OT:RR:CTF:VS H327583 JMV
Automotive & Aerospace CEE
U.S. Customs and Border Protection
477 Michigan Avenue, Rm. 281
Detroit, MI 48226
RE: Internal Advice; United States Mexico Canada Agreement; T-Connectors; Taillight Converter Kits; Origin
This letter is in response to a request for Internal Advice (IA), dated September 23, 2022, made pursuant to 177.11 of Title 19 of the Code of Federal Regulations (19 CFR 177.11). The IA request was initiated by CURT Manufacturing LLC ("CURT"). This IA concerns U.S. Customs & Border Protection's ("CBP") proposal to deny CURT preferential tariff treatment under the United States-Mexico-Canada Agreement ("USMCA") for CURT's importations of T-connectors and taillight converter kits
CURT offers a complete line of towing products and manufactures custom-fit trailer hitches. CURT is requesting IA to settle the question whether T-connectors (Part Number 55418) and taillight converter kits (Part number 59236) qualify for preferential tariff treatment under the United States-Mexico-Canada Agreement ("USMCA"). During a trade compliance review, CBP noticed CURT claimed USMCA preference for the T-connecters and taillight converter kits but also listed the country of origin as China. CBP then issued a CBP Form 29, Proposed Notice of Action, wherein CBP stated that the Chinese components, specifically the printed circuit board assemblies ("PCB"), do not meet the USMCA requirements. CBP found that the correct country of origin is China, and therefore, products are subject to the general duty of 2.7% and Section 301 duties.
Both the T-connectors and taillight converter kits are classified under heading 8537.10 of the Harmonized Tariff Schedule of the United States ("HTSUS"). The T-connectors are manufactured in Mexico from parts of Chinese, Japanese, and U.S. origin, including a Chinese PCB of 8537.10, HTSUS and Chinese moulded parts of subheading 8538.90, HTSUS. The taillight converter kits are manufactured in Mexico from parts of Mexican, Chinese, and U.S. origin, including a Chinese PCB of 8537.10.
Whether the T-connectors and taillight converter kits qualify for preferential tariff treatment under the U.S.-Mexico-Canada Agreement?
LAW AND ANALYSIS:
The United States-Mexico-Canada Agreement ("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
Since the T-connectors and taillight converter kits contain non-originating materials, they are not considered goods wholly obtained or produced entirely in a USMCA country under GN 11(b)(i) and GN 11(b)(ii). Thus, we must next determine whether the kits qualify under GN 11(b)(iii). CURT states that the T-connectors and taillight converter kits are classified in 8537, HTSUS, which provides, in pertinent part, for "Boards, panels, consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instruments or apparatus of chapter 90, and numerical control apparatus, other than switching apparatus of heading 8517."
The applicable rule of origin for items classified under subheading 8537, HTSUS, is in GN 11(o)/84.47, HTSUS, which provides as follows:
A) A change to heading 8537 from any other heading, except from printed circuit assemblies of subheading 8538.90 or moulded parts of subheading 8538.90; or
B) A change to heading 8537 from printed circuit assemblies of subheading 8538.90 or moulded parts of subheading 8538.90 or, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
1) 50 percent where the transaction value method is used; or
(2) 40 percent where the net cost method is used.
Since the T-connectors include a Chinese PCB of 8537.10, HTSUS and Chinese moulded parts of subheading 8538.90, HTSUS, and the taillight converter kits include a Chinese PCB of 8537.10, HTSUS, GN11(o)85.37(A) is not met for either product. Similarly, the T-connectors and taillight converter kits do not satisfy the alternative rule set forth in (B) above because the non-originating PCBs classified in 8537.10, HTSUS do not undergo a change in classification. Accordingly, the issue of regional value content ("RVC") does not arise in respect of the alternative rule set forth in (B) above.
CURT asserts that the fact that the PCB undergoes no change in classification is not controlling as rule (B) solely focuses on the transition of PCBs and moulded parts from 8538.90 to 8537.10 and not on the transition of any other non-originating material. CURT argues that this focus is made clear in the rule (B) wherein it is stated that qualification is based on a
change from PCB and moulded parts classified under 8538.90 "whether or not there is also a change from any other heading."
We disagree. The rule must be read in its entirety. Rule (A) requires a heading change except from the one particular heading that could be allowed in Rule (B) provided the RVC is met. However, Rule (B) does not disregard the requirement that a heading change is still required. If this were the case, then there would be no need for a two-part Rule (B), and the rule could just be written as an RVC requirement with "no change in tariff classification" required, as is the situation in other USMCA rules. See, for example, GN 11, Chapter 30/2(B); Chapter 35.1.
This interpretation is also consistent with how similar rules have been interpreted in the past. In Headquarters Ruling Letter ("HQ") 561791, dated August 1, 2002, CBP considered whether imported goods qualified for preferential tariff treatment under the North American Free Trade Agreement ("NAFTA"), the predecessor agreement to USMCA. The relevant rule of origin also included a two-part Rule (B). Rule (A) included a tariff shift with excluded HTSUS subheadings, and Rule (B) included a tariff shift from the excluded parts, "whether or not there [was] also a change from any other heading," plus an RVC requirement. CBP found that since two components were classified in the same subheading at the imported goods, the goods were not originating under NAFTA. See also HQ 546305, dated April 29, 1996. Therefore, we find CURT's argument unpersuasive and find the T-connectors and taillight converter kits do not qualify for preferential tariff treatment under the USMCA.
The United States Trade Representative ("USTR") has determined that an additional ad valorem duty will be imposed on certain Chinese imports pursuant to USTR's authority under Section 301(b) of the Trade Act of 1974 ("Section 301 measures"). See Section XXII, Chapter 99, Subchapter III, U.S. Note 20, HTSUS. The substantial transformation analysis is applicable when determining the country of origin for purposes of applying Section 301 measures. See HQ H301494 (Oct. 29, 2019), HQ H301619 (Nov. 6, 2018). CURT does not dispute CBP's assertion that the Chinese origin parts are not substantially transformed by the processing in Mexico. Therefore, Section 301 remedies apply to the T-connector and taillight converter kits.
Based on the information provided, we find that T-connector and taillight converter kits classified under heading 8537, HTSUS do not qualify for preferential tariff treatment under the USMCA. The country of origin for purposes of Section 301 is China and therefore, Section 301 remedies apply.
Sixty days from the date of this decision, the Office of Trade, Regulations and Rulings, will make this decision available for CBP personnel, and to the public on the CBP Home Page at http://www.cbp.gov by means of the Freedom of Information Act, and other methods of publication.
Monika Brenner, Chief
Valuation and Special Programs Branch
U.S. Department of Homeland Security
Washington, DC 20229
U.S. Customs and Border Protection