OT:RR:CTF:VS H114975 EE
Diane MacDonald
Baker & McKenzie LLP
One Prudential Plaza, Suite 3500
130 East Randolph Street
Chicago, IL 60601
RE: Classification and Eligibility of certain needle and cylindrical roller bearings for preferential duty treatment under NAFTA
Dear Ms. MacDonald:
This is in response to your letter of June 7, 2010, concerning the classification and eligibility of certain needle and cylindrical roller bearings for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”).
FACTS:
You state that two categories of needle and cylindrical roller bearings will be imported: one used in a rocker arm in an automotive engine; the other used elsewhere in an automobile.
You state that NTN Bearing Corporation of Canada (“NBCC”) will manufacture each needle and cylindrical roller bearing in Canada from components imported from Japan. NTN Bearing Corporation of America (“NBCA”) will then purchase the finished needle and cylindrical roller bearings and import the merchandise into the U.S.
Roller Bearings Used in a Rocker Arm Application
You state that NBCC will import outer rings, needle and cylindrical rollers, side plates, an inner race or shaft, and plastic center pieces from its parent company in Japan. For three parts, the plastic center pieces are of U.S. origin. NBCC will then perform certain operations on the components, including heat
treatment for some components, grinding, tumbling (which allows the pieces to hold more lubricant) and rust-proofing, and assemble them into a rocker arm bearing, which will be used as original equipment in the engines of passenger cars, sport utility vehicles, and light trucks.
You provide that the rocker arm bearing, which is made entirely of steel, consists of a number of needle rollers or rollers shaped as cylinders. The bearing also contains an outer ring and two side plates. In its condition as imported to the U.S., the rocker arm bearing contains a plastic center piece that holds the individual rollers in place during shipment. You state that NBCC will ship the rocker arm bearing to the U.S. in discrete matched sets of both the main rocker arm assembly and the inner race shaft.
After importation, the end user removes the plastic center piece and inserts the inner race into the center of the bearing. The plastic center piece simply holds the rollers in place prior to insertion of the inner race and installation of the bearing into engine. The end user will discard the plastic center piece after removal; it is not used in the final application. After the bearing has been installed in its end use, the outer surface of the shaft serves as the inner race for the bearing.
The bill of materials of the needle and cylindrical roller bearings used in a rocker application are as follows:
Needle roller bearings
Item
Origin
HTSUS Classification
Inner ring (shaft)
Japan
8482.99.25
Outer ring
Japan
8482.99.25
Needle rollers
Japan
8482.91.00
Side plate
Japan
8482.99.65
Plastic center piece
Japan/United States
3926.90.99
Cylindrical roller bearings
Item
Origin
HTSUS Classification
Inner ring (shaft)
Japan
8482.99.25
Outer ring
Japan
8482.99.25
Cylindrical rollers
Japan
8482.91.00
Side plate
Japan
8482.99.65
Plastic center piece
Japan/United States
3926.90.99
Needle and Cylindrical Bearings Not Used in a Rocker Arm Application
You state that NBCA will also purchase fully assembled needle and cylindrical roller bearings not used in a rocker arm application that will also be made by NBCC in Canada from components imported from Japan. These components include an outer ring; retainer; needle or cylindrical roller; and inner race. You state that NBCC will rust-proof the components, and then assemble them into a roller bearing to be used in automotive applications.
The bill of materials of the needle and cylindrical roller bearings not used in a rocker arm application is as follows:
Needle roller bearings
Item
Origin
HTSUS Classification
Outer ring
Japan
8482.99.25
Needle rollers
Japan
8482.91.00
Retainer
Japan
8482.99.65
Inner race
Japan
8482.99.25
Cylindrical roller bearings
Item
Origin
HTSUS Classification
Outer ring
Japan
8482.99.25
Cylindrical rollers
Japan
8482.91.00
Retainer
Japan
8482.99.65
Inner race
Japan
8482.99.25
You provided a list of part numbers of the needle and cylindrical roller bearings. You also provided the list of components that go into each finished part, and the materials, labor, and processing costs of each part. Additionally, you submitted samples of needle and cylindrical roller bearings.
With regard to the classification of the imported bearings, you submitted a copy of New York (NY) ruling letter L88578, dated November 23, 2005, in which Customs and Border Protection (CBP) classified an article described as a needle bearing-like insert for a rocker arm assembly used in passenger automobile engines in subheading 8482.40.00, of the Harmonized Tariff Schedule of the United States (HTSUS), which provides for needle roller bearings. You are also requesting CBP classify the imported bearings.
ISSUE:
What is the classification of the needle roller bearings and the cylindrical roller bearings when imported into the United States?
Whether the needle and cylindrical roller bearings qualify for preferential tariff treatment under NAFTA.
