United States International Trade Commision Rulings And Harmonized Tariff Schedule
faqs.org  Rulings By Number  Rulings By Category  Tariff Numbers
faqs.org > Rulings and Tariffs Home > Rulings By Number > 1998 HQ Rulings > HQ 545902 - HQ 546674 > HQ 546674

Previous Ruling Next Ruling
HQ 546674




April 16, 1998

RR:IT:VA 546674 KCC

CATEGORY: VALUATION

Mr. Donald Pfeiffer
Prettl Electric Corporation
1721 White Horse Road
Greenville, South Caroline 29605

RE: Article 509; NAFTA; wire harnesses; automotive good; insulated wire; originating good; non-originating good; tariff shift requirement; de minimis; ?2, 5 and 9(1) of the NAFTA Rules of Origin Regulation; traced material; light-duty automotive good; Schedule IV of NAFTA Rules of Origin Regulation; non-originating material's value

Dear Mr. Pfeiffer:

This is in regard to your letter dated February 19, 1997, concerning the applicability of the North American Free Trade Agreement (NAFTA) to wire harnesses when imported into the United States. We regret the delay in responding.

FACTS:

Prettl Electric Corporation (Prettl) is transferring part of its production of wire harnesses for the automotive industry to its Mexican subsidiary. In the manufacture of these wire harnesses, Prettl will use both originating and non-originating materials. The Mexican subsidiary will manufacture the wire harness, as described below, and export the finished wire harnesses into the U.S. You state that the completed wire harnesses when imported into the U.S. are classified under subheading 8544.30.00, Harmonized Tariff Schedule of the United States (HTSUS), which provides for "[i]gnition wiring sets and other wiring sets of a kind used in vehicles, aircraft or ships." The following components are incorporated into the completed wire harnesses:

Component Made in HTSUS
8536.90.006
8536.90.006
8538.90.600
4009.30.000
8544.59.400
8544.59.400
8544.59.400
3926.90.4590
4016.93.000.02
4016.93.5050
8536.90.0060

The first step in the manufacturing process is a simultaneous operation executed in one machine where the black insulated wire (x1) is cut according to specification and the gold male terminal is crimped on one side. This same operation is repeated for the gray insulated wire (x1) and the white insulated wire (x1) with the only difference being that the white insulated wire receives the tin terminal. Next, the silicon rubber tube is cut according to length. Thereafter, the four plug wire is connected to the housing, thread through the tube and the red spacer is inserted into the housing. This assembly operation is manually completed by one operator. The protection cap is assembled by inserting the rubber o-ring seal on the plastic grommet which is pressed into the metal cap. The other insulated wire ends are inserted into the grommet. Then, one bushing seal is assembled on each insulated wire and pulled into the grommet. Last, the connector terminal is crimped onto each insulated wire. After assembly, the wire harnesses are inspected for quality control, packaged in plastic and imported into the U.S.

ISSUE:

Are the wire harnesses considered to be "originating goods" pursuant to the NAFTA rules of origin?

LAW AND ANALYSIS:

?4 of the NAFTA Rules of Origin Regulations, Appendix to Part 181, Customs Regulations (19 CFR Appendix to Part 181) sets forth the rules for determining whether a good originates in the territory of a NAFTA Party. For example, a good will originate if it was "wholly obtained or produced" in accordance with ?4(1) of the NAFTA Rules of Origin Regulations, or if it satisfies the applicable change in tariff classification, the applicable regional value calculation (RVC) requirement or combination thereof under ?4(2) of the NAFTA Rules of Origin Regulations, to cite but a few possibilities.

As the wire harnesses are classified under subheading 8544.30.00, HTSUS, a transformation is authorized by Schedule I of the NAFTA Rules of Origin Regulations, specifically, General Note 12(t)/85.147, HTSUS, which states:

(A) A change to subheadings 8544.11 through 8544.60 from any subheading outside that group, except from headings 7408, 7413, 7605 or 7614; or

(B) A change to subheadings 8544.11 through 8544.60 from headings 7408, 7413, 7605 or 7614, whether or not there is also a change from any other subheading, including another subheading within subheadings 8544.11 through 8544.60, provided there is also 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.

