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HQ 562485




October 24, 2002

CLA-2 RR: IA 562485 RFC

CATEGORY: CLASSIFICATION

TARIFF NO.: 8708.39.5050

Port Director of Buffalo
U.S. Customs Service
111 W. Huron Street
Buffalo, NY 14202

RE: Internal Advice; NAFTA; HTUSU General Note 12;brake calipers

Dear Sir or Madam:

This is in reference to Field National Import Specialist Lawrence Mruk’s July 18, 2002, memorandum seeking internal advice concerning whether certain remanufactured brake calipers are eligible for preferential tariff treatment under General Note 12 to the Harmonized Tariff Schedule of the United States (HTSUS).

FACTS:

The facts as presented are as follows: Fenwick Automotive Products, Ltd. imports into the United States remanufactured brake calipers. Certain components or parts (e.g., salvaged brake core housings) used to make the brake calipers are non-originating. Both the brake calipers and these parts are classified in HTSUS heading 8708 (which provides for parts and accessories of the motor vehicles of headings 8701 to 8705). At the subheading level, both the brake calipers and these parts are classified in HTSUS subheading 8708.39 (which provides for brakes and servo-brakes and parts thereof other than mounted brake linings of subheading 8708.31).

The merchandise that was imported on May 23, 2001 and entered on June 6, 2001.

In a June 20, 2002, submission from counsel for Fenwick Automotive Products, Inc., it states that the “subject brake calipers are re-manufactured at Fenwick’s plant in Canada, using new parts of Canada, U.S., or foreign origin, purchased by Fenwick, and castings reclaimed from “cores” returned to Fenwick from customers in the U.S. and Canada.” It also states that “Fenwick’s finished calipersare ‘goods,’ which are finished brake assembliesand are retail articles, packed, ready for sale.”

On April 24, 2001, the port issued a Notice of Action (CF 29) to the importer, which states, in part, that:

Pursuant to Customs Regulations Part 181.71, the U.S. Customs Service on 9/24/01, conducted a verification of the origin of the hydraulic brake calipers, on the above mentioned entry and found that they DO NOT qualify as originating under the terms of the North American Free Trade Agreement (NAFTA). Also, Preference Criterion D2 as claimed on the Certificate of Origin dated 1/7/01 has not be (sic) supported by the information received. These calipers are correctly classified under HTS 8708.39.50.50. Our inquiry revealed that the salvaged brake core housings are considered to be non-originating and does (sic) not satisfy the specific rules of origin spelled out in Annex 401 of the NAFTA agreement.

In reference to Article 401 of the North American Free Trade Agreement, subparagraph (b)(ii)(A), the “good” for which tariff preference is claimed is the hydraulic brake caliper. The “materials” are the parts used in the production of the finished caliper. Since both the good and material are classified as parts in 8703.39, the Harmonized Tariff does not provide for the materials as parts of the good.

For purposes of the applicability of the exception in subparagraph (b)(ii), the non-originating materials and the good for which preference is claimed shall not both be classified as “parts” in the same subheading. That is, for purpose of the application of the exception, the subheading must provided for (1) classification of the non-originating materials as “parts” of the goods into which they are incorporated, and (2) classification of the “good” as a specific good and not as a part. In this case, subheading 8708.39 provides for brakes and servo-brakes and parts thereof (other than mounted brake linings of 8708.31). The caliper and the non-originating materials are both classifiable in subheading 8708.39 as parts of brakes.

The information supplied to this office fails to satisfy the requirement for application of the exemption set out in Article 401(d)(ii) of NAFTA, the hydraulic brake calipers do not qualify as originating goods for the purposes of NAFTA and are not eligible for the preferential duty rate.

ISSUE:

Whether the goods satisfy the applicable rule of origin under General Note 12 to the HTSUS.

LAW AND ANALYSIS:

In order to be eligible for preferential tariff treatment under General Note 12 to the HTSUS, a good must satisfy one of the following rules:

(b) For the 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

(i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or

(ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that

(A) 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

(B) 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; or

(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials; or

(iv) they are produced entirely in the territory of Canada, Mexico and/or the United States but one or more of the non-originating materials falling under provisions for "parts" and used in the production of such goods does not undergo a change in tariff classification because

(A) the goods were imported into the territory of Canada, Mexico and/or the United States in unassembled or disassembled form but were classified as assembled goods pursuant to general rule of interpretation 2(a), or

(B) the tariff headings for such goods provide for and specifically describe both the goods themselves and their parts and is not further divided into subheadings, or the subheadings for such goods provide for and specifically describe both the goods themselves and their parts,
provided that such goods do not fall under chapters 61 through 63, inclusive, of the tariff schedule, and provided further that the regional value content of such goods, determined in accordance with subdivision (c) of this note, is not less than 60 percent where the transaction value method is used, or is not less than 50 percent where the net cost method is used, and such goods satisfy all other applicable provisions of this note. For purposes of this note, the term "material" means a good that is used in the production of another good, and includes a part or an ingredient.

General Note 12(b) to the HTSUS.

