CLA-2 OT:RR:CTF:VS H256415 HkP
Donald Harrison, Esq.
Gibson, Dunn & Crutcher LLP
1050 Connecticut Avenue, NW
Washington, DC 20036-5306
RE: Ruling Request; NAFTA; Regional Value Content; 19 CFR, Part 181 App. Section 13(2) – Motor Vehicles Produced in a New Plant
Dear Mr. Harrison:
This is in response to your letter with attachments, dated August 11, 2014, on behalf of your client, American Honda Motor Co., Inc. (“American Honda”). You have asked U.S. Customs and Border Protection (“CBP”) to issue a binding ruling on whether American Honda’s importations of Honda Fit subcompact vehicles produced at a Honda plant in Mexico qualify for the reduced regional value content (“RVC”) requirement under the NAFTA Regulations, 19 CFR, Part 181 App., Section 13(2).
FACTS:
According to your submission, in March 2014, American Honda began importing Honda Fit motor vehicles from Honda de Mexico, S.A. de C.V. (“HdM”) in Mexico, where they are manufactured at a specially designed and built plant. Prior to March 2014, Honda Fit motor vehicles were imported from Japan.
You state that HdM has a production facility in El Salto, Mexico, which has been producing motorcycles since 1988 and automobiles (Honda Accords and Honda CR-Vs) since 1995. In January 2014, HdM produced the first Honda Fit prototype at a new plant in Celaya, Mexico, and in February 2014, began mass production of the 2015 Honda Fit. The new plant was specially developed to enable HdM to meet the demand for fuel-efficient subcompact models, such as the Honda Fit and a forthcoming compact SUV (Honda HR-V) based on the Honda Fit platform. The new plant involved an investment of $800 million, is completely new construction, will employ 3,200 staff, and has the capacity to produce 200,000 vehicles and engines per year at full production levels. You also state that HdM’s plant in Celaya features a number of Honda’s most advanced manufacturing technologies, which you state increase quality and efficiency while reducing the plant’s environmental footprint, and that all of the machinery and equipment at HdM’s Celaya plant is completely new.
You state that there are substantial differences between the Honda Fit produced at HdM’s Celaya plant and the Honda Accord and Honda CR-V models produced at HdM’s El Salto plant in terms of dimensions (wheelbase and overall length, vehicle width, distance between left and right wheels (“tracks”), interior volume), weight, and engine size. Specifically, compared to the 2014 Honda CR-V and the 2007 Honda Accord, the Honda Fit:
1) Has a shorter wheelbase and overall length – a 99.6 inch wheelbase and 160 inch length, versus the CR-V’s 103.1 inch wheelbase and 176.3 inch length, and the Accord’s 107.9 inch wheelbase and 191.1 inch length;
2) Is narrower – the Fit has an overall width of 67 inches, while both the CR-V and the Accord have an overall width of 71.6 inches;
3) Has narrower tracks – the Fit has front and rear track distances of 58.3 inches and 58 inches, respectively, while the CR-V has front and rear tracks of at least 61.5 inches, and the Accord has front and rear tracks of 61.1 and 61.2 inches, respectively;
4) Weighs less – the Fit’s curb weight is 2,518 to 2,642 lbs., while the CR-V’s curb weight is 3,305 to 3,545 lbs. and the Accord’s curb weight is 3,131 to 3,424 lbs.;
5) Has a smaller engine – 1,498cc versus the CR-V’s and Accord’s 2,354 cc engine; and,
6) Has less interior volume than a CR-V and, in some cases, has less interior volume than the 2007 Accord. The interior volume of the Fit varies by model from 110.4 to 112.3 cubic feet, versus the CR-V’s interior volume, which also varies by model from 138.7 to 141.4 cubic feet. The Accord’s interior volume varies by model, from 111.7 to 116.7 cubic feet. You state that, although several models of the 2007 Accord have a total interior volume comparable to the 2015 Fit, the distribution between cargo and interior passenger volumes is different in that the Honda Fit has a higher cargo volume and correspondingly lower interior passenger volume than the Accord.
