OT:RR:CTF:VS H306340 RSD
Brett Ian Harris, Esq.
Roll & Harris, LLP
2001 L Street, NW., Suite 500
Washington, D.C. 20036
RE: Eligibility for DR-CAFTA of Automotive Starters and Alternators Removed from
Used Automobiles in the Dominican Republic and Costa Rica Dear Mr. Harris:
This is in response to your correspondence dated October 3, 2019, submitted on behalf of Schnitzer Steel Industries (SSI) requesting a ruling concerning the eligibility of automotive alternators and starters taken from used vehicles for preferential tariff treatment under the Dominican Republic-Central America Free Trade Agreement (“DR-CAFTA”). On October 23, 2020, a teleconference meeting was held with you, myself, and members of my staff to discuss SSI’s request for a ruling. You have also submitted a supplemental submission dated March 23, 2021.
FACTS:
SSI collects, processes, and recycles metals ranging from basic iron and steel to stainless steel, aluminum, copper, lead, and zinc which it then provides to mills and foundries for use in the production of new steel and other metal products. One of the principal sources of supply for the scrap metal that SSI processes at its U.S. facilities is
end-of-life vehicles. SSI purchases these end-of-life vehicles, but prior to crushing and providing them to its scrap yards, it will harvest operational auto parts and sell them to retail customers.
SSI is contemplating supplementing its supply of used automotive parts by importing two types of automotive parts – alternators and starters which will be obtained from salvage and scrap facilities located in the Dominican Republic and Costa Rica. These used automotive parts will have been removed from either operational or end-of-life passenger vehicles by private parties in the Dominican Republic and Costa Rica. SSI will not know, and will likely not be able to determine, the original country of origin of the vehicles or the used alternators and starters, which are the subject of this request.
According to your submission, the passenger vehicles from which the starters and alternators are removed are generally classified in heading 8703 of the Harmonized Tariff Schedule of the United States ("HTSUS"). This provision covers "[m]otor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702), including station wagons and racing cars . . . ." The automobile starters and alternators covered by this ruling request are classified under HTSUS subheadings 8511.40 and 8511.50, respectively. Heading 8511 provides for:
Electrical ignition or starting equipment of a kind used for spark ignition or compression-ignition internal combustion engines (for example, ignition magnetos, magneto-dynamos, ignition coils, spark plugs and glow plugs, starter motors); generators (for example, dynamos, alternators) and cut-outs of a kind used in conjunction with such engines; parts thereof:
In an email sent on October 6, 2020, counsel advised that SSI confirmed that in addition to the alternators and starters that it plans to import into the United States, there will also be other parts removed from used cars in the Dominican Republic and Costa Rica, even if those other parts may not be imported into the United States. Counsel further claims that every possible part may be removed from the used vehicles at these facilities before they are processed into scrap – even if some of those parts are not ultimately imported. However, no verification of this contention was provided, and no indication was presented on how SSI intends to keep track of the other parts that are removed from the used automobiles at its facilities.
ISSUE:
Whether the imported automotive alternators and starters removed from used vehicles in the Dominican Republic and Costa Rica are considered as originating goods pursuant to DR-CAFTA.
LAW AND ANALYSIS:
DR-CAFTA was signed on August 5, 2004, and includes as parties the United States, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Costa Rica. The provisions of DR-CAFTA were adopted by the U.S. in the Dominican Republic – Central America – United States Free Trade Agreement Implementation Act, Public Law 109-53 (2005). General Note (GN) 29 of the Harmonized Tariff Schedule of the United States ("HTSUS") sets forth the rules of origin for DR-CAFTA.
Pursuant to GN 29(b), goods are eligible for treatment as an originating good if—
(i) the good is a good wholly obtained or produced entirely in the territory of one or more of the parties to the agreement;
(ii) the good was produced entirely in the territory of one or more of the parties to the agreement and—
(A) each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (n) of this note; or
(B) the good otherwise satisfies any applicable regional value content or other requirements specified in subdivision (n) of this note;
and the good satisfies all other applicable requirements of this note; or
(iii) the good was produced entirely in the territory of one or more of the parties to the agreement exclusively from originating materials.
In the definition of a "good wholly obtained or produced," GN 29(c)(i)(J) and (K) includes "waste and scrap derived from--(1) manufacturing or processing operations in the territory of one or more of the parties to the Agreement; or (2) used goods collected in the territory of one or more of the parties to the Agreement, provided such goods are fit only for the recovery of raw materials, and recovered goods derived in the territory of one or more of the parties to the Agreement from used goods, and utilized in the territory of one or more of the parties to the Agreement in the production of remanufactured good." Further, the term "recovered goods" is defined in GN 29(c)(ii)(A) to mean:
materials in the form of individual parts that are the result of--
(i) the disassembly of used goods into individual parts; and
(ii) cleaning, inspecting, testing, or other processes as necessary for improvement to sound working condition.
