Accumulation of Costs From Non-Originating Materials Allowed for USMCA RVC Calcs, CBP Says
Accumulation of production costs from non-originating intermediate goods is allowed under USMCA for regional value content calculations, just like it was under NAFTA, CBP said. In a recently released ruling requested by Daimler Trucks North America (DTNA), CBP found the commercial vehicle manufacturer can add a tier two supplier’s costs of processing within USMCA territory to the USMCA costs of its tier one water pump supplier, even though the tier two costs were not sufficient to result in an originating material.
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“Both USMCA and NAFTA allow for the accumulation of costs related to the production of materials, regardless of whether the subject material qualifies as originating,” CBP said. “Any value added in the region should be taken into account when determining whether a good originates under the subject free trade agreement.”
The ruling, HQ H316279, was issued June 24 and released July 2. DTNA requested CBP consider a production scenario for a water pump DTNA will use to produce an engine. The water pump does not qualify as originating, but “under currently accepted accumulation practice” DTNA will use the originating cost of the bracket, grommet, housing, and processing in the amount of $5.27 for purposes of calculating the regional value content of its engine.
However, DTNA also knows that the hose and printed circuit board assembly were “also subject to processing” within a USMCA territory, “although that work was not sufficient to result in an originating material.” DTMA proposed to “work with its water pump supplier to have the Tier Two hose and PCBA suppliers to further break down their respective costs ($2.37 for the hose and $4.87 for PCBA) into originating and non-originating values,” CBP said “Based on support provided by those suppliers in writing, the further breakdown of originating costs results in an increased accumulated value from $5.27 to $8.17 from the purchase of the water pump.”
General Note 11 for USMCA says: “In determining whether a good is an originating good under this note, production undertaken on non-originating material in the territory of one or more USMCA countries by one or more producers may contribute to the originating status of the good, regardless of whether that production is sufficient to confer originating status to the non-originating material.”
According to CBP, “it is long accepted that, under many U.S. trade agreements, a producer of a finished good may ‘accumulate’ any material qualifying cost for purposes of qualifying its own product under the appropriate preferential rules of origin. The same is true under the USMCA,” the agency said.
“The purpose of accumulation is to allow the importer to include any and all production costs that are incurred in the region,” CBP said. "This is what is contemplated by [General Note] 11(d)(iii), which indicates that where the production of a nonoriginating material involves more than one producer, each producer may accumulate its production to contribute to the originating status of the final good,” it said. “Therefore, in the situation under consideration, for example, the originating value of the hose from the Tier 2 supplier could be added to the value of the water pump as it continues to undergo production by the Tier 1 supplier, and the total value could then be counted towards satisfying the originating status of the engine.”
However, “if the engine produced by DTNA were to be the subject of a verification and DTNA is relying on the costs of each suppler, DTNA would need to provide to CBP a statement from both the Tier 1 and Tier 2 suppliers that outlines their costs,” CBP said.