CLA-02 RR:CTF:VS 563425 EAC
Mr. Crispin N. Flores
President
C & J Logistical Services, Inc.
9103 S. Austin Drive
Pharr, TX 78577
RE: North American Free Trade Agreement (“NAFTA”); regional value content; General Note 12, HTSUS; lawnmower transmissions.
Dear Mr. Flores:
This is in response to your electronic submission of December 13, 2005, in which you request a ruling on behalf of General Transmission, Inc., pertaining to whether lawnmower transmissions from Mexico are eligible to receive preferential treatment under the North American Free Trade Agreement (“NAFTA”). All confidential financial information included in this ruling letter will be bracketed and redacted from the public version.
FACTS:
The imported products under consideration in this case are identified as lawnmower transmissions assembled in Mexico from parts of various origins. You state that the assembled lawnmower transmissions are classified under subheading 8483.40.50, Harmonized Tariff Schedule of the United States (“HTSUS”). The name, origin, tariff classification, and cost of the originating and non-originating parts utilized to assemble the lawnmower transmissions have been set forth as follows:
Originating Parts (U.S.- and Mexican-origin)
Part Origin Tariff Classification Cost
Washer U.S. 7318.22, HTSUS [xxxxxx]
Fork U.S. 7326.90, HTSUS [xxxxxx]
Grease Mexico 3403.99, HTSUS [xxxxxx]
Worm Screw Mexico 8483.90, HTSUS [xxxxxx]
Shaft Mexico 8483.10, HTSUS [xxxxxx]
Inf Carter MTD Mexico 8483.90, HTSUS [xxxxxx]
Sup Carter Mexico 8483.90, HTSUS [xxxxxx]
Wheel MTD/MUR Mexico 8483.40, HTSUS [xxxxxx]
Fix DC MTD/Murray Mexico 8483.60, HTSUS [xxxxxx]
Mobil DC MTD/Murray Mexico 8483.60, HTSUS [xxxxxx]
Bushing Mexico 3926.90, HTSUS [xxxxxx]
Lever MTD Mexico 7326.90, HTSUS [xxxxxx]
Total: [xxxxxx]
Non-Originating Parts (Other)
Part Origin Tariff Classification Cost
Staples Taiwan 7326.90, HTSUS [xxxxxx]
Thermo Plastic Screw Taiwan 7318.15, HTSUS [xxxxxx]
Seal 12.5 Taiwan 4016.93, HTSUS [xxxxxx]
Seal12 Taiwan 4016.93, HTSUS [xxxxxx]
O-ring Taiwan 4016.93, HTSUS [xxxxxx]
Silicone Belgium 3910.00, HTSUS [xxxxxx]
9 Coil Spring France 7320.20, HTSUS [xxxxxx]
Bearing China 8482.10, HTSUS [xxxxxx]
Total: [xxxxxx]
You additionally state that the lawnmower transmissions are assembled in Mexico at a cost of [xxxxxx] per unit and that the total per unit cost is [xxxxxx]. Based upon the foregoing information, it is claimed that the imported lawnmower transmissions will satisfy the applicable regional value content (“RVC”) requirements of General Note 12(t), HTSUS. This ruling will assume compliance with the RVC requirements, subject to any appropriate review at the time of importation when the appraised value of the lawnmower transmissions is finally established.
ISSUE:
Whether the imported lawnmower transmissions qualify for preferential treatment under the NAFTA.
LAW AND ANALYSIS:
General Note 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. General Note 12(a)(ii), HTSUS, provides:
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 Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of 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 "MX" in parentheses, are eligible for such
duty rate, in accordance with section 201 of the North American
Free Trade Agreement Implementation Act.
Accordingly, the lawnmower transmissions will be eligible for the “Special” “MX” rate of duty provided: (1) they are deemed to be NAFTA originating under the provisions of General Note 12(b), HTSUS and (2) qualify to be marked as products of Mexico under the NAFTA Marking Rules. In order to determine whether the lawnmower transmissions are NAFTA-originating, we must consult General Note 12(b), HTSUS, which provides, in pertinent part:
For 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
they have been transformed in the territory of Canada,
Mexico, and/or the United States so that
except as provided in subdivision (f) of this note,
each of the non originating material 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
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
they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Because the lawnmower transmissions are comprised, in part, of non-originating materials, General Note 12(b)(i), HTSUS, does not apply. Therefore, we must determine whether the non-originating materials undergo the tariff shift (or other applicable requirement) prescribed under General Note 12(b)(ii), HTSUS. As applied, the imported lawnmower transmissions are classified under subheading 8483.40.50, HTSUS. The applicable rule in General Note 12(t)/84.246, HTSUS, provides for:
A change to subheadings 8483.40 through 8483.60 from any subheading outside that group, except from subheadings 8482.10 through 8482.80, tariff items 8482.99.05, 8482.99.15 or 8482.99.25, or subheading 8483.90; or
A change to subheadings 8483.40 through 8483.60 from subheadings 8482.10 through 8482.80, tariff items 8482.99.05, 8482.99.15 or 8482.99.25, or subheading 8483.90, whether or not there is also a change from any subheading outside that group, provided there is a regional value content of not less than:
60 percent where the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Part A of General Note 12(t)/84.246, HTSUS, is not satisfied in this case because the Chinese-origin bearings are classified under subheading 8482.10, HTSUS. Therefore, the rule will be satisfied and NAFTA eligibility established only if the lawnmower transmissions satisfy Part B of the rule, i.e., if the change from non-originating materials also satisfies one of the RVC requirements.
