RR:IT:VA W547540 DWS
Mr. Anil J. Lodhia
Golflex Technologies Inc.
802 Regal Crescent
North Vancouver, BC V7K 2XB
RE: Golf Clubs; NAFTA; Transaction Value
Dear Mr. Lodhia:
This is in response to your facsimile transmission dated October 11, 1999, requesting an advance ruling under the North American Free Trade Agreement (NAFTA) concerning the appraisement of titanium golf clubs imported into the U.S. from Canada. You originally requested an advance ruling in a letter dated July 15, 1999. However, in a letter (HQ 547448) dated September 21, 1999, we advised you that we were unable to issue a ruling on this matter because you did not provide any backup documentation. Contained within your transmission, you have included invoices confirming the sale of the golf clubs to a U.S. customer and the purchase of golf club parts.
FACTS:
Each titanium golf club, the value of which is $199.95 (U.S. currency), is made up of three main components. Based upon the information you provided, the head, the value of which is $40, is made in China, and both the shaft, the value of which is $7.50, and grip, the value of which is $1.25, are made in the U.S., each by a different company. We note that Golflex acquires the heads from another Canadian company who imports the heads from China. The components are assembled, finished, and packaged in Vancouver by Golflex Technologies Inc. (Golflex) for shipment to the U.S. You state that the cost of assembling each golf club in Canada, including materials and labor, is $15.00. You also state that, as of October 1, 1999, the sales price of each golf club will increase to $229; however, you have not provided any documentation evidencing the price change.
ISSUE:
Whether the golf clubs are eligible for preferential treatment under the NAFTA.
LAW AND ANALYSIS:
Complete golf clubs are classifiable under subheading 9506.31.00, Harmonized Tariff Schedule of the United States (HTSUS), and golf club parts are classifiable under subheading 9506.39.00, HTSUS. Section 4 of the Appendix to part 181, Customs Regulations, 19 CFR pt. 181, app., §4; NAFTA Rules of Origin Regulations, sets forth the rules for determining whether a good originates in the territory of a NAFTA party. A good will originate, e.g., if it was "wholly obtained or produced" in accordance with section 4( 1), or if it satisfies the applicable change in tariff classification, the applicable regional value content requirement or combination thereof under section 4(2). See 19 CFR pt. 181, app., §4; General Note 12, HTSUS.
Because each golf club contains a head made in China, we must determine whether the good satisfies the applicable change in tariff classification. General Note 12(t)/95.6(B)(l), HTSUS, states:
[a] change to subheading 9506.31 from subheading 9506.39, whether or not there is also a change from any other chapter, provided there is a regional value content of not less than:
60 percent where the transaction value method is used, *****
19 CFR pt. 181, app., sch. II, §§ 2 and 3(1), states the following:
SECTION 2.
For purposes of Article 402(2) of the Agreement, as implemented by section 6(2) of this appendix, the transaction value of a good shall be the price actually paid or payable for the good, determined in accordance with section 3 and adjusted in accordance with section 4.
SECTION 3.
The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the producer. The payment need not necessarily take the form of a transfer of money; it may be made by letters of credit or negotiable instruments. The payment may be made directly or indirectly to the producer. For an illustration of this, the settlement by the buyer, whether in whole or in part, of a debt owed by the producer is an indirect payment.
In your case, you state that, using the transaction value method to determine the regional value content (RVC) of each golf club, the RVC is 80 percent, well above the required 60 percent as mentioned above. Utilizing the formula to determine the RVC, you use the amount of $199.95 as the transaction value of the golf club, and the amount of $40 as the value of the non-originating head.
Because you purchased the non-originating heads from a Canadian company who imported the heads from China, the amount you paid for each non-originating head does not constitute its Customs value. Therefore, 19 CFR pt.181, app., §7, is applicable. It states:
Part IV
Section 7. Materials
Valuation of Materials used in the Production of a Good Other Than Certain Automotive Goods
Except as otherwise provided for non-originating materials used in the production of a good referred to in section 9(1) or 10(1), and except in the case of indirect materials, intermediate materials and packing materials and containers, for purposes of calculating the regional value content of a good and for purposes of sections 5(1) and (5), the value of a material that is used in the production of the good shall be
*****
where the material is acquired by the producer of the good from another person located in the territory of the NAFTA country in which the good is produced
the transaction value, determined in accordance with section 2(1) of Schedule VIII, with respect to the transaction in which the producer acquired the material, or
*****
and shall include the following costs if they are not included under paragraph (a) or (b):
the costs of freight, insurance and packing and all other costs incurred in transporting the material to the location of the producer,
duties and taxes paid or payable with respect to the material in the territory of one or more of the NAFTA counties, other than duties and taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable,
customs brokerage fees, including the cost of in-house customs brokerage services, incurred with respect to the material in the territory of one or more of the NAFTA countries, and
the cost of waste and spoilage resulting from the use of the material in the production of the good, minus the value of any reusable scrap or by-product.
For the purposes of this ruling, we will assume that the invoices provided document the price actually paid or payable plus additions for the parts and each complete golf club. We will also assume in this case that transaction value is the proper value method for the golf clubs as set forth in 19 CFR pt. 181, app., sch. II. Concerning the non-originating heads, based upon the information you have provided and in accordance with 19 CFR pt. 181, app., § 7, because Golflex, the producer of the golf clubs, acquires the heads from another Canadian company who imports the heads from China, the transaction value of each head, in the amount of $40, constitutes its value for purposes of calculating the RVC of each golf club.
Therefore, we agree that, using the transaction value method to determine the RVC of each golf club, the RVC is 80 percent, well above the required 60 percent as mentioned above. As we have previously stated; complete golf clubs are classifiable under subheading 9506.31, HTSUS, and golf club parts, such as the subject heads, shafts, and grips, are classifiable under subheading 9506.39, HTSUS. Therefore, as the RVC requirement has been met, the heads undergo the proper tariff shift to subheading 9506.31, HTSUS, as required by General Note 12(t)/95.6(B)(1), HTSUS. Consequently, the complete golf clubs are eligible for preferential treatment under the NAFTA.
With regard to Golflex's new price for the clubs of $229, using the transaction value method in determining the RVC, the RVC of each golf club is 82 percent, also well above the required 60 percent. However, as you have not provided any documentation concerning this new price, you must provide the appraising officer at the applicable port of entry with this documentation as his or her decision concerning NAFTA eligibility will depend upon it.
HOLDING:
The golf clubs are eligible for preferential treatment under the NAFTA.
Sincerely,
Thomas L. Lobred
Chief, Value Branch