LAW AND ANALYSIS:
With regard to the rocker arm bearings which are imported with a plastic insert holding the individual bearings in place, but also shipped with matching numbers of inner race shafts, by application of General Rule of Interpretation (GRI) 2(a), the bearings are classified as if assembled and complete. Heading 8482 of the HTSUS provides for “Ball or roller bearings, and parts thereof.” The needle and cylindrical bearings at issue are types of roller bearings and are therefore classifiable in heading 8482. Specifically, the needle roller bearings are classified in subheading 8482.40.00, HTSUS, which provides for “Ball or roller bearings, and parts thereof: Needle roller bearings” and the cylindrical roller bearings are classified in subheading 8482.50.00, HTSUS, which provides for “Ball or roller bearings, and parts thereof: Other cylindrical roller bearings.”
NAFTA
General Note (“GN”) 12, Harmonized Tariff Schedule of the United States (“HTSUS”), incorporates Article 401 of NAFTA into the HTSUS. GN 12(a)(i), 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 Canada 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 "CA" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
Accordingly, the needle and cylindrical roller bearings will be eligible for the “Special” “CA” rate of duty provided that they are NAFTA originating under GN 12(b), HTSUS, and qualify to be marked as a product of Canada 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; or
* * *
In this case, since the needle and cylindrical roller bearings are comprised 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 requirements provided for under GN 12(b)(ii), HTSUS. The needle roller bearings are classified under subheading 8482.40.00, HTSUS, and the cylindrical roller bearings are classified under subheading 8482.50.00, HTSUS. The applicable rule set forth in GN 12(t)/84.241, HTSUS, provides:
A change to subheadings 8482.10 through 8482.80 from any subheading outside that group, except from tariff items 8482.99.05, 8482.99.15 or 8482.99.25; or
A change to subheadings 8482.10 through 8482.80 from tariff items 8482.99.05, 8482.99.15 or 8482.99.25, whether or not there is also a change from any subheading outside that group, 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.
Based on the information submitted, the inner ring (shaft) and the outer ring of the needle and cylindrical rocker arm bearings and the inner race and the outer ring of the needle and cylindrical bearings are classified under subheading 8482.99.25, HTSUS. Since subheading 8482.99.25, HTSUS, is excepted from Part A of GN 12(t)/84.241, HTSUS, Part A of the tariff shift rule is not met. However, Part B of GN 12(t)/84.241, HTSUS, will be satisfied if the applicable regional value content ("RVC") requirement is met.
GN 12(c)(iv), HTSUS, provides that:
The regional value content of a good shall be calculated solely on the basis of the net cost method set out in subdivision (c)(ii) of this note where—
…
(D) the good is—
(2) identified in annex 403.1 or 403.2 to the NAFTA and is for use in a motor vehicle provided for in headings 8701 or 8702, subheadings 8703.21 through 8703.90, inclusive, or headings 8704, 8705 or 8706;
* * *
Pursuant to GN 12(c)(iv), HTSUS, since the needle and cylindrical roller bearings are goods identified in Annex 403.1 to the NAFTA and they are for use in a motor vehicle provided for in subheadings 8703.21 through 8703.90, HTSUS, the regional value content is calculated based on the net cost method.
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
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 C.F.R. Part 181, Appendix, Part III, Sec. 6(3).
GN 12(c)(iii) provides, in pertinent part:
Except as provided in subdivisions (d)(i) . . . of this note, the value of non-originating materials [VNM] used by the producer in the production of a good shall not . . . include the value of non-originating materials used to produce originating materials that are subsequently used in the production of such good.
In this case, GN 12(d)(i) is relevant. GN 12(d)(i), HTSUS, provides, in relevant part:
For purposes of calculating the regional value content under the net cost method set out in subdivision (c)(ii) of this note for—
* * *
(B) a good provided for in the tariff items listed in Annex 403.1 where the good is subject to a regional value content requirement and is for use as original equipment in the production of a good provided for in tariff items 8702.10.60 or 8702.90.60, or subheadings 8703.21 through 8703.90, inclusive, 8704.21 or 8704.31,
the value of non-originating materials used by the producer in the production of the good shall be the sum of the values of non-originating materials, determined in accordance with subdivision (c)(vii) of this note at the time the non-originating materials are received by the first person in the territory of Canada, Mexico or the United States who takes title to them; that are imported from the outside the territories of Canada, Mexico and the United States under the tariff items listed in Annex 403.1 to the NAFTA and that are used in the production of the good or that are used in the production of any material used in the production of the good.
The purpose of this section is to make sure that the value of materials that are first imported into the territory of the NAFTA parties and that may be made into something else, is also taken into account.
NAFTA Rules of Origin Regulations, Appendix to 19 C.F.R. Part 181, which implement the rules of origin provisions of GN 12, HTSUS, and Chapter Four of the NAFTA, provides in Section 9(1):
For purposes of calculating the regional value content of a light-duty automotive good under the net cost method, the value of non-originating materials used by the producer in the production of the good shall be the sum of the values of the non-originating materials that are traced materials and are incorporated into the good.
