CLA-02 RR:CTF:VS 563325 NL
Philip J. Sutter
Valuation and Functional
Compliance Manager
JPMorgan Chase Vastera
20700 Civic Center Drive, Suite 500
Southfield, MI 48076
RE: NAFTA; Used Automotive Parts; 19 CFR 181.132; Disassembly
Dear Mr. Sutter:
This is in reply to your letter dated August 12, 2005 on behalf of the Ford Motor Company. You request a prospective ruling on behalf of Ford regarding eligibility for preferential tariff treatment under the North American Free Trade Agreement (NAFTA) of certain automotive parts. The request concerns whether the parts are NAFTA originating goods by application of the NAFTA regulation on disassembly, set forth at 19 CFR 181.32.
FACTS:
The Ford Customer Service Division will import used automotive parts from Canada. The exporter will be Ford Motor Company of Canada. The parts, with various countries of origin, will be removed by Ford dealerships from used vehicles that also have various countries of origin. The submission indicates that this disassembly takes place in Canada. The disassembled parts will be accumulated by the exporter and sent to a U.S. processing center for sorting and storage. Then they will be shipped to various remanufacturing suppliers for the purpose of remanufacturing, repair, refurbishment or scrapping depending on the condition of particular items. The recovered parts will be resold in the automotive aftermarket.
The submission seeks a determination on the NAFTA eligibility of the following automotive parts:
Cylinder Heads – classified in subheading 8409.91.3000, Harmonized Tariff Schedule of the United States (HTSUS);
A/C Compressors – classified in subheading 8414.30.8030, HTSUS;
Wiper Motors – classified in subheading 8501.31.4000, HTSUS;
Alternators – classified in subheading 8511.50.0000, HTSUS; and
Steering Boxes – classified in subheading 8708.94.5000, HTSUS.
You advise that the parts will be taken from used vehicles classified in subheadings 8703.23, 8703.24, 8704.21 and 8704.31, HTSUS.
It is Ford’s position that each of the above-referenced parts undergoes a prescribed change in tariff classification when disassembled from vehicles classified in different tariff provisions, such that the parts qualify for tariff treatment as NAFTA originating goods when imported into the U.S.
ISSUE:
Whether disassembly in Canada of automotive parts from used vehicles qualifies the parts as NAFTA originating goods when they are imported into the U.S. from Canada.
LAW & ANALYSIS:
Article 401 of the NAFTA provides, in relevant part, that a good shall originate in the territory of a Party where:
......
(b) each of the non-originating goods 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 requirements of that Annex where no change in tariff classification is required...
General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(a)(i) provides, in pertinent part:
Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn followed by the symbol “CA” in parentheses, are eligible for such duty rate, in accordance with section 201 of the NAFTA Implementation Act.
Accordingly, the parts disassembled from vehicles in Canada and imported by Ford into the U.S. will be eligible for the “Special” “CA” rate of duty provided they are NAFTA “originating” goods under General Note 12(a), HTSUS, and qualify to be marked as products of Canada under the applicable marking rules. General Note 12(b), HTSUS, provides, in pertinent part:
For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as goods originating in the territory of a NAFTA party only if— (i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or (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 subdivisions (r), (s) and (t) of this note or the rules set forth therein, or (B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or (iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
The recovered parts are not eligible for NAFTA originating treatment as goods wholly obtained or produced entirely in a NAFTA territory pursuant to GN 12(b)(i). Therefore production of the parts must satisfy tariff shift rules and meet other applicable requirements as prescribed in GN 12(b)(ii).
Application of the Tariff Shift Rules
The specific rules of origin of NAFTA Annex 401 are set forth at GN 12(t). Some of the rules have a regional value content (RVC) component, but these are not relevant to the issues presented in this ruling. The tariff shift requirement for cylinder heads classified in subheading 8409.91.3000, HTSUS is a change from any other heading. The tariff shift rule for air conditioner compressors classified in subheading 8414.30.8030, HTSUS is a change from any other subheading. For wiper motors of subheading 8501.31.4000, HTSUS the rule is a change from any other heading. For alternators, classified in subheading 8511.50.0000 the rule is a change from any other subheading. Finally, for steering boxes classified in subheading 8708.94.5000 the tariff shift rule is a change from any other heading. The change in tariff classification to each of these automotive parts from vehicles classified in headings 87.03 or 87.04 satisfies the tariff shift prescribed under GN 12(t) for each of the parts. Thus the changes from vehicles (assumed to be nonoriginating) to the enumerated parts in Canada are sufficient under the applicable rules to qualify each part as a NAFTA originating good, provided other applicable requirements are met.
Disassembly
Under both Article 401 and GN 12, qualifying changes in tariff classification must take place by reason of “production”. The recent CBP Final Rule on disassembly confirms that, with certain exceptions, disassembly operations are to be considered as production in the context of applying the NAFTA tariff shift rules. The Final Rule, published at 70 FR 37669 (June 30, 2005), added a new section 181.132 to the CBP Regulations providing as follows:
§ 181.132 Disassembly.
