CLA-2 CO:R:I 004207 SK
Andrew Doornaert, Esq.
Tower Group International
6730 Middlebelt Road
Romulus, MI 48174-2039
RE: Advance NAFTA Ruling; 19 CFR 181.93; Non-Originating Brake
Shoe Parts; Brake Shoe Subassemblies Manufactured in Canada;
Article 401(b) and (d)(ii) of the NAFTA; GN 12(b), HTSUS; GN
12(t)/87.21, HTSUS; 19 CFR 181.131 App.; ROR, Section
4(4)(b)(ii); Exception to the Change in Tariff Rule Not
Applicable.
Dear Mr. Doornaert:
This is in response to your letter of February 24, 1997, on
behalf of Rockwell International of Canada ("Rockwell"), in
which you request an advance ruling determining whether certain
automotive brake parts qualify as originating goods for purposes
of preferential tariff treatment under the North American Free
Trade Agreement (NAFTA).
FACTS:
In your submission, you provide the following information:
Non-originating brake shoe parts are imported into Canada where
they are manufactured into brake shoe subassemblies by Rockwell.
The brake shoe subassemblies are exported to the U.S. through the
port of Detroit. They are used in the manufacture of brake
assemblies, whereby they serve to control the friction applied by
the brake lining to the brake drum in heavy-duty vehicles.
For the purposes of this ruling, the term "brake shoe
subassembly" refers to brake shoes to which brake linings have
not been mounted.
ISSUE:
Whether the brake shoe subassemblies are covered by the
exceptions to the change in tariff classification requirement, as
set forth in the Appendix to Part 181.131, Customs Regulations
(19 CFR 181.131 App., the NAFTA Rules of Origin Regulations
(ROR)), at Section 4(4)(b), such that they qualify as originating
goods for purposes of the NAFTA?
LAW AND ANALYSIS:
Classification
Heading 8708, Harmonized System (HS), provides for "[P]arts and
accessories of the motor vehicles of headings 8701 to 8705."
Subheading 8708.31, HS, provides for "[B]rakes and servo-brakes
and parts thereof: Mounted brake linings."
Subheading 8708.39, HS, provides for "[B]rakes and servo-brakes
and parts thereof: Other."
The non-originating brake shoe parts and the brake shoe
subassemblies are both classifiable under subheading 8708.39, HS.
Accordingly, no change in classification takes place as a result
of the Canadian assembly operation.
The North American Free Trade Agreement (NAFTA)
Chapter 4 of the NAFTA sets forth the rules for determining
whether an imported good qualifies as an originating good of the
United States, Canada or Mexico for purposes of being eligible
for preferential tariff treatment as provided for under Article
302(2) and Annex 302.2 of the NAFTA.
Article 401 of the NAFTA, paragraphs (b) and (d)(ii), state that
except as otherwise provided in Chapter 4, a good shall originate
in the territory of a Party where:
"(b) each of the non-originating materials used in the
production of the good
undergoes an applicable change in tariff classification
set out in Annex 401 as a result of production
occurring entirely in the territory of one or more of
the Parties, or the good otherwise satisfies the
applicable requirements of that Annex where no change
in tariff classification is required and the good
satisfies all other applicable requirements of this
Chapter.
* * *
(d) except for a good provided for in Chapters 61 through
63 of the Harmonized System, the good is produced
entirely in the territory of one or more of the Parties
but one or more of the non-originating materials
provided for as parts under the Harmonized System that
are used in the production of the good does not undergo
a change in tariff classification because
* * *
(ii) the heading for the good provides for and
specifically describes both the good itself and
its parts and is not further subdivided into
subheadings, or the subheading for the good
provides for and specifically describes both the
good itself and its parts,
provided that the regional value content of the good,
determined in accordance with Article 402, is not less
than 60 percent where the transaction value method is
used, or is not less than 50 percent where the net cost
method is used, and that the good satisfies all other
applicable requirements of this Chapter."
The rules set forth in Chapter 4 and Annex 401 of the NAFTA have
been promulgated in the United States through General Note (GN)
12, Harmonized Tariff Schedule of the United States (HTSUS). For
a good imported into the United States to be eligible for
preferential tariff treatment under the NAFTA, it must be deemed
as originating in the territory of a NAFTA Party within the rules
of origin set forth in GN 12(b), HTSUS. Two of the rules pertain
to situations where a good is produced entirely in the territory
of a NAFTA Party or Parties from one or more non-originating
materials. GN 12(b)(ii) and (iv) provide, in pertinent part,
that such goods will be deemed as originating in the territory of
a NAFTA Party if:
"(ii) they have been transformed in the territory of Canada,
Mexico and/or the United States so that--
(A) except as provided in subdivision (f) of this note,
each of the non-originating materials used in the production
of such goods undergoes a change in tariff classification
described in subdivision (r), (s) and (t) of this note or
the rules set forth therein, or
* * *
(iv) they are produced entirely in the territory of Canada,
Mexico and/or the United States but one or more of the
non-originating materials falling under provisions
for parts' and used in the production of such goods does
not undergo a change in tariff classification because--
* * *
(B) the tariff headings for such goods provide for and
specifically describe both the goods themselves and their
parts and is not further divided into subheadings, or the
subheadings for such goods provide for and specifically
describe both the goods themselves and their parts, provided
that such goods do not fall under chapters 61 through 63,
inclusive, of the tariff schedule, and provided further that
the regional value content of such goods, determined in
accordance with subdivision (c) of this note, is not less
than 60 percent where the transaction value method is used,
or is not less than 50 percent where the net cost method is
used, and such goods satisfy all other applicable provisions
of this note... ."
