OT:RR:CTF:VS H31679 JMV
Jeremy R. Page
939 W. North Avenue, Suite 750
Chicago, IL 60642
RE: Accumulation under USMCA
Dear Mr. Page:
This is in response to your request, dated January 25, 2021, filed on behalf of your client
Daimler Trucks North America LLC ("DTNA"). In your letter, you request a binding ruling on whether DTNA may accumulate originating material costs through multiple tiers of sourcing under the United States-Mexico-Canada Agreement ("USMCA").
DTNA is a commercial vehicle manufacturer headquartered in Portland, Oregon. DTNA's portfolio of brands includes such well-known entities as Freightliner Trucks, Western Star Trucks, Detroit Diesel Corporation and Thomas Built Buses. DTNA is a source for a multitude of industries and commercial vehicle applications as well as heavy- and medium-duty diesel engines and components.
DTNA would like to accumulate originating material costs through multiple tiers of sourcing. To illustrate this approach in practice, DTNA provided us with the following example of a water pump that DTNA will use to produce an engine. The following is an example bill of materials for the non-originating material, the water pump purchased from a Tier One Supplier:
In this example, the material (the water pump) from the tier one supplier would not qualify as originating material. However, under currently accepted accumulation practice, DTNA may use the originating cost of the bracket, grommet, housing, and processing in the amount of $5.27 for purposes of calculating the regional value content of its engine. At the same time, based on the water pump producer's costed bill of materials, DTNA knows that both the hose and the printed circuit board assembly ("PCBA") were also subject to processing within a USMCA territory although that work was not sufficient to result in an originating material.
In this proposed situation, DTNA would work with its water pump supplier to have the Tier Two hose and PCBA suppliers to further break down their respective costs ($2.37 for the hose and $4.87 for PCBA) into originating and non-originating values. Based on support provided by those suppliers in writing, the further breakdown of originating costs results in an increased accumulated value from $5.27 to $8.17 from the purchase of the water pump.
Whether DTNA may accumulate originating material costs through multiple tiers of sourcing when determining the regional value requirement ("RVC") under the USMCA.
LAW AND ANALYSIS:
The USMCA was signed by the Governments of the United States, Mexico, and Canada on November 30, 2018. The USMCA was approved by the U.S. Congress with the enactment on January 29, 2020, of the USMCA Implementation Act, Pub. L. 116-113, 134 Stat. 11, 14 (19 U.S.C. 4511(a)). General Note ("GN") 11 of the HTSUS implements the USMCA. GN 11(b) sets forth the criteria for determining whether a good is an originating good for purposes of the USMCA. GN 11(b) states:
For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a "good originating in the territory of a USMCA country" only if-
i) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
ii) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
iii) the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or
When an imported good contains non-originating materials, it is not considered a good wholly obtained or produced entirely in a USMCA country under GN 11(b)(i) and GN 11(b)(ii) and we must next determine whether the good qualifies under GN 11(b)(iii). To qualify for preferential tariff treatment under GN 11(b)(iii), a good must meet a product specific rule of origin, which often includes an RVC requirement. It is long accepted that, under many U.S. trade agreements, a producer of a finished good may "accumulate" any material qualifying cost for purposes of qualifying its own product under the appropriate preferential rules of origin. The same is true under the USMCA. The accumulation provision in GN 11(d)(iii) states:
In determining whether a good is an originating good under this note, production undertaken on nonoriginating material in the territory of one or more USMCA countries by one or more producers may contribute to the originating status of the good, regardless of whether that production is sufficient to confer originating status to the nonoriginating material.
Section 9 of the USMCA Rules of Origin Regulations, Appendix to part 182, Customs Regulations, (19 C.F.R. Part 182. App), provides further guidance on the applicability of GN 11. 85 Fed. Reg. 39690, 39721 (July 1, 2020). In accordance with section 9 (2) through (5), if the net cost method of calculating RVC will be used, the producer of the good must have a statement signed by the producer of the material used in the production of the good that states the net cost incurred and the value of non-originating materials used by the producer of the material in the production of that material. Alternatively, if the transaction value method of calculating RVC will be used, the statement must include the value of non-originating materials used by the producer of the material in the production of that material.
In Headquarters Ruling Letter ("HQ") H034617, dated October 20, 2008, CBP discussed the policy reasons behind accumulation:
"Accumulation" is a concept to allow producers, if they choose to do so, to accumulate the production of materials from all sources for purposes of meeting a regional value content requirement or meeting a tariff shift requirement for establishing the finished product as originating. . . . Accumulation is a mechanism to allow greater flexibility for meeting the requirements for establishing an article as "originating" under a free trade agreement.
Emphasis added. In this passage, which considers accumulation under the Dominican Republic-Central American Free Trade Agreement ("DR-CAFTA") CBP acknowledges that the purpose of accumulation is to capture all production costs incurred in the DR-CAFTA region when determining the originating status of a subject good.
Similarly, HQ 545977, dated November 29, 1997, concerned the accumulation provision under North American Free Trade Agreement ("NAFTA"), which is largely the same as the accumulation provision in USMCA. Both USMCA and NAFTA allow for the accumulation of costs related to the production of materials, regardless of whether the subject material qualifies as originating. In HQ 545977, CBP considered whether the producer may accumulate the costs of production incurred by multiple related party suppliers that produced material that was ultimately incorporated in a microphone imported into the United States under the NAFTA. In determining that the importer may accumulate costs of multiple suppliers into the final good, CBP noted that:
In determining the RVC of a good, the entire value of the materials used in the production of the good is considered to be originating or non-originating, as appropriate. The accumulation provision, however, allows the producer or exporter to include as part of the good's RVC any regional value added by suppliers of non-originating materials used in the production of the good. Thus, accumulation allows the producer to reduce the value of non-originating materials used in the production of the good by taking into account the NAFTA inputs incorporated in those non-originating materials.
Emphasis added. Here, CBP reiterates that any value added in the region should be taken into account when determining whether a good originates under the subject free trade agreement.
HQ 545977 and H034617 indicate that the purpose of accumulation is to allow the importer to include any and all production costs that are incurred in the region. This is what is contemplated by GN 11(d)(iii), which indicates that where the production of a nonoriginating material involves more than one producer, each producer may accumulate its production to contribute to the originating status of the final good. Therefore, in the situation under consideration, for example, the originating value of the hose from the Tier 2 supplier could be added to the value of the water pump as it continues to undergo production by the Tier 1 supplier, and the total value could then be counted towards satisfying the originating status of the engine. This is subject only to the statement requirement in 19 C.F.R. 182 App. Sec. 9(2) through (7). This interpretation is also supported by material published by the World Customs Organization ("WCO"). The WCO Origin Compendium categorizes accumulation that allows for the inclusion of production costs of a material in the RVC calculation when the material itself is not originating as "full accumulation." The WCO Origin Compendium further states:
Under this type of accumulation/cumulation, all stages of production which have taken place in a party to the free trade agreement can be counted as qualifying operations in the manufacture of an originating good, regardless of whether the processing is sufficient to confer originating status to the materials themselves. This means that all operations carried out in the participating countries of a free trade area may be taken into account for origin determination purposes.
Emphasis added. What is particularly relevant here is that the WCO states that all stages of production may be considered for the purposes of considering whether a good qualifies as originating. World Customs Organization, WCO Origin Compendium, 40 (May 2017), http://www.wcoomd.org/-/media/wco/public/global/pdf/topics/origin/instruments-and-tools/guidelines/origin_compendium.pdf?db=web.
Therefore, we find that DNTA may accumulate regional costs incurred at various levels of the producer's supply chain, assuming all the statement requirements of 19 C.F.R. 182 App. Sec. 9 are met for each tier of production by each producer. Meaning, if the engine produced by DTNA were to be the subject of a verification and DTNA is relying on the costs of each suppler, DTNA would need to provide to CBP a statement from both the Tier 1 and Tier 2 suppliers that outlines their costs pursuant to 19 C.F.R. 182 App. Sec. 9.
DTNA may accumulate originating material costs through multiple tiers of sourcing when determining the regional value requirement ("RVC") under the USMCA.
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 [CBP] 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."
A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy of this ruling, it should be brought to the attention of the CBP officer handling the transaction.
Monika R. Brenner, Chief
Valuation and Special Programs Branch
U.S. Department of Homeland Security
Washington, DC 20229
U.S. Customs and Border Protection