CLA-2-85:OT:RR:NC:N1:112
Mr. Marc J. Sunday
Program Manager
Sandler and Travis Trade Advisory Services, Inc.
36555 Corporate Drive - Suite 400
Farmington Hills, MI 48331
RE: The tariff classification and status under the North American Free Trade Agreement (NAFTA), of remanufactured traction motors from Mexico; Article 509
Dear Mr. Sunday:
In your letter dated January 11, 2010, you requested a ruling on behalf of your client Electromotive Diesel, Inc. (EMD), regarding the status of remanufactured traction motors from Mexico under the NAFTA.
The items concerned are alternating current (AC) remanufactured traction motors and direct current (DC) remanufactured traction motors. Both types of traction motors have a maximum output of 661 kilowatts. The AC motor is a brushless multiphase motor; the DC motor is a brushed single phase motor.
The applicable tariff provision for the alternating current (AC) remanufactured motor will be 8501.53.8060, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Electric motors…: Other AC motors, multi-phase: Of an output exceeding 75 kW: Other: Other.” The general rate of duty will be 2.8%.
The applicable tariff provision for the direct current (DC) remanufactured motor will be 8501.34.3000, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Electric motors…: Other DC motors…: Of an output exceeding 375 kW: Motors.” The general rate of duty will be 2.8%.
General Note 12(b), HTSUS, sets forth the criteria for determining whether a good is originating under the NAFTA. General Note 12(b), HTSUS, (19 U.S.C. § 1202) states, in pertinent part, that
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--
(i) 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
(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials; or
(iv) they are produced entirely in the territory of Canada, Mexico and/or the United States but one or more of the nonoriginating materials falling under provisions for “parts” and used in the production of such goods does not undergo a change in tariff classification because--
(A) the goods were imported into the territory of Canada, Mexico and/or the United States in unassembled or disassembled form but were classified as assembled goods pursuant to general rule of interpretation 2(a), or
(B) the tariff headings for such goods provide for and specifically describe both the goods themselves and their parts and is not further divided into subheadings, or the subheadings for such goods provide for and specifically describe both the goods themselves and their parts,
provided that such goods do not fall under chapters 61 through 63, inclusive, of the tariff schedule, and provided further that the regional value content of such goods, determined in accordance with subdivision (c) of this note, is not less than 60 percent where the transaction value method is used, or is not less than 50 percent where the net cost method is used, and such goods satisfy all other applicable provisions of this note.
Part 181 (North American Free Trade Agreement) of Title 19 (Customs Duties) C.F.R. (Code of Federal Regulations), Subpart L (Rules of Origin), Section 181.132 (Disassembly), (a) states " … except as provided in paragraph (b) of this section, disassembly is considered to be production, and a component recovered from a good disassembled in the territory of a Party [Canada, United States, Mexico] will be considered to be originating … provided that the component satisfies all applicable requirements of Annex 401 [to the North American Free Trade Agreement] and this part [Part 181 of the C.F.R.].". Section 181.132 (b) of Subpart L of Part 181 of 19 C.F.R. states "Disassembly … will not be considered production in the case of components that are recovered from new goods. … a "new good" means a good which is in the same condition as it was when it was manufactured and which meets the commercial standards for new goods in the relevant industry.".
Electro-Motive Diesel Locomotive Company de Mexico S.A. de C.V. (EMDMX) is a wholly owned subsidiary of EMD. EMDMX is a remanufacture of alternating current (AC) and direct current (DC) traction motors for use in diesel electric locomotives.
The new (original manufactured) traction motors are produced by Electro-Motive Diesel Canada (EMDCA), a wholly owned subsidiary of EMD, at its plant in London, ON. The manufacturing process is a full-scale manufacturing operation in which components produced by EMDCA are manufactured or assembled with vendor-supplied parts to produce the traction motors. The traction motors are subsequently incorporated by EMDCA into self-produced diesel electric locomotives for sale to various railways around the world.
Worn or damaged traction motors (which may include previously remanufactured traction motors) are returned by railway customers for credit to EMD’s US Customer Service Center (EMDUS) in La Grange, IL which, in turn, exports them to Mexico for remanufacturing by EMDMX. EMD purchases the worn used traction motors from its international and domestic customers who return the worn used traction motors to EMDUS. EMDUS then ships the worn traction motors to EMDMX on consignment where they remain the property of EMDUS. Upon receipt of the used traction motors, EMDMX follows an internal process of complete disassembly of the worn traction motors into their constituent parts (stator, rotor or armature, and various other smaller parts) after which the parts undergo inspection, refurbishing, cleaning, and machining to original equipment manufacture (OEM) specifications. The stators are further disassembled into their constituent parts and then inspected, refurbished, cleaned, and machined to OEM specifications. However, if the AC stator requires a replacement coil, EMDMX ships a partially rebuilt stator on consignment to IEC Mexico where a new, NAFTA originating coil kit is installed. Following installation of the coil kit, IEC returns the completely rebuilt stator to EMDMX to be assembled with a rebuilt rotor and other refurbished and new parts into a completely remanufactured AC traction motor. If the traction motor is an AC traction motor, it will contain a rotor. Rotors may undergo further disassembly into their constituent parts but, at a minimum, they will be cleaned, washed, baked, and mechanically qualified. All of these processes are performed by EMDMX. Occasionally, a rotor will require the replacement of its shaft. If such a replacement is necessary, a new, NAFTA originating shaft manufactured by EMDCA in London, ON is obtained, after which a completely rebuilt rotor is assembled with other refurbished and new parts into a completely remanufactured traction motor.
If the traction motor is a DC traction motor, it will contain an armature instead of a rotor. Armatures may undergo further disassembly into their constituent parts but, at a minimum, they will be cleaned, baked, electrically and mechanically qualified, undergo vacuum pressure impregnation, and have their commutators and shafts refinished. All of these processes are performed by EMDMX. Occasionally, an armature will require the replacement of its shaft or commutator. If such a replacement is necessary, a new, NAFTA originating shaft or commutator manufactured or remanufactured by EMDCA in London, ON is obtained. Occasionally, an armature will require the installation of a new coil kit. If such a replacement is necessary, a partially rebuilt armature is sent on consignment to Bensa in Mexico where a new, NAFTA originating coil kit is installed, after which a completely rebuilt armature is returned to EMDMX to be assembled with other refurbished and new parts into a completely remanufactured traction motor. Old country of origin markings and the serial number plates are removed from the traction motors by EMDMX. The remanufactured traction motors will have a new serial number plate installed upon completion of the remanufacturing process. If a part is beyond repair, it is discarded and replaced with a new part. If a rotor is beyond repair, it is replaced with a new NAFTA originating rotor manufactured by EMDCA in London, ON. If a stator or armature is beyond repair, new NAFTA originating stator frames, armature commutators, and core assemblies, manufactured by EMDCA, are provided to EMDMX for further manufacture into completed stators and armatures. The remaining individual refurbished parts are then sorted by type and commingled in inventory with identical or similar parts from other returned OEM or remanufactured traction motors from international and domestic customers thereby causing them to lose identity with the traction motor from which they were removed. The additional parts added to inventory could be EMDCA OEM parts as well as outside supplier parts from various countries of origin. The parts are then pulled from inventory and subsequently assembled into remanufactured traction motors which are shipped back to domestic and foreign customers as well as EMDUS.
A complete listing of all constituent parts (stator, rotor or armature, and various other smaller parts) of the traction motors was submitted with this ruling request. Based on the classification of those individual parts, we are of the opinion that each part under goes the required tariff shift based on the “disassembly” rule found in 19 CFR, Section 181.132. As such each part (stator, rotor or armature, and various other smaller parts) attains NAFTA originating status through the disassembly process because there is a tariff shift from the traction motor, under heading 8501, to the various headings of each constituent part (7318, 8503, 8544, 4016, 8535, 8311, 3810, 7019, etc). Each of the tariff shift requirements for the constituent parts has been reviewed and verified by this office, all tariff shift requirements have been met by the disassembly process that takes place in Mexico.
During the remanufacturing process all of the disassembled constituent parts are to be considered originating (Mexico). As per the submission, in the case where a new rotor, stator or armature is required, they are replaced with a new NAFTA originating part, manufactured by EMDCA (Canada). When EMDMX assembles the refurbished rotors, stators, and armatures along with other parts and materials disassembled by EMDMX into remanufactured traction motors, it uses only originating material for which no tariff shift is required, or materials which ultimately tariff shift from an HTS tariff item other than 8503.0035, 8503.0045, or 8503.0065 to heading 8501 which is applicable to the traction motors. Accordingly, the remanufactured traction motors are “goods originating in the territory of a NAFTA party” because the requirements of GN12(b)(ii)(A) have been met.
Based on the facts provided, the goods described above (the remanufactured traction motors – Mexico) qualify for NAFTA preferential treatment, because they will meet the requirements of HTSUS General Note 12(b)(ii)(A). The goods will therefore be entitled to a Free rate of duty under the NAFTA upon compliance with all applicable laws, regulations, and agreements.
Part 102 of the regulations, sets forth the “NAFTA Marking Rules” for purposes of determining whether a good is a good of a NAFTA country for marking purposes. Section 102.11 of the regulations, sets forth the required hierarchy for determining country of origin for marking purposes. Applying the NAFTA Marking Rules set forth in Part 102 of the regulations to the facts of this case, we find that remanufactured traction motors are goods of a NAFTA country. Accordingly, the country of origin for the remanufactured traction motors will be Mexico.
Duty rates are provided for your convenience and are subject to change. The text of the most recent HTSUS and the accompanying duty rates are provided on World Wide Web at http://www.usitc.gov/tata/hts/.
This ruling is being issued under the provisions of Part 181 of the Customs Regulations (19 C.F.R. 181).
A copy of the ruling or the control number indicated above should be provided with the entry documents filed at the time this merchandise is imported. If you have any questions regarding the ruling, contact National Import Specialist Steven Pollichino at (646) 733-3008.
Should you wish to request an administrative review of this ruling, submit a copy of this ruling and all relevant facts and arguments within 30 days of the date of this letter, to the Director, Commercial Rulings Division, Headquarters, U.S. Customs and Border Protection, Regulations & Rulings, 799 9th Street N.W. - 7th floor, Washington, DC 20229-1177.
Sincerely,
Robert B. Swierupski
Director
National Commodity Specialist Division