Section 8 defines “traced material” as a “material, produced outside the territories of the NAFTA countries, that is imported from outside the territories of the NAFTA countries and is, when imported, of a tariff provision listed in Schedule IV.”
Section 2(1) defines “light-duty automotive good” as “a light-duty vehicle or a good of a tariff provision listed in Schedule IV that is subject to a regional value-content requirement and is for use as original equipment in the production of a light-duty vehicle.” “Light-duty vehicle” is defined in Section 2(1) as “a motor vehicle 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 8703.21 through 8703.90, 8704.21 and 8704.31.”
The needle and cylindrical roller bearings are classified under subheadings 8482.40.00 and 8482.50.00, HTSUS, which are among the tariff provisions listed in Schedule IV. You also state that they will be used as original equipment in the production of light-duty vehicles. Accordingly, the needle and cylindrical roller bearings meet the definition of a light duty automotive good pursuant to Section 2(1) of the NAFTA Rules of Origin Regulations. To calculate the regional value content of needle and cylindrical roller bearings under the net cost method, we must calculate the value of the non-originating materials, which per Section 9(1) cited above is the sum of the values of the non-originating traced materials incorporated into the bearings.
In the instant case, the non-originating materials that are incorporated into the needle and cylindrical roller bearings are the inner ring, inner race, the outer ring, needle roller (or cylindrical roller) and side plate or retainer. These materials are not listed in Schedule IV of the NAFTA Rules of Origin Regulations and, therefore, are not traced materials. Therefore, the values for these materials (inner ring, the outer ring, etc.) are not included in the value of the non-originating goods when calculating the regional value content of the needle and cylindrical roller bearings. However, their values are included in the net costs of the needle and cylindrical roller bearings. Therefore, based on the cost information you submitted, the value of the non-originating materials is zero. Therefore, the regional value content is 100%. See Headquarters Ruling Letter (HQ) 547073, dated March 8, 2000.
Accordingly, the needle and cylindrical roller bearings meet the requirements of GN 12(t)/84.241, HTSUS, and are considered "originating goods" pursuant to General Note 12(b)(ii), HTSUS.
Country of Origin Marking
GN 12(a)(i), HTSUS, provides that NAFTA-originating goods must also qualify to be marked as products of Canada 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 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 § 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 needle and cylindrical rocker arm bearings and the needle and cylindrical bearings not used in a rocker arm application are processed in Canada from non-originating materials, they are 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 of the needle and cylindrical roller bearings for marking purposes. “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 Canada is the country of origin, we must look at those materials whose country of origin is other than Canada. As previously noted, the needle roller bearings are classified in subheading 8482.40.00, HTSUS, and the cylindrical roller bearings are classified in subheading 8482.50.00, HTSUS. Pursuant to 19 C.F.R. § 102.20(n), the applicable tariff shift rule is as follows:
A change to subheading 8482.10 through 8482.80 from any other heading; or
A change to subheading 8482.10 through 8482.80 from any other subheading, including another subheading within that group, except from inner or outer races or rings classified in subheading 8482.99.05, 8482.99.15, or 8482.99.25.
Since the inner ring (shaft) and the outer ring of the needle and cylindrical rocker arm bearings and the inner race and the outer ring of the needle and cylindrical bearings are classified under subheading 8482.99.25, 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. Therefore, only the inner ring (shaft) and the outer ring of the needle and cylindrical rocker arm bearings and the inner race and the outer ring of the needle and cylindrical bearings may be considered for purposes of determining the essential character of the respective bearings. 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.
In the instant case, no single material of those under consideration may be said to impart the essential character of the needle and cylindrical roller bearings. Therefore we look to § 102.19(a) which provides, in pertinent part:
…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.
As, we are unable to determine that the needle and cylindrical roller bearings are goods of a single NAFTA country under § 102.11(a) or (b), we find that by application of § 102.19(a), the country of origin of the needle and cylindrical roller bearings is Canada, the last NAFTA country where the needle and cylindrical roller bearings will undergo production.
HOLDING:
Based upon the facts presented, the needle and cylindrical roller bearings are eligible for preferential tariff treatment under NAFTA and are considered a product of Canada under the NAFTA Marking Rules.
The needle roller bearings are classified in subheading 8482.40.00, HTSUS, which provides for “Ball or roller bearings, and parts thereof: Needle roller bearings.” The cylindrical roller bearings are classified in subheading 8482.50.00, HTSUS, which provides for “Ball or roller bearings, and parts thereof: Other cylindrical roller bearings.” As NAFTA eligible products, the bearings qualify for the NAFTA Free rate provided all applicable requirements are met.
Reference to this ruling letter should be made in the entry documents filed at the time the subject goods are entered. See CBP Form 7501 - Instructions, Additional Data Elements (available online at: www.cbp.gov). If the entry summary has been filed without reference to this ruling letter, the ruling letter should be brought to the attention of the appraising officer at the port of entry.
Sincerely,
Monika R. Brenner, Chief
Valuation & Special Programs Branch