RR:IT:VA 546674 KCC
Mr. Donald Pfeiffer
Prettl Electric Corporation
1721 White Horse Road
Greenville, South Caroline 29605
RE: Article 509; NAFTA; wire harnesses; automotive good;
insulated wire; originating good; non-originating good;
tariff shift requirement; de minimis; 2, 5 and 9(1) of the
NAFTA Rules of Origin Regulation; traced material; light-duty automotive good; Schedule IV of NAFTA Rules of Origin
Regulation; non-originating material's value
Dear Mr. Pfeiffer:
This is in regard to your letter dated February 19, 1997,
concerning the applicability of the North American Free Trade
Agreement (NAFTA) to wire harnesses when imported into the United
States. We regret the delay in responding.
FACTS:
Prettl Electric Corporation (Prettl) is transferring part of
its production of wire harnesses for the automotive industry to
its Mexican subsidiary. In the manufacture of these wire
harnesses, Prettl will use both originating and non-originating
materials. The Mexican subsidiary will manufacture the wire
harness, as described below, and export the finished wire
harnesses into the U.S. You state that the completed wire
harnesses when imported into the U.S. are classified under
subheading 8544.30.00, Harmonized Tariff Schedule of the United
States (HTSUS), which provides for "[i]gnition wiring sets and
other wiring sets of a kind used in vehicles, aircraft or ships."
The following components are incorporated into the completed wire
harnesses:
Component Made in HTSUS
housing USA subheading 8536.69
gold male terminal USA subheading
8536.90.006
tin terminal USA subheading
8536.90.006
red spacer USA subheading
8538.90.600
silicon rubber tube Germany subheading
4009.30.000
white insulated wire USA or Germany subheading
8544.59.400
black insulated wire USA or Germany subheading
8544.59.400
gray insulated wire USA or Germany subheading
8544.59.400
metal cap USA subheading 8708.10.001
plastic grommet Germany subheading
3926.90.4590
rubber bushing seals USA subheading
4016.93.000.02
rubber o-ring seal China subheading
4016.93.5050
connector terminal Germany subheading
8536.90.0060
The first step in the manufacturing process is a
simultaneous operation executed in one machine where the black
insulated wire (x1) is cut according to specification and the
gold male terminal is crimped on one side. This same operation
is repeated for the gray insulated wire (x1) and the white
insulated wire (x1) with the only difference being that the white
insulated wire receives the tin terminal. Next, the silicon
rubber tube is cut according to length. Thereafter, the four
plug wire is connected to the housing, thread through the tube
and the red spacer is inserted into the housing. This assembly
operation is manually completed by one operator. The protection
cap is assembled by inserting the rubber o-ring seal on the
plastic grommet which is pressed into the metal cap. The other
insulated wire ends are inserted into the grommet. Then, one
bushing seal is assembled on each insulated wire and pulled into
the grommet. Last, the connector terminal is crimped onto each
insulated wire. After assembly, the wire harnesses are inspected
for quality control, packaged in plastic and imported into the
U.S.
ISSUE:
Are the wire harnesses considered to be "originating goods"
pursuant to the NAFTA rules of origin?
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 wire harnesses are classified under subheading
8544.30.00, HTSUS, a transformation is authorized by Schedule I
of the NAFTA Rules of Origin Regulations, specifically, General
Note 12(t)/85.147, HTSUS, which states:
(A) A change to subheadings 8544.11 through 8544.60 from any
subheading outside that group, except from headings 7408,
7413, 7605 or 7614; or
(B) A change to subheadings 8544.11 through 8544.60 from
headings 7408, 7413, 7605 or 7614, whether or not there is
also a change from any other subheading, including another
subheading within subheadings 8544.11 through 8544.60,
provided there is also 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.
The wire harnesses must meet the requirements of either General
Note 12(t)/85.147(A), HTSUS, or General Note 12(t)/85.147(B),
HTSUS, to qualify as an "originating good"; they do not have to
meet both tests.
1. Insulated Wire Made in the U.S.A - "P/N 6 002 LGO 021
and 024"
In this situation, the non-originating materials are silicon
rubber tube, plastic grommet, rubber o-ring seal, and connector
terminal. All the remaining components are considered to be
"originating goods." All of the non-originating components are
not classified within subheadings 8544.11 through 8544.60, or
headings 7408. 7413, 7605 or 7614. Thus, a change in tariff
classification occurs. The wire harnesses manufactured from the
non-originating silicon rubber tube, plastic grommet, rubber o-ring seal, and connector terminal meet the tariff shift
requirements of General Note 12(t)/85.147(A), HTSUS, and,
therefore, are considered to be "originating goods."
2. Insulated Wire Made in Germany - "P/N 6 002 LGO 020,
021, 023 and 024"
In this situation, the non-originating materials are
insulated wire, silicon rubber tube, plastic grommet, rubber o-ring seal, and connector terminal. All the remaining components
are considered to be "originating goods." All of these non-originating components, except the insulated wire, are not
classified within subheadings 8544.11 through 8544.60, or
headings 7408. 7413, 7605 or 7614. Thus, a change in tariff
classification occurs. A change in tariff classification
pursuant to General Note 12(t)/85.147(A), HTSUS, does not occur
for the insulated wire because it is classified within subheading
8544.59.40, HTSUS.
