OT:RR:CTF:VS H342177 RRB
PJ Trainham
Bay Brokerage Inc.
42832 NYS Route 12
Alexandria Bay, NY 13607
RE: USMCA Eligibility; Used Automotive Parts; Disassembly
Dear Mr. Trainham:
This is in response to your ruling request, dated September 12, 2024, on behalf of New England Auto Parts, concerning preferential tariff treatment under the United States-Mexico-Canada Agreement (“USMCA”) for used automotive components sourced from salvage yards in Canada and obtained by disassembly of used vehicles in Canada.
We note that you were issued a ruling, dated April 11, 2007, concerning the same set of facts that you reassert in the instant matter. In Headquarters Ruling Letter (“HQ”) H004446, dated April 11, 2007, we issued a decision regarding the eligibility of used auto parts for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”) and whether such goods would be considered originating under NAFTA by application of 19 C.F.R. § 181.132. Because NAFTA has been replaced by the USMCA, you now seek a new ruling on the same set of facts. Our response follows.
FACTS:
New England Auto Parts purchases automotive components in Canada from operators of salvage yards. The salvage yards obtain these parts by disassembly of vehicles in Canada. New England Auto Parts sells these used, operational automotive parts to retail customers in the United States.
The circumstances at issue in the instant request remain the same as those set forth in HQ H004446. However, in response to our email request, dated November 7, 2024, for clarification concerning the parts at issue, you have provided two commercial invoices, dated October 3, 2024, and October 19, 2024, containing descriptions and tariff classifications for additional 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:
Automotive Engines (classified in subheading 8407.34, Harmonized Tariff Schedule of the United States (“HTSUS”));
Body parts, such as steel hinges (classified in subheading 8302.10, HTSUS), rear panels (classified in subheading 8708.29, HTSUS), and plastic handles (classified in subheading 3926.30.10, HTSUS); and
Other parts, including air bags (classified in subheading 8708.95, HTSUS).
In addition to the parts described in the above-referenced invoices, you also seek a determination for preferential tariff treatment under the USMCA for parts of used snowmobiles that will be disassembled in Canada, including engines (classified in subheading 8407.33, HTSUS), clutches (classified in subheading 8708.93, HTSUS), chassis components (classified in subheading 8708.99, HTSUS), and hood cowls (classified in subheading 8708.29, HTSUS).
Moreover, the instant request will also cover parts examined in HQ H004446, which include the following parts, along with their classification under the 2024 version of the HTSUS:
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 (classified in subheading 8708.95, HTSUS), steering columns (classified in subheading 8707.94, HTSUS) and headlights (classified in subheading 8512.10, HTSUS).
You explain that these parts will be obtained by disassembly from used vehicles and are classified in headings 8703 and 8704, HTSUS.
New England Auto Parts intends to claim preferential tariff treatment under the USMCA on the basis that each of the above-referenced representative parts undergoes a prescribed change in tariff classification when disassembled from used vehicles classified in different tariff provisions, such that the parts qualify for tariff treatment as originating goods under the USMCA when imported into the United States. Although HQ H004446 discussed the application of the marking rules under NAFTA, New England Auto Parts has confirmed that they only seek a determination as to preferential tariff treatment under the USMCA.
ISSUE:
Whether disassembly in Canada of automotive parts from used vehicles qualifies the parts as originating under the USMCA when they are imported into the United States from Canada.
LAW AND ANALYSIS:
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)(i) provides:
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 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 “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
except for a good provided for in any of chapters 61 through 63—
the good is produced entirely in the territory of one or more USMCA countries;
one or more of the nonoriginating materials provided for as parts under the tariff schedule and used in the production of the good do not satisfy the requirements set forth in this note because—
both the good and its materials are classified under the same subheading or under the same heading that is not further subdivided into subheadings; or
the good was imported into the territory of a USMCA country in unassembled form or disassembled form but was classified as an assembled good pursuant to general rule of interpretation 2(a) of the tariff schedule; and
the regional value content of the good, determined in accordance with subdivision (c) of this note, is not less than 60 percent if the transaction value method is used, or not less than 50 percent if the net cost method is used,
and such good satisfied all other provisions of this note.
For purposes of determining whether a remanufactured good is an originating good, a recovered material derived in the territory of one or more USMCA countries shall be treated as originating if the recovered material is used or consumed in the production of, and incorporated in, the remanufactured good.
GN 11(l)(xvi) defines “production” as either:
growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, breeding, extracting, manufacturing, processing or assembling a good; or
the farming of aquatic organisms through aquaculture.
GN 11(l)(xviii) defines the term “recovered material” as “a material in the form of individual parts that are the result of—
the disassembly of a used good into individual parts; and
the cleaning, inspecting, testing or other processing that is necessary for improvement to sound working condition of such individual parts.
Additionally, GN 11(l)(xix) defines the term “remanufactured good” as “a good classified in the tariff schedule under any of chapters 84 through 90 or under heading 9402, other than a good classified under heading 8418, 8509, 8516, or 8703 or subheading 8414.51, 8450.11, 8450.12, 8508.11 or 8517.11, that—
is entirely or partially composed of recovered materials;
has a life expectancy similar to, and performs in a manner that is the same as or similar to, such a good when new; and
has a factory warranty similar to that applicable to such a good when new.
