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HQ 562178




October 25, 2001

CLA-02 RR:CR:sm 562178 tjm

CATEGORY: CLASSIFICATION

Ms. Lisa Crosby
Powell, Goldstein, Frazer & Murphy, LLP
1001 Pennsylvania Ave, NW
Sixth Floor
Washington DC 20004

RE: NAFTA; regional value content; originating self-produced designated intermediate material; printed circuit board assembly; NAFTA Rules of Origin Regulations; 19 CFR part 181 Appendix; General Note 12(t).

Dear Ms. Crosby:

This is in reply to your letter dated July 11, 20011 [sic], requesting a ruling, on behalf of SCI Systems, Inc. (“SCI”), on the eligibility of a partially stuffed printed circuit board assembly (“PCBA”) as an originating self-produced material designated as an intermediate material for purposes of meeting the regional value-content (“RVC”) requirement under the North American Free Trade Agreement (“NAFTA”) of the finished product. Our response follows.

FACTS:

Your client produces television set-top boxes, which are integrated receiver-decoders (“IRD”), that receive signals via cable and satellite. The set-top boxes record all programming to the hard-drive, thereby permitting the user to “pause” a “live” television program. The set-top boxes have tuners. You stated that similar goods have been classified under subheading 8528.12.80, Harmonized Tariff Schedule of the United States (“HTSUS”).

The component at issue is the main partially-stuffed printed circuit board assembly (“PCBA”). SCI manufactures various sub-assemblies in Mexico and assembles them in Mexico to form the final product. Manufacture of the main PCBA begins with the placement of a variety of components on the bare printed circuit board (“PCB” - heading 8534) using automatic insertion machines. The components that are inserted into the PCB include:
switches (heading 8536), capacitors (heading 8532), diodes and crystals (heading 8541), magnetic beads (heading 8504), magnetic inductors (heading 8504), integrated circuits (heading 8542), resistors (heading 8533), magnetic transformers (heading 8504), and transistors (heading 8541).

You did not provide the countries of origin of the components. Included with your request is a sample of the PCBA as it emerges from the automatic insertion machine. Reviewing the sample, many of the components are marked as originating in Korea or in Taiwan. Upon cursory review, the sample contains over 70 units of the above described components. You posit that the PCBA as it emerges from the automatic insertion area is classifiable under subheading 8529.90.13, HTSUS.

After the PCBA emerges from the automatic insertion process, additional components are manually added to the PCBA and the PCBA undergoes several more operations including cleaning and testing.

ISSUE:

Whether the main PCBA after the automatic insertion process qualifies as an originating self-produced material which may be designated as an intermediate material for purposes of satisfying the NAFTA Rules of Origin Regulations (“ROR”).

LAW AND ANALYSIS:

Qualification for the NAFTA Preference

In cases where non-originating materials are used to produce a good in a NAFTA country and in order for that good to qualify for the NAFTA preferential treatment, the non-originating material, under applicable provisions of General Note (“GN”) 12, HTSUS, (19 U.S.C. § 1202) and the NAFTA ROR (19 C.F.R. part 181, app.), must undergo either a change in tariff classification; an applicable change in tariff classification and the final product must meet regional value-content requirements; or the final product must meet regional value-content requirements. See GN 12(b), HTSUS (19 U.S.C. § 1202) and 19 C.F.R. part 181, app. § 4(2)(a) – (c), the former which states, in pertinent part, that:

For purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as “goods originating in the territory of a NAFTA party” only if – . . . .(ii) they have been transformed in the territory of Canada, Mexico, and/or the United States so that – except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note. . . .

B. GN 12(t) Requirements for 8528.12.80, HTSUS

For the final product at issue (set-top box that can “pause” television programs with the use of a hard drive), you assert that the applicable tariff classification is 8528.12.80, HTSUS. Assuming that the asserted classification is correct, GN 12(t)/85.92, HTSUS, (19 U.S.C. § 1202) requires that in order for a product in that subheading to qualify for the NAFTA preference, the non-originating materials must undergo a change in the tariff classification of the materials and the final product must meet a minimum regional value-content. General Note 12(t)/85.92, HTSUS, which provides the prerequisite for the NAFTA preference for the final product states:

A change to subheading 8528.12 from tariff items. . .or any other heading, provided there is a regional value content of not less than: (a) 60 percent where the transaction value method is used, or (B) 50 percent where the net cost method is used.

Therefore, in order for the final product to qualify for the NAFTA preference, the non-originating material must undergo a change in tariff classification and meet the minimum specified regional value-content.

