OT:RR:CTF:VS H246423 SEK
Stefani Paolucci, C.C.S.
Willson International, Inc.
160 Wales Avenue, Ste. 100
Tonawanda, NY 14150
RE: NAFTA Eligibility of certain imported industrial hand trucks
Dear Ms. Paolucci:
This is in response to your September 5, 2013 request on behalf of your client, Supplierpipeline, Inc., for a binding ruling on whether certain “P-Handle” industrial hand trucks are eligible for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”).
FACTS:
The imported P-Handle industrial hand trucks are classified in subheading 8716.80.5010 of the Harmonized Tariff Schedule of the United States (“HTSUS”). You state that Supplierpipeline manufactures the hand trucks from components that originate in China. These components include a main frame tube, a curved cross bar, a “P-Handle,” a supporting leg, a toe plate, an axle, axle bushings, pneumatic 2-ply tires, and hardware. You state that the Chinese components are classified under subheading 8716.90.5060, HTSUS. These components are shipped to a Canadian plant, assembled by welding, and then painted. The finished hand trucks are then packed and shipped to the United States and sold to retailers in the United States for $[xx.xx]. You have provided a costed bill of materials, which indicates the country of origin, the classification under the HTSUS, and the value of the components used in the production of the hand trucks.
ISSUE:
Whether the P-Handle industrial hand trucks are eligible for preferential tariff treatment under the NAFTA.
LAW AND ANALYSIS:
General Note 12, HTSUS, incorporates Article 401 of the NAFTA into the HTSUS. Pursuant to GN 12, HTSUS, for an article to be eligible for NAFTA preference, two criteria must be satisfied. First, the article in question must be “originating” under the terms of GN 12 and second, the article must qualify to be marked as a good of a NAFTA country under the NAFTA Marking Rules set forth in 19 CFR 102.20.
With regard to the first criteria, GN 12(b) provides, in pertinent part, as follows:
For purposes of this note, goods imported into the customs territory of the U.S. 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--
they are goods wholly obtained or produced in the territory of Canada, Mexico and/or the United States; or
they have been transformed in the territory of Canada, Mexico and/or the U.S. so that—
except as provided in subdivision (f) of this note, each of the non-originating material 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
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 they are goods produced entirely in the territory of Canada, Mexico and/or the U.S. exclusively from originating materials; or….
The P-Handle industrial hand trucks are neither wholly obtained nor produced in the territory of Canada, Mexico, or the U.S. Therefore, it is necessary to apply the tariff-shift rules set forth in GN 12(t), HTSUS, to determine if the non-originating materials satisfy the rule. The applicable rule regarding the requisite change of tariff classification for goods of subheading 8716.80, HTSUS, is found in General Note 12(t)/(87.45), and provides as follows:
A change to subheading 8716.10 through 8716.80 from any other heading; or a change to subheadings 8716.10 through 8716.80 from subheading 8716.90, 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 method is used, or
50 percent where the net cost method is used.
General Note 12(c), HTSUS, provides the methods of calculating RVC for purposes of NAFTA. You have requested that we review the RVC calculation for the hand trucks using both the transaction value method and the net cost method. The formula set forth in GN 12(c)(i), HTSUS, for the transaction value method is as follows:
RVC = TV-VNM x 100
TV
where RVC is the regional value content, expressed as a percentage; TV is the transaction value of the good adjusted to a F.O.B. basis; and VNM is the value of non-originating materials used by the producer in the production of the good. See also 19 CFR Part 181, Appendix, Part III, Sec. 6(2). The RVC calculation for the imported hand trucks under the transaction value method is as follows:
[xx.xx] – [xx.xx] x 100 = 61.34
[xx.xx]
where the transaction value of the good is $[xx.xx], and the value of the non-originating materials used in the production of the good is $[xx.xx]. Since the RVC exceeds 60 percent as required by the tariff shift rule for subheading 8716.80, HTSUS, the regional value content as calculated under the transaction value method is met.
The net cost method for calculating RVC is set forth in General Note 12(c)(ii), HTSUS, which provides as follows:
Net cost method. The regional value content of a good may be calculated on the basis of the following net cost method:
RVC = NC – VNM x 100
NC
where RVC is the regional value content, expressed as a percentage; NC is the net cost of the good; and VNM is the value of non-originating materials used by the producer in the production of the good. See also, 19 CFR Part 181, Appendix, Part III, Sec. 6(e).
The methods of calculating the net cost of a good are set forth in 19 CFR Part 181, Appendix, Part III, Sec. 6(11). Subsection (11) provides three methods from which the producer of a good may choose to calculate the net cost. 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 the total cost, and reasonably allocating, in accordance with Schedule VII, 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 VII, 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 VII, 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. 19 CFR Part 181, Appendix, Part III, Sec. 6(11).
