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HQ 545890





May 22, 1995

VAL CO:R:C:V 545890 CRS

CATEGORY: VALUATION

Elizabeth J. Vann, Esq.
Kemp, Smith, Duncan & Hammond, P.C.
2000 State National Plaza
El Paso, TX 79901-1441

RE: Article 509; NAFTA; wire harnesses; automotive parts averaging; de minimis; averaging of production from different plants not allowed

Dear Ms. Vann:

This is in reply to your letter of January 22, 1995, under cover of which you resubmitted a ruling request, dated August 5, 1994, filed on behalf of United Technologies Automotive, Inc. (UTA). The ruling request concerns the application of the automotive parts averaging and de minimis rules under the North American Free-Trade Agreement (NAFTA) to certain wire harnesses produced in Mexico.

FACTS:

UTA imports wire harnesses produced in Mexico from originating and non-originating materials by one of its Mexican subsidiaries. The subsidiary produces a number of different models of wire harnesses, each model being designed for use with a specific type of vehicle. Despite the variations in the models, you have advised that all of the wire harnesses are classifiable in subheading 8544.30.00, Harmonized Tariff Schedule of the United States (HTSUS).

ISSUES:

The issues presented are whether UTA may: (1) for purposes of determining the regional value content of the wire harnesses, average the cost of different models and average the production of different plants; and (2) for purposes of determining the value of non-originating materials that do not undergo a change in tariff classification, average the cost of different models and average the production of different plants.

LAW AND ANALYSIS:

Section 2 of the Appendix to section 181.131, Customs Regulations, (19 C.F.R. § 181.131; the NAFTA Rules of Origin Regulations (the "ROR")), the term "producer" is defined as one who, inter alia, "manufactures, processes or assembles" a good. UTA's Mexican subsidiary manufactures wire harnesses (the "good") at its plants in Mexico; therefore, for purposes of this ruling UTA's subsidiary is the producer of the good.

Pursuant to section 12 of the ROR, the net cost and value of non-originating materials may be averaged to determine the regional value content of automotive parts. Specifically, section 12 provides in relevant part:

(1) The regional value content of any or all goods that are of the same tariff provision listed in Schedule IV, or any or all goods that are automotive component assemblies, automotive components, subcomponents or listed materials, and are produced in the same plant, may, where the producer of those goods elects to do so, be calculated by

(a) calculating the sum of the net costs incurred and the sum of the values of non originating materials used by the producer of the goods over the period set out in subsection (5) that is chosen by the producer with respect to any or all of those goods in any one of the categories set out in subsection (4) that is chosen by the producer; and

(b) using the sums referred to in paragraph (a) in the calculation referred to in section 6(3) as the net cost and the value of nonoriginating materials, respectively.

(2) The calculation of the regional value content made under subsection (1) shall apply with respect to each unit of the goods in the category set out in subsection (4) that is chosen by the producer and produced during the period chosen by the producer under subsection (5).

All models of the good in question produced by the producer are classifiable in subheading 8544.30.00, HTSUS. Subheading 8544.30, HTSUS, is one of the tariff provisions listed in Schedule IV; accordingly, pursuant to section 12(1) of the ROR, averaging may be used to calculate the regional value content of the good.

However, averaging under section 12 may only be used with respect to goods that are of the same tariff provision listed in Schedule IV and that are produced in the same plant. ROR, section 12(1). You have stated that the producer, i.e., UTA's Mexican subsidiary, has several plants at which it produces the good at issue. Consequently, the producer can only use averaging under section 12 to calculate the regional value content of a good produced at a single plant.

You have also asked whether averaging may be used for purposes of a de minimis determination under section 5 of the ROR, and whether the use of averaging must be limited to a single plant. It is Customs' position that the ROR permit the use of averaging for purposes of determining the value of non-originating materials that do not undergo an applicable change in tariff classification. Assuming the value of non-originating materials is determined as a percentage of total cost, the regional value content of the good is calculated on the basis of the net cost method, and the producer elects under section 12(1) to calculate the regional value content of the good over a period, the value of non-originating materials may be determined in accordance with that election, divided by the number of units of the goods with respect to which the election is made.

However, while the net cost method must be used in the instant case to determine the regional value content of the good, subject to certain exceptions, the transaction value method must be used for purposes of a de minimis calculation. In this respect, before the value of non-originating materials that are used in the production of the good, but which do not undergo the applicable change in tariff classification, can be determined as a percentage of total cost under section 5(1)(b), it must first be established that there is no transaction value under section 2(1), Schedule III, or that transaction value is unacceptable under section 2(2), Schedule III. Finally, for purposes of section 5, it is the position of the Customs Service that the value of non-originating materials must be determined with respect to the production of a single plant.

HOLDING:

Under section 12, the cost of different models may be averaged in order to determine the regional value content of the goods. Under section 5, averaging may be used to determine the value of non-originating materials that do not undergo an applicable change in tariff classification. In regard to both section 5 and section 12, the use of averaging is restricted to the production of a single plant.

This holding applies only to the specific factual situation and merchandise identified in the ruling request. This position is clearly set forth in section 19 C.F.R. § 181.100(a)(2), 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 C.F.R. § 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 C.F.R. § 181.93.

Sincerely,

John Durant, Director
Commercial Rulings Division


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