OT:RR:CTF:VS H073511 EE
Herbert J. Lynch
Sullivan & Lynch, P.C.
56 Roland Street, Suite 303
Boston, MA 02129-1223
RE: NAFTA preference and country of origin marking requirements for speaker assembly; woofer
Dear Mr. Lynch:
This is in response to your letter, dated July 24, 2009, on behalf of Bose Corporation (“Bose”) of Framingham, Massachusetts, concerning the eligibility of a certain speaker assembly for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”).
Bose, headquartered in Framingham, Massachusetts, designs and manufactures audio products. Bose also provides loudspeakers and related audio equipment to original equipment manufacturers (e.g. General Motors, Apple, IBM, etc.) for incorporation in end use items. Bose manufacturing facilities are located at a number of sites in the United States, Mexico, and Ireland.
You state that the merchandise at issue, a speaker assembly, is used in an automobile audio speaker system. The speaker is known as a “woofer” and produces low frequency sound. The woofer (i.e. speaker) component of the speaker assembly is produced in Indonesia and imported into Mexico for use in the manufacture of the speaker assembly. You claim that the woofer is classifiable under subheading 8518.29.80, Harmonized Tariff Schedule of the United States (“HTSUS”), as a single loudspeaker. At Bose’s Mexican plants,
the woofer component and various other originating and non-originating components are assembled together/manufactured to produce the speaker assembly. The other non-originating goods used in the production of the speaker assembly are all classified under subheading 8518.90.80, HTSUS, as parts of loudspeakers.
You submitted a copy of the engineering print of the speaker assembly. You also submitted the speaker assembly’s uncosted bill of materials.
Pursuant to 19 C.F.R. § 177, you seek a ruling on the eligibility of the speaker assembly for preferential tariff treatment under NAFTA.
The issues presented are: (1) whether the speaker assembly is a NAFTA originating good; and (2) what is the country of origin for marking purposes of the speaker assembly?
LAW AND ANALYSIS:
Origin of the Speaker Assembly
General Note (“GN”) 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. GN 12(a)(ii), HTSUS, provides:
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.
Accordingly, the speaker assembly will be eligible for the “Special” “MX” rate of duty provided that it is NAFTA originating under GN 12(b), HTSUS, and qualifies to be marked as a product of Mexico under the NAFTA Marking Rules that are set forth in 19 C.F.R. Part 102. GN 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--
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…
In this case, since the speaker assembly is comprised, in part, of non-originating materials, GN 12(b)(i), HTSUS, does not apply. Therefore, we must determine whether the non-originating materials undergo the tariff shift and other applicable requirement provided for under GN 12(b)(ii), HTSUS. You state that the speaker assembly is identical to the articles which were the subject of New York Ruling Letter (“NY”) G87553, dated March 15, 2001. In NY G87553, U.S. Customs and Border Protection (“CBP”) determined that the articles in question are classified in subheading 8518.29.80, HTSUS. The applicable rule set forth in GN 12(t)/65 provides as follows:
(A) A change to subheadings 8518.10 through 8518.29 from any other heading; or
(B) A change to any of subheadings 8518.10 through 8518.29 from within that subheading or any other subheading within heading 8518, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
(1) 30 percent where the transaction value method is used, or
(2) 25 percent where the net cost method is used.
Based on the information submitted, the woofer, which is produced in Indonesia, is classified under subheading 8518.29.80, HTSUS. The remaining non-originating components used in the production of the speaker assembly are classified under subheading 8518.90.80, HTSUS. Since the non-originating components are classified in the same heading as the speaker assembly (heading 8518, HTSUS), the tariff shift rule set forth in Part A of GN 12(t)/65, HTSUS, is not met. Therefore, we must determine whether the speaker assembly satisfies Part B of GN 12(t)/65, HTSUS. Since the woofer is classified in the same subheading as the speaker assembly (subheading 8518.29.80, HTSUS), the tariff shift requirement of GN 12(t)/65 (B) requiring “a change to any of subheadings 8518.10 through 8518.29 from within that subheading” is met. Accordingly, Part B of GN 12(t)/65 will be satisfied if the applicable regional value content (“RVC”) requirement is met.
General Note 12(c), HTSUS, provides the methods for calculating RVC for purposes of NAFTA. You utilized the net cost method in your calculations submitted to CBP. The net cost method is set forth in GN 12(c)(ii), HTSUS, which provides as follows:
The regional value content of a good may be calculated on the basis of the following net cost method:
NC - VNM
RVC = ------------------------ X 100
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 C.F.R. Part 181, Appendix, Part III, Sec. 6(3).