Article 4.4 of the USMCA provides further guidance as to the treatment of recovered materials. Pursuant to Article 4.4(1), “[e]ach Party shall provide that a recovered material derived in the territory of one or more of the Parties is treated as originating when it is used in the production of, and incorporated into, a remanufactured good.” Article 4.4(2) states that “[f]or greater certainty:”
(a) a remanufactured good is originating only if it satisfies the applicable requirements of Article 4.2 (Originating Goods); and
(b) a recovered material that is not used or incorporated int the production of a remanufactured good is originating only if it satisfies the applicable requirements of Article 4.2 (Originating Goods).
We note that the language concerning recovered materials in Article 4.4 of the USMCA differs from the language concerning recovered components through disassembly in NAFTA under 19 C.F.R. § 181.132, upon which your previous ruling, HQ H004446, was based. By its terms, 19 C.F.R. § 181.132 is only applicable to NAFTA and does not apply under the USMCA. Under 19 C.F.R. § 181.132, disassembly was considered to be production, and a component recovered from a good disassembled in the territory of a Party was considered to be originating as a result of such disassembly, regardless of whether such recovered material was used in the production of a remanufactured good. Under the USMCA, however, the requirement for a recovered component to qualify as originating is more stringent, as it is under other free trade agreements subsequent to NAFTA. If the recovered material derived in the territory of one or more of the Parties is used in the production of, or incorporated into, a remanufactured good, then it will be considered originating. If the recovered material is not used for the remanufacture of a good, then the recovered material is only originating if it meets all other applicable requirements for originating goods under the USMCA.
In the case of “recovered goods” and “remanufactured goods,” the language of GN 11 makes clear that a good may be considered to be originating if it is first recovered, and then used to make certain remanufactured goods in specific classifications. Here, the various automotive components are recovered from used cars in Canada by disassembly. Once disassembled in Canada, the recovered components will be imported into the United States for retail sale to customers. Unlike NAFTA, the USMCA does not provide for recovered goods to be considered originating at the disassembly stage, but only after undergoing further steps to become remanufactured goods.
First, we note that the recovered, disassembled parts will not be eligible for preference under the USCMA because they are not goods wholly obtained or produced entirely in a USMCA country pursuant to GN 11(b)(i). They will also be ineligible for USMCA preference under GN 11(b)(ii) because the recovered, disassembled parts are not produced exclusively from originating materials. Therefore, we must determine whether the recovered, disassembled parts qualify for USMCA treatment under GN 11(b)(iii).
The applicable rules of origin for the various automotive parts disassembled from used automobiles are set forth in GN 11(o) of the USMCA. In HQ H004446, the recovered parts were considered originating under NAFTA because the required tariff shift set forth in NAFTA Annex 401 was a result of disassembly, which 19 C.F.R. § 181.132 recognized as “production.” However, this rule no longer applies under the USMCA. Under Article 4.4(2)(b) of the USMCA, the recovered, disassembled parts, which are not used in the remanufacture of a good, will only qualify for preference if they meet all other applicable requirements for originating goods under the USMCA. Thus, in order for the recovered, disassembled parts to be considered originating for purposes of USMCA preference, the parts must undergo a “production” other than disassembly that effects a qualifying tariff change under subdivision (o) of GN 11. Otherwise, to consider any tariff shift under these rules to render the goods originating would make the recovered and remanufactured goods provisions of the USMCA to be superfluous and meaningless.
CBP examined a similar set of facts in HQ H306340, dated August 3, 2023, under the Dominican Republic-Central America Free Trade Agreement (“DR-CAFTA”). There, CBP determined whether automotive parts disassembled from used automobiles in the Dominican Republic and Costa Rica qualified for preference under the DR-CAFTA. The language and structure of the DR-CAFTA, as it relates to recovered goods and remanufactured goods for purposes of analyzing nonoriginating materials used in the production of a good that undergoes an applicable tariff change, are substantially similar to those in the USMCA. Under both agreements, disassembly of parts recovered from a used good that is not subsequently incorporated or used in the remanufacture of a good does not qualify as production for purposes of preference. In HQ H306340, CBP explained that were a tariff shift resulting from disassembly to render such good as originating, there would have been no need to create a separate rule for recovered or remanufactured goods if the requisite tariff shift may just be met. CBP further elaborated that “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 GN 11(l)(xvi)(1) of the USMCA, the term “production” means “growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, breeding, extracting, manufacturing, processing or assembling a good.” While NAFTA accounted for disassembly as a qualifying production operation via 19 C.F.R § 181.132, this regulation is limited to GN 12 and Chapter Four of NAFTA, and is not applicable to the USMCA. In sum, even if there are any qualifying changes in tariff classification of the parts when they are removed from used vehicles in Canada, these tariff shifts are not a result of “production” under the terms of the USMCA and therefore, are not sufficient to render the parts as originating under the USMCA.
HOLDING:
Based on the information provided, we find that various automotive components recovered from used vehicles, without further remanufacture, are not considered originating pursuant to the USMCA, and therefore, do not qualify for preferential treatment. 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