The initial determination is whether the non-originating
materials at issue, i.e., the brake shoe parts, are transformed
in Canada pursuant to the terms set forth in GN 12(b)(ii)(A),
HTSUS. As the completed brake shoe subassemblies are
classifiable under subheading 8708.39, HS, a transformation will
be deemed to have occured when a change in tariff classification
occurs that is authorized by GN 12(t)/87.21(A) or (B), HTSUS. GN
12(t)/87.21, HTSUS, states:
"(A) A change to subheading 8708.39 from any other heading;
or
(B) A change to subheading 8708.39 from subheadings
8708.31 or 8708.99, whether or not there is also a
change from any other heading, provided there is a
regional value content of not less than 50 percent
under the net cost method."
Pursuant to this rule, any non-originating materials must be
classifiable in a heading other than 87.08 or in either
subheading 8708.31 or 8708.99, provided there is a regional value
content of not less than 50 percent under the net cost method.
In this case, the non-originating brake shoe parts are
classifiable under subheading 8708.39, HS. Accordingly, a change
in tariff classification does not occur under either GN
12(t)/87.21(A) or (B), HTSUS, and the brake shoe subassemblies
are ineligible for preferential tariff treatment under the NAFTA
pursuant to GN 12(b)(ii), HTSUS.
With regard to the application of GN 12(b)(iv)(B) to the facts at
issue, we direct your attention to the Appendix to Part 181.131,
Customs Regulations (19 CFR 181.131 App., (ROR)), at Section 4,
which implements the rules of origin provisions of GN 12, HTSUS,
and Chapter 4 of the NAFTA. Section 4(4)(b) sets forth certain
exceptions to the change in tariff classification requirement
provided for in GN 12(b)(ii) and Article 401(b) of the NAFTA,
cited supra. Section 4(4)(b) provides, in pertinent part, that
with the exception of a good of Chapters 61 through 63, a good
originates in the territory of a NAFTA country where:
"(i) the good is produced entirely in the territory of one or
more of the NAFTA countries,
(ii) one or more of the non-originating materials used in the
production of the good do not undergo an applicable change
in tariff classification because
(A) those materials are provided for under the Harmonized
System as parts of the good, and
(B) the heading for the good provides for both the good and
its parts and is not further subdivided into
subheadings, or the subheading for the good
provides for both the good and its parts,
In applying the above regulation to the facts at issue, we find
that the exception to the change in tariff classification
requirement set forth in Section 4(4)(b)(ii) has not been met.
That regulation sets forth a two-pronged test which requires, at
subparagraph (b)(ii)(A), that the non-originating materials be
"provided for under the Harmonized System as parts of the good"
and, at subparagraph (b)(ii)(B), that "the subheading for the
good provides for both the good and its parts.
With regard to subparagraph (b)(ii)(A), the "good" for which
tariff preference is claimed is the brake shoe subassembly. The
"materials" are the parts used in the production of that
subassembly. Since both the good and the materials are
classified as parts of brakes in 8708.39, the HS does not provide
for the materials as parts of the good.
Subparagraph (b)(iii) supports this interpretation of
subparagraph (b)(ii)(A) and states that, for purposes of the
applicability of the exception in subparagraph (b)(ii), the non-originating materials and the good for which preference is
claimed shall not both be classified as "parts" in the same
subheading. That is, for purposes of the application of the
exception, the subheading must provide for (1) classification of
the non-originating materials as "parts" of the good into which
they are incorporated, and (2) classification of the "good" as a
specific good and not as a part. In this case, subheading
8708.39 provides for brakes and servo-brakes and parts thereof
(other than mounted brake linings of 8708.31). The brake shoe
subassembly and the non-originating materials are both
classifiable in subheading 8708.39 as parts of brakes.
Based on the foregoing, it is clear that the requirements of
subparagraph (b)(ii) have
not been met in the instant case.
As the transaction described in the facts of this case fails to
satisfy the requirements for application of the exception set out
in Article 401(d)(ii) of the NAFTA, the brake shoe subassemblies
do not qualify as originating goods for purposes of the NAFTA.
HOLDING:
The subject brake shoe subassemblies do not originate in the
territory of a NAFTA country in accordance with Article
401(d)(ii) of the NAFTA and its implementing regulations, 19 CFR
181.131 App.; the NAFTA Rules of Origin Regulations, at Section
4(4)(b)(ii).
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 Customs officer handling this
transaction.
Sincerely,
John Durant, Director
Commercial Rulings Division