U.S. CBP Adopts NAFTA Rule on Disassembly

Jun. 30, 2005

Based in large part on a proposal originally put forward by Barnes/Richardson on behalf of several of its clients, on June 30, 2005, Customs & Border Protection published a notice in the Federal Register adopting a final rule relating to the NAFTA status of goods produced through a disassembly operation.  The regulatory changes interpret the term "production" to include disassembly, and clarify that components recovered from the disassembly of used goods in a NAFTA country are entitled to NAFTA originating status provided that those components satisfy all NAFTA rule of origin requirements. The regulatory amendments will be effective from August 1, 2005, and will found in a newly added provision 19 C.F.R. 181.132.

Under current NAFTA rules, a good may be considered originating where each of the non-originating materials used in production occurring in North America undergoes an applicable change in tariff classification.  The specific changes are set forth in General Note 12(t) of the Harmonized Tariff Code of the United States ("HTSUS").  Unless a tariff change results from an activity considered "production," goods will not qualify as NAFTA originating. The NAFTA rules did not address the issue of whether disassembly operations were considered "production" for origin purposes.  Under the interpretation announced today, disassembly will be considered production for NAFTA purposes.

One of the stated reasons for the original proposal was that allowing certain disassembly operations would promote recycling and re-manufacturing in North America. Although the original proposed regulatory amendments contained provisions for requiring further processing beyond minor operations for components that did not include a regional value content rule, Customs has eliminated the provision from its final rule based on comments it received from interested parties. Customs has also eliminated certain references to automotive goods in the provision because such references were deemed unnecessary.