VAL-2 OT:RR:CTF:VS H022843 KSG
Port Director
U.S. Customs & Border Protection
P.O. Box 3130
Laredo, TX 78044-3130
Re: Application for Further Review of Protest 2304-08-100023; electrical relay panels
Dear Port Director:
This is in response to the Application for Further Review of Protest 2304-08-100023 timely filed by counsel on behalf of Schweitzer Engineering Laboratories, Inc. (“SEL U.S.”) addressing whether certain electrical relay panels are eligible for preferential tariff treatment pursuant to the North American Free Trade Agreement (“NAFTA”). Additional information was also submitted and considered as part of the record.
FACTS:
SEL U.S. imported into the U.S. certain made-to-order electrical relay panels that were assembled in Mexico by its Mexican subsidiary. The made-to-order relay panels that are the subject of this case are classified in subheading 8537.10.90, of the Harmonized Tariff Schedule of the United States (“HTSUS”).
The protestant was unable to provide CBP with the proper NAFTA certificates of origin and manufacturer’s affidavits for some of the materials that they claimed were originating. Accordingly, CBP denied NAFTA preference for the imported good. The protestant conceded that some of the documentation, related to materials claimed as originating, was inadequate.
The protestant submitted a Bill of Materials for 30 parts that were listed by part number and the tariff classification for each part. The tariff classifications include: subheadings 9403.20, 8535.30, 8536.49, 8536.50, 8536.90, 7320.90, 8541.40, 8536.69, 8517.50, 8527.32, and 8471.41 HTSUS.
There are two parts (part no. 250603114x and 251603114x) that are classified in subheading 8538.90, HTSUS. The invoices for these parts show that they cost 22,324.5 Mexican pesos. The total cost for the imported product was calculated to be 525,060 Mexican pesos. These parts reflect 4.25 percent of the total cost of the imported product.
LAW AND ANALYSIS:
General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(a)(ii) provides, in pertinent part:
(ii) 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 Mexico 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 “MX” in parentheses, are eligible for such duty rate, in accordance with section 201 of the NAFTA Implementation Act.
Accordingly, the imported product will be eligible for the “Special” “MX” rate of duty provided it is a NAFTA “originating” good under General Note 12(b), HTSUS, and qualifies to be marked as a product of Mexico under the marking rules. General Note 12(b), HTSUS, 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, 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.
The protestant concedes that it did not have the proper documentation in this case to establish that the materials were produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials.
Since the protestant was unable to submit sufficient supporting documentation to show that the materials were originating, we are treating the materials as non-originating.
The tariff shift rule for subheading 8537.10 set forth in GN 12(t), HTSUS, is as follows:
A change to heading 8537 from any other heading, except from tariff items 8538.90.10, 8538.90.30 or 8538.90.60; or
A change to heading 8537 from tariff items 8538.90.10, 8538.90.30 or 8538.90.60, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
60 percent where the transaction value is used, or
50 percent where the net cost method is used.
As stated in the facts, there are two parts that are classified in 8538.90.10 (an excepted item) that would not satisfy rule A. Based on the classifications provided, all the other parts would undergo the applicable tariff shift. Therefore, tariff shift rule A is not satisfied. The tariff shift rule would only be satisfied if the regional value content provided in rule B is met.
However, there is a de minimis rule set forth in GN 12(f) that provides that if the non-originating materials used in the production of the good that do not undergo an applicable change in tariff classification set out in GN12(t), is not more than 7 percent of the transaction value of the good, adjusted to an F.O.B. basis or if transaction value is not acceptable, no more than 7 percent of the total cost of the good, the good shall be considered originating. The transaction value would not be applicable in this case because the importer and the manufacturer are related and the protestant has not shown that the relationship has not affected the price. Therefore, we look to see if the de minimis rule based on total cost is satisfied. In this case, the non-originating materials that do not satisfy the tariff shift rule are 4.25 percent of the total cost of the good. Therefore, this amount satisfies the de minimis rule and the imported good in this case would be considered originating.
HOLDING:
The protest should be granted. Based on the evidence presented, we find that the imported goods was eligible for preferential tariff treatment under the NAFTA.
In accordance with Section 3A(11)(b) of Customs Directive 099 3550-065, dated August 4, 1993, Subject: Revised Protest Directive, you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any reliquidation of the entry or entries in accordance with the decision should be accomplished prior to mailing of this decision. Sixty days from the date of this decision, the Office of Regulations and Rulings will make the decision available to Customs personnel, and to the public on the Customs Home Page on the World Wide Web at www.customs.gov, by means of the Freedom of Information Act, and other methods of public distribution.
Sincerely,
Myles B. Harmon, Director
Commercial & Trade Facilitation Division