In support of your submission, you provided a statement from a technical expert in the Certification Department of American Honda’s Product Regulatory Office. The expert stated, in relevant part, that based on his review of the specifications of the different vehicles that HdM produces, the Honda Fit produced at HdM’s new Ceyala plant is produced on a completely different platform and also has a completely different underbody or floor pan that the Honda Accord and CR-V models produced at HdM’s El Salto plant. The expert also stated that the Honda Fit is produced on a platform that is not produced at any other Honda plant in North America and, thus, cannot be effectively or efficiently produced at HdM’s El Salto plant. In highlighting the differences between the Fit, the Accord and the CR-V, the expert referred to the different specifications for each vehicle, that is, wheelbase dimensions, vehicle length and width, vehicle tracks, weight and engine size. The expert’s summary was not provided but the information appears to be captured in Attachment 2 to your submission and detailed above.
The expert explained that another distinction between the Honda Fit and both the Honda CR-V and the Honda Accord is the different locations and configurations of their fuel systems, which he states greatly affects the configuration of the vehicle’s platform and underbody/floor pan. On the Accord, the fuel tank is located toward the rear of the vehicle, in front of the rear wheels, and is rectangular in shape. On the CR-V, the fuel tank is also located toward the rear of the vehicle, but not as close to the rear wheels as on the Accord, and is also rectangular, although one end is deeper than the other. On the Fit, however, the fuel tank is located toward the front of the vehicle, and the height of the tank is shorter than the tank for the CR-V or Accord. According to the expert, the placement and size of the Fit’s fuel tank allows the Fit to have a flat interior floor behind the bulkhead between the engine compartment and the passenger compartment, which distinguishes its design from the Accord and
CR-V.
The expert also stated that the Environmental Protection Agency, which is concerned with fuel economy and automobile emission issues, classifies the Honda Fit as a small station wagon, the Honda Accord as a mid-size car, and the Honda CR-V as a small sport utility vehicle.
ISSUE:
Whether vehicles produced at HdM’s new plant in Celaya, Mexico, are eligible for the fifty percent RVC test for the first five years after the date on which the first prototype of that motor vehicle is produced.
LAW AND ANALYSIS:
Section 13 of the Appendix to part 181 of the Customs Regulations, (19 CFR Pt. 181 App. § 13) sets forth the rules for determining the RVC level for light-duty automotive goods, as follows:
Notwithstanding the regional value-content requirement set forth in
Schedule I, and except as otherwise provided in subsection (2), the regional value-content requirement for a good referred to in paragraph (a) or (b) is as follows:
for the fiscal year of a producer that begins on the day closest to January 1, 1998 and for the three following fiscal years of that producer, not less than 56 percent, and for the fiscal year of a producer that begins on the day closest to January 1, 2002 and thereafter, not less than 62.5 percent, in the case of (i) a light-duty vehicle, and (ii) a good provided for in any of headings 8407 and 8408 and subheading 8708.40, that is for use in a light-duty vehicle[.]
….
Notwithstanding the regional value-content requirement set out in Schedule I, the regional value-content requirement for a light-duty vehicle or a heavy-duty vehicle that is produced in a new plant or refit plant is as follows:
(a) not less than 50 percent for five years after the date on which the first prototype of the motor vehicle is produced in the plant by a motor vehicle assembler, if
(i) the motor vehicle is of a class, or marque or, except in the case of a heavy-duty vehicle, size category and type of underbody, that was not previously produced by the motor vehicle assembler in the territory of any of the NAFTA countries,
(ii) the plant consists of, or includes, a new building in which the motor vehicle is assembled, and
(iii) the value of machinery that was never previously used for production, and that is used in the new building or buildings for the purposes of the complete motor vehicle assembly process with respect to that motor vehicle, is at least 90 percent of the value of all machinery used for purposes of that process; and,
(b) not less than 50 percent for two years after the date on which the first prototype of the motor vehicle is produced in the plant by a motor vehicle assembler following a refit of that plant, if the motor vehicle is of a class, or marque or, except in the case of a heavy-duty vehicle, size category and type of underbody, that was not assembled by the motor vehicle assembler in the plant before the refit.
See also 19 U.S.C. § 3332.
Thus, while the general requirement is that motor vehicles must meet a 62.5% RVC to attain eligibility for NAFTA benefits, in the case of new or refitted plants, a lesser 50% RVC threshold is applicable if the requirements of 19 CFR Pt. 181 App. § 13(2) are met.
