CAFC Upholds CIT's Ruling on the NAFTA Ineligibility of Certain Crankshafts Machined in Mexico
The U.S. Court of Appeals for the Federal Circuit reviewed the decision of the U.S. Court of International Trade in Cummins Incorporated v. U.S. and affirmed CIT's finding that the crankshafts imported into the U.S. by Cummins Incorporated (Cummins) did not originate in Mexico and were not entitled to preferential treatment under the North American Free Trade Agreement (NAFTA).
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Cummins appealed the decision reached by CIT, arguing that alloy steel die-forged into the general shape of diesel engine crankshafts in Brazil and subject to two machining operations in Brazil and then 14 machining operations in Mexico were "originating goods" under NAFTA. Cummins contended that, upon entry into Mexico from Brazil, the product should have been classified under HTS 7224 as semi-finished products of other alloy steel (not under HTS 8483 as (unfinished) crankshafts), thus undergoing a tariff shift upon import into and export out of Mexico and qualifying as originating goods under NAFTA.
U.S. Customs and Border Protection (CBP) argued that classification of the subject merchandise under HTS 8483 was correct, that the products did not undergo a tariff shift upon exportation to the U.S., and that they were not entitled to preferential treatment under NAFTA.
Upon appeal, the CAFC agreed with CIT's determination that the forging was properly classified under HTS 8483 upon importation into Mexico, citing General Rule of Interpretation (GRI) 2(a) which provides that any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as entered, the incomplete or unfinished article has the "essential character" of the complete or finished article. The CAFC found that the product imported into Mexico had the general shape of a crankshaft and was intended for use only in producing a finished crankshaft and that as such, was properly imported under HTS 8483.10.30. Accordingly, CAFC affirmed that the product did not undergo a tariff shift and was not entitled to preferential treatment under NAFTA.
(See ITT's Online Archives or 06/30/05 news, 05063030, for BP summary of the CIT's ruling. See ITT's Online Archives or 02/02/00 news, (Ref:00020166D), for BP summary of an earlier CIT ruling that similar Cummins crankshafts (but with less machining in Mexico and more in Brazil) also did not qualify for NAFTA duty-free treatment.)
CAFC ruling (05-1482, dated 07/17/06) available at http://www.fedcir.gov/opinions/05-1482.pdf
BP Note
Cummins Engine Company was renamed Cummins Incorporated during the pendency of the CIT proceeding.