Auto Parts With Chinese Circuits Not Sufficiently Transformed to Qualify for USMCA, CBP Says

T-connector and tail light converter kits with some Chinese parts don't qualify for preferential tariff treatment under the USMCA, according to a recently released CBP ruling, dated Nov. 15, 2022.

The ruling followed a request for internal advice from CURT Manufacturing after CBP proposed to deny CURT's preferential tariff treatment under the USMCA. CURT had claimed USMCA preference for the T-connecters and tail light converter kits but also listed the country of origin as China. Both the T-connectors and tail light converter kits are classified under Harmonized Tariff Schedule heading 8537. The tail light converter kits are manufactured in Mexico from parts of Mexican, Chinese and U.S.-origin. The T-connector manufacturing is similar and also includes Japanese parts. Both parts contain printed circuit boards (PCBs) of Chinese origin.

CURT stated that the kits are classified in 8537 as “Boards, panels, consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instruments or apparatus of chapter 90, and numerical control apparatus, other than switching apparatus of heading 8517.”

The USMCA rule of origin for items classified under subheading 8537 requires either (a) a change to heading 8537 from any other heading, except from printed circuit assemblies of subheading 8538.90 or moulded parts of subheading 8538.90, or (B) a change to heading 8537 from printed circuit assemblies or molded parts of subheading 8538.90, if there is a regional value content of at least 50% using transaction value or 40% using net cost.

CURT argued that the fact that the PCB undergoes no change in classification doesn't mean it doesn't qualify for USMCA, "as rule (B) solely focuses on the transition of PCBs and moulded parts from 8538.90 to 8537.10 and not on the transition of any other non-originating material ... ." However, CBP said that argument didn't read the governing rule in its entirely and ruled that the rule generally involves a heading change except from the one particular heading that could be allowed only if the regional value content is met (i.e., if the change is from subheading 8538.90, an additional value content requirement applies).

Since the Chinese-origin circuit boards and molded materials didn't meet the regional value content thresholds, the rule of origin for the kits wasn't met and the items were deemed to not qualify for USMCA preferential treatment.