Additionally, GN 29(c)(ii)(B) defines the term "remanufactured goods" as "goods classified in chapter 84, 85 or 87 of the tariff schedule … that--
(i) are entirely or partially comprised of recovered goods; and
(ii) have a similar life expectancy and enjoy a factory warranty similar to such a new good.
These concepts make it clear that in the case of waste and scrap, what is recovered must be fit only for the recovery of raw materials which is not the situation when automotive parts are sold to retail customers and possibly refurbished.
See Headquarters Ruling Letter (HQ) 558823 dated February 6, 1995. Additionally, in the case of "recovered goods" and "remanufactured goods," it is clear that a good may be considered to be originating as "wholly obtained or produced" if it is first recovered, and then used to make certain remanufactured goods in specific classifications. Here, the alternators and starters are recovered from the used cars by disassembly. However, the plan is to export the alternators and starters in this condition to the United States. The Agreement does not provide for recovered goods to be considered originating at the disassembly stage, but only after undergoing further steps to become remanufactured goods.
You contend, however, that the alternators and starters are not necessarily considered originating as "wholly obtained or produced" goods, but rather that they undergo the requisite tariff shift pursuant to GN 29(b)(ii)(A), HTSUS, which provides that an imported article is considered originating under the DR-CAFTA if "the good was produced entirely in the territory of one or more of the parties to the Agreement, and . . . each of the nonoriginating materials used in the production of the good undergoes an applicable change in tariff classification specified in subdivision (n) of this note." In this case, as noted above, the automobile starters and alternators covered by this ruling request are classified under HTSUS subheadings 8511.40 and 8511.50, respectively. The applicable rule of origin/tariff shift rule set forth in HTSUS General Note 29(n) for goods classified in these provisions is:
A change to subheadings 8511.10 through 8511.80 from any other subheading.
To consider such a tariff shift to render a good originating, would make the recovered and remanufactured goods provision, limited to goods classified in certain subheadings, superfluous and meaningless. There would be no need to create a separate rule for recovered and remanufactured goods if the requisite tariff shift may just be met. Furthermore, to qualify as an originating good under DR-CAFTA, we must consider the definitions of "production" and the terms "good" and "materials" set forth in the change in tariff classification provision. The applicable change in tariff classification must be due to a production operation that occurred in a DR-CAFTA country. According to HTSUS GN 29(c)(ii)(F), the term "production" means "growing, mining, harvesting, fishing, raising, trapping, hunting, manufacturing, processing, assembling or disassembling a good." While the definition of production includes "disassembling", the definition also includes other terms referenced in the "wholly obtained or produced" section of the General Note, and pertinent here is that the term "disassembly" is referenced in the "recovered goods" definition; but, as noted above, the recovery requires another subsequent step of remanufacture.
Additionally, the term "material" in GN 29(c)(ii)(C) means "a good that is used in the production of another good, including a part or an ingredient." SSI contends that the removal of the alternators and starters from the passenger vehicles constitutes a production because it is the result of disassembling the passenger vehicles. Consequently, it is SSI’s position that the nonoriginating passenger vehicles undergo the applicable change in tariff classification – in other words, the used vehicle is the “nonoriginating material” that is being used in a production process (i.e., disassembly) resulting in the applicable parts being classified in HTSUS subheadings 8511.10 through 8511.80. Therefore, counsel contends that by virtue of the production (i.e., disassembly) process occurring in Costa Rica and the Dominican Republic, the subject alternators and starters resulting from that disassembly should be properly considered as "originating goods" under the DR-CAFTA. Although there is a tariff shift from heading 8703, HTSUS, to subheading 8511.40 and 8511.50, HTSUS, as a result of disassembly from a used vehicle when the alternators and starters are recovered, we do not agree that the used vehicles may be considered "materials" that are used in the production of another good. The change in tariff classification requires the nonoriginating material to be used in the production of the final good. Here, the used vehicles (nonoriginating materials) themselves are not used to make alternators and starters. Disassembly operations could be considered in the context of the change in tariff classification provision, for example, if some components are removed from one material and used to make the final good, but that is not the situation here. Furthermore, we believe that for disassembly to be considered production under the Agreement, HTSUS GN 29(c)(ii)(F) requires that there must be a complete dismantlement of the good under consideration, not simply a removal or recovery of some of its parts as is the case here. The Agreement does not contemplate for a tariff shift rule to constitute a mechanism for a good to become originating solely via recovery/disassembly from another good. Instead, the Agreement must be read in its entirety, and it created the concept of recovered and remanufactured goods, with additional steps, beyond recovery in order for a good to be considered originating.
HOLDING:
Alternators, starters, and other used automobile parts recovered from used vehicles, without further remanufacture are not considered originating goods pursuant to DR-CAFTA. 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 official handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch