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 > 2004 HQ Rulings > HQ 966934 - HQ 967036 > HQ 966966

Previous Ruling Next Ruling
HQ 966966




April 22, 2004

CLA-2 RR:CR:GC 966966 RSD

CATEGORY: CLASSIFICATION

Tariff No. 8708.99.67

Karl F. Krueger
Danzas AEI Customs Brokerage Services
29200 Northwestern Highway
Southfield, Michigan 48034

RE: Classification of raw stator castings that are used as transmission shafts for motor vehicles

Dear Mr. Krueger:

This is in response to your letter dated December 24, 2003, on behalf of Linex Manufacturing requesting a ruling regarding the country of origin of stator shafts imported into the United States from Canada. In order to rule on the country of origin of the stator shafts, we must first determine their classification under the Harmonized Tariff Schedule of the United States (HTSUS). The National Commodity Specialist Division forwarded your letter to the Office of Regulations and Rulings for a response.

FACTS:

Linex Manufacturing, Inc. of Ontario, Canada imports raw stator shafts castings from India into Canada. In Canada, Linex turns, bores, drills holes, chamfers, grooves and finishes the shaft to tolerances defined in the specifications for the part. The stator shafts are used in passenger car transmissions. It is the shaft that supports the torque converter in an automatic transmission. The stator shaft is machined from a malleable iron casting. The raw casting has a shape that closely resembles the finished part except for machining allowances. The shaft weighs 4.2 pounds in the raw state and 2.2 pounds when it is shipped.

You indicate that when the castings are entered into Canada under subheading 8483.10.00 of the Canadian Harmonized Tariff Schedule, which provides for transmissions shafts, (including cam shafts and crank shafts) and cranks; Transmission shafts, excluding cam shafts and main shafts or driving shafts for use with the tractors of heading 87.01 powered by an internal combustion engine excluding road tractors for semi-trailers and log skidders: other.

ISSUES:

In what subheading of the HTSUS are the subject stator shafts classified?

Are the imported stator shafts considered to be originating goods that are eligible for the duty rate under the North American Free Trade Agreement?

Is the Merchandise Processing Fee applicable to the stator shafts imported from Canada?

LAW AND ANALYSIS:

Classification

Classification under the HTSUS is made in accordance with the General Rules of Interpretation (GRI’s). GRI 1 provides that the classification of goods shall be determined according to the terms of the headings of the tariff schedule and any relative section or chapter notes. In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, the remaining GRIs may then be applied.

The Harmonized Commodity Description And Coding System Explanatory Notes (EN’s) constitute the official interpretation of the Harmonized System. While not legally binding on the contracting parties, and therefore not dispositive, the EN’s provide a commentary on the scope of each heading of the Harmonized System and are thus useful in ascertaining the classification of merchandise under the system. Customs believes the EN’s should always be consulted. See T.D. 8980, 54 Fed. Reg. 35127, 35128 (Aug. 23, 1989).

The HTSUS provisions under consideration are as follows:

8483 Transmission shafts (including camshafts and crankshafts) and cranks; bearing housings, housed bearings and plain shaft bearings, gears and gearing; ball or roller screws; gear boxes and other speed changers, including torque converters, flywheels and pulleys, including pulley blocks; clutches and shaft couplings (including universal joint) parts thereof:

Other

8483.90 Toothed wheels, chain sprockets and other transmission elements presented separately; parts:

8483.90.50 Parts of gearing, gear boxes and other speed changers.

8708 Parts and accessories of the motor vehicles of headings 8701 to 8705:

Other parts and accessories:

8708.99 Other:

8708.99.67 Other parts for power trains.

Heading 8483 covers transmission shafts. Transmission shafts are articles which transmit power. This term does not just describe the transmission shaft in the transmission portion of a motor vehicle’s drive train. Consequently, any shafts which transmit power, for example the crankshaft and the cam shaft in an engine, are classified under subheading 8483.10. Although stators are described in heading 8483, HTSUS, as transmission shafts, we note that they are used solely in the passenger vehicles of chapter 87 in the HTSUS. Chapter 84 is in Section XVI of the HTSUS and Chapter 87 is in Section XVII. Thus the section notes for Sections XVI and XVII are applicable to this case. Note 1(l) to Section XVI indicates that articles that are classified in Section XVII are not covered in section XVI, HTSUS. In other words, the stators may be described in heading 8483, HTSUS, as transmission shafts, but because they are used solely with passenger vehicles of chapter 87, HTSUS, under Note 1(l) to Section XVI they are excluded from being classified in heading 8483, HTSUS, a heading that is within Section XVI. The Explanatory Notes further support this analysis. In regards to transmission equipment EN 84.83, page 1614, states in pertinent part, that heading 8483, HTSUS, excludes:

(b) Transmission equipment of the kinds described above (gear boxes, transmission shafts, clutches, differentials, etc.) but which are designed for use solely or principally with vehicles or aircraft (Section XVII); it should, however, be noted that this exclusion does not apply to internal parts of vehicle or aircraft engines—these parts remain classified in this heading. Thus a crank shaft or a cam shaft remains in this heading even if it is specialised for a motor car engine; but motor car transmission (propeller) shafts, gear boxes and differentials fall in heading 87.08.