General Note 12(c), HTSUS, provides the methods of calculating RVC for purposes of the NAFTA. You have requested that U.S. Customs and Border Protection (“CBP”) utilize the net cost method. The net cost method is set forth in General Note 12(c)(ii), HTSUS. General Note 12(c)(ii), HTSUS, provides:
The regional value content of a good may be calculated on the basis of the following net cost method:
NC - VNM
RVC = -------------------- X 100.
NC
where RVC is the regional value content, expressed as a percentage; NC is the net cost of the good; and VNM is the value of the non-originating materials used by the producer in the production of the good. See also, 19 CFR Part 181, Appendix, Part III, Sec. 6(3).
The methods of calculating the net cost of a good are set forth in 19 CFR Part 181, Appendix, Part III, Sec. 6(11). Subsection (11) provides three methods from which the producer of a good may choose to calculate the net cost. The options are:
calculating the total cost incurred with respect to all goods produced by that producer, subtracting any excluded costs that are included in the total cost, and reasonably allocating, in accordance with Schedule VII, the remainder to the good;
calculating the total cost incurred with respect to all goods produced by that producer, reasonably allocating, in accordance with Schedule VII, that total cost to the good, and subtracting any excluded costs that are included in the amount allocated to that good; or
reasonably allocating, in accordance with Schedule VII, each cost that forms part of the total cost incurred with respect to the good so that the aggregate of those costs does not include any excluded costs. 19 CFR Part 181, Appendix, Part III, Sec. 6 (11).
“Excluded costs” as used in section 6 (11) is defined in Part I, section 2 (1), and means “sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs.” Each of these aspects of “excluded costs” are further defined in section 2 (1).
The calculation of net cost initially requires the proper calculation of the total cost. Subsection (12) of section 6 addresses “total cost” and states that “[t]otal cost … consists of the costs referred to in section 2 (6), and is calculated in accordance with that subsection.” In this case, CBP was not provided with sufficient information to allow for a determination of “total cost” as referred to in section 2 (6). Therefore, the analysis set forth below relies solely upon the information provided in your submission.
Based upon the information contained in your submission, we note that the formula under the net cost method of determining regional value content is:
[xxxxxx] - [xxxxxx]
RVC = ----------------------------- X 100
[xxxxxx]
Performing the required calculation renders a result of [xxxxxx]%, a RVC in excess of that required under Part B of General Note 12(t)/84.246, HTSUS. Therefore, based upon the information before us, the imported lawnmower transmissions would satisfy the applicable NAFTA rule of origin. However, this calculation would be subject to appropriate review upon importation into the United States based upon the final appraised value of the merchandise.
General Note 12(a)(ii), HTSUS, establishes that NAFTA-originating goods must also qualify to be marked as goods of Mexico under the NAFTA Marking Rules before preferential treatment is granted. In this regard, section 134.1(j) of the Customs and Border Protection Regulations (19 CFR 134.1(j)), provides that the “NAFTA Marking Rules” are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country. Section 134.1(g) defines a "good of a NAFTA country" as an article for which the country of origin is Canada, Mexico or the United States as determined under the NAFTA Marking Rules.
Part 102, Customs and Border Protection Regulations (19 CFR Part 102), sets forth the NAFTA Marking Rules. Section 102.11 provides a required hierarchy for determining the country of origin of a good for marking purposes. Applied in sequential order, the required hierarchy establishes that the country of origin of a good is the country in which:
(a)(1) The good is wholly obtained or produced;
The good is produced exclusively from domestic materials; or
Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in §102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
The imported lawnmower transmissions are neither wholly obtained or produced or produced exclusively from “domestic” (Mexican, in this case) materials. Therefore, we must consider whether the foreign materials undergo an applicable change in tariff classification (or other applicable requirement) under section 102.20. The applicable rule for subheading 8483.40, HTSUS, in section 102.20 requires “[a] change to subheading 8483.30 through 8483.60 from any other subheading, including another subheading within that group.” As applied, the non-originating materials and parts used to assemble the lawnmower transmissions undergo the requisite tariff shift. Therefore the imported lawnmower transmissions qualify to be marked as products of Mexico under the NAFTA Marking Rules.
HOLDING:
Based upon the specific facts considered in this case, the imported lawnmower transmissions would satisfy the NAFTA rule of origin set forth in Part B of General Note 12(t)/84.246, HTSUS. However, please be advised that the calculation set forth above would be subject to review upon importation into the United States based upon the final appraised value of the merchandise. Moreover, the country of origin of the imported lawnmower transmissions under the NAFTA Marking Rules will be Mexico.
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 and Special Programs Branch