HQ 546009: Article 509; NAFTA; net cost; accumulation; materials used inthe production of the good; wire harnesses

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 546009

                         December 4, 1995



VAL RR:IT:VA 546009 CRS

CATEGORY:  Valuation

Mr. Rudy A. Pi¤a
R.A. Pina & Associates, Inc.
P.O. Box 2496
Nogales, AZ 85628

RE:  Article 509; NAFTA; net cost; accumulation; materials used in
the production of the good; wire harnesses

Dear Mr. Pi¤a:

     This is in reply to your letter, dated May 13, 1995, on behalf
of Whitney Blake Company of Vermont, Inc., in which you requested
an advance ruling as to whether certain electrical wire harnesses
qualify as originating goods under the North American Free Trade
Agreement (NAFTA).  We regret the delay in responding.

FACTS:

     Whitney Blake consigns materials and equipment, and provides
on-site plant supervision, to a shelter plan operator, or
maquiladora, in Mexico (the "producer").  In addition to the
production facilities, the producer provides labor and
administrative services.  Using the consigned items, the producer
produces electrical wire harnesses which are imported into the U.S.
through the port of Nogales.  You state that the finished wire
harnesses are classified in subheadings 8544.41 and 8544.49,
Harmonized Tariff Schedule of the United States (HTSUS).

     One of the materials used in the production of the wire
harnesses, bare (non-insulated) copper wire classified in heading
7408, HTSUS, is imported from a non-NAFTA country.  At its U.S.
plant, Whitney Blake insulates the bare copper wire; as the result
of this process, insulated wire of subheading 8544.11, HTSUS, is
created.  Nevertheless, the material is still considered non-originating because it does not satisfy either of the alternative
rules set forth in Schedule I of the Annex to the NAFTA Rules of
Origin Regulations (Annex 401 of the NAFTA as implemented in
General Note 12 of the HTSUS).

     You have submitted information in respect of the costs
incurred in processing the bare copper wire in the U.S.  In this
regard you state that the unit value of the non-originating wire is
[****] and that the unit value of the U.S. processing is [****]. 
The [****] unit value of U.S. processing is comprised of direct and
indirect labor of [****], variable overhead of [****], and fixed
costs of [****].

ISSUE:

     The issue presented is whether, for purposes of determining
the regional value content of the electrical wire harnesses under
the net cost method, the producer can accumulate certain costs
incurred by Whitney Blake in the U.S.

LAW AND ANALYSIS:

     The Appendix to the final NAFTA Rules of Origin Regulations
("ROR"; 19 C.F.R. pt. 181 app.; NAFTA Rules of Origin Regulations,
as amended by 60 Fed. Reg. 46,334, 46249, T.D. 95-68, 29:38 Cust.
B. & Dec. 1), affords the exporter or producer of a good the option
of determining the origin of a good by accumulating the production
of a material with the production of the good in which the material
is used.  Section 14 of the ROR provides in relevant part:

     (1)  Subject to subsections (2) and (4), for purposes of
     determining whether a good is an originating good, an
     exporter or producer of a good may choose to accumulate
     the production, by one or more producers in the territory
     of one or more of the NAFTA countries, of materials that
     are incorporated into that good so that the production of
     the materials shall be considered to have been performed
     by that exporter or producer.

60 Fed. Reg. 46249, ROR, pt.VI,  14(1).

     In accordance with section 14(2), the producer of the good
must have a statement signed by the producer of the material used
in the production of the good that states the net cost incurred and
the value of non-originating materials used by the producer of the
material in the production of that material.  For purposes of
section 14(2), the net cost incurred by the producer of the good
with respect to the material whose production is accumulated is the
net cost incurred by the producer of the material plus, where not
included, the costs referred to in sections 7(1)(c) through (e) of
the ROR.  The value of the non-originating material used by the
producer of the good with respect to the material whose production
is accumulated is the value of non-originating materials used by
the producer of the material.  Id. at 46249-46250, ROR, pt.VI, 
14(2)(a).

     Thus, to restate, an exporter or producer of a good may
accumulate the production of materials incorporated in a good, for
example, processing and overhead costs, provided they are part of
the net cost incurred by the producer of a material in the
production of that material and are so reflected on the material
producer's books.

     The net cost of a good is determined in accordance with
section 6(11), pursuant to one of several options, all of which
involve a calculation of the producer's total cost.  The term
"total cost" is defined by section 2(6) of the ROR which provides
that for purposes of, inter alia, determining net cost under
section 6(11):

     (a) total cost consists of all product costs, period
     costs and other costs that are recorded, except as
     otherwise provided in paragraphs (b)(i) and (ii), on the
     books of the producer without regard to the location of
     the persons to whom payments with respect to those costs
     are made;

     (b) in calculating total cost,

          (i) the value of the materials, other than
          intermediate materials, indirect materials and
          packing materials and containers, shall be the
          value determined in accordance with section 7(1),

          (ii)  the value of intermediate materials shall be
          determined in accordance with section 7(9),

          (iii)  the value of indirect materials and the
          value of packing materials and containers shall be
          the costs that are recorded on the books of the
          producer for those materials, and

          (iv) product costs, period costs and other costs,
          other than costs that are referred to in
          subparagraphs (i) through (iii), shall be the costs
          thereof that are recorded on the books of the
          producer of those materials.

Id. at 46,393, ROR, pt I,  2(6).  Under section 7(1) of the ROR,
the value of a material that is imported  into the NAFTA territory
by the producer and is used in the production of a good, in this
instance, the insulated wire, is the customs value of the material,
determined in accordance with Schedule VIII of the ROR.

     Assuming that the requirements of section 14(2) are met, the
producer of the wire harnesses may accumulate costs incurred by
Whitney Blake in the production of the insulated wire.  Please note
that for purposes of this ruling we have assumed that the
information you have provided in respect of the unit value of the
bare copper wire reflects the value of that material determined in
accordance of section 7(1) of the ROR.  Similarly, we have assumed
that the information provided in respect of the costs incurred in
processing the wire are recorded on Whitney Blake's books.  Id. at
46,393, ROR, pt I,  2(6)(b)(i)-(iv).

HOLDING:

     In conformity with the foregoing, the producer of the wire
harnesses may accumulate originating costs incurred by Whitney
Blake in the production of the wire incorporated in the wire
harnesses.

     This holding applies only to the specific factual situation
and merchandise identified in the ruling request.  This position is
clearly set forth in section 181.100(a)(2), Customs Regulations,
which states that a NAFTA ruling letter is issued on the assumption
that all the information furnished in connection with the ruling
request and incorporated therein, directly, by reference, or by
implication, is accurate and complete in every respect.  Should it
subsequently be determined that the information furnished is not
complete and/or does not comply with 19 C.F.R.  181.100(a)(2),
this ruling will be subject to modification or revocation.  In
addition, any change in the facts furnished in connection with this
ruling may affect the outcome of the regional value content
determination.  In such a case, it is recommended that a new ruling
request be submitted in accordance with 19 C.F.R.  181.93.

                         Sincerely,





                         Acting, Director
                         International Trade Compliance Division