HQ 545680: Article 509; NAFTA: regional value content; net cost method;shipping tubs and pallets; value of packing materials andcontainers should be disregarded for purposes of determiningwhether a good satisfies a regional value-content requirement.

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 545680

                          July 31, 1995



VAL R:C:V 545680 CRS

CATEGORY:  Valuation

Mr. Frank Parker, Jr.
Parker & Co.
P.O. Box 271
Brownsville, TX 78521

RE:  Article 509; NAFTA: regional value content; net cost method;
shipping tubs and pallets; value of packing materials and
containers should be disregarded for purposes of determining
whether a good satisfies a regional value-content requirement.

Dear Mr. Parker:

     This is in further reply to your letter of May 4, 1994,
submitted on behalf of General Safety Corporation (GSC), concerning
plastic totes and pallets.  The classification and entry issues
raised in your letter were addressed under cover of Headquarters
Ruling Letter (HRL) 956547, dated October 12, 1994, and HRL 225469,
dated August 24, 1994.  This letter concerns the third issue raised
by your inquiry, i.e., the value of the totes and pallets for
purposes of determining the regional value content of a good under
the North American Free Trade Agreement (NAFTA).  We regret the
delay in responding.

FACTS:

     GSC's Mexican subsidiary produces seat belts (the "good(s)")
at its Valle Hermoso plant.  The finished seat belts are shipped to
GSC's factory in Michigan where they are inspected, and installed
in seat belt retractor assemblies.  In addition to the seat belts,
the Valle Hermoso plant produces plastic totes (shipping tubs) and
pallets which are date stamped with the month of production and
used to transport the goods and materials used in the production of
the goods between GSC's U.S. and Mexican plants.  The tubs and
pallets have been designated as "instruments of international
traffic."  HRL 956547.

     Currently, the shipping tubs and pallets produced by the Valle
Hermoso subsidiary (the "producer") are recorded on GSC's books on
a depreciated basis.  As a result, it is possible that in the
future the individual shipping tubs and pallets used in a
particular shipment will have different values to the extent that
they were produced at different times.  Accordingly, you have asked
whether the value of the shipping tubs and pallets could be based
on an average price that, in all cases, would exceed their
depreciated value, or whether the actual book values must instead
be used.

ISSUE:

     The issue presented is whether, in determining the regional
value content of a good, the value of shipping tubs and pallets
used to transport the good and materials used in the production of
the good, can be determined with respect to amounts recorded on the
books of a person other than the producer of the good.

LAW AND ANALYSIS:

     The Appendix to part 181, Customs Regulations (the "NAFTA
Rules of Origin Regulations" (the "ROR")), provides that in certain
situations, the net cost method must be used to determine the
regional value content of a good.  19 C.F.R. pt. 181.  In
particular, the net cost method is required for any good provided
for in a tariff provision listed in Schedule IV of the Annex to the
ROR, or for any good that:  (1) is an automotive component
assembly, automotive component, sub-component or listed material;
and (2) is for use in a motor vehicle.  Seat belts used as parts in
motor vehicles are classified in subheading 8708.21 of the
Harmonized Tariff Schedule of the United States.  Subheading
8708.21 is one of the provisions listed in Schedule IV. 
Accordingly, the regional value content of the goods produced by
the Valle Hermoso plant must be determined under the net cost
method.

     Pursuant to section 6(3) of the ROR, the net cost of a good is
determined in accordance with section 6(11).  Section 6(11) sets
forth several options for determining the net cost of a good, all
of which involve the calculation of the producer's total cost. 
Under section 6(12)(a) of the ROR, the term "total cost" consists
of "all product costs, period costs and other costs that are
recorded, except as otherwise provided...on the books of the
producer without regard to the location of the persons to whom
payments with respect to those costs are made."  For purposes of
calculating total cost, the value of packing materials and
containers is determined with respect to the cost recorded on the
books of the producer.  19 C.F.R. pt. 181 app., section
6(12)(b)(i)-(iv).

     You have asked whether the value of shipping tubs and pallets
used to transport the good and materials used in the production of
the good, can be determined with respect to amounts recorded on the
books of a person other than the producer of the good.  However,
while the value of packing materials and containers must be taken
into account in calculating total cost, section 7 of the ROR
provides:

     (13)  For purposes of determining whether a good is an
     originating good, packing materials and containers in
     which the good is packed

     (a)  shall be disregarded for purposes of determining
     whether

          (i)  the non-originating materials used in the
          production of the good undergo an applicable change
          in tariff classification, and

          (ii)  the good satisfies a regional value-content
          requirement; and

     (b)  if the good is subject to a regional value-content
     requirement, the value of the packing materials and
     containers shall be the costs thereof that are recorded
     on the books of the producer of the good.

19 C.F.R. pt. 181, app., section 7(13); see also, NAFTA, Article
410.

     Thus, to restate, the cost of packing materials and containers
is disregarded for purposes of determining the regional value
content of a good.  In the instant case, the cost of the shipping
tubs is recorded on GSC's books rather than the producer's;
consequently, the value of the shipping tubs and pallets is not
reflected in the total cost of the good, and no adjustment to the
total cost calculation is necessary.  On the other hand, if the
value of the shipping tubs and pallets were recorded on the
producer's books, section 7(13) of the ROR would require that they
be disregarded in determining the good's regional value content,
and an appropriate adjustment would be necessary.

     When the imported seat belts are used by GSC to produce seat
belt retractor assemblies they are considered to be a material
rather than a good.  From this perspective, please note that GSC
should include the value of the shipping tubs and pallets in
calculating the value of materials that GSC uses in the production
of the assemblies.  For purposes of determining the value of
materials under section 7 of the ROR, the shipping tubs and pallets
would assume the same status as the good (i.e., originating or non-originating), and their value would be determined with respect to
their customs value in accordance with Schedule VIII of the ROR.

HOLDING:

     The value of the shipping tubs and pallets should be
disregarded for purposes of determining whether a good satisfies a
regional value-content requirement.

                         Sincerely,





                         John Durant, Director
                         Commercial Rulings Division