The wire harnesses must meet the requirements of either General Note 12(t)/85.147(A), HTSUS, or General Note 12(t)/85.147(B), HTSUS, to qualify as an "originating good"; they do not have to meet both tests.

1. Insulated Wire Made in the U.S.A - "P/N 6 002 LGO 021 and 024"

In this situation, the non-originating materials are silicon rubber tube, plastic grommet, rubber o-ring seal, and connector terminal. All the remaining components are considered to be "originating goods." All of the non-originating components are not classified within subheadings 8544.11 through 8544.60, or headings 7408. 7413, 7605 or 7614. Thus, a change in tariff classification occurs. The wire harnesses manufactured from the non-originating silicon rubber tube, plastic grommet, rubber o-ring seal, and connector terminal meet the tariff shift requirements of General Note 12(t)/85.147(A), HTSUS, and, therefore, are considered to be "originating goods."

2. Insulated Wire Made in Germany - "P/N 6 002 LGO 020, 021, 023 and 024"

In this situation, the non-originating materials are insulated wire, silicon rubber tube, plastic grommet, rubber o-ring seal, and connector terminal. All the remaining components are considered to be "originating goods." All of these non-originating components, except the insulated wire, are not classified within subheadings 8544.11 through 8544.60, or headings 7408. 7413, 7605 or 7614. Thus, a change in tariff classification occurs. A change in tariff classification pursuant to General Note 12(t)/85.147(A), HTSUS, does not occur for the insulated wire because it is classified within subheading 8544.59.40, HTSUS.

However, ?5 of the NAFTA Rules of Origin Regulations provides a de minimis rule for non-originating materials that do not undergo a required tariff change. ?5 of the NAFTA Rules of Origin Regulations states that:

(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 the 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, or

(b) of the total cost of the good, where there is no transaction value for the good under section 2(1) of Schedule III or the transaction value of the good is unacceptable under section 2(2) of that Schedule,
provided that,
c) if, under the rule in which the applicable change in tariff classification is specified, the good is also subject to a regional value-content requirement, the value of those non-originating materials shall be taken into account in calculating the regional value content of the good in accordance with the method set out for that good, and

(d) the good satisfies all other applicable requirements of this Appendix...

?5 of the NAFTA Rules of Origin Regulations provide that the value of all non-originating materials which do not undergo a change in tariff classification must not be more than 7 percent of the transaction value of the good, adjusted to a F.O.B. basis; or, if there is no transaction value for the good under section 2(1) of Schedule III or the transaction value of the good is unacceptable under section 2(2) of that Schedule, the value of all such non-originating materials is not more than 7 percent of the total cost of the good. In this situation, the non-originating material which does not satisfy the tariff shift requirement is the insulated wire. Based on the information presented, it appears that the insulated wire which is imported into the NAFTA territory from outside of the NAFTA territory constitutes more than 7 percent of the total cost of each wire harness. We note that you have supplied us with the total cost values without any indication of why the transaction value is unacceptable in accordance with Schedule II of the NAFTA Rules of Origin Regulations. Thus, ?5 of the NAFTA Rules of Origin Regulations is inapplicable and the wire harnesses incorporating insulated wire from Germany are not considered "originating goods" pursuant to General Note 12(t)/85.147(A), HTSUS.

However, we are of the opinion that the wire harnesses do meet the tariff shift requirement of General Note 12(t)/85.147(B), HTSUS. The proper interpretation of the tariff shift requirement of General Note 12(t)/85.147(B), HTSUS, is that the non-originating materials must change to subheadings 8544.11 through 8544.60, from any other subheading within that group or headings 7408, 7413, 7605 or 7614, whether or not there is also a change from any other subheading, provided the regional value content requirement is met. See, Headquarters Ruling Letter (HRL) 957188 dated February 9, 1995. The imported insulated wire, which is classifiable under subheading 8544.59.40, HTSUS, meets the tariff shift requirement. Next, the wire harnesses must also meet the regional value content requirement, i.e., "(a) 60 percent where the transaction value method is used, or (b) 50 percent where the net cost method is used."