Consequently, as transmission shafts for motor vehicles, the stators are not classified in heading 8483, HTSUS, but rather, as parts of motor vehicles classified in Section XVII, HTSUS, in heading 8708, HTSUS. Specifically, we find that the finished stator shafts are classified in subheading 8708.99.67, HTSUS, which provides for: “parts and accessories of the motor vehicles of heading 8701 to 8705: [o]ther parts and accessories:..[o]ther parts for power trains.”

Originating Goods Under NAFTA

General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(a)(i) provides, in pertinent part:

(i) Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the “Special” subcolumn followed by the symbol “CA” in parentheses, are eligible for such duty rate, in accordance with section 201 of the NAFTA Implementation Act.

Accordingly, the stator shafts will be eligible for the special “CA” rate of duty provided they are NAFTA “originating” goods under General Note 12(b), HTSUS, and qualify to be marked as products of Canada under the NAFTA Marking Rules. General Note 12(b), HTSUS, provides, in pertinent part:

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;

The article involved in this case is not wholly obtained or produced in Canada. Therefore, to qualify for NAFTA tariff treatment, the article must satisfy the tariff shift rule for that article set forth in General Note 12(t). The rule for goods classified in subheading 8708.99, HTSUS, is as follows:

A change to subheading 8708.99 from any other heading; or

No required change in tariff classification to subheading 8708.99, provided there is a regional value content of not less than 50 percent under the net cost method.

In order to apply the NAFTA eligibility rule, it is necessary to determine the classification of the stator shaft imported into Canada. GRI 2(a) states in part that incomplete or unfinished articles are to be classified as complete or finished if, as imported, they have the essential character of the complete or finished article. An examination of the submitted photographs of the stators imported into Canada from India show that the casting has the net shape blank that closely resembles the finished article that it will become. Although the casting may not have the final specifications and tolerances and lacks the finished surfaces of finished stator shaft, it is readily recognizable as the finished article. Furthermore, it is clear that the castings have no other use other than for completion into the final stator shaft. The stator shaft castings imported into Canada have the essential charter of the unfinished stator shafts provided for in heading 8708, HTSUS. Therefore, under GRI 2(a), we conclude that the castings imported into Canada from India are classified in heading 8708, HTSUS.

Under the facts presented, the article is classified in subheading 8708.99, HTSUS, when imported from India to Canada, and is classified in the same HTSUS subheading when imported into the U.S. Accordingly, even though certain processing operations were performed in Canada, the tariff shift rule is not met in this case. The stator shafts may be considered “originating goods” under this rule if the regional value content requirement under the net cost method is satisfied. Inasmuch as no information concerning the cost and value of the materials or products has been provided in the submission, we are unable to determine if the regional value content requirement is met in this case.

For your information, calculation of the regional value content under the net cost method is defined in 19 CFR Part 181, App. ,section 6(3), as:

NC-VNM X 100
RVC= TV
where

RVC is the regional value content of the good, expressed as a percentage; NC is the net cost of the good, calculated in accordance with subsection (11); and VNM is the value of non-originating materials used by the producer in the production of the good, determined, except as otherwise provided in sections 9 and 10, in accordance with section 7.

Because we are unable to determine if the regional value content requirement is met in this case, we are unable to conclude that the goods in question are originating under the NAFTA. If Linex Manufacturing desires a binding ruling on this issue, they should submit the appropriate cost information to the Value Branch of this office to determine if the regional value content requirement is met in this case.

Merchandise Processing Fee

You also asked whether the stator shafts are subject to the merchandise processing fee imposed by 19 U.S.C. § 58c(a)(9) when they are imported into the United States. The exception to assessment of this fee is set forth in 19 U.S.C. § 58c(b)(10). 19 U.S.C. § 58c(b)(10)(B) states that “[f]or goods qualifying under the rules of origin set out in section 3332 of this title, the fee under subsection (a)(9) and (10) [for the process of merchandise that is formally or informally entered] of this section (i) may not be charged with respect to goods that qualify to be marked as goods of Canada”

The relevant regulation, 19 CFR 24.23(c)(3), states that “the fees shall not apply to goods originating in Canada within the meaning of General Note 12, HTSUS (see also 19 U.S.C. 3332), where such goods qualify to be marked, respectively as goods of Canada”

The application of the merchandise processing fee exemption is dependant on whether the machining and finishing in Canada changes the origin of the stator shafts from India to Canada. If the change results in a Canadian origin, then the merchandise processing fee exemption applies. However, as the process does not change the imported shaft into a Canadian good, the exemption does not apply and the merchandise processing fees, 19 U.S.C. 58c(b)(9) and (10), apply to the subject merchandise.

HOLDINGS:

The finished stator shafts are classified in subheading 8708.99.6790, HTSUS which provides for “[p]arts and accessories of the motor vehicles of heading 8701 to 8705: [o]ther parts and accessories: [o]ther: [o]ther parts for power trains: [o]ther” at a general, column one rate of duty of 2.5% ad valorem.

The processing done in Canada will not result in the applicable tariff shift rule being met,. Thus the imported stator shafts do not qualify as originating goods under the NAFTA. Unless the applicable RVC requirement is met, the imported stator shafts will not be eligible for the NAFTA preference rate.

Because the processing done in Canada does not change the imported stator shafts into Canadian goods, the exemption from the merchandise processing fees does not apply and the merchandise processing fees under 19 U.S.C. 58c(b)(9) and (10) apply.

Sincerely,


Previous Ruling Next Ruling

See also: