OT:RR:CTF:VS H302204 YAG
Ms. April J. Collier
Pacific Customs Brokers Inc.
1400 A Street
Blaine, WA 98230
RE: NAFTA Eligibility; Regional Value Content; Net Cost Method; Country of Origin Marking; Electric Bicycles
Dear Ms. Collier:
This is in response to your correspondence, dated November 14, 2018, in which you request a ruling on behalf of your client, Voltbike Electric, Inc. (“Voltbike”), concerning the eligibility of certain electric bicycles for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”).
FACTS:
The product in question is a power-assisted electric bicycle (Model VoltBike Bravo), classified under subheading 8711.60, Harmonized Tariff Schedule of the United States (“HTSUS”), which provides for “Motorcycles (including mopeds) and cycles fitted with an auxiliary motor, with or without side-cards: With electric motor for propulsion.” The electric bicycle contains a 48v 12.8 Ah battery pack and a 500w motor. Voltbike states that the primary components of the electric bicycle will be manufactured in China and assembled into a complete bike in Canada. There are three separate boxes that make up the “conversion kit” Voltbike uses to construct an electric bicycle:
Box/kit #1: the front wheel, hub, front axle, bottom bracket and spokes;
Box/kit #2: rear wheel, electric motor, controller unit, wire harness, frame, Li-ion battery, charger, pedal arm, pedals, and suspension; and,
Box/kit #3: fenders, rear rack, and rear light.
You claim that all three kits/boxes are classified in heading 8714, Harmonized Tariff Schedule of the United States (“HTSUS”). These boxes are shipped from China to Canada for assembly, and as evidenced by the provided photos of the boxes, the kit/box components are separate or lose when shipped to Canada. The bicycles are assembled in Canada through the following steps: (1) opening and inspection of each assembly kit upon arrival; (2) installation of wheels, truing, axle bolt tensioning, rear derailleur adjustments, and spoke tensioning; (3) brake adjustment; (4) filling hydraulic brakes with mineral oil; (5) installing fenders and rear racks as needed; (6) testing electrical parts, including all components, battery level, LED lights, and motor performance (test ride for 30 minutes); (7) pumping tires with air; (8) electric test for Li-ion battery, with repairs made as necessary; (9) marking materials and marketing; and, (10) transportation to distribution centers.
Voltbike states that the electric bicycles assembled in Canada qualify for preferential tariff treatment under the NAFTA based on the net cost method of calculating regional value content (“RVC”). Voltbike provided cost information for the three kits used to construct the electric bicycle (broken out as costs for the bicycle parts and Li-ion battery/charger) and the total Canadian labor used to assemble the bicycles. Voltbike claims that since the net cost calculation comes up to 54.05 percent (%), the imported electric bicycle qualifies for preferential tariff treatment under the NAFTA. Finally, Voltbike proposes to mark the bicycles as “Assembled in Canada” for country of origin marking purposes.
ISSUES:
Whether the imported electric bicycles qualify for preferential tariff treatment under the NAFTA.
What is the country of origin of the electric bicycles for marking purposes?
LAW AND ANALYSIS:
The NAFTA is implemented in General Note (“GN”) 12 of the HTSUS. GN 12(a)(i) provides, in pertinent part:
(i) 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 electric bicycles will be eligible for the “Special” “CA” rate of duty provided: (1) they are deemed to be NAFTA originating under the provisions of GN 12(b), HTSUS; and, (2) qualify to be marked as products of Canada under the NAFTA Marking Rules that are set forth in Part 102 of the Code of Federal Regulations (19 C.F.R. Part 102). To determine whether the electric bicycles are NAFTA-originating, we must consult GN 12(b), HTSUS, which provides, in pertinent part, as follows:
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 (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.
Because the electric bicycles are comprised of non-originating materials, GN 12(b)(i), HTSUS, does not apply. Therefore, we must determine whether the non-originating materials undergo the tariff shift (or another applicable requirement) prescribed under GN 12(b)(ii), HTSUS. As stated in the requestor’s submission, the imported electric bicycles are classified under subheading 8711.60, HTSUS. The applicable rule in GN 12(t)/87(40), provides for:
A change to headings 8711 through 8713 from any other heading, including another heading within that group, except from heading 8714; or
A change to headings 8711 through 8713 from heading 8714, whether or not there is also a change from any other heading, including another heading within that group, provided there is a regional value content of not less than:
(1) 60 percent whether the transaction value method is used, or
(2) 50 percent where the net cost method is used.
Based on the information submitted by the requester, parts A and B of GN 12(t)/87(40) are not satisfied in this case. The requestor claims that the non-originating components (boxes or kits) that go into the electric bicycles are classified under heading 8714, HTSUS. We disagree with this classification.
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRIs”). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative Section or Chapter Notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied.
