenses and an amount for profit equivalent to the profit added in the normal course of trade.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been 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