However, 5 of the NAFTA Rules of Origin Regulations
provides a de minimis rule for non-originating materials that do
not undergo a required tariff change. 5 of the NAFTA Rules of
Origin Regulations states that:
(1) Except as otherwise provided in subsection (4), a good shall
be considered to originate in the territory of a NAFTA
country where the value of the non-originating materials
that are used in the production of the good and that do not
undergo an applicable change in tariff classification as a
result of production occurring entirely in the territory of
one or more of the NAFTA countries is not more than seven
percent
(a) of the transaction value of the good determined in
accordance with Schedule II with respect to the
transaction in which the producer of the good sold the
good, adjusted to an F.O.B. basis, or
(b) of the total cost of the good, where there is no
transaction value for the good under section 2(1) of
Schedule III or the transaction value of the good is
unacceptable under section 2(2) of that Schedule,
provided that,
c) if, under the rule in which the applicable change in
tariff classification is specified, the good is also
subject to a regional value-content requirement, the
value of those non-originating materials shall be taken
into account in calculating the regional value content
of the good in accordance with the method set out for
that good, and
(d) the good satisfies all other applicable requirements of
this Appendix...
5 of the NAFTA Rules of Origin Regulations provide that the
value of all non-originating materials which do not undergo a
change in tariff classification must not be more than 7 percent
of the transaction value of the good, adjusted to a F.O.B. basis;
or, if there is no transaction value for the good under section
2(1) of Schedule III or the transaction value of the good is
unacceptable under section 2(2) of that Schedule, the value of
all such non-originating materials is not more than 7 percent of
the total cost of the good. In this situation, the non-originating material which does not satisfy the tariff shift
requirement is the insulated wire. Based on the information
presented, it appears that the insulated wire which is imported
into the NAFTA territory from outside of the NAFTA territory
constitutes more than 7 percent of the total cost of each wire
harness. We note that you have supplied us with the total cost
values without any indication of why the transaction value is
unacceptable in accordance with Schedule II of the NAFTA Rules of
Origin Regulations. Thus, 5 of the NAFTA Rules of Origin
Regulations is inapplicable and the wire harnesses incorporating
insulated wire from Germany are not considered "originating
goods" pursuant to General Note 12(t)/85.147(A), HTSUS.
However, we are of the opinion that the wire harnesses do
meet the tariff shift requirement of General Note
12(t)/85.147(B), HTSUS. The proper interpretation of the tariff
shift requirement of General Note 12(t)/85.147(B), HTSUS, is that
the non-originating materials must change to subheadings 8544.11
through 8544.60, from any other subheading within that group or
headings 7408, 7413, 7605 or 7614, whether or not there is also a
change from any other subheading, provided the regional value
content requirement is met. See, Headquarters Ruling Letter
(HRL) 957188 dated February 9, 1995. The imported insulated
wire, which is classifiable under subheading 8544.59.40, HTSUS,
meets the tariff shift requirement. Next, the wire harnesses
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 8544.30, HTSUS. Therefore, the wire
harnesses met 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 wire harnesses 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 wire harnesses. In this
situation the non-originating materials are the insulated wire,
plastic grommet, rubber o-ring seal, rubber silicon tube and
connector terminal. The insulated wire, plastic grommet and
rubber o-ring seal are not listed in Schedule IV of the NAFTA
Rules of Origin Regulations and, therefore, are not traced
materials. However, the rubber silicon tube and connector
terminal are listed as traced material in Schedule IV of the
NAFTA Rules of Origin Regulations. Thus, the value of the
insulated wire, plastic grommet and rubber o-ring seal 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 wire harnesses. Whereas, the value of the
rubber silicon tube and connector terminal is included in the
value of the non-originating materials when calculating the
regional value content.
Based on the cost information you submitted, the value of
the non-originating materials is $0.10. We assume that the value
of the non-originating traced materials submitted in your cost
information is made in accordance with the "Valuation of Traced
Materials for VNM in the RVC" of 9(2) of the NAFTA Rules of
Origin Regulations. The regional value content is the net cost
minus the value of the non-originating materials, which is the
traced materials in this case, divided by the net cost times 100.
Your cost information per unit for "P/N 002 LGO 021 and 024"
indicates the following calculation:
($2.64 - $0.10) x100 = 96.21%
$2.64
Your cost information per unit for "P/N 002 LGO 020 and 023"
indicates the following calculation:
($2.74 - $0.10) x100 = 96.35%
$2.74
Thus, the regional value content in the case of the German made
insulated wire is 96%. The wire harnesses in this situation meet
the requirements of General Note 12(t)/85.147(B), HTSUS, and are
considered "originating goods" pursuant to General Note
12(b)(ii), HTSUS.
HOLDING:
Based on the presented facts, the wire harnesses 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,
Acting Director
International Trade Compliance
Division