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HQ 547372




August 10, 2001

RR:IT:VA 547372 DCC

CATEGORY: NAFTA

Heidi Bray
Tower Group International
6730 Middlebelt Road
Romulus, MI 48174-2039

RE: NAFTA Advance Ruling Request

Dear Ms. Bray:

This is in reply to a NAFTA advance ruling request from Tower Group International (“Tower Group”) received on July 29, 1998, on behalf of Meritor Corporation (“Meritor,” previously known as Rockwell Automotive) of Tilbury, Ontario, Canada. You ask whether finished brake assemblies produced in Canada qualify as originating for purposes of preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”). We regret the delay in responding. Per your request, we are enclosing a copy of your original advance ruling request.

FACTS:

Meritor, an automotive parts manufacturer, imports non-originating brake parts—classified under heading 8708.39 of the Harmonized Tariff Schedule (HTS)—into Canada where they are assembled into finished brake assemblies at Meritor’s facility in Tilbury, Ontario. Cam brake assemblies control the friction applied by the brake lining to the brake drum in heavy-duty vehicles. Meritor then imports the finished brake assemblies into the United States through the Port of Detroit.

Previously, on May 12, 1998, you requested a tariff classification of the brake assembly on behalf of Meritor. In response to your request, Customs issued New York Ruling Letter (“NY”) C87985, dated June 4, 1998, in which we described the assembly as:
a mostly-steel vehicle brake assembly which includes as it’s [sic] components a machined brake spider, a brake shoe assembly with mounted brake linings, a camshaft and a bracket assembly. It comes in various models and sizes, all similar in appearance; the sizes range from 15 - 16.5” in diameter and 4 - 8 5/8” in width.

Customs classified the brake assemblies under heading 8708.39.5050 of the HTS, which provides for: “Parts . . . of motor vehicles . . .: Brakes . . . and parts thereof: Other: For other vehicles: Other.”

You also previously requested an advance ruling determination on the NAFTA originating status of automotive cam brake shoe subassemblies manufactured in Canada with non-originating brake shoe parts. In Headquarters Ruling Letter (“HRL”) 004207, dated December 23, 1997, we determined that such subassemblies are not originating for purposes of NAFTA. Your current advance ruling request concerns finished brake assemblies as opposed to brake subassemblies.

You claim that the finished cam brake assemblies are covered by the exception to the change in tariff classification requirement, as set forth in the Appendix to Part 181.131, Customs Regulation (19 C.F.R. 181.131 App., the NAFTA Rules of Origin Regulations (“ROR”)), at Section 4(4)(b).

ISSUE:

Whether certain finished cam brake assemblies qualify as originating goods for the purposes of NAFTA.

LAW AND ANALYSIS:

Under Section 4 of the Rules of Origin Regulations, a good originates in the territory of a NAFTA Party if it was “wholly obtained or produced” in accordance with Section 4(1), or if it satisfies the applicable change in tariff classification, the applicable regional value content (RVC) requirement or combination thereof under Section 4(2).

Goods classified under subheading 8708.39, HTS, are entitled to a free rate of duty and are exempt from the Merchandise Processing Fee if the goods are determined to be “originating.” For NAFTA purposes, originating is defined by 19 C.F.R. § 181(q) as:

Originating, when used with regard to a good or material, means a good or material which qualifies as originating in the United States, Canada and/or Mexico under the rules set forth in General Note 12, HTS, and the appendix to this part.

The appropriate change-in-tariff and regional value content requirements for particular tariff headings are described in General Note 12 of the HTS. According to GN 12(t)/87.21, HTS, a good classified under subheading 8708.39, HTS, may qualify as originating if there is:

A change to subheading 8708.39 from any other heading; or

A change to subheading 8708.39 from subheadings 8708.31 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method.

Pursuant to GN 12(t)/87.21, any non-originating materials must be classifiable in a heading other than 8708. Alternatively, a non-originating good must be classifiable in either subheading 8708.31 or 8708.99, provided there is a regional value content of not less than 50 percent under the net cost method. According to the National Commodity Specialist Division, the imported finished brake assemblies are classified in 8708.39, HTS. Because subheading 8708.39 includes both finished brake assemblies and brake parts (other than mounted brake linings), no change in classification takes place as a result of the Canadian assembly operation. Therefore, the finished brake assemblies do not qualify as originating under GN 12(t)/87.21.

Although the brakes do not satisfy the change-in-tariff requirement of GN 12(t)/87.21, the goods may still qualify as originating under the NAFTA Rules of Origin. Section 4(4)(b) establishes certain exceptions to the change-in-tariff classification requirement provided for in General Note 12 and NAFTA Article 401(b). Section 4(4) states, in pertinent part, that with the exception of a good classified in Chapters 61 through 63, a good originates in the territory of a NAFTA country where:
one or more of the non-originating materials used in the production of the good do not undergo an applicable change in tariff classification because
those materials are provided for under the Harmonized System as parts of the good, and
the heading for the good provides for both the good and its parts and is not further subdivided into subheadings, or the subheading for the good provides for both the goods and its parts,

The exception to the change-in-tariff requirement has two conditions. First, according to subparagraph (A), the non-originating materials must be “provided for under the Harmonized System as parts of the good.” Second, pursuant to subparagraph (B), the subheading for the good includes for both the good and its parts. In addition, under the exception, the RVC for the good must include the value of all the non-originating materials, not just those materials classified under 8708.39, HTS.

As noted above, subheading 8708.39, HTS, provides for brakes and servo-brakes and parts thereof (other than mounted brake linings of 8708.31). Consequently, subheading 8708.39 specifically covers both the finished cam brake assemblies and the brake subassemblies.

Furthermore, both the non-originating “materials”—which are the brake subassemblies are used in the production of the brake assemblies—and the “good”—which is the finished brake shoe assembly—are classified under 8708.39, HTS. Therefore, the non-originating brake subassemblies are provided for under the Harmonized System as parts of the finished brake assemblies.

Consequently, we determine the Section 4(4)(b)(ii) exception to the change-in-tariff requirement applies and the imported finished brake assemblies may qualify for NAFTA preferential treatment, provided the applicable regional value content requirement is met.

HOLDING:

Based on the evidence presented, we determine that the finished brake shoe assemblies qualify for the Section 4(4)(b)(ii) exception to the change-in-tariff requirement of GN 12(t)/87.21. These finished brake assemblies may be eligible for NAFTA preferential treatment provided the applicable RVC requirement is satisfied. Please note that the findings set forth in this ruling are limited to the specific facts of this case, and that these findings should not be relied upon by any other persons. Further determinations in this regard will be made on a case by case basis only.

A copy of this ruling letter 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 this transaction.

Sincerely,

Virginia L. Brown
Chief, Value Branch

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