“Excluded costs” as used in section 6(11) are defined in Part I, section 2(1), and mean “sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs.” Each of these aspects of “excluded costs” is further defined in section 2(1).
The calculation of net cost initially requires the proper calculation of the total cost. Subsection (12) of section 6 addresses “total cost” and states that “[t]otal cost … consists of the costs referred to in section 2(6), and is calculated in accordance with that subsection.” In this case, CBP was provided with cost information involved in manufacturing the hand trucks, but we note that you have not provided any supporting documentation or any indication of how those costs were determined. However, for purposes of this ruling we will apply the costs that you have presented in your submission to determine the RVC under the net cost method. Based on the information contained in your submission, the RVC determined under the net cost method yields the following:
[xx.xx]– [xx.xx] x 100 = 51.37
[xx.xx]
Since the RVC for the hand trucks is in excess of the 50 percent required by the tariff shift rule for subheading 8716.80, HTSUS, the regional value content requirement as calculated under the net cost method is met. Thus, based on the information before us, the applicable NAFTA rule of origin for the imported hand trucks would be satisfied.
Please be advised, however, that this calculation would be subject to appropriate review upon importation into the United States based on the final appraised value of the merchandise, and assumes that all product costs, including labor and overhead, will be considered as well. We note also that the NAFTA Rules of Origin Regulations provide, in pertinent part that:
[i]f the good does not satisfy the regional value-content requirement on the basis of actual costs during that period, [the producer shall] immediately inform any person to whom the producer has provided a Certificate of Origin for the good, or a written statement that the good is an originating good, that the good is a non-originating good. 19 CFR Part 181, Appendix, Part III, Sec. 6(20).
GN 12(a)(i), HTSUS, provides that NAFTA-originating goods must also qualify to be marked as products of Canada under NAFTA Marking Rules to be eligible for NAFTA duty preferential treatment. In this regard, 19 CFR § 134.1(j) provides that “[t]he ‘NAFTA Marking Rules’ are the rules promulgated for purposes of determining whether a good is a good of a NAFTA country.” 19 CFR § 134.1(j) defines a “good of a NAFTA country” as “an article for which the country of origin is Canada, Mexico, or the United States as determined under the NAFTA Marking Rules.” Therefore, in order for the imported hand trucks at issue to qualify for preferential treatment under the NAFTA, they must not only originate in the territory of Canada under the provisions of GN 12, but they must also qualify to be marked as goods of Canada. Consequently, we must apply the NAFTA Marking Rules contained in 19 CFR Part 102 of the CBP Regulations.
Section 102.11 sets forth the General Rules for determining the country of origin of imported merchandise, and section 102.11(a) states that the country of origin of a good is the country in which:
the good is wholly obtained or produced
the good is produced exclusively from domestic materials; or
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.
Since sections 102.11(a)(1) and 102.11(a)(2) above do not apply to the instant hand trucks, we examine section 102.11(a)(3). Under the provisions of 19 CFR 102.20, the tariff shift rule for headings 8716.10-8716.80, HTSUS is a change to subheading 8716.10 through 8716.80 from any other heading, or from subheading 8716.90 except when that change is pursuant to General Rule of Interpretation (GRI) 2(a). Since the imported hand trucks undergo this tariff shift pursuant to GRI 2(a), section 102.11(a)(3) does not apply. If a country of origin cannot be determined under 102.11(a), 102.11(b)(1) states that the country of origin is the country or countries of origin of the single material that imparts the essential character to the good. Under this analysis, since all components of the imported hand trucks are imported from China, the country of origin under 19 CFR 102.11(b)(1) for the P-handle hand truck would be China.
However, 19 CFR 102.19(a) provides as follows:
…if a good which is originating within the meaning of 181.1(q) of this chapter is not determined under 102.11(a) or (b) or 102.21 to be a good of a single NAFTA country, the country of origin of such goods is the last NAFTA country in which that good underwent production other than minor processing provided that a Certificate of Origin (see 181.11 of this Chapter) has been completed and signed for the good.
We determined above that the imported P-handle hand trucks satisfy the GN 12 tariff shift rule and are thus originating within the meaning of 181.1(q). Furthermore, the assembly of the Chinese components into finished hand trucks in Canada qualifies as production other than minor processing as defined in 19 CFR 102.1(m). Since the imported P-handle hand trucks underwent production other than minor processing in Canada, pursuant to 19 CFR 102.19(a), the country of origin for marking purposes under the NAFTA marking rules is Canada.
HOLDING:
Based upon the facts presented, the imported P-handle industrial hand trucks imported from Canada satisfy the GN 12, HTSUS, tariff-shift rule, and therefore qualify for preferential treatment pursuant to GN 12, provided all other applicable requirements are met. The P-handle hand trucks may be marked as products of Canada.
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 handing the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch