NAFTA eligibility of axle repair kit; NAFTA country of origin marking

HQ H176956 October 18, 2011 OT:RR:CTF:VS H176956 KSG Colleen Johnston K.G. Industries P.O. Box 1157 Osoyoos British Columbia V0H1V0 Canada Re: NAFTA eligibility of axle repair kit; NAFTA country of origin marking Dear Ms. Johnston: This is in response to your letter dated July 14, 2011, asking whether certain imported axle repair kits, known as king pin kits, are eligible for preferential tariff treatment under the North American Free Trade Agreement (“NAFTA”) pursuant to the de minimis exception set forth in General Note 12(f), of the Harmonized Tariff Schedule of the United States (“HTSUS”) . You received NY Ruling N145118, dated February 18, 2011, which classified the king pin kits in subheading 8708.80.6590, HTSUS, and determined that the kits should be marked “Made in Canada, the United States and Taiwan.” FACTS: This case involves three types of king pin kits, which are a group of replacement wear parts used to refurbish axles that KG Industries (“KGI”) manufactures. The function of the king pin is to connect and hold the spindle assembly to the main axle beam. The wheels, tires, hubs, and brake hardware on a vehicle are all connected to the spindle assembly of the axles, which are anchored to the axle via the king pins. The three kits, styles 579-1044B KGS150, KA349C KGS250, and KA531 KGS230, include king pins, king pin bushings, lock pins, thrust washers, thrust bearings, dust caps, nuts, bolts, screws, lock washers, grease fittings, jam nuts and O-rings. Our New York office determined that the tariff classification of the king pin kits is subheading 8708.80.6590, HTSUS. You provided the following information for the 579-1044B KGS150 kit: 2 king pins Canada $[xxx] 4 king pin bushing Canada $[xxx] 2 lock pins Canada $[xxx] 2 NC nut Taiwan $[xxx] 2 thrust washer USA $[xxx] 2 thrust bearing USA $[xxx] 4 dust cap Canada $[xxx] 12 NF bolt USA $[xxx] 12 lock washer USA $[xxx] 2 NC set screw Taiwan $[xxx] 2 NC jam nut Taiwan $[xxx] You stated that your company produces some of the Canadian parts such as the king pins. The other parts are purchased from various companies. The various parts are packaged together in Canada to form the kits. The transaction value of the king pin kit is $[xxx]. The Taiwan-origin value of the nuts and screws is approximately 1% of the transaction value of the king pins kit described above. As stated above, the king pin kit is the main connection component to hold the spindle assembly to the axle beam. The function of the king pin bushing is to reduce friction and premature wear to the king pin. The function of the thruster washer/bearing is to prevent premature wear to the spindle assembly and axle beam mating surfaces. You now request a ruling as to whether the king pin kits are eligible for preferential tariff treatment under the NAFTA. ISSUE: Whether the king pin kit described above is eligible for preferential tariff treatment under the NAFTA pursuant to the de minimis rule set forth in GN 12(f), HTSUS. LAW AND ANALYSIS: General Note 12, HTSUS, incorporates Article 401 of NAFTA into the HTSUS. General Note 12(a)(i) provides, in pertinent part: (ii) 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 imported product will be eligible for the “Special” “CA” rate of duty provided it is a NAFTA “originating” good under General Note 12(b), HTSUS, and qualifies to be marked as a product 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 parts in the kits were not produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials because it includes Taiwanese-origin parts. The tariff shift rule for subheading 8708.80.65 set forth in GN 12(t), HTSUS, is as follows: (A) A change to McPherson struts of subheading 8708.80 from parts thereof of subheading 8708.80 or any other subheading, provided there is a regional value content of not less than 50 percent under the net cost method; (B) A change to any other good of subheading 8708.80 from any other heading; (C) A change to other suspension systems (including shock absorbers) of subheading 8708.80 from parts thereof of subheadings 8708.80 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; or (D) No required change in tariff classification to parts of suspension systems (including shock absorbers) of subheading 8708.80, provided there is a regional value content of not less than 50 percent under the net cost method. Since you have not provided the tariff classification numbers of the parts in the kits or the net cost of the good, we are unable to determine if any of the tariff-shift rules set forth