You state that HdM’s Celaya plant involves completely new construction, so that the Celaya plant involves a new building in which the motor vehicle is assembled. You also state that all of the production machinery and equipment in the plant is completely new, and does not include any used machinery or equipment. Therefore, based on the information provided, we find that the Celaya plant meets the requirements that the plant consists of, or includes, a new building in which the motor vehicle is assembled, and that the value of machinery not previously used for production and that is used in the new building or buildings for the purposes of the complete motor vehicle assembly process with respect to the Honda Fit, is at least 90 percent of the value of all machinery used for purposes of that process. See 19 CFR Pt. 181 App. § 13(2)(a)(ii) and (iii).
In addition, the NAFTA Regulations require that the motor vehicles produced by HdM’s new plant must be of a class, marque, or size category and type of underbody that was not previously produced by HdM in the territory of any of the NAFTA countries. See 19 CFR Pt. 181 App. § 13(2)(a)(i). The terms “class,” “marque,” “size category,” and “underbody” are defined in 19 CFR Pt. 181, App. § 8, as follows:
“[C]lass of motor vehicles” means any one of the following categories of motor vehicles: (a) motor vehicles provided for in any of subheading 8701.20, tariff items 8702.10.30 and 8702.90.30 (vehicles for the transport of 16 or more persons), subheadings 8704.10, 8704.22, 8704.23, 8704.32, and 8704.90 and headings 8705 and 8706; (b) motor vehicles provided for in any of subheadings 8701.10 and 8701.30 through 8701.90; (c) motor vehicles provided for in any of tariff items 8702.10.60 and 8702.90.60 (vehicles for the transport of 15 or fewer persons) and subheadings 8704.21 and 8704.31; and (d) motor vehicles provided for in any of subheadings 8703.21 through 8703.90.
“[M]arque” means a trade name used by a marketing division of a motor vehicle assembler that is separate from any other marketing division of that motor vehicle assembler.
“[S]ize category” with respect to a light-duty vehicle, means that the total of the interior volume for passengers and the interior volume for luggage is (a) 85 cubic feet or less; (b) more than 85 cubic feet but less than 100 cubic feet; (c) 100 cubic feet or more but not more than 110 cubic feet; and (d) more than 110 cubic feet but less than 120 cubic feet; or, (e) 120 cubic feet or more.
“[U]nderbody” means the floor plan of a motor vehicle. See also 19 U.S.C. § 3332(p)(1), (10), (30), and (34).
You argue that the “size category and type of underbody” requirement is met in either of two circumstances: (1) if the vehicle produced in the new plant is of a different size category than the vehicles previously produced; or, (2) if the vehicle produced in the new plant is of the same size category as a previously produced vehicle but has a different type of underbody than the previously produced vehicle. You believe that the Honda Fit is captured by the second circumstance because, although some models of the Honda Accord are in the same size category as the Fit, the Accord has a different underbody/floor pan from the Fit.
The size category and type of underbody requirement of Section 13(2)(i) is a cumulative requirement, indicated by the use of the conjunction “and.” According to your submission, the Honda Fit has a total cargo and interior passenger volume of 112.3 cubic feet (LX model) or 110.4 cubic feet (EX model), so that it falls in the size category of 110 to less than 120 cubic feet, which is the same class category as some models of the Accord. The Honda CR-V has a total cargo and interior passenger volume of over 136 cubic feet, which puts it in a different class category from the Fit and the Accord. Accordingly, the requirement that the size and type of underbody of the motor vehicle produced in the new plant must have not been previously produced by the motor vehicle assembler is not met.
Nevertheless, pursuant to 19 CFR Pt. 181 App. § 13(2)(a)(i), if the motor vehicle meets any one of the criteria, i.e., if it is a new class, or a new marque, or a new size and underbody, and it is a motor vehicle produced in a new plant, it will qualify for the 50% RVC. See also 19 U.S.C. § 3332(c)(6); Headquarters Ruling Letter H087456, dated January 13, 2010. In this case, any and all light-duty motor vehicles produced at HdM’s new plant in Celaya with the Honda Fit brand name will bear a new marque, because “Honda Fit”, the Honda trade name used, is separate from any other marketing division of the motor vehicle assembler, i.e., HdM.
HOLDING:
Based on our review of the facts presented, we find that all Honda Fit motor vehicles produced at the new plant in Celaya, Mexico, qualify for the fifty percent (50%) RVC test for NAFTA eligibility for the first five (5) years after the date on which the first prototype of that motor vehicle is produced.
A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents are filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction.
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."
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch