HQ H004446
CLA-02 RR:CTF:VS 004446 NL
Mr. Ronald Nason
New England Auto Parts
P.O. Box 528
Unity, Maine 04988
RE: NAFTA; Used Automotive Parts; 19 CFR §181.132; Disassembly
Dear Mr. Nason:
This is in reply to your letter dated December 13, 2006. You request a prospective ruling regarding the eligibility of used auto parts for preferential tariff treatment under the North American Free Trade Agreement (NAFTA). 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:
New England Auto Parts purchases automotive components in Canada from operators of salvage yards. The salvage yards obtain these parts by the disassembly of vehicles in Canada. You indicate that New England Auto Parts serves as the exporter and as the importer for purposes of certifying the NAFTA originating status of the parts. Form CBP 434, the NAFTA Certificate of Origin, will show the Canadian disassemblers as the producers of the parts. New England Auto Parts will execute the CBP Form 434 as exporter, and will be in possession of the CBP Form 434 as the importer at the time it claims NAFTA preferential tariff treatment.
Included with your submission are commercial invoices providing descriptions and tariff classifications for various parts. Our office understands that these parts are a representative sample of the types of recovered used parts imported by New England Auto Parts. They include:
Gasoline and Diesel Engines - classified in headings 8407 and 8408, Harmonized Tariff Schedule of the United States (HTSUS);
Body parts such as doors, fenders and hoods – classified in subheading 8708.29, HTSUS;
Gear boxes and parts – classified in subheading 8708.40, HTSUS;
Axles – classified in subheading 8708.50, HTSUS;
Wheels – classified in subheading 8708.70, HTSUS; and
Other parts, including air bag kits, steering columns and headlights – classified in subheadings 8708.94 and 8708.99, HTSUS.
(All HTSUS numbers are for 2006; some have been amended effective for 2007).
The parts will be obtained by disassembly in Canada from used vehicles classified in headings 8703 and 8704, HTSUS.
New England Auto Parts will claim NAFTA preferential tariff treatment on the basis that each of the above-referenced representative 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(b) 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 (emphasis added), 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 disassembled parts will not be 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, which may be applicable in the context of disassembly. The requirement for gasoline or diesel engines classified in headings 8407 or 8408 is a change from any other heading provided a regional value content (RVC) requirement is satisfied. Applying this rule, a change from a vehicle of headings 8703 or 8704 to an engine of headings 8407 or 8408 will result in an originating recovered engine provided such production also satisfies the applicable RVC requirement.
For auto body parts of subheading 8708.29, the relevant rule is change from any other heading. Thus a change from a vehicle to a recovered part is a sufficient change in tariff classification. The relevant rule for recovered gear boxes of subheading 8708.40 is a change from any other heading. A change from a vehicle to a gear box is therefore a qualifying change in tariff classification. The relevant rule for drive axles (8708.50) also is a change from any other heading; disassembly from a vehicle satisfies this rule.
The same rule – a change from any other heading - applies for wheels classified in subheading 8708.70, and is met when a wheel is obtained by disassembly from a vehicle.
Finally, the relevant rule for other automotive parts classified in subheadings 8708.94 and 8708.99 is a change from any other heading. Recovery of automotive parts from a vehicle by disassembly will satisfy this rule.
In sum, the change in tariff classification to each of these automotive parts from vehicles classified in headings 8703 or 8704 satisfies the tariff shift prescribed under GN 12(t) for each of the parts. However, with regard to gasoline and diesel engines, a regional value content requirement also must be satisfied. Inasmuch as no information has been submitted concerning valuation or costs associated with the recovered engines, it is not possible to determine whether they meet the requirements for NAFTA originating goods. All the other parts (body parts, gear boxes, drive axles, wheels and other parts) meet the applicable rules set forth in U.S. General Note 12(t) and will qualify as NAFTA originating goods, 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”. Pursuant to §181.132, CBP Regulations (19 CFR §181.132), subject to certain exceptions, disassembly operations are to be considered as production in the context of applying the NAFTA tariff shift rules. The regulation provides 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.
In this case the automotive components recovered by disassembly from used vehicles (and thus not from new goods) will be eligible to be considered as a NAFTA originating goods or materials provided that the recovered component satisfies the applicable GN 12(t) rule of origin and satisfies other applicable requirements.
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 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 good[s] are marked)...
Section 102.11, CBP Regulations (19 CFR §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 §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 §102.11(a)(3).
Pursuant to §102.20, the enumerated parts disassembled from the vehicles do undergo a change in tariff classification in Canada; however, 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 that where the country of origin cannot be determined under paragraph (a), the country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good.
As the enumerated parts are taken from used vehicles in Canada, the single material that shall be taken into consideration is the used vehicle, the only one material from which a shift is not allowed. Therefore, the origin of the enumerated parts is based on the origin of the vehicle.
No information was provided on the origin of the used vehicles. Assuming the origin of the vehicle is Canada, pursuant to 19 CFR §102.11(b), the origin of the disassembled part will be Canada. Assuming the origin of the 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 purposes or preferential tariff treatment under the NAFTA, 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 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 of certain used auto parts by disassembly in Canada from used vehicles satisfies applicable rules of origin for treatment as originating goods. Gasoline and diesel engines satisfy these requirements provided the regional value content requirement also is met. With regard to country of origin marking, if the vehicle from which parts are taken is of U.S. origin, the parts are not required to be marked. If the origin of the vehicle is Canada or a non-NAFTA country, the parts qualify to be marked as goods of Canada.
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