?9(1) of the NAFTA Rules of Origin Regulations provides the following guidance regarding the regional value content of automotive goods:

For purposes of calculating the regional value content of a light-duty automotive good under the net cost method, the value of non-originating materials used by the producer in the production of the good shall be the sum of the values of the non-originating materials that are traced materials and are incorporated into the good.

Traced material is defined in ?8 of the NAFTA Rules of Origin Regulations as:
a material, produced outside the territories of the NAFTA countries, that is imported from outside the territories of the NAFTA countries and is, when imported, of a tariff provision listed in Schedule IV.

Light-duty automotive good is defined in ?2 of the NAFTA Rules of Origin Regulations as:
a light-duty vehicle or a good of a tariff provision listed in Schedule IV that is subject to a regional value-content requirement and is for use as original equipment in the production of a light-duty vehicle.

Light-duty vehicle is defined in ?2 of the NAFTA Rules of Origin Regulations as:
a motor vehicle provided for in any of tariff items 8702.10.60 and 8702.10.60 (vehicles for the transport of 15 or fewer persons) and subheadings 8703.21 through 8703.90, 8704.21 and 8704.31.

Schedule IV (LIST OF TARIFF PROVISIONS FOR THE PURPOSES OF SECTION 9 OF THE APPENDIX) of the NAFTA Rules of Origin Regulations lists subheading 8544.30, HTSUS. Therefore, the wire harnesses met the definition of a light duty automotive good pursuant to ?2 of the NAFTA Rules of Origin Regulations. To calculate the regional value content of the wire harnesses under the net cost method, we must calculate the value of the non-originating materials. Pursuant to ?9(1) of the NAFTA Rules of Origin Regulations, the value of the non-originating materials is the sum of the values of the non-originating materials that are traced materials incorporated into the wire harnesses. In this situation the non-originating materials are the insulated wire, plastic grommet, rubber o-ring seal, rubber silicon tube and connector terminal. The insulated wire, plastic grommet and rubber o-ring seal are not listed in Schedule IV of the NAFTA Rules of Origin Regulations and, therefore, are not traced materials. However, the rubber silicon tube and connector terminal are listed as traced material in Schedule IV of the NAFTA Rules of Origin Regulations. Thus, the value of the insulated wire, plastic grommet and rubber o-ring seal are not included in the value of the non-originating materials when calculating the regional value content but they are included in the net cost of the wire harnesses. Whereas, the value of the rubber silicon tube and connector terminal is included in the value of the non-originating materials when calculating the regional value content.

Based on the cost information you submitted, the value of the non-originating materials is $0.10. We assume that the value of the non-originating traced materials submitted in your cost information is made in accordance with the "Valuation of Traced Materials for VNM in the RVC" of ?9(2) of the NAFTA Rules of Origin Regulations. The regional value content is the net cost minus the value of the non-originating materials, which is the traced materials in this case, divided by the net cost times 100. Your cost information per unit for "P/N 002 LGO 021 and 024" indicates the following calculation:
($2.64 - $0.10) x100 = 96.21% $2.64
Your cost information per unit for "P/N 002 LGO 020 and 023" indicates the following calculation:
($2.74 - $0.10) x100 = 96.35% $2.74
Thus, the regional value content in the case of the German made insulated wire is 96%. The wire harnesses in this situation meet the requirements of General Note 12(t)/85.147(B), HTSUS, and are considered "originating goods" pursuant to General Note 12(b)(ii), HTSUS.

HOLDING:

Based on the presented facts, the wire harnesses are found to be "originating goods" in accordance with NAFTA, provided all other applicable requirements are met.

This holding applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in ?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 CFR ?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 CFR ?181.93.

Sincerely,

Acting Director
International Trade Compliance
Division

Previous Ruling Next Ruling

See also: