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HQ 560028

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December 16, 1996

CLA-2 RR:TC:SM 560028 DEC

Ms. Martha L. Brown
Volkswagen of America, Incorporated
3800 Hamlin Road
Auburn Hills, Michigan 48326

RE: NAFTA; 19 CFR Part 181; transshipment; originating

Dear Ms. Brown

This is in response to your letter dated August 13, 1996, concerning the eligibility of automobiles for duty-free treatment that will be transshipped within North American Free Trade Agreement (NAFTA) territory prior to importation into the U.S.

FACTS:

Automobiles manufactured in Mexico pursuant to U.S. specifications will be loaded on railcars in Mexico City and transit the U.S. in bond to the port processing center in Vancouver, British Columbia, Canada. In Vancouver, the automobiles will undergo various processes that may include the following:

? quality control inspections to ensure belts, hoses, fluid levels, etc. are to manufacturers' specifications

? replacement of defective items

? disassembly and reassembly of packaged items such as wheel discs, mirrors, or floor mats which are included in the price of the vehicle, but which are placed within the vehicle to offset theft or damage

? print and install Monroney label provided by Volkswagen in compliance with the American Automobile Labeling Act.

After this processing is completed, the automobiles will be shipped in bond via truck for Customs clearance at Blaine, Washington and delivered to various U.S. destinations. Terms of delivery will be FOB Laredo or Eagle Pass. Title and risk of loss or damage will pass from Volkswagen of Mexico to Volkswagen of America when the vehicles cross the Mexico/U.S. border. Due to the nature of these transshipments, you state that three bills of lading will be issued for each shipment: (1) from Mexico City to the Mexico/U.S. border, (2) from Mexico/U.S. border to Vancouver, and (3) from Vancouver to the U.S. destination via truck. The evidence of the intent to ship to the U.S. is the fact that the automobiles will be built to meet the U.S. emissions and safety specifications.

For purposes of this ruling, you have asked that we assume that all other criteria for NAFTA eligibility are met.

ISSUE:

Will transshipment within the North American Free Trade Agreement territory render the automobiles ineligible for duty-free treatment under NAFTA?

LAW AND ANALYSIS:

Section 16 of the NAFTA Rules of Origin Regulations, Appendix to Part 181, Customs Regulations (19 CFR Appendix to Part 181), sets forth the rules with respect to transshipment and the subsequent processing outside the territory of a NAFTA country. In this regard Section 16 provides, in pertinent part, that:

EFFECT OF SUBSEQUENT PROCESSING OUTSIDE THE TERRITORY OF A NAFTA COUNTRY; LOSS OF ORIGINATING GOOD STATUS

(1) A good is not an originating good by reason of having undergone production that occurs entirely in the territory of one or more of the NAFTA countries that would enable the good to qualify as an originating good if subsequent to that production

(a) the good is withdrawn from customs control outside the territories of the NAFTA countries; or

(b) the good undergoes further production or any other operation outside the territories of the NAFTA countries, other than unloading, reloading or any other operation necessary to preserve the good in good condition, such as inspection, removal of dust that accumulates during shipment, ventilation, spreading out or drying, chilling, replacing salt, sulphur dioxide or other aqueous solutions, replacing damaged packing materials and containers and removal of units of the good that are spoiled or damaged and present a danger to the remaining units of the good, or to transport the good to the territory of a NAFTA country.

TRANSSHIPPED GOOD CONSIDERED ENTIRELY NON-ORIGINATING

(2) A good that is a non-originating good by application of subsection (1) is considered to be entirely non-originating for purposes of this appendix.

These provisions expressly apply to operations that are performed to goods outside the NAFTA territory.

In the case presented, you state that the automobiles will be manufactured in Mexico. Presuming that the manufacturing operation entitles the automobile to originating status in Mexico, the fact that the automobiles are sent to Canada for further processing will not serve to disqualify the automobiles for the NAFTA duty-free rate when they subsequently enter the U.S.

HOLDING:

The automobiles which are manufactured in Mexico and presumed to be originating goods will not lose their originating status when they are transshipped and further processed within NAFTA territory.

A copy of this ruling should be attached to the entry documents filed at the time this merchandise is entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the Customs officer handling the transaction.

Sincerely,

John Durant, Director

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