CLA-2-87:OT:RR:NC:N2:206
Jamie Wynne
Kuat Innovations, LLC
2240 N. Alliance
Springfield, MO 65803
RE: The tariff classification and country of origin of bicycle racks.
Dear Ms. Wynne:
In your letter, dated August 28, 2019, you requested a tariff classification ruling. Descriptive literature and pictures were provided with your request.
The item under consideration has been identified as a Kuat Transfer 2 Bicycle Rack, Part Number TS02B (UPC 896581002829). You describe the rack as an automobile accessory, which is designed to transport bicycles by fitting into both 1.25 inch and 2 inch receiver hitches. You state that it can accommodate bicycles with 20-29 inch tires that are up to 4.5 inches wide, which are held in place by plastic injected molded tire hooks with no contact to the frame of the bicycle. This serves to protect it from scratches and other damages. The foot pedal is spring loaded at the pivot and the PerfectFit™ adjustment system ensures the bike is secured to the rack. The maximum bicycle wheelbase is 47 inches and maximum weight of the bicycle is 40 pounds. The weight of the rack is 37 pounds.
You suggest that the bicycle rack be classified in subheading 8708.29, as parts and accessories for motor vehicles’ bodies. However, although the rack is attached to the body of a vehicle, it is used to transport a bicycle, which is an accessory to the entire vehicle, not just its body. As a result, classification in subheading 8708.29 is precluded.
The applicable subheading for the Kuat Transfer 2 Bicycle Rack Part Number TS02B (UPC 896581002829) will be 8708.99.8180, which provides for “Parts and accessories of the motor vehicles of heading 8701 to 8705: Other parts and accessories: Other: Other: Other: Other: Other”. The general rate of duty will be 2.5% ad valorem.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at https://hts.usitc.gov/current.
You also provided two manufacturing scenarios for the bicycle rack, one performed in Mexico and one in Taiwan. You requested this office to make a determination on the country of origin of the rack and whether it is eligible for preferential treatment under the North American Free Trade Agreement (NAFTA) for the scenario where the manufacturing takes place in Mexico. This office will first review the manufacturing scenario in Mexico.
Article 401 of the NAFTA provides, in relevant part, that a good shall originate in the territory of a Party where: (b) each of the non-originating goods used in the production of the good undergoes an applicable change in tariff classification set out in Annex 401 as a result of production occurring entirely in the territory of one or more of the Parties, or the good otherwise satisfies the requirements of that Annex where no change in tariff classification is required.
General Note (GN) 12, Harmonized Tariff Schedule of the United States (HTSUS), incorporates Article 401 of NAFTA into the HTSUS. GN 12(b) provides, in pertinent part: 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 subdivisions (r), (s) and (t) of this note or the rules set forth therein (emphasis added), 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.
Based on the information you provided for scenario one, the bicycle rack is made up of components from China and Mexico. As a result, they will not be eligible for NAFTA originating treatment as goods wholly obtained or produced entirely in a NAFTA territory pursuant to GN 12(b)(i). Therefore, production of the parts must satisfy tariff shift rules and meet other applicable requirements as prescribed in GN 12(b)(ii).
For goods classified in subheading 8708.99, the specific rule of origin under GN 12(b)(ii) requires: “(A) A change to subheading 8708.99 from any other heading;” or “(B) No required change in tariff classification to subheading 8708.99, provided there is a regional value content of not less than 50 percent under the net cost method.”
You state that the manufacturing process in China includes forming the Hitch Tongue L-Post assembly by bending square tube stock and creating a weldment with two additional stock pieces, ED coating and powder coating, then completing the assembly with 18 hardware items. The U-Fork is formed from cold-rolled sheet metal, ovalized and welded, then bent using a mandrel, and then ED coated and powder coated before completing the assembly with a pressed bushing. The hitch and the U-fork are then imported into Mexico with some other miscellaneous components made in China. The rest of the components, such as 2 Front Tire Cradles, 2 Rear Tire Cradles, 2 Arm Pucks, 2 Swing Arm Pucks, 2 Arm Knuckles, 4 End Caps, 2 Tire Hooks, 2 Rear Strap Pawls, 2 Release Buttons, and 2 Rear Tire Straps, are all made in Mexico. The entire bicycle rack is assembled in Mexico.
You assert that the Chinese components are classified in Chapters 73 (steel), 76 (aluminum), & 83 (miscellaneous articles of base metal). We disagree. According to the diagrams of the hitch, which you provided with your request, the hitch will be classified in heading 8708.99, HTSUS. (See NY K81374, dated 12/3/2003; HQ 952951, dated 02/01/1993, and NY 816038, dated 11/09/1995). Therefore, the applicable tariff shift is not met. Furthermore, based on the price list you supplied, the value of non-originating materials is approximately 56 percent. Thus, the bicycle rack is not eligible for the preferential duty treatment under NAFTA.
The country of origin marking requirements for a "good of a NAFTA country" are also determined in accordance with Annex 311 of the North American Free Trade Agreement, as implemented by section 207 of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182, 107 Stat 2057) (December 8, 1993) and the appropriate Customs Regulations. The Marking Rules used for determining whether a good is a good of a NAFTA country are contained in Part 102, Customs Regulations. The marking requirements of these goods are set forth in Part 134, Customs Regulations.
