OT:RR:CTF:VS H277701 CMR
Alex Romero
A.F. Romero & CO
1749 Stergios Road
Calexico, CA 92231
RE: NAFTA-eligibility of certain audio amplifiers; Article 509
Dear Mr. Romero:
This is in response to your request for a ruling on behalf of your client, QSC Audio Products, LLC, on the eligibility of certain audio amplifiers for preferential tariff treatment under the North American Free Trade Agreement (NAFTA). In your request, you inquire as to the designation of a printed circuit board assembly used in the production of the audio amplifiers as a self-produced intermediate material.
FACTS:
The finished audio amplifier, which will be imported from Mexico, Model #DCA 1222, is classified in subheading 8518.40.20, Harmonized Tariff Schedule of the United States (HTSUS), which provides for audio-frequency electric amplifiers, other than for use as repeaters in line telephony. The audio amplifier will contain a printed circuit board which is classified in subheading 8518.90, HTSUS, as parts of audio-frequency electric amplifiers.
You indicate that your client will manufacture the amplifier in Mexico. You indicate that the assembly process includes: 1) a printed circuit board assembly for the amplifier; 2) a chassis assembly; and 3) finished packaging assembly. You included two bills of material. One bill of materials lists all of the components and materials that make up the finished amplifier. The other bill of materials lists the components and materials for the printed circuit board assembly which you wish to designate as a self-produced intermediate material.
With regard to the printed circuit board assembly, you indicate that all of the components meet the requisite tariff shift rule under the NAFTA, with the exception of one component, i.e., a “bracket, output” which is classified in subheading 8518.90, HTSUS, as a part. However, you indicate the bracket component represents only 1.28% of the total cost of materials of the printed circuit board assembly and is therefore, de minimis.
ISSUES:
I. Whether the printed circuit board assembly qualifies as a self-produced intermediate material under the NAFTA whose total cost may be treated as originating for purposes of calculating the regional value content under the net cost method for purposes of the requisite tariff shift rule.
II. Whether the finished audio amplifier qualifies for preferential tariff treatment
under the NAFTA.
LAW AND ANALYSIS:
The NAFTA is implemented in General Note (GN) 12 of the HTSUS. GN 12(a)(ii) states that goods are eligible for the NAFTA rate of duty if they originate in the territory of a NAFTA party and qualify to be marked as goods of Mexico. GN 12(b) sets forth the various methods for determining whether a good originates in the territory of a NAFTA party. Specifically, these provisions provide, in relevant part, as follows:
Goods originating in the territory of a party to the North American Free Trade Agreement (NAFTA) are subject to duty as provided herein. For the purposes of this note—
(ii) 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 the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, 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.
(b) 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 subdivision (r), (s) and (t) of this note or the rules set forth therein, or
(B) the goods otherwise satisfy the applicable requirements of subdivision (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; ….
There is no issue as to the classification of the finished audio amplifier in subheading 8518.40, HTSUS, and the printed circuit board in 8518.90, HTSUS. Therefore, we need only review the relevant tariff shift rules and the submitted bill of materials to determine if the goods qualify under GN 12(b) for preferential tariff treatment under the NAFTA based on the assembly of the parts into the finished audio amplifier in Mexico. The relevant preferential tariff shift rule for subheading 8518.40, HTSUS, is:
70. (A) A change to subheadings 8518.40 through 8518.50 from any other
heading; or
(B) A change to subheadings 8518.40 through 8518.50 from subheading
8518.90, whether or not there is also a change from any other heading,
provided there is 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.
Accordingly, in this case, the amplifier is subject to a regional value content, and your client would like to designate the printed circuit board assembly as a self-produced intermediate material and have its entire cost included as NAFTA originating costs in the calculation of the regional value content of the finished audio amplifier under the net cost method. You cite section 7(4) to support of this position. We presume you are referencing Section 7, paragraph 4 of the Appendix to Part 181 (19 CFR Appendix to Part 181 – Rules of Origin Regulations aka the NAFTA Rules of Origin Regulations (hereinafter, ROR)).