C. Value of Non-Originating Material Used in Producing Self-Produced Material Designated as an Originating Intermediate Good

In determining the value of non-originating materials, the value of non-originating materials used to produce an originating self-produced material, which is designated as an intermediate material, is not included. Part III, Section 6(4) of the NAFTA ROR states, in pertinent part, that:

Except as otherwise provided in section 9 and section 10(1)(d), for purposes of calculating the regional value content of a good under subsection (2) or (3), the value of non-originating materials used by a producer in the production of the good shall not include. . . . (b) the value of any non-originating materials used by the producer in the production of a self-produced material that is an originating material and is designated as an intermediate material. (Emphasis added)

Therefore, if the PCBA qualifies as an originating self-produced material and is designated as an intermediate material, the value of the non-originating materials (the components of the PCBA) inserted into the PCB to produce the main PCBA is not included as part of the value of non-originating material (VNM) in calculating the regional value content of the final product. In other words, to benefit from this provision, the self-produced material must qualify as an originating material and must be designated as an intermediate material.

1. Self-Produced Material

The NAFTA ROR define “self-produced material” as a “material that is produced by the producer of a good and used in the production of that good.” See 19 C.F.R. part 181, app., § 2(1). From the facts provided, the PCBA would qualify as a self-produced material. Additionally, 19 C.F.R. part 181, app. § 4(8) sets forth additional rules on self-produced material. It states:

For purposes of determining whether non-originating materials undergo an applicable change in tariff classification, a self-produced material may, at the choice of the producer of a good into which the self-produced material is incorporated, be considered as an originating material or non-originating material, as the case may be, used in the production of that good.

2. Intermediate Material

The NAFTA ROR define an “intermediate material” as “a self-produced material that is used in the production of a good and is designated as an intermediate material under section 7(4). . . .” See 19 C.F.R. part 181, app., § 2(1). Accordingly, 19 C.F.R. part 181, app. § 7(4) - (5) and GN 12(c)(viii) set forth the rules on the designation of a self-produced material as an intermediate material. The former states, in pertinent part, that:

(4). . . .[F]or purposes of calculating the regional value content of a good the producer of the good may designate as an intermediate material any self-produced material that is used in the production of the good, provided that where an intermediate material is subject to a regional value-content requirement, no other self-produced material that is subject to a regional value-content requirement and is incorporated into that intermediate material is also designated by the producer as an intermediate material. (5) For purposes of subsection (4),
(a) in order to qualify as an originating material, a self-produced material that is designated as an intermediate material must qualify as an originating material under these Regulations. . . . (Emphasis added)

3. Originating Material

As stated above in GN 12(c)(viii)(5)(a), in order to use the benefit of the NAFTA ROR § 6(4), the intermediate material must qualify as an originating material. In the instant case, you contend that the main PCBA at issue is classifiable under subheading 8529.90.13, HTSUS, which provides for “Parts suitable for use solely or principally with the apparatus of headings 8525 to 8528, other: Printed circuit assemblies; of television apparatus; other: other.” Assuming that the claimed classification of the PCBA as it emerges from the automatic insertion area is correct (8529.90.13, HTSUS), GN 12(t)/85.94 sets forth the applicable rule of origin for goods classifiable under 8529.90.13, HTSUS: “[a] change to tariff items . . .8529.90.13. . .from any other tariff item.” Hence, the only requirement for the main PCBA to qualify as an originating material is that any non-originating components must undergo the above stated change in tariff classification.

As noted in the facts above, you contend that the components used in the automatic insertion process are all classifiable under a heading other than 8529. Therefore, assuming that those components are classifiable under a heading other than 8529, the main PCBA in this case will meet the change in tariff classification requirement.

Consequently, assuming again that the components used to produce the main PCBA are not classifiable under heading 8529, the PCBA as it emerges from the automatic insertion area may be designated as an originating self-produced intermediate material for purposes of the NAFTA regional value content calculation of the television set-top boxes.

HOLDING:

Under the NAFTA Rules of Origin Regulations, the value of any non-originating material used to produce an originating self-produced material, which is designated as an intermediate material, is not included as part of the value of non-originating materials (“VNM”) in the regional value-content calculation. For the foregoing reasons, the PCBA qualifies as an originating self-produced material designated as an intermediate material for purposes of the NAFTA regional value-content calculation of the television set-top boxes. Therefore, the value of non-originating components used to produce the main PCBA is not included as part of the VNM of the regional value-content calculation for the television set-top boxes.

A copy of this ruling letter should be attached to the entry documents filed at the time this merchandise is entered. If the documents are 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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