Section 134.1(b) of the regulations, defines "country of origin" as the country of manufacture, production, or growth of any article of foreign origin entering the U.S. Further work or material added to an article in another country must effect a substantial transformation in order to render such other country the "country of origin" within this part; however, for a good of a NAFTA country, the NAFTA Marking Rules will determine the country of origin. Part 102 of the regulations, sets forth the "NAFTA Marking Rules" for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 of the regulations, sets forth the required hierarchy for determining country of origin for marking purposes. 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; (a)(2) The good is produced exclusively from domestic materials; or (a)(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in Section 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 rims are neither wholly obtained nor produced exclusively from “domestic” (Mexican, 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 8708.99, HTSUS, in section 102.20 requires, “A change to subheading 8708.99 from any other subheading, except from parts or accessories of the goods of subheading 8708.40, 8708.50, 8708.80, 8708.91, 8708.92, 8708.94, or 8708.95.” As a result, the tariff shift requirement is not met, and the country of origin cannot be determined by under Section 102.11(a)(1), (2), and (3).
Section 102.11(b) states, “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 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 to the good.
Section 102.18 (b) (1): For purposes of identifying the material that imparts the essential character to the good under section 102.11, the only materials that shall be taken into consideration are those [domestic or foreign materials] that are classified in a tariff provision from which a change in tariff classification is not allowed under the section 102.20 specific rule or other requirements applicable to the good. As we earlier determined, the hitch is classified in subheading 8708.99, HTSUS. It is the single component, which is not allowed under the section 102.20 specific rule. Therefore, the country of origin of the entire assembly will be the country of origin of the hitch. Thus, the country of origin of the entire bicycle rack assembly will be China for marking purposes.
Nevertheless, when determining the country of origin for purposes of applying current trade remedies under Section 301, Section 232, and Section 201, a substantial transformation analysis is applicable. In accordance with 19 C.F.R. § 102.0, the 102 marking rules are applicable for the limited purposes of: “country of origin marking; determining the rate of duty and staging category applicable to originating textile and apparel products as set out in Section 2 (Tariff Elimination) of Annex 300–B (Textile and Apparel Goods); and determining the rate of duty and staging category applicable to an originating good as set out in Annex 302.2 (Tariff Elimination).” See also HQ 563205, dated June 28, 2006; see also Belcrest Linens v. United States, 741 F.2d 1368, 1370-71 (Fed. Cir. 1984) (finding that “the term ‘product of’ at the least includes manufactured articles of such country or area” and that substantial transformation “is essentially the test used…in determining whether an article is a manufacture of a given country”). As stated above, the 102 rules do however continue to be applicable for purposes of country of origin marking of NAFTA goods, as defined in 19 C.F.R. § 134.1.
In Energizer Battery, Inc. v. United States, 190 F. Supp. 3d 1308 (2016), the Court of International Trade (“CIT”) interpreted the meaning of the term “substantial transformation” as used in the Trade Agreements Act of 1979 (“TAA”) for purposes of government procurement. Energizer involved the determination of the country of origin of a flashlight, referred to as the Generation II flashlight, under the TAA. All of the components of the Generation II flashlight were of Chinese origin, except for a white LED and a hydrogen getter. The components were imported into the United States where they were assembled into the finished Generation II flashlight. The court reviewed the “name, character and use” test in determining whether a substantial transformation had occurred, and reviewed various court decisions involving substantial transformation determinations. The court noted, citing Uniroyal, Inc. v. United States, 3 C.I.T. 220, 226, 542 F. Supp. 1026, 1031, aff’d, 702 F.2d 1022 (Fed. Cir. 1983), that when “the post-importation processing consists of assembly, courts have been reluctant to find a change in character, particularly when the imported articles do not undergo a physical change.” Energizer at 1318. In addition, the court noted that “when the end-use was pre-determined at the time of importation, courts have generally not found a change in use.” Energizer at 1319, citing as an example, National Hand Tool Corp. v. United States, 16 C.I.T. 308, 310, aff’d 989 F.2d 1201 (Fed. Cir. 1993). Furthermore, courts have considered the nature of the assembly, i.e., whether it is a simple assembly or more complex, such that individual parts lose their separate identities and become integral parts of a new article.
In the present case, the hitch and the U-fork assembly are integral components of the rack and form the essential frame for the rack. Neither the hitch nor the U-fork have undergone any physical changes in Mexico with the exception of some components added to them. You cite Ruling N302769, dated 03/6/2019 as justification for determining Mexico as the country of origin. In N302769, the components from China did not represent the essence of the soap dispensers. However, the hitch and the U-fork in the case at issue are the essence of the entire bicycle rack assembly.
Since Taiwan is a non-NAFTA country, these analysis will also determine the country of origin for the second scenario performed in Taiwan, where the manufacturing steps are identical to the first scenario.
Based on the analysis above, the country of origin of the Kuat Transfer 2 Bicycle Rack for tariff purposes will be China for both the first and second scenarios.
Pursuant to U.S. Note 20 to Subchapter III, Chapter 99, HTSUS, products of China classified under subheading 8708.99.8180, HTSUS, unless specifically excluded, are subject to an additional 25 percent ad valorem rate of duty. At the time of importation, you must report the Chapter 99 subheading, i.e., 9903.88.03, in addition to subheading 8708.99.8180, HTSUS, listed above.
The HTSUS is subject to periodic amendment so you should exercise reasonable care in monitoring the status of goods covered by the Note cited above and the applicable Chapter 99 subheading. For background information regarding the trade remedy initiated pursuant to Section 301 of the Trade Act of 1974, you may refer to the relevant parts of the USTR and CBP websites, which are available at https://ustr.gov/issue-areas/enforcement/section-301-investigations/tariff-actions and https://www.cbp.gov/trade/remedies/301-certain-products-china respectively.
This ruling is being issued under the provisions of Part 177 of the Customs Regulations (19 C.F.R. 177).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, please contact National Import Specialist Liana Alvarez at [email protected].
Sincerely,
Steven A. Mack
Director
National Commodity Specialist Division