Ruling Request; NAFTA; Regional Value Content; 19 CFR, Part 181 App. Section 13(2) – Motor Vehicles Produced in a New Plant

HQ H295146 May 7, 2018 CLA-2 OT:RR:CTF:VS H295146 EGJ CATEGORY: NAFTA [XXXXX XXXX XXXXX] RE: Ruling Request; NAFTA; Regional Value Content; 19 CFR, Part 181 App. Section 13(2) – Motor Vehicles Produced in a New Plant Dear [XXXXXX] This is in response to your letter with attachments, dated March 1, 2018, regarding U.S. importer [XXXX]. You have asked U.S. Customs and Border Protection (“CBP”) to issue a binding ruling on whether the importer’s future entries of light duty vehicles produced in Mexico will qualify for the reduced regional value content (“RVC”) threshold under the North American Free Trade Agreement (“NAFTA”) Regulations, 19 CFR, Part 181 App. §13(2). FACTS: According to your submission, the importer plans to introduce a new line of automobiles to the U.S. market in the near future. The importer’s affiliate in Mexico has already begun construction of the plant where this new line of vehicles will be produced. Once importations begin, the importer plans to make claims under NAFTA for these vehicles. The importer claims that this is the first time that this vehicle model will be produced in North America. The importer notes that a vehicle with a similar name was produced in a U.S. foreign trade zone (FTZ) over [XXX] years ago. However, that vehicle model was of a different size category and underbody type than the vehicle at issue here. The following chart compares the relevant interior dimensions of the prior vehicle model and the new vehicle model. Prior Model New Model  Manufacturing Plant US FTZ Mexico  Interior Passenger Vol. ft³ [XX ft³] [XX ft³]  Interior Luggage Vol. ft³ [XX ft³] [XX ft³]  Total [XX ft³] [XX ft³]   With regard to the underbody, or floor pan, the following chart sets forth the difference in dimensions between the prior vehicle model and the new vehicle model. Prior Model New Model Difference  Manufacturing Plant US FTZ Mexico   Floor pan length mm [XX mm] [XX mm] [XX mm]  Floor pan width mm [XX mm] [XX mm] [XX mm]   With regard to the manufacturing plant in Mexico, you note that construction of the brand new facility began in [XXX]. You explain that the motor vehicle assembler has not incorporated any existing structures or buildings into the plant. Once completed, the plant will house [XXXXXXXX]. Finally, you note that at least 90 percent of the value of the machinery to be used in this vehicle’s production will be new. In your submission, you included a notarized affidavit by a corporate officer of the U.S. importer to substantiate the claims pertaining to the prior model and the new model vehicle’s dimensions. To substantiate your claims regarding the plant in Mexico, you included a notarized affidavit by a corporate officer of the Mexican affiliate company. ISSUE: Whether the new vehicles produced at the Mexican manufacturing plant are eligible for the 50 percent RVC test for the first five years after the date on which the first prototype of that motor vehicle is produced. LAW AND ANALYSIS: Section 13 of the Appendix to Part 181 of the Customs Regulations, (19 CFR Pt. 181 App. § 13) sets forth the rules for determining the RVC level for light-duty automotive goods, as follows: Notwithstanding the regional value-content requirement set forth in Schedule I, and except as otherwise provided in subsection (2), the regional value-content requirement for a good referred to in paragraph (a) or (b) is as follows: for the fiscal year of a producer that begins on the day closest to January 1, 1998 and for the three following fiscal years of that producer, not less than 56 percent, and for the fiscal year of a producer that begins on the day closest to January 1, 2002 and thereafter, not less than 62.5 percent, in the case of (i) a light-duty vehicle, and (ii) a good provided for in any of headings 8407 and 8408 and subheading 8708.40, that is for use in a light-duty vehicle[.] …. Notwithstanding the regional value-content requirement set out in Schedule I, the regional value-content requirement for a light-duty vehicle or a heavy-duty vehicle that is produced in a new plant or refit plant is as follows: (a) not less than 50 percent for five years after the date on which the first prototype of the motor vehicle is produced in the plant by a motor vehicle assembler, if (i) the motor vehicle is of a class, or marque or, except in the case of a heavy-duty vehicle, size