OT:RR:CTF:VS H351139 RMC
Minhee Kim
PIE Consulting
2224 Av. Lazaro Cardenas
Monterrey, N.L. Mexico 66266
RE: USMCA Fungible Goods and Materials; RVC Averaging; Automotive Engines
Dear Ms. Kim:
This is in response to your inquiry of July 25, 2025, in which you ask U.S. Customs and
Border Protection (“CBP”) to determine the applicability of the fungible materials and inventory
management provisions, including the average method, to certain automotive engines under the
United States-Mexico-Canada Agreement (“USMCA”) and ask whether various engine models
qualify as “identical goods” or “similar goods” for purposes of USMCA regional value content
(“RVC”) averaging. Your request, submitted as an electronic ruling request, was forwarded to this
office from the National Commodity Specialist Division for response.
FACTS:
The merchandise at issue consists of various automotive engines that your client, Hyundai
Mobis Mexico S. de R.L. de C.V., will manufacture in Mexico using originating and non-originating
fungible materials. You state that the goods are classified in subheading 8407.34.14, Harmonized
Tariff Schedule of the United States (“HTSUS”), and are intended for use as replacement engines
for passenger vehicles in the United States. The engines are described as part of the Gamma and
Nu families, which share a common core design platform, including using shared engine block and
cylinder head architecture.
According to the information provided, differences between models within each engine
family “generally relate to performance configuration and vehicle application” and may include:
• Differences in displacement, bore and stroke, or compression ratio within sub-models of
the same engine family;
• Component-level differences, such as intake and exhaust configurations, injector
specifications, turbocharger presence or absence, manifold design, and cooling or
lubrication system configuration;
• Variations in engine control calibration, including electronic control unit integration
affecting output, fuel efficiency, or emissions performance; and
• Differences in auxiliary mounting brackets, harnesses, or accessory interfaces driven by
vehicle packaging requirements.
You have asked CBP to determine the applicability of the USMCA fungible materials
provisions to the production of the goods in Mexico, including the average method of inventory
management, and whether the different engine models qualify as “identical goods” or “similar
goods” for purposes of USMCA RVC averaging.
ISSUES:
I. Whether the USMCA inventory management provisions may be applied when originating
and non-originating fungible materials are used in the production of the engines.
II. Whether the average method of inventory management under the USMCA may be used for
purposes of accounting for originating and non-originating fungible materials used in the
production of the engines.
III. Whether the different engine models are “identical goods” or “similar goods” for purposes
of USMCA RVC averaging.
LAW AND ANALYSIS:
I. USMCA Inventory Management for Fungible Materials
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
Harmonized Tariff Schedule of the United States (“HTSUS”) implements the USMCA. GN 11(f)
relates to fungible goods and materials. It states:
(i) Fungible materials used in production.—Subject to subparagraph (f)(iii) below, if originating
and nonoriginating fungible materials are used or consumed in the production of a good, the
determination of whether the materials are originating may be made on the basis of any of the
inventory management methods set forth in regulations implementing this note.
(ii) Fungible goods commingled and exported.—Subject to subparagraph (f)(iii) below, if
originating and nonoriginating fungible goods are commingled and exported in the same form,
the determination of whether the goods are originating may be made on the basis of any of the
inventory management methods set forth in regulations implementing this note. An importer
may claim that a fungible material or good is originating if the importer, producer, or exporter
has physically segregated each fungible material or good as to allow their specific identification.
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(iii) Use of inventory management method.—A person that selects an inventory management
method for purposes of paragraph (f)(i) or (f)(ii) of this subdivision shall use that inventory
management method throughout the fiscal year of the person.
A portion of the regulations implementing GN 11, HTSUS, the USMCA Rules of Origin
Regulations are found in the appendix to Customs Regulations 19 C.F.R. Part 182 (“UR”). UR Part
IV Section 8. Materials, (18) states that a fungible material or good is originating if:
(a) when originating and non-originating fungible materials
(i) are withdrawn from an inventory in one location and used in the production of the
good, or
(ii) are withdrawn from inventories in more than one location in the territory of one or
more of the USMCA countries and used in the production of the good at the same
production facility, the determination of whether the materials are originating is made on the basis of
an inventory management method recognized in the Generally Accepted Accounting Principles of, or
otherwise accepted by, the USMCA country in which the production is performed or an inventory
management method set out in Schedule VIII; or
(b) when originating and non-originating fungible goods are commingled and exported in
the same form, the determination of whether the goods are originating is made on the basis of an inventory
management method recognized in the Generally Accepted Accounting Principles of, or otherwise accepted by,
the USMCA country from which the good is exported or an inventory management method set out in
Schedule VIII.