GN 12(c)(iii) and (c)(viii) provide, in relevant part, respectively:
. . . , the value of non-originating materials used by the producer in the production of a good shall not, for purposes of calculating the regional value content of the good under subdivision (c)(i) or (c)(ii) of this note, include the value of non-originating materials used to produce originating materials that are subsequently
used in the production of such good.
. . . , the producer of a good may, for purposes of calculating the regional
value content of the good, designate any self-produced material (other than a component, or material thereof, identified in Annex 403.2 to the NAFTA) used in the production of the good as an intermediate material; provided that if the intermediate material is subject to a regional value-content requirement, no other self-produced material that is subject to a regional value-content requirement and is used in the production of that intermediate material may be designated by the producer as an intermediate material.
See also 19 CFR Part 181, Section 6, paragraph 4, ROR:
. . ., for purposes of calculating the regional value content of a good under subsection . . . (3) [net cost method], the value of non-originating materials used by a producer in the production of the good shall not include
* * *
(b) the value of any non-originating materials used by the producer in the production of a self-produced material that is an originating material and is designated as an intermediate material.
A “self-produced material” is defined in Section 2, ROR, as “a material that is produced by the producer of a good and used in the production of that good.” An “intermediate material” is defined therein as “a self-produced material that is used in the production of a good and is designated as an intermediate material under section 7(4).” 19 CFR Appendix to Part 181, Part 1, Section 2(1).
The tariff rule for the printed circuit board is as follows:
71. (A) A change to subheading 8518.90 from any other heading; or
(B) A change to subheading 8518.90 from any other subheading within
8518, whether or not there is also a change from any other
heading, provided there is a regional value content of not less than:
(1) 30 percent where the transaction value method is used, or
(2) 25 percent where the net cost method is used.
The net cost method is set forth in GN 12(c)(ii) as:
RVC = ((NC - VNM)/NC) x 100
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 non-originating materials used by the producer in the production of the good.
With respect to the printed circuit board assembly of subheading 8518.90, HTSUS, all of the components listed on the Bill of Materials make the requisite tariff shift to subheading 8518.90, except for the output bracket which is classifiable within the subheading as a part. However, the de minimis rule of the NAFTA provides, in relevant part, at GN 12(f)(ii):
A good that is otherwise subject to a regional value-content requirement shall not
be required to satisfy such requirement if the value of all non-originating
materials used in the production of the good is not more than 7 percent of the
transaction value of the good, adjusted to a F.O.B. basis, or, if the transaction
value of the good is unacceptable under section 402(b) of the Tariff Act of 1930,
the value of all non-originating materials is not more than 7 percent of the total
cost of the good, provided that the good satisfies all other applicable
requirements of this note.
Based on the information submitted with your ruling request, we agree with you that the output bracket is considered de minimis under GN 12(f)(ii). Therefore the printed circuit board assembly qualifies as originating under the NAFTA, and may be designated as a self-produced intermediate material.
As the printed circuit board assembly used in the production of the finished audio amplifier is classified in subheading 8518.90, HTSUS, the audio amplifier must meet a regional value content of not less than 50 percent under the net cost method, which is the method to which you have referred in your request. You have asked whether the “total cost” of the printed circuit board assembly may be treated as “originating” for purposes of calculating the regional value content under the net cost method. “Total cost” is defined in Section 2 of the NAFTA ROR as: “the total of all product costs, period costs and other costs incurred in the territory of one or more of the NAFTA countries.”
As the printed circuit board assembly qualified as an originating good, is a self-produced material, and is designated as an intermediate material, the value of any non-originating materials used in the production of the printed circuit board assembly is not included in the value of non-originating materials for purposes of calculating the RVC of the finished audio amplified. Based on the information you have presented regarding the costs, the finished audio amplified meets the requisite regional value content under the net cost method and qualifies for preferential tariff treatment under the NAFTA as an originating good.
HOLDING:
The printed circuit board assembly qualifies as an originating good under the NAFTA and may be designated as a self-produced intermediate material for purposes of determining whether the finished audio amplifier qualifies for preferential treatment under the NAFTA.
The finished audio amplifier qualifies for preferential tariff treatment under the NAFTA based upon the information regarding costs provided to this office.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported
to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch