Interpretation ID: 06-4519as

Mr. Mark Connors

U.S. Compliance Specialist / Licensed Customs Broker

Buckland Global Trade Services, Inc.

Peace Bridge Plaza, Dock Area

Buffalo, NY 14213

Dear Mr. Connors:

This letter is in response to your request for clarification of 49 CFR 583.6, Procedure for determining U.S./Canadian parts content. This section is used for the determination of the percentage of U.S./Canadian Parts Content for each carline on a model year basis, a determination necessary for automobile parts content labeling. Specifically, you inquired whether the use of value in 49 CFR 583.6(c)(1) and total value of the material in 49 CFR 583.6(c)(4)(ii)(A)(1) for outside suppliers represents the outside suppliers selling prices to the manufacturer (including labor, overhead, and profit), or just the suppliers material costs. As explained below, this office interprets value, as used in these sections, to mean the outside suppliers selling price to the final manufacturer. This would include labor, overhead, and profit. We would use this meaning of value in determining the value added and the total value of the material.

By way of background, Congress enacted the American Automobile Labeling Act, Pub.L. 102-388 (Oct. 6, 1992), in part to regulate the labeling of vehicle components sold in the United States. In implementing this Congressional mandate, National Highway Traffic Safety Administration (NHTSA) issued a final rule on September 15, 1995 regulating the labeling of certain motor vehicle parts and requiring manufacturers to specify how much domestic value has been added to motor vehicle components.

One of Congress goals in enacting the American Automobile Labeling Act was for manufacturers to label the country of origin of vehicle engines and transmissions, so that American consumers would know if the major automobile components had been manufactured domestically. In determining the country of origin, if an assemblage was made in multiple countries, Congress stated that the country of origin means the country in which 50 percent or more of the dollar value added of an engine or transmission originated (106 Stat. 1558). The definition of value added is given in 49 U.S.C. 32304(A)(15), which reads:

"value added in the United States and Canada" means a percentage determined by subtracting the total purchase price of foreign content from the total purchase price, and dividing the remainder by the total purchase price, excluding costs incurred or profits made at the final assembly place and beyond (including advertising, assembly, labor, interest payments, and profits)

This definition can be broken down into two relevant parts. The first is the total purchase price of foreign content, which is the price that the parts supplier paid for the materials. The second is the total purchase price, which is the actual price paid by the vehicle manufacturer to the parts supplier. By subtracting the total purchase price of foreign content from the total purchase price, what remains is the cost of labor, overhead, profit, and additional material that the outside supplier has provided. This is the value added in the United States or Canada. To convert that into a percentage, take the value added figure and divide it by the total purchase price, then multiply by 100.

The methodology for calculating the value added was further explained in the Federal Register notice issued by NHTSA when it promulgated the final rule. In that notice, NHTSA stated:

The final rule (583.6(c)(4)(ii)) therefore specified that, in determining the value added in the United States or Canada of passenger motor vehicle equipment produced or assembled within the territorial boundaries of the United States or Canada, the cost of all foreign materials is subtracted from the total value (e.g., the price paid at the final assembly plant) of the equipment. The procedures specified that material is considered foreign to whatever extent part or all of the cost of the material is not determined to represent value added in the United States or Canada, traced back to raw materials.[1]

Note that this text explicitly refers to the total value as the price paid at the final assembly plant, which would include labor, overhead, and profits.

In summation, here is a short recap of the terms you requested clarification of:

Total value of the material, as described in 49 CFR 583.6(c)(4)(ii)(A)(1), is the outside suppliers selling price to the vehicle manufacturer.

Value added, as described in 49 CFR 583.6(c)(1), is the total value of the material minus the outside suppliers material costs. To turn that figure into a percentage, divide the value added by the total value of the material, and multiply by 100.

If you have any questions, please contact Ari Scott of my staff at (202) 366-2992.

Sincerely,

Anthony M. Cooke

Chief Counsel

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