HQ 545963 - Article 509; advance ruling; NAFTA; de minimis - United States International Trade Commision Rulings

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HQ 545963

May 25, 1995

VAL R:C:V 545963 CRS

CATEGORY: VALUATION

Robert L. Soza, Esq.
Jenkens & Gilchrist
Nowlin Building
9311 San Pedro, Suite 1200
San Antonio, TX 78216

RE: Article 509; advance ruling; NAFTA; de minimis

Dear Mr. Soza:

This is in reply to your letter of November 16, 1994, on behalf of Outer Circle Products, Ltd., in which you requested an advance ruling as to whether certain "flexible lunch coolers," or "picnic bags," qualify as originating goods under North American Free Trade Agreement (NAFTA). An additional submission was made under cover of a letter dated May 3, 1995. We regret the delay in responding.

FACTS:

Outer Circle plans to buy flexible lunch coolers (the "good") from an unrelated producer in Mexico. The good, which is classified in subheading 4202.92, HTSUS, will be produced in a maquiladora in Mexico from originating and non-originating materials, including a non-originating material (nylon fabric imported from the Republic of Korea) classifiable in heading 5407, Harmonized Tariff Schedule of the United States (HTSUS). None of the non-originating materials consist of cut components. However, since the good contains a non-originating material of heading 5407, HTSUS, it fails the applicable change in classification requirement which provides for a change from any other chapter, except from, inter alia, heading 5407.

Accordingly, you have asked whether the good qualifies as originating under the de minimis rule. To this end you have submitted, as exhibit B to your letter of May 3, 1995, estimated figures in respect: of the value of the non-originating material used in the production of the good that does not undergo a change in tariff classification; and the transaction value of the good.

ISSUE:

The issue presented is whether the subject lunch coolers qualify as an originating good pursuant to the de minimis rule.

LAW AND ANALYSIS:

The Appendix to part 181, Customs Regulations (19 C.F.R. pt. 181 app.; the NAFTA Rules of Origin Regulations (the "ROR")), provides in relevant part at section 5:

(1) Except as otherwise provided in subsection (4), a good shall be considered to originate in the territory of a NAFTA country where the value of all non-originating materials that are used in the production of the good and that do not undergo an applicable change in tariff classification as a result of production occurring entirely in the territory of one or more of the NAFTA countries is not more than seven percent

(a) of the transaction value of the good determined in accordance with Schedule II with respect to the transaction in which the producer of the good sold the good, adjusted to an F.O.B. basis, . . .

ROR, section 5(1)(a). Thus, in order to determine whether the lunch coolers (the "good") qualify as originating under section 5(1)(a), it is necessary to determine the transaction value of the good in accordance with Schedule II, and the value of non-originating materials in accordance with Schedule VIII. If the latter is not more than seven percent of the good's transaction value, the good qualifies as originating.

Pursuant to Schedule II, section 2, the transaction value of a good is the price actually paid or payable for the good, determined in accordance with section 3 and adjusted in accordance with section 4. The term "price actually paid or payable" is defined as "the total payment made or to be made by the buyer to or for the benefit of the producer," plus certain enumerated additions ROR, Schedule II, sections 3-4. You have submitted estimates of the total cost of the good. For purposes of this ruling we have assumed that your client wishes to treat the estimates of total cost as estimates of the transaction value of the good.

The value of a material used in the production of the good is determined in accordance with section 7 of the ROR, which provides in relevant part that where a material is imported into the NAFTA territory where the good is produced, the value of the material is its customs value, determined in a manner consistent with Schedule VIII, with respect to that importation. In the instant case you have submitted estimates of the value of the non-originating nylon fabric which is imported into Mexico from Korea. Should you have repetitive purchases of the imported material at different prices, your client may wish to consider using the inventory procedures set forth in Schedule IX of the ROR in order to determine the value of the non-originating materials.

For purposes of this ruling we have assumed that the estimated transaction value of the good, identified in exhibit B as the "total cost per piece" constitutes a valid transaction value under Schedule III and was determined in accordance with Schedule II, and that the value of the non-originating material was determined in accordance with section 7. Based on the estimates submitted, the value of the non-originating material, used in the production of the good, that does not undergo a change in tariff classification, is 6.97 percent of the transaction value of the good. Accordingly, the good qualifies as an originating good under section 5(1)(a) of the ROR. However, if the value of the non-originating material were to exceed seven percent of the transaction value of the good determined in accordance with Schedule II, our answer would be different. For example, if it were determined that the value of the nylon fabric, determined in a manner consistent with section 7 of the ROR, was 7.01 percent of the transaction value of the good, determined in accordance with Schedule II, the good would not qualify as originating under the de minims rule. Finally, please note that if either the transaction value or the value of non-originating materials should change, a new calculation will be required.

HOLDING:

Based on the information presented, the value of the non-originating material used in the production of the good that does not undergo an applicable change in tariff classification as a result of production occurring in Mexico is not more than seven percent of the estimated transaction value of the good determined in accordance with Schedule II. A new calculation will be required if either the transaction value or the value of non-originating materials should change.

This holding applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in section 19 C.F.R. § 181.100(a)(2), which states that a NAFTA ruling letter is issued on the assumption that all the information furnished in connection with the ruling request and incorporated therein, directly, by reference, or by implication, is accurate and complete in every respect. In addition, please note that the application of an advance ruling letter by a Customs field office to the transaction to which it purports 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 if the facts are materially different, the treatment specified in the ruling letter will not be applied to the actual transaction.

If it is subsequently determined that the information furnished is not complete and/or does not comply with 19 C.F.R. § 181.100(a)(2), this ruling will be subject to modification or revocation. In addition, any change in the facts furnished in connection with this ruling may affect the outcome of the regional value content determination. In such a case, it is recommended that a new ruling request be submitted in accordance with 19 C.F.R. § 181.93.

Sincerely,

John Durant, Director

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