above are satisfied in this case. However, the de minimis rule set forth in GN 12(f), HTSUS, provides that if the non-originating materials used in the production of the good that do not undergo an applicable change in tariff classification set out in GN12(t), or the regional content requirement is not satisfied, and the non-originating materials are not more than 7 percent of the transaction value of the good, adjusted to an F.O.B. basis or if transaction value is not acceptable, no more than 7 percent of the total cost of the good, the good shall be considered originating. In this case, the non-originating materials are approximately 1 percent of the transaction value of the good. Therefore, the king pin kits would be originating goods pursuant to the de minimis rule set forth in GN 12(f), HTSUS. The second issue presented is the country of origin marking of the imported king pin kits under the NAFTA Marking Rules. NY Ruling N145118 determined that the king pin kits needs to be marked “Made in Canada, the United States, and Taiwan” as a set. However, the ruling did not make a NAFTA preference determination. As noted above, the kits contain parts made in Canada, the U.S. and Taiwan. The hierarchy set forth in 19 CFR 102.11 is applicable to determine the country of origin marking of goods produced in countries that are a party to the NAFTA. Pursuant to 19 CFR 102.11, the country of origin for non-textile goods is determined to be the country in which: (a)(1) The good is wholly obtained or produced; (a)(2) The good is produced exclusively from domestic materials: Since the kits contain parts made in Canada, the U.S. and Taiwan, 19 CFR 102.11(a)(1) and (2) are not satisfied. The next rule is 102.11(a)(3) which provides as follows: Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in section 102.20 and satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied. If a foreign material does not undergo the applicable change in tariff classification set out in 19 CFR 102.20 but is no more than 7 percent of the value of a good, pursuant to 19 CFR 102.13, it is disregarded for the purposes of determining the country of origin for the NAFTA good. Therefore, we will disregard the parts from Taiwan for the purposes of determining the country of origin of the kits. Further, 19 CFR 102.17(c) provides that a foreign material is not considered to have undergone an applicable change in tariff classification specified in 19 CFR 102.20 if it only was packed, repackaged or retail packaged without more than minor processing. The foreign materials of the kit are only repackaged, so 19 CFR 102.11(a)(3) is inapplicable. The next rule is 19 CFR 102.11(b), which provides as follows: Except for a set that is specifically described in the Harmonized system as a set, or is classified as a set pursuant to General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section: (1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character to the good… Since the king pin kit is classified as a set pursuant to GRI 3, 19 CFR 102.11(b) is inapplicable. Since the country of origin of the kit cannot be determined pursuant to 19 CFR 102.11(a) or (b), the NAFTA preference override set forth in 19 CFR 102.19 is triggered. The provision set forth in 19 CFR 102.19(a) provides that if a good is originating under the NAFTA as in this case, and not determined under 19 CFR 102.11(a),102.11(b), or 19 CFR 102.21 to be a good of a single NAFTA country, the country of origin is the last NAFTA country in which that good underwent production other than minor processing, provided that a Certificate of origin has been completed and signed for the good. In this case, the king pin and other components are produced in Canada and the kit is packaged together in Canada. The total Canadian processing constitutes more than minor processing. Since production last occurs in Canada, the king pin kits qualify to be marked as goods of Canada and the “CA” rate of duty is applicable. HOLDING: The imported king pin kit described in this case is an originating good under the NAFTA pursuant to the de minimis rule set forth in GN 12(f), HTSUS. Pursuant to 19 CFR 102.19(a), the country of origin for marking purposes is Canada, provided a certificate of origin is completed and signed for the good. A copy of this ruling letter should be attached to the entry documents filed at the time the goods are entered. If the documents have been filed without a copy, this ruling should be brought to the attention of the CBP officer handling the transaction. Sincerely, Monika R. Brenner, Chief, Valuation & Special Programs Branch