Emphasis added.
Accordingly, the USMCA permits the use of an inventory management method recognized
in the Generally Accepted Accounting Principles to determine whether a fungible good or material
is originating or non-originating for purposes of determining USMCA preference eligibility. Here,
provided that all applicable requirements are met, an authorized inventory management method may
be applied to determine whether a fungible good or material is originating or non-originating for
purposes of USMCA preferential tariff treatment.
II. Average Method of Inventory Management
Schedule VIII of the UR provides further guidance on inventory management methods.
The various inventory management methods set out in the UR (Schedule VIII, Part 1, Section 2, and
Part 2, Section 11) include: (a) specific identification method; (b) FIFO method; (c) LIFO method;
and (d) average method. For both fungible goods and materials, Schedule VIII of the UR states that
under the average method, originating status of fungible goods and materials may be determined
based on the ratio of originating and non-originating goods or materials in inventory.
Accordingly, provided that all applicable requirements are met, the average method of
inventory management may be applied here to determine the originating and non-originating status
of goods and materials under USMCA.
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III. Averaging of RVC Calculation Across Engine Models
With respect to RVC averaging, Section 7(15) provides that:
For the purposes of the net cost method, the regional value content of the good, other than
a good with respect to which an election to average may be made under subsection 16(1) or
(10), may be calculated, if the producer elects to do so, by
(a) calculating the sum of the net costs incurred and the sum of the values of non-
originating materials used by the producer of the good with respect to the good and
identical goods or similar goods, or any combination thereof, produced in a single plant by
the producer over
(i) a one-month period,
(ii) any consecutive three-month or six-month period that falls within and is
evenly divisible into the number of months of the producer's fiscal year
remaining at the beginning of that period, or
(iii) the producer's fiscal year; and
(b) using the sums referred to in paragraph (a) as the net cost and the value of non-
originating materials, respectively.
Emphasis added.
Here, you ask whether the various models of engines in the Gamma and Nu families are
“identical goods or similar goods” for purposes of Section 7(15).
With respect to identical goods, Section 1 of the UR provides that:
identical goods means, with respect to a good, including the valuation of a good, goods that
(a) are the same in all respects as that good, including physical characteristics, quality
and reputation but excluding minor differences in appearance,
(b) were produced in the same country as that good, and
(c) were produced
(i) by the producer of that good, or
(ii) by another producer, if no goods that satisfy the requirements of
paragraphs (a) and (b) were produced by the producer of that good;
In this case, the various engine models are not “the same in all respects as that good.” As
noted above, there are differences between models within each engine family that relate to
performance configuration and vehicle application. These differences may result in a different
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engine displacement, the use of different components (e.g., the presence of a turbo in some models
but not in others), engine control calibration, or materials for vehicle packaging requirements.
Accordingly, the different engine models are not “identical goods” for purposes of RVC averaging.
With respect to similar goods, Section 1 of the UR provides that:
similar goods means, with respect to a good, goods that
(a) although not alike in all respects to that good, have similar characteristics and
component materials that enable the goods to perform the same functions and to
be commercially interchangeable with that good,
(b) were produced in the same country as that good, and
(c) were produced
(i) by the producer of that good, or
(ii) by another producer, if no goods that satisfy the requirements of
paragraphs (a) and (b) were produced by the producer of that good;
Here, while the various engine models use a shared engine block and cylinder head
architecture, they are intended for different vehicle applications and may contain significantly
different displacements, components, calibrations, and materials for vehicle packaging. As a result,
they are not “commercially interchangeable” and do not qualify as “similar goods” for purposes of
RVC averaging.
HOLDING:
Provided that all applicable requirements are met, an authorized inventory management
method may be applied to determine whether a fungible good or material is originating or non-
originating for purposes of USMCA preferential tariff treatment.
Provided that all applicable requirements are met, the average method of inventory
management may be applied here to determine the originating and non-originating status of goods
and materials under USMCA.
For purposes of a USMCA RVC averaging, the various engine models at issue are not
“identical goods” or “similar goods.”
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 Customs Service 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.”
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A copy of this ruling letter should be attached to the entry documents filed at the time this
merchandise is entered. If the documents have been filed without a copy, this ruling should be
brought to the attention of the CBP officer handling the transaction.
Sincerely,
Monika R. Brenner, Chief
Valuation and Special Programs Branch
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