[Federal Register: June 30, 2005 (Volume 70, Number 125)]
[Rules and Regulations]
[Page 37669-37674]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30jn05-7]
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DEPARTMENT OF HOMELAND SECURITY
Bureau of Customs and Border Protection
DEPARTMENT OF THE TREASURY
19 CFR Part 181
[CBP Dec. 05-24]
RIN 1505-AB41
Tariff Treatment Related to Disassembly Operations Under the
North American Free Trade Agreement
AGENCY: Customs and Border Protection, Department of Homeland Security.
ACTION: Final rule.
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SUMMARY: This document adopts as a final rule, with some changes,
proposed amendments to the Customs and Border Protection (``CBP'')
Regulations concerning the North American Free Trade Agreement (``the
NAFTA''). The regulatory changes interpret the term ``production'' to
include disassembly and clarify that components recovered from the
disassembly of used goods in a NAFTA country are entitled to NAFTA
originating status when imported into the United States provided that
the recovered components satisfy the applicable NAFTA rule of origin
requirements.
DATES: Effective August 1, 2005.
FOR FURTHER INFORMATION CONTACT: Shari Suzuki, International Agreements
Staff, Office of Regulations and Rulings, (202) 572-8818.
[[Page 37670]]
SUPPLEMENTARY INFORMATION:
Background
Statutory and Regulatory Background
On December 17, 1992, the United States, Canada, and Mexico (the
parties) entered into an agreement, the North American Free Trade
Agreement (the NAFTA). The provisions of the NAFTA were adopted by the
United States with the enactment of the North American Free Trade
Agreement Implementation Act, Pub. L. 103-182, 107 Stat. 2057 (December
8, 1993).
Under NAFTA Article 401(b) and 19 U.S.C. 3332(a)(1)(B)(i), a good
originates in the territory of a party where each of the non-
originating materials used in the production of the good undergoes an
applicable change in tariff classification set out in Annex 401 of the
NAFTA as a result of production occurring entirely in the territory of
one or more of the parties. These change in tariff classification rules
are set forth in General Note 12(t) of the Harmonized Tariff Schedule
of the United States (``HTSUS'') (hereinafter ``the Annex 401 rules'').
It is therefore understood that unless a change in tariff
classification results from an activity that qualifies as
``production,'' the mere fact that there is a prescribed change in
tariff classification will not be considered as meeting a rule of
origin.
The NAFTA does not explicitly address the question of whether
disassembly occurring in a NAFTA country may be considered NAFTA
origin-conferring ``production'' when the recovery of components by the
disassembly operation satisfies the applicable rules of origin listed
in Annex 401 of the NAFTA.
Publication of Proposed Regulatory Changes
On March 13, 2003, the U.S. Customs Service (now Customs and Border
Protection (``CBP'')) published in the Federal Register (68 FR 12011) a
notice of proposed rulemaking (``NPRM'') setting forth proposed
amendments to Part 181 to add a new Sec. 181.132 to the CBP
Regulations (19 CFR 181.132). The proposed rule stated that components
which were recovered from the disassembly of used goods in a NAFTA
country would be entitled to NAFTA originating status upon importation
into the United States, provided that: (1) The recovered components
satisfy the applicable NAFTA rule of origin requirements in Annex 401,
and (2) if the rule of origin in Annex 401 applicable to the components
does not include a regional value content requirement, the components
are subject to further processing in the NAFTA country beyond certain
specified minor operations.
The NPRM explained the need for a regulation to address disassembly
in order to: (1) Provide an appropriate regulatory basis for the
treatment of recycled or remanufactured goods under the NAFTA; (2)
provide guidance regarding the meaning of the statutory term
``production;'' and (3) clarify the relationship between the Annex 401
rules of origin and the disassembly of goods. In addition, the NPRM
noted that allowing the disassembly of used goods to confer origin
under certain circumstances would promote recycling and re-
manufacturing in North America and, therefore, would advance the
economic and environmental objectives of the NAFTA.
The NPRM prescribed a 60-day period for the submission of public
comments on the proposed regulatory changes. A total of 10 commenters
responded. Nine comments focused on the proposed text while one comment
concerned CBP's certification under the Regulatory Flexibility Act of
1980.
A majority of the comments received by CBP supported the proposed
amendment which would allow components that are recovered from the
disassembly of a used good in a NAFTA country to be entitled to NAFTA
originating status upon importation into the United States. Most
commenters agreed with CBP that interpreting ``production'' to include
disassembly would promote recycling and re-manufacturing in North
America.
However, all of the comments suggested changes regarding the
approach set forth in the NPRM. Most commenters expressed the opinion
that, while the proposed amendment was well intended, it would not
completely remedy the situation and, in some cases, would restrict the
ability of remanufactured goods to qualify for preferential treatment
under NAFTA. Many commenters objected to the addition of a further
processing requirement in cases where the applicable rule of origin did
not include a regional value content requirement. Several commenters
identified practical problems in administering the proposed regulation,
including inconsistencies with commercial and accounting practices.
Lastly, many commenters maintained that the proposed regulation was too
complicated.
Discussion of Comments
Of the 10 commenters who responded to the solicitation of comments
on the proposed Part 181 changes, 9 provided one or more specific
comments on the proposed Sec. 181.132 text. The comments are discussed
below.
Comment: Four commenters expressed concern with the unilateral
approach being pursued by the U.S. Government in regard to the proposed
amendment. The commenters stated that the adoption of an amendment
solely within the territory of the United States would give rise to
uncertainty within the trading community and result in inconsistent
application of the rules of origin between the NAFTA parties. These
commenters indicated their preference for the development of a
trilateral approach.
CBP's Response: A trilateral approach remains under discussion in
the NAFTA working group. While there appears to be agreement in
principle, the trilateral text is still being developed. In the
meantime, this interpretive regulatory guidance is needed to aid U.S.
importers in exercising reasonable care.
Comment: Four commenters suggested adopting an approach similar to
that taken by the U.S. Administration in several recent free trade
agreements. Under this approach, ``goods wholly obtained or produced
entirely'' in the territories of the parties are considered to be
originating. ``Recovered goods'' are specifically included in the
definition of ``goods wholly obtained or produced entirely'' in the
territories of the parties. Thus, ``recovered goods'' are considered to
be originating goods. The commenters stated that the same result could
be achieved by clarifying the NAFTA definition of ``goods wholly
obtained or produced'' under the NAFTA Uniform Regulations. According
to these commenters, this approach recognizes disassembly as conferring
origin without the technical and cumbersome requirement of establishing
that disassembly operations satisfy the product-specific rules of
origin.
Two commenters supported adopting the provision for ``recovered
goods'' in the definition of ``goods wholly obtained or produced
entirely.'' One commenter proposed that a new item covering ``materials
recovered by means of disassembly'' be included in the definition of
``goods wholly obtained or produced entirely.'' Another commenter
recommended amending the existing provision for waste and scrap, which
exists under the definition of ``goods wholly obtained or produced
entirely,'' to provide for recovered goods.
CBP's Response: CBP agrees that the approach taken by the United
States in several recent free trade agreements is administrable.
However, amending the definition of ``goods wholly obtained or
produced'' in NAFTA cannot be achieved merely by amending the
[[Page 37671]]
definition found in the regulations. The definition of ``goods wholly
obtained or produced'' is found in Article 401 of the NAFTA and any
change would require an amendment to the agreement and implementing
legislation.
Comment: One comment emphasized the importance of consistency. This
commenter stated that there should be as much consistency as possible
among the various agreements to which the United States is a party.
CBP's Response: While agreeing that consistency of rules under
various free trade agreements is desirable, CBP's responsibility is to
implement agreements as negotiated and implemented in U.S. law.
Comment: Several commenters maintained that the fundamental basis
on which the Annex 401 rules were negotiated presumed the manufacture
or assembly of a good from its constituent parts. Thus, the commenters
believed that interpreting the term ``production'' to include
disassembly is not sustainable when interpreted in context and in light
of the objectives and purpose of the agreement.
CBP's Response: As indicated in the NPRM, CBP finds no evidence
showing that the NAFTA intended not to treat ``disassembly'' as a
production process. The term ``production'' includes a broad range of
economic activity. Moreover, the goals of the NAFTA include elimination
of barriers to trade, facilitation of cross-border movement of goods,
promotion of economic activity in North America, and protection of the
environment. Thus, it is consistent with the free trade purposes of
NAFTA to treat the recovery of goods by disassembly as ``production''
under the NAFTA rules of origin.
