CLA-2 OT:RR:CTF:VS H278738 EE
SunMi Jung
Mutual Standard
140 Sapyung Daero (Banpo-dong)
2nd Floor, Cowell Bldg.
Seocho-gu, Seoul, Korea
RE: NAFTA; regional value content requirement; automotive parts
Dear Ms. Jung:
This is in response to your letter, dated July 29, 2016, on behalf of your client, Sungwoo Hitech Mexico, concerning the applicable regional value content (“RVC”) requirement to certain automotive parts for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”). Your request, submitted as an electronic ruling request, was forwarded to this office from the National Commodity Specialist Division for review. Our ruling is set forth below.
FACTS:
You state that Sungwoo Hitech Mexico makes automobile components in Monterrey, Mexico since 2015. Your client will export or supply components to KIA Motors, located in Monterrey, which will export automobiles to North America. Your inquiry concerns the applicability of the RVC requirement to certain components classified under subheadings 8708.29.15, Harmonized Tariff Schedule of the United States (“HTSUS”) and 8708.30.50, HTSUS for NAFTA eligibility.
ISSUE:
What is the applicable RVC requirement for merchandise classified under subheadings 8708.29.15 and 8708.30.50, HTSUS?
LAW AND ANALYSIS:
The NAFTA is implemented in General Note (“GN”) 12 of the HTSUS. GN 12(a)(ii) states that goods are eligible for the NAFTA rate of duty if they originate in the territory of a NAFTA party and qualify to be marked as goods of Mexico. GN 12(b) sets forth the various methods for determining whether a good originates in the territory of a NAFTA party. Specifically, these provisions provide, in relevant part, as follows:
(a) Goods originating in the territory of a party to the North American Free Trade Agreement (NAFTA) are subject to duty as provided herein. For the purposes of this note—
(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), and goods enumerated in subdivision (u) 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 “MX” in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
(b) 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—
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 subdivision (r), (s) and (t) of this note or the rules set forth therein, or
(B) the goods otherwise satisfy the applicable requirements of subdivision (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; ….
Your inquiry concerns merchandise classified under subheadings 8708.29.15 and 8708.30.50, HTSUS. The applicable rule of origin for merchandise classified under subheading 8708.29.15, HTSUS, under GN 12(t) is Rule 19, Chapter 87, which provides:
A change to subheading 8708.29 from any other heading; or
No required change in tariff classification to subheading 8708.29, provided there is a regional value content of not less than 50 percent under the net cost method.
Your inquiry concerns the RVC requirement under Rule 19(B). Chapter rule 1 for GN 12(t)/87 provides “[f]or the purposes of the subdivisions pertaining to this chapter, whenever the subdivision designation is underscored, the provisions of subdivision (d) of this note apply.” Chapter rule 1 applies since Rule 19 is underscored. GN 12(d), in relevant part, provides:
(iv) Notwithstanding subdivisions (r), (s) and (t) of this note, and except as provided in subdivision (d)(v) of this note, the regional value-content requirement shall be--
(A) for a producer's fiscal year beginning on the day closest to January 1, 1998 and thereafter, 56 percent under the net cost method, and for a producer's fiscal year beginning on the day closest to January 1, 2002 and thereafter, 62.5 percent under the net cost method, for—
(1) a good that is a motor vehicle provided for in tariff items 8702.10.60 or 8702.90.60; subheadings 8703.21 through 8703.90, inclusive; or subheadings 8704.21 or 8704.31, and
(2) a good provided for in headings 8407 or 8408 or subheading 8708.40, that is for use in a motor vehicle identified in subdivision (d)(iv)(A)(1); and
(B) for a producer's fiscal year beginning on the day closest to January 1, 1998 and thereafter, 55 percent under the net cost method, and for a producer's fiscal year beginning on the day closest to January 1, 2002 and thereafter, 60 percent under the net cost method, for--
(1) a good that is a motor vehicle provided for in heading 8701, tariff items 8702.10.30 or 8702.90.30, subheadings 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, or headings 8705 or 8706;
(2) a good provided for in headings 8407 or 8408 or subheading 8708.40 that is for use in a motor vehicle identified in subdivision (d)(iv)(B)(1); and
(3) except for a good identified in subdivision (d)(iv)(A)(2) or provided for in subheadings 8482.10 through 8482.80, inclusive, 8483.20 or 8483.30, a good identified in Annex 403.1 to the NAFTA that is subject to a regional value-content requirement and that is for use in a motor vehicle identified in subdivision (d)(iv)(A)(1) or (d)(iv)(B)(1).
[Emphasis added.]
GN 12(d)(iv)(A) is not applicable to merchandise classified under 8708.29.15, HTSUS. Pursuant to GN 12(d)(iv)(B)(3), as goods classified under subheading 8708.29.15, HTSUS, and identified in Annex 403.1 to the NAFTA, if they are for use in a motor vehicle identified in GN 12(d)(iv)(A)(1) or GN 12(d)(iv)(B)(1), they must meet the RVC requirement of not less than 60 percent under the net cost method if the producer’s fiscal year began in 2015. This is consistent with U.S. Customs and Border Protection (“CBP”) Regulations 19 C.F.R. Pt. 181 App. § 13(1)(b)(iii) which require a RVC of not less than 60 percent for a Schedule IV merchandise that is for use in a light-duty vehicle or a heavy-duty vehicle for the fiscal year of a producer that began in 2015.
Your second inquiry concerns whether Chapter rule 1 for GN 12(t)/87 applies to merchandise classified under subheading 8708.30.50, HTSUS. The applicable rule of origin for merchandise classified under subheading 8708.30.50, HTSUS, under GN 12(t) is Rule 19A, Chapter 87, which provides:
A change to mounted brake linings of subheading 8708.30 from any other heading;
A change to mounted brake linings of subheading 8708.30 from parts of mounted brake linings, brakes or servo-brakes of subheading 8708.30 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method;
A change to any other good of subheading 8708.30 from any other heading; or
A change to any other good of subheading 8708.30 from mounted brake linings or parts of brakes or servo-brakes of subheading 8708.30 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method.
Chapter rule 1 does not apply since Rule 19A is not underscored. As such, the RVC of not less than 50 percent under the net cost method applies under subpart (B) and (D) of the tariff shift rule.
HOLDING:
Pursuant to GN 12(d)(iv)(B)(3), merchandise classified under subheading 8708.29.15, HTSUS, for use in a motor vehicle identified in GN 12(d)(iv)(A)(1) or GN 12(d)(iv)(B)(1), must meet the RVC requirement of not less than 60 percent under the net cost method if the producer’s fiscal year began in 2015.
Pursuant to GN 12(t)/87.19A, HTSUS, a RVC of not less than 50 percent under the net cost method applies to merchandise classified under subheading 8708.30.50, HTSUS.
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 handling the transaction.
Sincerely,
Monika R. Brenner
Chief
Valuation & Special Programs Branch