OT:RR:CTF:VS H316194 RMC
Misty Gibbins
Pacific Customs Brokers Inc.
1400 A St.
Blaine, WA 98230
RE: USMCA Eligibility of Sway Bar End Link Kit
Dear Ms. Gibbins:
This is in response to your correspondence dated November 12, 2020, in which you request a ruling on behalf of BD Engine Brake Inc. Your request concerns the tariff classification of a “sway bar end link kit,” and the eligibility of that product for preferential tariff treatment under the United States-Mexico-Canada Agreement (“USMCA”). Your request, submitted as an electronic ruling request, was forwarded to this office from the National Commodity Specialist Division for response.
FACTS:
The merchandise is described as a sway bar end link kit for model year 2000-2012 Dodge Ram 2500/3500 pickup trucks. A sway bar end link is a part that attaches to the vehicle’s control arm and the sway bar, which are both part of the suspension system. According to the information provided, the kit is designed to replace a truck’s original equipment, which is prone to failure. Compared to the original equipment, the aftermarket kit produced by BD Engine Brake Inc. incorporates an additional pivot point, which is claimed to help prevent the link from failing.
Assembly of the sway bar end link kit will occur at BD Engine Brake’s facilities in Canada using both originating and non-originating materials. Your submission includes photographs of the merchandise in its condition as imported and photographs of all materials used in production. Your submission also includes the following information from the bill of materials:
Description
Quantity
Classification
Originating Status
Value of Material
Connector Rods
2
8708.80.9900
Non-originating
$[ ]
Bushing Kit
1
8708.29.5060
Originating
$[ ]
U-Bracket Assemblies
2
8302.30.3060
Originating
$[ ]
Hardware Kit
1
7318.15.2000
Non-originating
$[ ]
Decal
1
4821.10
Originating
$[ ]
Box
1
4819.20.0040
Originating
$[ ]
Packaging
1
N/A
Originating
$[ ]
Picking
1
N/A
Originating
$[ ]
You opine that the merchandise may be classified either in heading 8302, Harmonized Tariff Schedule of the United States (“HTSUS”) or in heading 8708, HTSUS. You also ask us to determine, based on the information provided, whether the merchandise is eligible for preferential tariff treatment under the USMCA.
ISSUES:
Whether the merchandise is properly classified in heading 8302, HTSUS, or heading 8708, HTSUS.
Whether the merchandise is eligible for USMCA preferential tariff treatment under the USMCA when it is imported from Canada into the United States.
LAW AND ANALYSIS:
Classification
Classification under the HTSUS is made in accordance with the General Rules of Interpretation (“GRI”). 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.
The tariff provisions at issue are the following:
8302 Base metal mountings, fittings and similar articles suitable for furniture, doors, staircases, windows, blinds, coachwork, saddlery, trunks, chests, caskets or the like; base metal hat racks, hat-pegs, brackets and similar fixtures; castors with mountings of base metal; automatic door closers of base metal; and base metal parts thereof:
* * * * *
8708 Parts and accessories of the motor vehicles of headings 8701 to 8705
* * * * *
When interpreting and implementing the HTSUS, the Explanatory Notes (“ENs”) of the Harmonized Commodity Description and Coding System may be utilized. The ENs, while neither legally binding nor dispositive, provide a guiding commentary on the scope of each heading, and are generally indicative of the proper interpretation of the HTSUS. CBP believes the ENs should always be consulted. See T.D. 89-80, 54 Fed. Reg. 35127, 35128 (August 23, 1989).
The ENs to heading 83.02 state, in pertinent part, the following:
This heading covers general purpose classes of base metal accessory fittings and mountings, such as are used largely on furniture, doors, windows, coachwork, etc. Goods within such general classes remain in this heading even if they are designed for particular uses (e.g., door handles or hinges for automobiles). The heading does not, however, extend to goods forming an essential part of the structure of the article, such as window frames or swivel devices for revolving chairs.
Mountings, fittings and similar articles suitable for motor vehicles (e.g., motor cars, lorries or motor coaches), not being parts or accessories of Section XVII. For example : made up ornamental beading strips; foot rests; grip bars, rails and handles; fittings for blinds (rods, brackets, fastening fittings, spring mechanisms, etc.); interior luggage racks; window opening mechanisms; specialised ash trays; tail board fastening fittings.