category and type of underbody, that was not previously produced by the motor vehicle assembler in the territory of any of the NAFTA countries, (ii) the plant consists of, or includes, a new building in which the motor vehicle is assembled, and (iii) the value of machinery that was never previously used for production, and that is used in the new building or buildings for the purposes of the complete motor vehicle assembly process with respect to that motor vehicle, is at least 90 percent of the value of all machinery used for purposes of that process; and, (b) not less than 50 percent for two years after the date on which the first prototype of the motor vehicle is produced in the plant by a motor vehicle assembler following a refit of that plant, if the motor vehicle is of a class, or marque or, except in the case of a heavy-duty vehicle, size category and type of underbody, that was not assembled by the motor vehicle assembler in the plant before the refit. See also 19 U.S.C. § 3332. Thus, while the general requirement is that motor vehicles must meet a 62.5 percent RVC to attain eligibility for NAFTA benefits, in the case of new or refitted plants, a lesser 50 percent RVC threshold is applicable if the requirements of 19 CFR Pt. 181 App. § 13(2) are met. You state that the manufacturing plant in Mexico is completely new construction. You also state that at least 90 percent of the value of the machinery to be used in this vehicle’s production will be new. Therefore, based on the information provided, we find that the plant in Mexico meets the requirements that the plant consists of, or includes, a new building in which the motor vehicle is assembled. Also, we find that the value of machinery not previously used for production, and that is used in the new building or buildings for the purposes of the complete motor vehicle assembly process with respect to the new model vehicle, is at least 90 percent of the value of all machinery used for purposes of that process. See 19 CFR Pt. 181 App. § 13(2)(a)(ii) and (iii). In addition, the NAFTA Regulations require that the motor vehicles produced in the new plant must be of a class, marque, or size category and type of underbody that was not previously produced by the motor vehicle assembler in the territory of any of the NAFTA countries. See 19 CFR Pt. 181 App. § 13(2)(a)(i). The terms “size category,” and “underbody” are defined in 19 CFR Pt. 181, App. § 8, as follows: “[S]ize category” with respect to a light-duty vehicle, means that the total of the interior volume for passengers and the interior volume for luggage is (a) 85 cubic feet or less; (b) more than 85 cubic feet but less than 100 cubic feet; (c) 100 cubic feet or more but not more than 110 cubic feet; and (d) more than 110 cubic feet but less than 120 cubic feet; or, (e) 120 cubic feet or more. “[U]nderbody” means the floor pan of a motor vehicle. See also 19 U.S.C. § 3332(p)(1), (10), (30), and (34). The size category and type of underbody requirement of Section 13(2)(a)(i) is a cumulative requirement, indicated by the use of the conjunction “and.” According to your submission, you assert that the “size category and type of underbody” requirement is met. For support, you note that the vehicle model produced in the U.S. FTZ was in NAFTA vehicle size category “b” (more than 85 cubic feet but less than 100 cubic feet). The instant vehicle model is in NAFTA vehicle size category “c” (100 cubic feet or more but not more than 120 cubic feet). With regard to the underbody, you state that the prior model’s floor pan had smaller dimensions than the instant model’s floor pan. Pursuant to 19 CFR Pt. 181 App. § 13(2)(a)(i), we find that the “size category and type of underbody” requirement is met. The instant vehicle will be in a different NAFTA vehicle size category and have a different underbody than the vehicle produced in the U.S. FTZ. HOLDING: Based on our review of the facts presented, we find that all of the new model motor vehicles produced at the new plant in Mexico qualify for the 50 percent RVC test for NAFTA eligibility for the first five (5) years after the date on which the first prototype of that motor vehicle is produced. 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 CBP officer handling the transaction. Please note that 19 C.F.R. § 177.9(b)(1) provides that "[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based." Sincerely, Monika R. Brenner, Chief Valuation & Special Programs Branch