U.S. Department of Homeland Security Washington, DC 20229|
U.S. Customs and Border Protection
January 6, 2017
CLA–2 OT:RR:CTF:VSP H273100 tmf
Chuck Fiske, Regional Logistics Manager Johnson Electric North America 801 Scholz Drive Vandalia, Ohio 45377 Attn: Kevin Turner, Head of Global Logistics, Hong Kong
RE: Regional Value Content & NAFTA Eligibility of Intermediate Material Used in Construction of Certain Lawn Tractor Starter Motors
Dear Mr. Fiske:
This is in response to your letter dated February 12, 2016 submitted to the National Commodity Specialist Division which requests a determination of the regional value content and NAFTA eligibility of certain intermediate materials used in the construction of starter motors of lawn tractors. Our decision on this matter is set forth below.
You describe your company as a vertically integrated manufacturer of electric motors with a manufacturing site in Mexico. You plan on manufacturing a starter motor classifiable under subheading 8511.40.00, Harmonized Tariff Schedules of the United States (HTSUS), which you state will be used as original equipment in the production of a lawn tractor. You state that the starter motor will be made from several materials, including a 795.378 Watt, 1400 series DC brushed motor that it is classifiable in subheading 8501.32.20, HTSUS, along with a clutch assembly, pinion components and several other materials classified in subheading 8511.90, HTSUS.
You state that none of the materials will be imported as a kit. You provided a fishbone diagram, production diagram, and a list of the materials used to produce the starter and the 1400 motor. You plan to designate the 1400 motor as an intermediate material. Various components are used to make the 1400 motor in Mexico, including an end cap, brush holder and commutator. You believe the non-originating materials used to produce the 1400 series DC brushed motor and subsequently, the finished starter motor do not need to be included in the regional value content of the starter motor, as the 1400 series motor will be considered an intermediate material.
ISSUE: Whether the starter motor is eligible for preference under the NAFTA.
LAW AND ANALYSIS:
General Note ("GN") 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. GN 12(a)(ii), HTSUS, provides:
Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.
Accordingly, the starter motor will be eligible for the "Special" "MX" rate of duty provided that it is NAFTA originating under GN 12(b), HTSUS, and qualifies to be marked as a product of Mexico under the NAFTA Marking Rules that are set forth in 19 C.F.R. Part 102. GN 12(b), HTSUS, provides, in pertinent part: 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…
The starter motor contains non-originating materials and is classified in subheading 8511.40.00, HTSUS, which provides for starter motors and dual purposes starter-generators. The applicable rule set forth in GN12(t)/Chapter 85, Chapter rule 5, Subheading rule 22 provides as follows:
A change to subheadings 8511.10 through 8511.80 from any other subheading; A change to subheading 8511.10 through 8511.80 from subheading 8511.90, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or (2) 50 percent where the net cost method is used.
With regard to some of the starter motor’s components, you state they are classifiable in subheading 8511.90, HTSUS. As such, the starter motor is subject to a regional value content determination.
With regard to the 1400 Series DC brushed motor, which is classified under subheading 8501.32, HTSUS, you propose to designate it as an intermediate material. The applicable rule set forth in GN12(t)/Chapter 85, Chapter Rule 5 provides as follows:
A change to subheadings 8501 from any heading, except from tariff items 8503.00.35, 8503.00.45 or 8503.00.65; or A change to heading 8501 from tariff items 8503.00.35, 8503.00.45 or 8503.00.65, whether or not there is also a change from any other heading, provided there is a regional value content of not less than:
(1) 60 percent where the transaction value method is used, or(2) 50 percent where the net cost method is used. In this case, none of the non-originating components used in the production of the 1400 Series motor are classified in the excepted tariff items; therefore, the tariff shift rule set forth in Part A of GN 12(t)/85, HTSUS, is satisfied.
In determining the value of non-originating materials, the value of non-originating materials used to produce an originating self-produced material, which is designated as an intermediate material, is not included. Part III, Section 6(4) of the NAFTA ROR states, in pertinent part, that:
Except as otherwise provided in section 9 and section 10(1)(d), for purposes of calculating the regional value content of a good under subsection (2) or (3), the value of non-originating materials used by a producer in the production of the good shall not include. . . .(b) the value of any non-originating materials used by the producer in the production of a self-produced material that is an originating material and is designated as an intermediate material.
Therefore, the value of the non-originating materials in the 1400 Series motor do not need to be included in calculating the regional value content of the starter motor. In this instance you have calculated the regional value content under the net cost method. Provided this calculation is correct at the time of entry, the finished starter motor will qualify for preferential tariff treatment under NAFTA.
The finished starter motor qualifies for preferential treatment under the NAFTA based upon the information regarding costs provided to this office. The DC 1400 starter motor may be designated as an intermediate article.
Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter that 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.” Sincerely,
Monika R. Brenner, Chief Valuation & Special Programs Branch