The ENs to heading 87.08 state, in pertinent part, the following:
Parts and accessories of this heading include:
Assembled motor vehicle chassis frames (whether or not fitted with wheels but without engines) and parts thereof (side members, braces, cross members; suspension mountings; supports and brackets for the coachwork, engine, running boards, battery or fuel tanks, etc.).
You state that the merchandise may be properly classified in heading 8302, HTSUS, which provides, in part, for brackets, mountings, and fittings of base metals suitable for vehicle coachwork. Here, however, the merchandise is not used to attach anything to a vehicle coachwork. As a result, this article does not meet the terms of heading 8302, HTSUS. Furthermore, the merchandise operates as a supporting mechanism for an automobile’s suspension system. The EN to heading 8302 makes no mention of any parts related to an automobile’s suspension system.
In contrast, the EN to heading 87.08 does specifically mention parts pertaining to an automobile’s suspension mountings. For these reasons, the merchandise is properly classified in heading 8708, which provides for “[p]arts and accessories of the motor vehicles of headings 8701 to 8705.” Specifically, the merchandise is classified in 8708.80.6590, Harmonized Tariff Schedule of the United States Annotated (“HTSUSA”), which provides for “[p]arts and accessories of the motor vehicles of heading 8701 to 8705: Suspension systems and parts thereof (including shock absorbers): Parts: Other: Other: Other.”
Eligibility for USMCA Preferential Tariff Treatment
The USMCA was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11, 14 (19 U.S.C. § 4511(a)). General Note (“GN”) 11 of the HTSUS implements the USMCA.
GN 11(a) provides that:
Goods originating in the territory of a country named herein, pursuant to the United States-Mexico-Canada Agreement (USMCA), are subject to duty as provided herein, including any treatment set forth in subchapter XXIII of chapter 98 and subchapter XXII of chapter 99 of the tariff schedule. For the purposes of this note, as provided in the tariff schedule—
Goods that originate in the territory of Mexico, Canada or the United States (hereinafter referred to as “USMCA country” or “USMCA countries” as further defined in subdivision (l)(xxiv) of this note) under the terms of subdivision (b) of this note and regulations issued by the Secretary of the Treasury (including Uniform Regulations provided for in the USMCA), and goods enumerated in subdivision (p) of this note, when such goods are imported into the customs territoryof [sic] the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn, followed by the symbol “S” in parentheses, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act; and . . .
GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(b) states:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a “good originating in the territory of a USMCA country” only if—
the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or . . .
Here, the merchandise will be produced in Canada using both originating and non-originating materials. Accordingly, the merchandise will not qualify as originating pursuant to GN 11(b)(i) or (ii). We must therefore consider whether the merchandise qualifies as originating pursuant to GN 11(b)(iii).
As noted above, the merchandise is classified in subheading 8708.80, HTSUS. The rule of origin in GN 11(o)/87.37 provides that:
37. For a good of subheading 8708.80 for use in a passenger vehicle or light truck:
No change in tariff classification to a good of subheading 8708.80, provided there is a regional value content of not less than 75 per cent under the net cost method.
The relevant subheading rule states that:
The underscoring of the designations in subdivisions 37 through 39 pertain to goods provided for in heading 8708.80. If the good is for use in a passenger vehicle or light truck, Article 3.2 and 3.3 of the automotive appendix applies. If the good is for use in a heavy truck, Article 4.2 of the automotive appendix applies. If the good is for use in a vehicle specified in paragraphs 1 and 2 of Article 10, Articles 10.1 and 10.2 of the automotive appendix apply.
Here, GN 11(o)/87.37 is underscored and, according to the information provided, the merchandise is intended for use in light trucks. In accordance with the subheading note, Articles 3.2 and 3.3 of the automotive appendix therefore apply. As noted in GN 11(k)(ii)(D), “[t]he term ‘automotive appendix’ means the Appendix to Annex 4-B of the USMCA (relating to the product-specific rules of origin for automotive goods, as reflected in subdivision (o) of this note.”