Comment: Two commenters expressed a desire for an approach that
would confer originating status on goods recovered from disassembly
operations in a manner that applies equally to all manufacturers across
industry sectors. These commenters note that differences in the
structure of the Harmonized System may result in lack of uniformity of
application across industry sectors.
CBP's Response: CBP notes that any lack of uniformity in the
treatment of recovered components will parallel the effect of the
applicable NAFTA rules of origin on other types of ``production.''
Application of Annex 401 does result in lack of uniformity of
application across industry sectors. The results depend on both the
structure of the Harmonized System and the product-specific rules in
Annex 401 which were negotiated in the context of trade policy goals,
which may differ between sectors. There is no uniform level of
processing across sectors in the rules.
CBP notes that in many cases where a heading change rule cannot be
met, an alternative rule of origin allows a change within the heading
provided a regional value content requirement is met. CBP also notes
that Article 401(d) provides a special rule for goods and parts that
are classified in the same heading or subheading where there can be no
change in tariff classification. CBP believes that the fact that some
recovered goods will meet a tariff shift requirement while others will
not is an insufficient reason to abandon the proposed regulation
altogether (as this result will comport with the NAFTA rules of origin
themselves).
Comment: Six commenters were opposed to the imposition of
additional processing requirements for recovered components that meet
the tariff shift rule under Annex 401. The proposed regulation
specified that recovered components that met a tariff shift rule, but
were not subject to a regional value content (RVC) requirement, had to
be further processed beyond certain minor operations.
The commenters argued that the effect of this requirement is that
recovered components that would otherwise qualify for the NAFTA
preference would not qualify unless they had been subjected to
additional processing. Additionally, these commenters stated that this
``advanced-in-value'' requirement effectively makes the origin
requirements applicable to goods derived from disassembly operations
stricter than those applicable to other goods, which need only satisfy
the Annex 401 requirements. They believe that requiring goods derived
from disassembly operations to satisfy both the Annex 401 rule of
origin and the additional processing requirements imposes a double
burden on remanufacturers that undermines the goals of the rule.
Two commenters stated that the additional processing requirement is
unnecessary because the Annex 401 rules of origin, which were
negotiated and agreed to by all three countries, already define the
degree of production that will confer origin on non-originating
materials. In some cases, that degree of production would involve a
tariff shift, in others a regional value content requirement, and in
still others a combination of both. However, the commenters argued
that, in all cases, the degree of production established by the Annex
401 rules of origin would be sufficient to address when disassembly
results in an originating good.
One commenter believed that disassembly is merely the inverse of
assembly. Therefore, if the applicable Annex 401 rule of origin
provides that origin is conferred by a simple tariff shift that may be
achieved through assembly, achieving that same tariff shift through
disassembly should also confer origin.
Another commenter argued that while the assembly process is
predictable and quantifiable because every part entering the production
line is the same, each disassembly is unique due to the condition of
the used good, and that disassembly may be far more difficult than
simple assembly with clean new parts. Thus, the proposed rule does not
recognize the complexity and difficulty of disassembly and ignores the
substantial effort necessary to recover parts from used equipment.
Several commenters objected to the proposed rule because some
recovered components are not subject to operations other than those
enumerated as minor operations in the proposed rule. Two commenters
stated that there is little in the remanufacturing process that cannot
be categorized within the list of minor operations. One commenter
stated that the remanufacturing process consists of all the listed
processes linked together. Thus, the commenters believed that the
additional requirements would preclude the remanufacturing process from
conferring originating status on recovered components.
One commenter believed that the additional processing requirement
would increase the complexity of NAFTA compliance systems because it
may be necessary to record the processing performed on individual
recovered components. The commenter stated that this would create a de
facto direct identification requirement which may be impractical or
impossible to implement and very difficult to audit.
CBP's Response: CBP agrees that the Annex 401 rules define the
degree of production required for conferring origin and has deleted the
additional processing requirements.
Comment: Several commenters objected to the application of the
Annex 401 rules of origin. They claimed that subjecting recovered
components and remanufactured goods to the same NAFTA rules as items
produced entirely from new components makes it extremely difficult to
qualify remanufactured goods as originating goods under the NAFTA.
The commenters argued that, in many cases, NAFTA certificates are
not available for recovered components and, therefore, they must be
deemed non-
[[Page 37672]]
originating. Furthermore, when applying the Annex 401 rules to the
remanufactured good, the recovered component often fails to satisfy the
required tariff shift because it is generally classified in the same
tariff provision as the remanufactured good. These commenters also
contended that if the remanufactured good is subject to an RVC rule,
the good will fail to meet the rule because the recovered component
often represents the majority of the value or net cost of the
remanufactured good. In this situation, the RVC cannot be met because
the recovered component is deemed to be non-originating.
CBP's Response: The situation the commenters describe is one of the
reasons that more recent free trade agreements take a different
approach to recycled and recovered goods, but the issue here is how to
interpret NAFTA, and solutions are limited by the NAFTA text. The
feasibility of determining the cost or value of a recovered component
will be discussed later in this document.
Comment: Four commenters expressed the view that the proposed rule
should be a simple rule that treats all materials yielded from
disassembly in a NAFTA country as originating materials. These
commenters stated that the removal of a worn component should be an
origin-conferring process. This would ensure that the value of the
recovered component, including the very substantial content resulting
from the labor involved in the removal, will be included in the value
of originating materials when determining whether the remanufactured
good qualifies as an originating good. By considering the removal of
worn parts to be origin conferring, the commenters stated that it would
be possible to count that valuable operation towards qualifying the
remanufactured good as an originating good.
These commenters contended that the above ``simple'' rule could be
administered more easily than CBP's proposed rule which they
characterized as highly complex and difficult, if not impossible, to
administer. With respect to CBP's concern regarding sufficient
processing, the commenters suggested that CBP could condition this rule
by providing that goods yielded from a ``minor disassembly'' would not
be treated as NAFTA originating. They suggested that disassembly of an
article into five (or ten) or fewer components by processes such as
removing screws, bolts, pins or other fasteners could be treated as a
``minor disassembly'' operation. Moreover, certain minor operations,
such as separating a good and its component by disconnecting cables or
by unsnapping could be ruled not to constitute disassembly. Thus, these
commenters proposed a rule that treats all components yielded from
disassembly as NAFTA originating, subject to a simple disassembly
exception. The commenters claimed that their proposal would meet the
goals of NAFTA while avoiding administrative problems.
Several remanufacturers expressed dissatisfaction with the proposed
regulation for the reason that their recovered parts would never
qualify under the proposed rule since the parts would not satisfy the
required tariff shift and also would not meet the RVC requirement based
only on labor costs. These commenters support a simple disassembly rule
under which recovered parts would qualify as originating. If the
recovered parts were considered originating, they could meet the RVC
requirement associated with the rule for the remanufactured good. This
approach would allow the recovered parts to qualify as an originating
material but would still require the producer of the remanufactured
good to meet the NAFTA Annex 401 rule of origin applicable to the
remanufactured good.
CBP's Response: Although CBP understands the appeal of a ``simple''
disassembly rule, CBP cannot adopt such an approach because it
conflicts with the Annex 401 rules of origin. CBP cannot disregard the
rules of origin that already exist for specific products; the Annex 401
rules of origin set the minimum threshold that must be met in order to
confer originating status to a good.
The commenters would prefer to have a new rule that allows mere
disassembly to confer origin without having to meet any tariff shift or
regional value content requirements. CBP does not have the authority to
change the Annex 401 rules of origin. The only question addressed in
this interpretive regulation is whether the NAFTA definition of
production can be interpreted to include disassembly. CBP is not
adopting a new rule of origin.
Comment: One commenter maintained that all goods which are subject
to additional processing should be treated as originating goods without
regard to whether the good meets the Annex 401 rules. This commenter
stated that if CBP must require that goods be advanced in value or
improved in condition, then all goods that satisfy the additional
processing requirements should be considered originating, regardless of
whether they satisfy the specific rule of origin under Annex 401. The
commenter recommended a new rule in which the Annex 401 rules are
overridden. A component recovered from a good disassembled in the
territory of a party would be considered to be originating as a result
of such disassembly provided that the recovered component is advanced
in value or improved in condition by means of additional processing
other than certain listed minor processes.
CBP's Response: CBP disagrees. The Annex 401 rules of origin set
forth the minimum level of processing required and cannot be
disregarded.
Comment: One commenter expressed concern with how CBP will
interpret a required change in tariff classification. The commenter
provided an example involving a cover from the document feeder portion
of a laser printer. The commenter asked whether CBP would focus on the
laser printer or the document feeder for the purpose of determining
whether the cover met a required change in tariff classification. The
cover meets the tariff shift requirement when the laser printer is
viewed as the non-originating material. However, the cover does not
meet the tariff shift requirement when the document feeder is viewed as
the non-originating material.
CBP's Response: CBP assumes that, in the example provided by the
commenter, the remanufacturer disassembled the laser printer into
various parts, including the document feeder, and then disassembled the
document feeder into its constituent parts, including the cover. Under
the principles of self-produced materials contained in part II, section
4(8) of the appendix to part 181 of the CBP Regulations (19 CFR part
181, appendix), the producer should be able to designate the laser
printer as the non-originating material for the purpose of determining
whether the non-originating materials underwent the applicable change
in tariff classification.
Comment: One commenter suggested that remanufactured goods should
be considered to be originating goods and provided a precise definition
of remanufactured goods. In order to qualify as an originating good,
the product must: (1) Be dismantled; (2) have all parts cleaned,
inspected and returned to sound working condition; and (3) be
reconstructed to sound working condition. In addition to this
definition, the commenter recommended a rule which requires that the
components undergo processing that restores their functionality and
fit; the components be re-assembled back into an item that is the
equivalent of the item disassembled; all ``new'' parts used in the
remanufacturing process satisfy the traditional specific rules of
origin for the finished item; and the originating value
[[Page 37673]]
of the recovered parts be some derivation of the core charge value if a
core charge applies. The commenter believes that this definition would
eliminate the possibility of disassembly operations being used as a
method of circumvention because there must be complete reassembly.
This commenter also proposed, with respect to country of origin
marking, that all remanufactured parts be labeled ``Remanufactured in
(named country),'' and that the country of origin of the used items
imported into a territory and used in the remanufacturing process be
the country in which the parts expired, regardless of marking.
CBP's Response: The Annex 401 rules of origin cannot be
disregarded. The regulation under consideration addresses the issue of
whether goods that are the result of disassembly are considered to have
undergone ``production'' for purposes of determining whether the good
qualifies as an originating good under the NAFTA. The regulation does
not address country of origin for marking purposes. Country of origin
for NAFTA marking purposes is governed by part 102 of the CBP
Regulations (19 CFR part 102). CBP notes Headquarters Ruling Letters
561209, dated May 4, 1999, and 561854, dated December 15, 2000, which
address the country of origin marking of rebuilt automotive parts.
Comment: One commenter suggested that, if the restrictions on
``minor operations'' are included in the final regulation, ``precision
machining'' should be defined as ``machining performed on a numerically
controlled mill, lathe or similar equipment.''
CBP's Response: As noted above, CBP has decided to delete the
portion of the proposed regulation that refers to minor operations.
Comment: Two commenters stated that it is unlikely that a new non-
originating good would be disassembled in one party's territory and
shipped to another party where it would be reassembled. According to
these commenters, the importer would have to pay duties, fees and
brokerage charges on the initial importation into the party where the
goods would be disassembled; incur the cost of setting up a disassembly
operation; pay the overhead costs and costs to employ workers; pay
additional transportation and handling costs; pay broker charges on the
subsequent importation into the territory of the other party where the
``recovered goods'' would be reassembled; and pay all the same costs
noted previously for the subsequent reassembly in the territory of the
other party. Thus, these commenters believe it is highly unlikely that
the duty savings would be substantial enough to make such operations
feasible from a cost/benefit standpoint.
One commenter suggested excluding high duty rate goods from the
disassembly rule but acknowledged that most high duty rate goods
(textiles, footwear, chemicals, agricultural products, etc.) do not
easily lend themselves to disassembly.
Another commenter stated that precluding application of the
proposed rule to new products adequately deals with possible abuses of
disassembly to confer origin.
CBP's Response: CBP specifically requested comments on the view
that an applicable value-content rule or alternative rule would be
sufficient to permit the disassembly of new goods to be considered
``production.'' None of the comments received endorsed this view.
Accordingly, the final rule continues to reflect the portion of the
proposed rule that precludes application of the regulation to new
goods.
