HQ 546009 - Article 509; NAFTA; net cost; accumulation; materials used in the production of the good; wire harnesses - United States International Trade Commision Rulings

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HQ 546009

December 4, 1995

VAL RR:IT:VA 546009 CRS

CATEGORY: VALUATION

Mr. Rudy A. Pi¤a
R.A. Pina & Associates, Inc.
P.O. Box 2496
Nogales, AZ 85628

RE: Article 509; NAFTA; net cost; accumulation; materials used in the production of the good; wire harnesses

Dear Mr. Pi¤a:

This is in reply to your letter, dated May 13, 1995, on behalf of Whitney Blake Company of Vermont, Inc., in which you requested an advance ruling as to whether certain electrical wire harnesses qualify as originating goods under the North American Free Trade Agreement (NAFTA). We regret the delay in responding.

FACTS:

Whitney Blake consigns materials and equipment, and provides on-site plant supervision, to a shelter plan operator, or maquiladora, in Mexico (the "producer"). In addition to the production facilities, the producer provides labor and administrative services. Using the consigned items, the producer produces electrical wire harnesses which are imported into the U.S. through the port of Nogales. You state that the finished wire harnesses are classified in subheadings 8544.41 and 8544.49, Harmonized Tariff Schedule of the United States (HTSUS).

One of the materials used in the production of the wire harnesses, bare (non-insulated) copper wire classified in heading 7408, HTSUS, is imported from a non-NAFTA country. At its U.S. plant, Whitney Blake insulates the bare copper wire; as the result of this process, insulated wire of subheading 8544.11, HTSUS, is created. Nevertheless, the material is still considered non-originating because it does not satisfy either of the alternative rules set forth in Schedule I of the Annex to the NAFTA Rules of Origin Regulations (Annex 401 of the NAFTA as implemented in General Note 12 of the HTSUS).

You have submitted information in respect of the costs incurred in processing the bare copper wire in the U.S. In this regard you state that the unit value of the non-originating wire is [****] and that the unit value of the U.S. processing is [****]. The [****] unit value of U.S. processing is comprised of direct and indirect labor of [****], variable overhead of [****], and fixed

ISSUE:

The issue presented is whether, for purposes of determining the regional value content of the electrical wire harnesses under the net cost method, the producer can accumulate certain costs incurred by Whitney Blake in the U.S.

LAW AND ANALYSIS:

The Appendix to the final NAFTA Rules of Origin Regulations ("ROR"; 19 C.F.R. pt. 181 app.; NAFTA Rules of Origin Regulations, as amended by 60 Fed. Reg. 46,334, 46249, T.D. 95-68, 29:38 Cust. B. & Dec. 1), affords the exporter or producer of a good the option of determining the origin of a good by accumulating the production of a material with the production of the good in which the material is used. Section 14 of the ROR provides in relevant part:

(1) Subject to subsections (2) and (4), for purposes of determining whether a good is an originating good, an exporter or producer of a good may choose to accumulate the production, by one or more producers in the territory of one or more of the NAFTA countries, of materials that are incorporated into that good so that the production of the materials shall be considered to have been performed by that exporter or producer.

60 Fed. Reg. 46249, ROR, pt.VI, ? 14(1).

In accordance with section 14(2), the producer of the good must have a statement signed by the producer of the material used in the production of the good that states the net cost incurred and the value of non-originating materials used by the producer of the material in the production of that material. For purposes of section 14(2), the net cost incurred by the producer of the good with respect to the material whose production is accumulated is the net cost incurred by the producer of the material plus, where not included, the costs referred to in sections 7(1)(c) through (e) of the ROR. The value of the non-originating material used by the producer of the good with respect to the material whose production is accumulated is the value of non-originating materials used by the producer of the material. Id. at 46249-46250, ROR, pt.VI, ?

Thus, to restate, an exporter or producer of a good may accumulate the production of materials incorporated in a good, for example, processing and overhead costs, provided they are part of the net cost incurred by the producer of a material in the production of that material and are so reflected on the material producer's books.

The net cost of a good is determined in accordance with section 6(11), pursuant to one of several options, all of which involve a calculation of the producer's total cost. The term "total cost" is defined by section 2(6) of the ROR which provides that for purposes of, inter alia, determining net cost under section 6(11):

(a) total cost consists of all product costs, period costs and other costs that are recorded, except as otherwise provided in paragraphs (b)(i) and (ii), on the books of the producer without regard to the location of the persons to whom payments with respect to those costs are made;

(b) in calculating total cost,

(i) the value of the materials, other than intermediate materials, indirect materials and packing materials and containers, shall be the value determined in accordance with section 7(1),

(ii) the value of intermediate materials shall be determined in accordance with section 7(9),

(iii) the value of indirect materials and the value of packing materials and containers shall be the costs that are recorded on the books of the producer for those materials, and

(iv) product costs, period costs and other costs, other than costs that are referred to in subparagraphs (i) through (iii), shall be the costs thereof that are recorded on the books of the producer of those materials.

Id. at 46,393, ROR, pt I, ? 2(6). Under section 7(1) of the ROR, the value of a material that is imported into the NAFTA territory by the producer and is used in the production of a good, in this instance, the insulated wire, is the customs value of the material, determined in accordance with Schedule VIII of the ROR.

Assuming that the requirements of section 14(2) are met, the producer of the wire harnesses may accumulate costs incurred by Whitney Blake in the production of the insulated wire. Please note that for purposes of this ruling we have assumed that the information you have provided in respect of the unit value of the bare copper wire reflects the value of that material determined in accordance of section 7(1) of the ROR. Similarly, we have assumed that the information provided in respect of the costs incurred in processing the wire are recorded on Whitney Blake's books. Id. at HOLDING:

In conformity with the foregoing, the producer of the wire harnesses may accumulate originating costs incurred by Whitney Blake in the production of the wire incorporated in the wire harnesses.

This holding applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in section 181.100(a)(2), Customs Regulations, 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. Should it subsequently be 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,

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