Article 3 Appendix to Annex 4-B of the USMCA provides the staging of regional value content (“RVC”) requirements for various vehicles and automotive parts, including the parts listed in Tables A.1, A.2, B, C, D, and E of the Appendix to Annex 4-B of the USMCA. Specifically, Article 3.2 of the Appendix provides that:
Notwithstanding Article 2 (Product-Specific Rules of Origin for Vehicles) and the Product-Specific Rules of Origin in Annex 4-B, each Party shall provide that the regional value content requirement for a part listed in Table A.1 of this Appendix that is for use in a passenger vehicle or light truck is:
66 percent under the net cost method or 76 percent under the transaction value method, if the corresponding rule includes a transaction value method, beginning on January 1, 2020, or the date of entry into force of this Agreement, whichever is later;
69 percent under the net cost method or 79 percent under the transaction value method, if the corresponding rule includes a transaction value method, beginning on January 1, 2021, or one year after the date of entry into force of this Agreement, whichever is later;
72 percent under the net cost method or 82 percent under the transaction value method, if the corresponding rule includes a transaction value method, beginning on January 1, 2022, or two years after the date of entry into force of this Agreement, whichever is later; or
75 percent under the net cost method or 85 percent under the transaction value method, if the corresponding rule includes a transaction value method, beginning on January 1, 2023, or three years after the date of entry into force of this Agreement, whichever is later, and thereafter.
Here, “[s]uspension systems and parts thereof (including shock absorbers)” of 8707.80 are provided for in Table A.1. Article 3.2 of the Appendix correlates to GN 11(k)(iii)(B), which repeats the RVC requirements set forth in Article 3.2 of the Appendix.
In addition to the provisions of GN 11, however, the trilaterally agreed USMCA Uniform Regulations in Appendix A of 19 C.F.R. Part 182 provide further guidance on the interpretation and application of the USMCA rules of origin. The Note to Table A.1 of the USMCA Uniform Regulations states that:
The Regional Value Content requirements set out in sections 13 or 14 of Schedule I (PSRO Annex) apply to a good for use as original equipment in the production of a passenger vehicle or light truck. For an aftermarket part, the applicable product-specific rule of origin set out in section 13 or 14 or Schedule I (PSRO Annex) is the alternative that includes the phrase “for any other good.”
Accordingly, the Uniform Regulations distinguish between aftermarket parts and automotive parts that are used as original equipment in the production of a vehicle. See Section 12(1) (“aftermarket part means a good that is not for use as original equipment in the production of passenger vehicles, light trucks or heavy trucks as defined in these Regulations.”). Here, as the merchandise will be used as service parts for model year 2000-2012 Dodge Ram 2500/3500 pickup trucks (i.e., as parts for existing vehicles, rather than as original equipment in the production of new vehicles) it qualifies as an “aftermarket part.” Accordingly, the RVC requirements in Article 3.2 and GN 11(k)(iii)(B) do not apply in this case. Instead, in accordance with the Note to Table A.1 in the Uniform Regulations, the applicable product-specific rule of origin is the rule in section 13 or 14, or Schedule I (PSRO Annex).
Section 13 of the USMCA Uniform Regulations contains two sets of rules of origin for goods of subheading 8708.80, HTSUS. The first set applies to “a good of subheading 8708.80 for use as original equipment in a passenger vehicle or light truck” and therefore does not apply to the aftermarket parts at issue in this case. The second, which applies to “any other good of subheading 8708.80 for use as original equipment in any other vehicle or as an aftermarket part,” requires:
A change to McPherson struts of subheading 8708.80 from parts thereof of subheading 8708.80 or any other subheading, provided there is a regional value content of not less than 50 percent under the net cost method;
A change to subheading 8708.80 from any other heading;
A change to suspension systems (including shock absorbers) of subheading 8708.80 from parts thereof of subheading 8708.80 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method; or
No required change in tariff classification to parts of suspension system (including shock absorbers) of subheading 8708.80, provided there is a regional value content of not less than 50 percent under the net cost method.
See also GN 11(o)/87.39.
As noted above, the merchandise at issue is classified in 8708.80.6590, HTSUSA, which provides for “[p]arts and accessories of the motor vehicles of heading 8701 to 8705: Suspension systems and parts thereof (including shock absorbers): Parts: Other: Other: Other.” Because the merchandise does not consist of McPherson struts, subsection 6 is inapplicable. Although subsection 7 provides a tariff shift rule that could apply in this case, the rule is not satisfied because the merchandise incorporates non-originating materials classified in chapter 87, HTSUS. Subsection 8 is inapplicable because the merchandise is classified as “parts” rather than as “suspension systems.” Subsection 9 specifically addresses the merchandise at issue and therefore applies in this case. The applicable rule of origin in subsection 9 is: “[n]o required change in tariff classification to parts of suspension system (including shock absorbers) of subheading 8708.80, provided there is a regional value content of not less than 50 percent under the net cost method.”
The net cost method for determining RVC under the USMCA is set forth in GN 11(c)(iii):
Net cost method.-- An importer, exporter or producer of a good may calculate the regional value content of a good on the basis of the following net cost method:
RVC = ((NC - VNM)/NC) x 100)
where NC means the net cost of the good; RVC means the regional value content, expressed as a percentage; and VNM is the value of nonoriginating materials, including materials of undetermined origin, used by the producer in the production of the good.
The methods of calculating the net cost of a good are set forth in the Uniform Regulations. Section 7(11) provides the producer with three options for calculating the net cost of the good. 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 that total cost, and reasonably allocating, in accordance with Schedule V, 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 V, 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 V, 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.
Each method of calculating the net cost of a good therefore requires a determination of the “total cost” of the merchandise and any associated “excluded costs.” As defined in Section 1 of the USMCA Uniform Regulations:
total cost means all product costs, period costs, and other costs incurred in the territory of one or more of the USMCA countries, where:
Product costs are costs that are associated with the production of a good and include the value of materials, direct labor costs, and direct overheads;
period costs are costs, other than product costs, that are expensed in the period in which they are incurred, such as selling expenses and general and administrative expenses; and
other costs are all costs recorded on the books of the producer that are not product costs or period costs, such as interest.
Total cost does not include profits that are earned by the producer, regardless of whether they are retained by the producer or paid out to other persons as dividends, or taxes paid on those profits, including capital gains taxes.
Section 1 of the USMCA Uniform regulations provides that “excluded costs means, with respect to net cost or total cost, sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs.” See Section 1. Each of these aspects of “excluded costs” are further defined in Section 1.
Here, you provided a bill of materials with information on the value of materials used in the production of the merchandise, as well as the cost of the box, picking, and packing costs. However, you did not provide information relating to the other elements of total cost (for example, direct labor costs, direct overheads, etc.). Furthermore, a complete accounting of any relevant excluded costs was not provided. Accordingly, our analysis will rely solely upon the relevant information that was provided in the bill of materials.
Section 8 of the Uniform Regulations sets forth the rules regarding the valuation of materials that are used in the production of a good. For purposes of this ruling, we assume that materials listed on the bill of materials were valued in accordance with Section 8.
Based upon the information contained in your submission, the total cost of the good consists of the value of the connector rod, bushing kit, u-bracket assembly, hardware kit, decal, box, packaging, and picking costs, for a total of $[ ]. Excluded costs include shipping and packing costs (here, the box, packaging, and picking), with a value of $[ ]. Accordingly, the net cost of the good is $[ ]. The total value of the non-originating materials used in the production of the good is $[ ], which is attributable to the connector rod and the hardware kit.
RVC = ($[ ] – $[ ]) / $[ ] x 100
Performing this calculation results in an RVC of [ ]%.
As the applicable rule of origin requires an RVC of not less than 50 percent under the net cost method, the good will qualify as USMCA originating. Provided that all other requirements are met, it will be eligible for preferential treatment under the USMCA when imported into the United States from Canada.
HOLDING:
Based on the information provided, the sway bar end link kit will be classified in subheading 8708.80.6590, HTSUSA, and will be eligible for preferential tariff treatment under the USMCA when imported into the United States from Canada.
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