The methods of calculating the net cost of a good are set forth in 19 C.F.R. 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 that 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.
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.”
“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” are further defined in section 2(1).
You provided an uncosted bill of materials for the speaker assembly which include aggregate percentage costs of the originating and non-originating components, as well as the production costs. You have provided a RVC calculation using the net cost method, for the speaker assembly, which you claim exceeds 25%. The information you provided is insufficient for CBP to substantiate whether the imported merchandise satisfies the RVC requirement under the net cost method. Therefore, we are unable to ascertain whether the speaker assembly is a NAFTA originating good under GN 12(b), HTSUS. Should you desire a binding ruling on this issue, please submit the detailed cost calculations and supporting documentation to the Valuation & Special Programs Branch of this office to determine if the RVC requirement is satisfied, or you may satisfy this requirement at the time of entry.
Country of Origin Marking
General Note 12(a)(ii), HTSUS, provides that NAFTA-originating goods must also qualify to be marked as products of Mexico under the NAFTA Marking Rules to be eligible for preferential treatment. In this regard, 19 C.F.R. § 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 C.F.R. § 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.”
19 C.F.R. § 102.11 sets forth the required hierarchy for determining whether a good is a good of a NAFTA country for marking purposes. 19 C.F.R. § 102.11(a) provides that the country of a good is the country in which:
The good is wholly obtained or produced;
The good is produced exclusively from domestic materials;
Each foreign material incorporated in that good undergoes
an applicable change in tariff classification set out in § 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.
As previously noted, because the speaker assembly is assembled in Mexico from originating and non-originating components, it is neither wholly obtained or produced (19 C.F.R. § 102.11(a)(1)), nor produced exclusively from domestic materials (19 C.F.R. § 102.11(a)(2)). Accordingly, 19 C.F.R. § 102.11(a)(3) is the applicable rule that must next be applied to determine the origin for marking purposes of the speaker assembly. “Foreign material” is defined in 19 C.F.R. § 102.1(e) as “a material whose country of origin as determined under these rules is not the same country as the country in which the good is produced.” In order to determine whether Mexico is the country of origin, we must look at those materials whose country of origin is other than Mexico. As previously noted, the speaker assembly is classified under subheading 8518.29.80, HTSUS. Pursuant to 19 C.F.R. § 102.20, the tariff shift rule for a good of subheading 8518.29.80, HTSUS, is as follows: “a change to subheading 8518.10 through 8518.50 from any other heading.” Since the foreign components, including the woofer, are classified in the same heading as the speaker assembly (heading 8518, HTSUS), the tariff shift rule is not satisfied. Because 19 C.F.R. § 102.11(a)(1)-(3) is not determinative of origin, the analysis continues to 19 C.F.R. § 102.11(b) which provides in pertinent part:
Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:
(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good, or…
When determining the essential character of a good under 19 C.F.R. § 102.11, 19 C.F.R. § 102.18(b) provides that only domestic and foreign materials that are classified in a tariff provision from which a change is not allowed shall be taken into consideration. In deciding among these materials, consideration is given to various factors, including the nature of the material such as its bulk, quantity, weight, or value, and the role of each material in relation to the use of the good.
Based upon the above factors, we find that for the speaker assembly, the woofer is the single material that imparts the essential character to this good. As the origin of the woofer is a non-NAFTA country, 19 C.F.R. § 102.19, the NAFTA preference override applies. This section provides, in pertinent part that:
…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 good 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.
Therefore, provided the speaker assembly meets the applicable RVC and a Certificate of Origin is completed and signed, the country of origin of the speaker assembly will be Mexico, the last NAFTA country where the speaker assembly will undergo production.
The information presented is insufficient to determine whether the RVC is met and the speaker assembly qualifies as a NAFTA originating good under GN 12(b), HTSUS, and thus eligible for NAFTA preferential treatment.
Pursuant to 19 C.F.R. § 102.11(b)(1) and provided the speaker assembly meets the applicable RVC and a Certificate of Origin is completed and signed, the country of origin of the speaker assembly will be Mexico, the last NAFTA country where the speaker assembly will undergo production.
A copy of this ruling letter should be attached to the entry documents filed at the time the subject goods are entered. If the documents have been filed without a copy, this ruling letter should be brought to the attention of CBP.
Monika R. Brenner
Valuation & Special Programs Branch