RR:IT:VA W547550 DWS
Mr. Mark Lombardo
Tower Group International
128 Dearborn Street
Buffalo, NY 14207
RE: Article 509; NAFTA; Intermediate material
Dear Mr. Lombardo:
This is in response to a letter from your office dated October 18, 1999, on behalf of London Machinery Inc. ("LMI"), in which you resubmit a request for an advance ruling under part 181, Customs Regulations (19 CFR pt. 181), as to whether a self-produced material may be designated as an intermediate material for purposes of determining the regional value content of a good under the North American Free Trade Agreement (NAFTA).
FACTS:
The imported good is a special purpose vehicle consisting of a concrete mixer mounted on a truck cab and chassis, and is classified in subheading 8705.40.00, Harmonized Tariff Schedule of the United States (1999) (HTSUS; 19 U.S.C. 1202). Articles classified in this subheading are subject to a free rate of duty. The vehicle is produced by LMI at its plant in London, Ontario.
The production of the good begins with the purchase of sheet steel which is cut to shape and processed through LMI's rolls and brakes to produce various sub-components for the concrete mixer. The major components produced by LMI are the drum, front and rear pedestals, and water tank. At the London, Ontario, plant these components are welded to other parts such as a gear box, hydraulic pump and motor, to produce the mixer assembly. The mixer assembly is then painted and mounted on a vehicle chassis provided by LMI's customer. The chassis is an originating good for which LMI will have a certificate of origin.
LMI wishes to designate the mixer assembly, classified in subheading 8474.31.00, HTSUS, as an intermediate material for purposes of determining the regional value content of the imported good. You have advised that the mixer assembly itself qualifies as an originating material for purposes of NAFTA in that all the non-originating materials used in the production of the mixer assembly undergo the required change in tariff classification.
ISSUE:
Whether the mixer assembly may be designated as an intermediate material for purposes of determining the regional value content of the imported concrete mixer.
LAW AND ANALYSIS:
Section 4 of the Appendix to pan 181, Customs Regulations, [19 CFR pt. 181 app. § 4; NAFTA Rules of Origin Regulations (the "ROR")], sets forth the rules for determining whether a good originates in the territory of a NAFTA party. A good will originate, e.g. , if it was "wholly obtained or produced" in accordance with section 4(1) ROR, or if it satisfies the applicable change in tariff classification, the applicable regional value content requirement or combination thereof under section 4(2). See 19 CFR pt. 181, app., § 4; General Note ("GN") 12, HTSUS.
The imported concrete mixer is classified in subheading 8705.40.00, HTSUS. The applicable rule of origin for goods so classified provides that a good will be considered originating for purposes of N AFT A if all the non-originating materials used in the production of the good undergo a change to heading 8705, HTSUS, from any other heading, provided there is a regional value content of not less than fifty percent under the net cost method. HTSUS, GN 12(t)87.13. You have asked whether it is possible to designate the mixer assembly, produced in Canada by LMI, as an intermediate material.
An intermediate material is a self-produced material used in the production of a good and designated as an intermediate material in accordance with section 7(4) of the ROR. By designating the mixer assembly as an intermediate material, the value of any non-originating materials used by LMI in the production thereof would not be included in the value of non-originating materials in determining the regional value content of the imported good, provided the mixer assembly itself qualifies as an originating material under the applicable rule of origin. 19 CFR pt. 181 app. § 6(4)(b).
However, as a motor vehicle classified in subheading 8705.40.00, HTSUS, the concrete mixer constitutes a heavy-duty vehicle, as defined in section 2(1) of the ROR, such that the value of non-originating materials used in its production is determined in accordance with section 10 of the ROR. 19 CFR pt. 181app. §2(1). Section 10(9) of the ROR provides in pertinent part that "for purposes of calculating the regional value content of a heavy-duty automotive good, subcomponent or listed material, a producer of such good may, in accordance with section 7(4), designate as an intermediate material any self-produced material, other than a heavy-duty component or sub-component, that is used in the production of that good." The mixer assembly is not an item listed in column I, Schedule V, of the ROR. See 19 CFR pt. 181 app. §§ 2(1) and 8. Accordingly, it does not constitute a heavy-duty automotive component and may therefore be designated as an intermediate material in accordance with the terms of section 7(4) of the ROR.
The rules for designating a self-produced material are set forth in section 7(4)-(5) of the
ROR. Section 7(5) of the ROR provides in pertinent part that:
(a) in order to qualify as an originating material, a self-produced material that is designated as an intermediate material must qualify as an originating material under these Regulations; * * * * *
19 CFR pt. 181 app. § 7(5)(a)-(b).
The mixer assembly produced by LMI in Canada is classified in subheading 8474.31.00, HTSUS. The applicable rule of origin for goods so classified provides that the good will be considered originating provided all the non-originating materials used in its production undergo:
A change to subheadings 8474.10 through 8474.80 from any other heading; or
A change to subheadings 8474.10 through 8474.90, 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.
HTSUS (1999), GN. (2(t)84.216(A)-(B). You have advised that all of the non-originating materials used in the production of the mixer assembly undergo a change in tariff classification as the result of the production process in Canada and that, consequently, the mixer assembly qualifies as an originating good pursuant to GN 12(t)84.216(A). Assuming that the self-produced mixer assembly is designated in accordance with the ROR, it will therefore qualify as an intermediate material.
HOLDING:
In conformity with the foregoing, the mixer assembly may be designated as an intermediate material for purposes of determining the regional value content of the imported good.
Sincerely,
Thomas L. Lobred
Chief, Value Branch