CBP Ruling Allows Accumulation of Costs From Non-Originating Materials for USMCA RVC Calculations
Trade Update • JULY 14, 2021
A recently published ruling issued by U.S. Customs and Border Protection affirms that commercial vehicle manufacturers may accumulate originating material costs through multiple tiers of sourcing when determining the regional value requirement under the United States-Mexico-Canada Agreement.
Daimler Trucks North America (DTNA) requested a binding ruling concerning the issue, illustrating the concept with the example of a non-originating water pump purchased from a Tier One supplier that will be used in the manufacture of an engine.
What is ‘Accumulation’?
As with 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. This allows greater flexibility for meeting the requirements for establishing an article as “originating” under a free trade agreement.
More specifically, the USMCA’s accumulation provision allows producers to choose to include as part of the goods’ regional value content (RVC) any regional value added by suppliers of non-originating materials used to produce the final goods.
Accumulation in Practice
CBP describes the situation involving the subject good as follows:
In this example, the material (the water pump) from the tier one supplier would not qualify as originating material. However, under currently accepted accumulation practice, DTNA may 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. At the same time, based on the water pump producer’s costed bill of materials, DTNA knows that both the hose and the printed circuit board assembly (“PCBA”) were also subject to processing within a USMCA territory although that work was not sufficient to result in an originating material.
In this proposed situation, DTNA would 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. 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.
Based on its analysis of the USMCA and related guidance concerning accumulation under the North American Free Trade Agreement, CBP ruled that “DNTA may accumulate regional costs incurred at various levels of the producer’s supply chain, assuming all the statement requirements of 19 C.F.R. 182 App. Sec. 9 are met for each tier of production by each producer. Meaning, 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 pursuant to 19 C.F.R. 182 App. Sec. 9.”
Need More Information?
Should you have any questions about this ruling or other complex valuation issues, don’t hesitate to get in touch with our Global Trade Services Team.
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