In the instant case, in order for the brake calipers to be eligible for preferential tariff treatment under General Note 12 by application of the tariff-shift rule for subheading 8708.39, each of the non-originating materials used in the production of the good must undergo the required change in tariff classification. See HTSUS General Note 12 (b)(I)(A). The rule for subheading 8708.39 provides as follows:

(A) A change to subheading 8708.39 from any other heading; or

(B) 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.

GN 12(t)/87.21 to the HTSUS.

The non-origination materials or parts (e.g., brake core housings) are classified in heading 8708 when imported into Canada and remain classified in that heading when incorporated into the brake calipers. Therefore, these parts do not satisfy the tariff-shift requirements of item (A) of the rule for subheading 8708.39. Moreover, as they do not come from subheadings 8708.31 or 8708.99, the parts also do not satisfy the tariff-shift requirements of item (B) of the rule for subheading 8708.39.

With respect to section (iv)(B) to General Note 12, the Customs Service’s regulations provide as follows:

EXCEPTIONS TO THE CHANGE IN TARIFF CLASSIFICATION REQUIREMENT

(4) A good originates in the territory of a NAFTA country where
o o o o

(b) except in the case of a good provided for in any of Chapters 61 through 63,

(i) the good is produced entirely in the territory of one or more of the NAFTA countries,

(ii) 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

(A) those materials are provided for under the Harmonized System as parts of the good, and

(B) 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 good and its parts, (emphasis added)

(iii) the non-originating materials that do not undergo a change in tariff classification in the circumstances described in subparagraph

(ii) and the good are not both classified as parts of goods under the heading or sub-heading referred to in subparagraph (ii)(B),

(iv) each of the non-originating materials that is used in the production of the good and is not referred to in subparagraph (iii) undergoes an applicable change in tariff classification or satisfies any other applicable requirement set out in Schedule I,

(v) the regional value content of the good, calculated in accordance with section 6, is not less than 60 percent where the transaction value method is used, or is not less than 50 percent where the net cost method is used, and

(vi) the good satisfies all other applicable requirements of this appendix, including any applicable, higher regional value-content requirement pro-vided for in section 13 or Schedule I.

Section 4 of the NAFTA Rules of Origin Regulations (Appendix to Part 181 of the Customs Service’s regulations (19 CFR § 181)).

The regulations implementing the NAFTA were established, implemented and promulgated on a uniform basis by all three parties to the NAFTA. They are commonly referred to as the “NAFTA Uniform Regulations.” See Article 511, North American Free Trade Agreement, December 17, 1992, Can-Mex-U.S., 32 I.L.M. 289 (1993); Section 101(b)(1)(A) of the North American Free Trade Agreement Implementation Act (Pub. L. 103-182) (December 8, 1993); 19 CFR § 181.

Under the exception to the change-in-tariff classification requirement found in the above-mentioned section (iv)(B) to General Note 12 and item (4)(b)(ii) of section 4 of the NAFTA Rules of Origin Regulations, two conditions must be met. First, the non-originating materials used to make the good that failed to meet the applicable tariff-shift rule must be classified in the Harmonized System as parts for the goods. Second, the heading in which the good is classified must also be the heading in which the parts for the good are classified, and the heading must not be further subdivided or the subheading in which the good is classified must also be the subheading in which the parts for the good are classified. In addition, under the exception, the regional value content requirement for the good must include the value of all the non-originating materials and not just those materials classified under the relevant HTSUS subheading (which in the instant case is subheading 8708.39).

In HQ 547372 (August 10, 2001), certain finished cam brake assemblies manufactured in Canada with non-originating parts were found to satisfy the exception to the change-in-tariff classification requirement in item (4)(b)(ii) of section 4 of the NAFTA Rules of Origin Regulations. In HQ 004207 (December 23, 1997), certain automotive cam brake shoe subassemblies manufactured in Canada with non-originating brake shoe parts were found not to satisfy the exception to the change-in-tariff classification requirement in item (4)(b)(ii) of section 4 of the NAFTA Rules of Origin Regulations. In the instant case, as indicated in counsel’s above-mentioned submission, the merchandise under consideration is a finished brake caliper which is a finished brake assembly. Thus, as in HQ 547372, the good under consideration is a finished brake assembly.

In the instant case, the non-originating parts (e.g., brake core housings) are materials or parts that are used to make the goods (i.e., finished brake calipers). As indicated above, these parts are classified as parts for the good, and the good and parts are classified in heading 8708, and within that heading they are classified in subheading 8708.39. Accordingly, this merchandise satisfies the above-mentioned two conditions found in section (iv)(B) to General Note 12 and in item (4)(b)(ii) of section 4 of the NAFTA Rules of Origin Regulations.

In light of the above, the finished brake calipers may be eligible for preferential tariff treatment under HTSUS General Note 12, provided the applicable regional value content requirement is met.

HOLDING:

The above-mentioned remanufactured brake calipers may be eligible to receive preferential tariff treatment under HTSUS General Note 12, provided the applicable regional value content requirement is met.

Sincerely,

Myles Harmon, Acting Director
Commercial Rulings Division

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