Article 412 of NAFTA and section 17 of the appendix to 19 CFR part
181 contain a very broad anti-circumvention provision which states that
a good will not be considered to be an originating good if the object
of the production can be shown by a preponderance of the evidence to
have been to circumvent the rules of origin. CBP believes that a change
in tariff classification resulting from the disassembly of new, non-
originating goods should not make the resulting goods eligible for
originating status. Generally, a ``new'' good is a good which is in the
same condition as it was when it was manufactured and which meets the
commercial standards for new goods in the relevant industry.
Accordingly, Sec. 181.132(b) in this final rule document provides
that the disassembly of new goods will not be considered ``production''
for the purposes of NAFTA Article 415 and the NAFTA rules of origin. To
clarify the meaning of the term ``new goods,'' CBP also has included in
Sec. 181.132(b) the definition set forth above for this term.
Comment: One commenter pointed out an error in proposed Sec.
181.132(c). The reference to ``Schedule V'' should be ``Part V.''
However, the commenter believes that a reference to automotive goods is
unnecessary because remanufactured goods are not used as original
equipment in the production of motor vehicles. Thus, they do not fall
within the definition of ``light duty automotive good'' or ``heavy-duty
automotive good'' and would not be subject to tracing requirements.
CBP's Response: CBP agrees that the reference in proposed Sec.
181.132(c) should have been to ``Part V.'' CBP takes note of the
commenter's statement that remanufactured goods are not used as
original equipment in the production of motor vehicles. Upon further
reflection, CBP has decided to delete paragraph (c) because it is
unnecessary.
Comment: The Office of Advocacy of the U.S. Small Business
Administration (SBA) expressed concern that the proposed rule's
certification pursuant to the Regulatory Flexibility Act was deficient.
CBP certified that the proposed rule would not have a significant
economic impact on a substantial number of small entities. However, the
SBA is concerned that there is no information on the number of small
entities that would be impacted by this rule or the magnitude of the
impact. Based on discussions with small entities in the automotive
recycling business, the SBA recommended that CBP revisit its
certification and at a minimum provide a factual basis for
certification. The SBA stated that CBP must show which small entities
will be affected and whether those affected constitute a substantial
number within the regulatory industry.
CBP's Response: In the NPRM, CBP certified that the proposed rule
would not have a significant economic impact on a substantial number of
small entities. However, upon reconsideration, CBP believes that the
proposed rule should have stated that the Regulatory Flexibility Act is
not applicable to this rule because the rule is exempt from notice and
comment procedures pursuant to the Administrative Procedure Act (5
U.S.C. 553). First, this is an interpretive rule that is exempt from
notice and public procedure pursuant 5 U.S.C. 553(b)(A). Second, this
rule involves a foreign affairs function of the United States because
it implements an international trade agreement. A notice of proposed
rulemaking is not required for such rules pursuant to 5 U.S.C.
553(a)(1). Accordingly, because the Regulatory Flexibility Act, as
amended (5 U.S.C. 601 et seq.) applies to a rule only when an agency is
required by 5 U.S.C. 553 or any other law to publish a notice of
proposed rulemaking, this rule is not subject to the regulatory
analysis or other requirements of 5 U.S.C. 603 and 604.
Even if the Regulatory Flexibility Act applied to this rule, CBP
would again certify that this final rule does not have a significant
economic impact on a substantial number of small entities. The rule has
only a positive economic impact on small (or other) entities
[[Page 37674]]
regulated by the rule. The rule regulates only U.S. importers of
components of used goods that were recycled or remanufactured in Canada
or Mexico, and, rather than increasing the economic burdens on these
importers, the rule provides these importers with customs duty relief.
Comment: Four commenters expressed opposition to requiring a RVC
calculation for recovered components because it is claimed either that
there is no clear method for valuing individual components or that
their value is not readily ascertainable. Most commenters stated that
they did not know how to value the components removed from used goods.
They requested that the rules clarify how the value and origin of
individual used components are to be established. The commenters
claimed that identifying the cost of each individual recovered
component from the cost of the used good would not be feasible. While
there may be an ascertainable value for the used good, there is not
necessarily a purchase price or individualized value for the components
included inside it. Additionally, the commenters claimed that it is not
clear whether the value of the used component or the used good is to be
included in the value of non-originating materials.