Heading 8711, HTSUS provides for “motorcycles (including mopeds) and cycles fitted with an auxiliary motor, with or without side-cars; side-cars.” GRI 2(a) provides that “any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), entered unassembled or disassembled.” The Explanatory Note to GRI 2(a) provides: “(VII) For the purposes of this Rule, “articles presented unassembled or disassembled” means articles the components of which are to be assembled either by means of fixing devices (screws, nuts, bolts, etc.) or by riveting or welding, for example, provided only assembly operations are involved. No account is to be taken in that regard of the complexity of the assembly method. However, the components shall not be subjected to any further working operation for completion into the finished state. Unassembled components of an article which are in excess of the number required for that article when complete are to be classified separately.” Therefore, heading 8711, HTSUS, covers incomplete, motorized bicycles having the essential character of complete, motorized bicycles.
In this case, if three kits or boxes are presented together upon their importation into Canada, these boxes constitute an unassembled electric bicycle, and are classifiable under heading 8711, HTSUS, pursuant to GRI 1 and GRI 2(a). Thus, there would be no tariff shift between the boxes/kits and the already assembled electric bicycle, both of which are classified under heading 8711, HTSUS. If this is not the case, box/kit #2 from China would still be classified under heading 8711, HTSUS, as it represents the essential character of a complete, motorized bicycle, still rendering the tariff shift change impossible under part A or part B of the GN 12(t)/87(40). Accordingly, since the applicable NAFTA rule of origin for the imported electric bicycles is not satisfied, the electric bicycles in question are not eligible for preferential tariff treatment under the NAFTA.
Section 304(a) of the Tariff Act of 1930, as amended (19 U.S.C. § 1304(a)), provides that, unless excepted, every article of foreign origin imported into the United States shall be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or container) will permit in such manner as to indicate to an ultimate purchaser in the United States the English name of the country of origin of the article. Congressional intent in enacting 19 U.S.C. § 1304 was “that the ultimate purchaser should be able to know by an inspection of the marking on the imported goods the country of which the goods are the product. The evident purpose is to mark the goods so that at the time of purchase the ultimate purchaser may, by knowing where the goods were produced, be able to buy or refuse to buy them, if such marking should influence his will.” United States v. Friedlaender & Co., 27 C.C.P.A. 297, 302 (1940).
Part 134 of the Customs Regulations implements the country of origin marking requirements and exceptions of 19 U.S.C. § 1304. Section 134.1(b), Customs Regulations (19 C.F.R. § 134.1(b)), defines “country of origin” as:
The country of manufacture, production, or growth of any article of foreign origin entering the United States. Further work or material added to an article in another country must effect a substantial transformation to render such other country the “country of origin” within the meaning of this part; however, for the good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin.
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 C.F.R. 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. See 19 C.F.R. § 102.11. 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;
(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 applicable requirements of these rules are satisfied.
Sections 102.11(a)(1) and 102.11(a)(2) do not apply to the facts presented in this case because the imported electric bicycles are neither wholly obtained or produced or produced exclusively from “domestic” (Canadian, in this case) materials. Because the analysis of sections 102.11(a)(1) and 102.11(a)(2) does not yield a country of origin determination, we look to section 102.11(a)(3). “Foreign material” is defined in 19 C.F.R. § 102.1(e) as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.” The applicable rule for subheading 8711.60, HTSUS, in section 102.20 requires “a change to heading 8711 through 8713 from any other heading, including another heading within that group, except from heading 8714 when that change is pursuant to General Rule of Interpretation 2(a).” As applied, the non-originating kits used to assemble the electric bicycle do not undergo the requisite tariff shift in this case. Therefore, we proceed under the hierarchical country of origin rules to 19 C.F.R. § 102.11(b), which provides:
Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation (“GRI”) 3, where the country of origin cannot be determined under paragraph (a) of this section: (1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character of the good, or (2) If the material that imparts the essential character of the good is fungible, has been commingled, and direct physical identification of the origin of the commingled material is not practical, the country or countries of origin may be determined on the basis of an inventory management method provided under the appendix to part 181 of this chapter.
The rule of interpretation set forth in 19 C.F.R. § 102.18(b)(1)(iii) states that 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 19 C.F.R. § 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 19 C.F.R. § 102.11. In this case, the box/kit#2 imparts the essential character to the good. Accordingly, the country of origin of the imported electrical bicycles under 19 C.F.R. § 102.11(b) would be the country of origin of the box/kit #2, China. Therefore, the imported electric bicycles do not qualify to be marked as products of Canada under the NAFTA Marking Rules under section 102.11(b).
Voltbike proposes to mark the bicycles as “Assembled in Canada.” Under 19 C.F.R. § 134.43, the words “Assembled in” may only be used where the country of assembly is the country of origin of the imported article. Since China would be considered the country of origin for marking purposes in this instance, we find your proposed marking “Assembled in Canada” to be unacceptable for the country of origin marking purposes.
HOLDING:
Based on the information provided, the electric bicycles in question do not qualify for NAFTA preferential tariff treatment. Under section 102.11(b), the country of origin for marking purposes of electric bicycles is China. Therefore, the electric bicycles in question should be marked as “Made in China.”
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.”
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