Chapter 14
Tariff Shift and Regional Value Content - Exercise by Claire Wright
Introduction:
This exercise lets you practice calculating whether goods receive preferential tariff treatment under NAFTA. Since we did not cover Chapter 12, I need to briefly breakdown the terminology with regards to tariff numbers for your use below. Using tariff item 9876.54.32:
a. The first two digits (98) are considered the Chapter number
b. The first four digits (9876) are considered the Heading number
c. The first six digits (9876.54) are considered the Subheading number
d. All 8 digits are the tariff item number.
1. Change in Classification - Assume a company in Canada known as Company A imports unfinished bearings from Japan. In Canada, Company A processes the rings into finished bearing rings.
The unfinished bearing rings are classified under HTS tariff item (TI) 8482.99.11.
The finished bearing rings are also classified as 8482.99.11.
Company A's costs are:
Non-originating materials $.75
Originating materials $.15
Originating Labor $.35
Originating Overhead $.05
Net Cost $1.30
Annex 401 Rule for TI 8482.99.11 - "A change to Subheading 8482.91 through 8482.99 from any other heading."
Can the finished bearings qualify for NAFTA preferential treatment? Explain.
2. Regional Value Content - Company A then sells the finished bearings to a US Company,B, for $1.45. B incorporates the finished bearing rings into ball bearings. The ball bearings are classified as HTS 8482.10.
Company B's costs
Finished Rings $1.45
Originating materials $.45
Originating Labor $.75
Originating Overhead $.05
Sales, Marketing, Shipping - $.30
Annex 401 specific rule of origin for HTS Subheading 8482.10:
(1) A change to subheading 8482.10 through 8482.80 from any other subheading outside that group, except from Canadian tariff item 8482.99.11 or 8482.99.91, US Tariff Item 8482.99.10A, 8482.99.30A, or 8482.99.50A or 8482.99.70A or Mexican tariff item 8482.10 or 8482.99.01 or (2) A change to any of the above provided that there is a regional value content of not less than:
(a) 60% when the transaction value method is used or
(b) 50% where the net cost method is used
Can the ball bearings receive preferential NAFTA Treatment? Explain.