(a) Treated as production. For purposes of implementing the rules of origin provisions of General Note 12, HTSUS, and Chapter Four of the NAFTA, except as provided in paragraph (b) of this section, disassembly is considered to be production, and a component recovered from a good disassembled in the territory of a Party will be considered to be originating as the result of such disassembly provided that the recovered component satisfies all applicable requirements of Annex 401 and this part.
(b) Exception; new goods. Disassembly, as provided in paragraph (a) of this section, will not be considered production in the case of components that are recovered from new goods. For purposes of this paragraph, a “new good” means a good which is in the same condition as it was when it was manufactured and which meets the commercial standards for new goods in the relevant industry.
A component recovered from a good (other than a new good) by disassembly is therefore eligible to be considered as a NAFTA originating good or material provided that the recovered component satisfies the
applicable GN 12(t) rule of origin and satisfies other applicable requirements. In its Final Rule CBP noted that
CBP finds no evidence showing that the NAFTA intended not to treat “disassembly” as a production process. The term “production” includes a broad range of economic activity. Moreover, the goals of the NAFTA include elimination of barriers to trade, facilitation of cross-border movement of goods, promotion of economic activity in North America, and protection of the environment. Thus, it is consistent with the free trade purposes of NAFTA to treat the recovery of goods by disassembly as “production” under the NAFTA rules of origin.
70 FR at 37671. CBP further observed that
It is likely that the used good will be assumed to be non-originating. However, the new regulation allows the component recovered from the used good to qualify as an originating good. If the recovered component meets the Annex 401 rule applicable to that component, the recovered component will be considered to be an originating good (or material).
70 FR at 37674.
In this instance, the recovered components meet their respective Annex 401/GN 12(t) rules of origin and therefore, having undergone “production”, will be considered to be originating goods.
Marking Rules
Goods that qualify as NAFTA originating goods under the rules of origin must also, pursuant to GN 12(a)(i)
[q]ualify to be marked as good of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the good[s] are marked)...
Section 102.11 sets forth the required hierarchy for determining country of origin for marking purposes. Section 102.11(a) provides that the 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 enumerated parts are neither "wholly obtained or produced," or "produced exclusively from domestic (Canadian) materials." Therefore, reference is made to section 102.11(a)(3). 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 that 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. While the enumerated parts disassembled from the vehicles do undergo a change in tariff classification in Canada, section 102.11(a)(3) is not applicable as changes in tariff classification resulting from dismantling or disassembly are considered non-qualifying operations. See 19 CFR 102.17(b).
Accordingly, 19 CFR 102.11(b) of the hierarchical rules must next be applied. 19 CFR 102.11(b) 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 ....
With respect to interpreting these rules, section 102.18 provides, in pertinent part, as follows:
(b)(1) For purposes of identifying the material that imparts the essential character to a good under § 102.11, the only materials that shall be taken into consideration are those domestic or foreign materials that are classified in a tariff provision from which a change in tariff classification is not allowed under the § 102.20 specific rule or other requirements applicable to the good. For purposes of 102.18(b)(1), if there is only one material that is classified in a tariff provision from which a change in tariff classification is not allowed under the § 102.20 specific rule or other requirements applicable to the good, then that material will represent the single material that imparts the essential character to the good under § 102.11.
19 CFR 102.18(b)(1)(iii).
As the enumerated parts are taken from vehicles in Canada, the only material that shall be taken into consideration is the vehicle, the only one material from which a shift is not allowed according to 19 CFR 102.17. Therefore, the origin of the enumerated parts is based on the origin of the vehicle.
No information was provided on the origin of the vehicles. Assuming the origin of the Ford vehicle is Canada, pursuant to 19 CFR 102.11(b), the origin of the disassembled part will be Canada. Assuming the origin of the Ford vehicle is the U.S., pursuant to 19 CFR 102.11(b), the origin of the disassembled part will be the U.S. and no marking will be required; however, for duty purposes, the country of origin of the disassembled part will be Canada, the last country in which the good was advanced in value or improved in condition before its return to the U.S. See 19 CFR 102.19(b). Assuming the origin of the Ford vehicle is not a NAFTA country, then pursuant to 19 CFR 102.19(a), the origin of the disassembled part will be Canada, the last country in which the part underwent production, provided a NAFTA Certificate of Origin is completed and signed for the part upon importation to the U.S.
HOLDING:
Production by disassembly in Canada from used vehicles of used auto parts as enumerated satisfies applicable origin requirements of the NAFTA. The parts will be eligible for treatment as NAFTA originating goods when imported into the U.S. inasmuch as they also satisfy the requirement of GN 12(a) that they qualify to be marked as goods of Canada under Part 102, CBP Regulations.
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,
Monika R. Brenner, Chief,
Valuation & Special
Programs Branch