CBP's Response: CBP agrees that applying the value-content
requirement to the disassembly process raises certain questions.
However, the value-content requirement exists as part of the Annex 401
rule and cannot be disregarded.
CBP recognizes that if more than one component is recovered from
the used good, the value of the used good should be allocated over the
disassembled components. Additionally, the cost of the disassembly
would have to be spread over all of the constituent disassembled
components and then reallocated and added to the cost of each of those
components. CBP notes that it has previously ruled that the scrap value
of the parts and components that cannot be reused may be deducted from
the value of the non-originating materials. See Headquarters Ruling
Letter 547088, dated August 29, 2002. Remanufacturers may have internal
bookkeeping records that would aid in valuing such components. CBP
acknowledges that trade in remanufactured goods already exists and is
inclined to consider reasonable accounting methods that have been used
consistently in the trade.
Comment: Many commenters began their analysis by attempting to
determine whether the used good was an originating good. They stated
that it was highly unlikely that a NAFTA certificate of origin could be
provided for the used good since the good would probably be several
years old and pertinent records would no longer be available.
CBP's Response: CBP agrees. It is likely that the used good will be
assumed to be non-originating. However, the new regulation allows the
component recovered from the used good to qualify as an originating
good. If the recovered component meets the Annex 401 rule applicable to
that component, the recovered component will be considered to be an
originating good (or material).
Conclusion
Accordingly, based on the comments received and the analysis of
those comments as set forth above, and after further review of this
matter, CBP believes that the proposed regulatory amendments regarding
disassembly should be adopted as a final rule with the following
changes:
1. The additional processing requirements set forth in paragraph
(a)(2) of proposed Sec. 181.132 have been deleted for the reasons
explained in the analysis of comments.
2. Paragraph (c) of the proposed regulation has been deleted
because, as explained further in the analysis of comments, the
reference to automotive goods in this provision is unnecessary.
Executive Order 12866
This document does not meet the criteria for a ``significant
regulatory action'' as specified in E.O. 12866.
Regulatory Flexibility Act
Because this rule interprets and implements the obligations of the
United States under the NAFTA, a notice of proposed rulemaking was not
required pursuant to 5 U.S.C. 553(a)(1) and (b)(A). Accordingly, the
provisions of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) are
inapplicable to this rule.
Drafting Information
The principal author of this document was Shari Suzuki, Office of
Regulations and Ruling, Bureau of Customs and Border Protection.
However, personnel from other offices participated in its development.
Signing Authority
This document is being issued by CBP in accordance with Sec.
0.1(a)(1) of the CBP Regulations (19 CFR 0.1(a)(1)), pertaining to the
authority of the Secretary of the Treasury (or his/her delegate) to
approve regulations related to certain CBP revenue functions.
List of Subjects in 19 CFR Part 181
Administrative practice and procedure, Canada, Customs duties and
inspection, Imports, Mexico, Trade agreements (North American Free
Trade Agreement).
Amendments to the Regulations
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Accordingly, for the reasons stated above, part 181 of the CBP
Regulations (19 CFR part 181) is amended as set forth below.
PART 181--NORTH AMERICAN FREE TRADE AGREEMENT
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1. The authority citation for part 181 is revised to read as follows:
Authority: 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized
Tariff Schedule of the United States), 1624, 3314.
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2. Subpart L of part 181 is amended by adding a new Sec. 181.132 to
read as follows:
Sec. 181.132 Disassembly.
(a) Treated as production. For purposes of implementing the rules
of origin provisions of General Note 12, HTSUS, and Chapter Four of the
NAFTA, except as provided in paragraph (b) of this section, disassembly
is considered to be production, and a component recovered from a good
disassembled in the territory of a Party will be considered to be
originating as the result of such disassembly provided that the
recovered component satisfies all applicable requirements of Annex 401
and this part.
(b) Exception; new goods. Disassembly, as provided in paragraph (a)
of this section, will not be considered production in the case of
components that are recovered from new goods. For purposes of this
paragraph, a ``new good'' means a good which is in the same condition
as it was when it was manufactured and which meets the commercial
standards for new goods in the relevant industry.
Robert C. Bonner,
Commissioner of Customs and Border Protection.
Approved: June 27, 2005.
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 05-12902 Filed 6-29-05; 8:45 am]
BILLING CODE 4820-02-P