[Federal Register Volume 60, Number 179 (Friday, September 15, 1995)]
[Rules and Regulations]
[Pages 47878-47895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22902]



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DEPARTMENT OF TRANSPORTATION
49 CFR Part 583

[Docket No. 92-64; Notice 07]
RIN 2127-AG03


Motor Vehicle Content Labeling

AGENCY: National Highway Traffic Safety Administration (NHTSA), 
Department of Transportation (DOT).

ACTION: Final rule; further response to petitions for reconsideration.

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SUMMARY: The American Automobile Labeling Act requires passenger cars 
and other light vehicles to be labeled with information about their 
domestic and foreign content. This document responds to several 
petitions for reconsideration of the agency's July 1994 final rule 
implementing that statute. NHTSA is making several changes to the final 
rule in response to the petitions, which will reduce the burdens 
associated with making content calculations and also result in more 
accurate information. The agency has also decided not to make a number 
of the changes requested by the petitions.

DATES: Effective date. The amendments made by this rule are effective 
October 16, 1995.

    Petitions for reconsideration. Petitions for reconsideration must 
be received not later than October 16, 1995.

ADDRESSES: Petitions for reconsideration should be submitted to: 
Administrator, National Highway Traffic Safety Administration, 400 
Seventh Street SW, Washington, DC 20590.

FOR FURTHER INFORMATION CONTACT: Mr. Orron Kee, Office of Market 
Incentives, National Highway Safety Administration, Room 5313, 400 
Seventh Street SW, Washington, DC 20590 (202-366-0846).

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background

    A. Statutory Requirements

    B. July 1994 Final Rule

    1. Manufacturers of Passenger Motor Vehicles

    2. Suppliers of Motor Vehicle Equipment

    3. Dealers of Passenger Motor Vehicles

II. Petitions for Reconsideration

III. Initial Response to Petitions

IV. Overview of Further Response to Petitions

V. Further Response to Petitions

    A. Definition of Final Assembly (Sec. 583.4)

    B. Procedure for Determining U.S./Canadian Parts Content 
(Sec. 583.6)

    1. Calculation by suppliers of the portion of their equipment's 
value that represents value added in the U.S./Canada

    a. Issues concerning equipment or materials imported into the 
U.S. or Canada

    b. Issues concerning tracing provision

    2. Non-responsive Suppliers

    C. Procedure for Determining Major Foreign Sources of Passenger 
Motor Vehicle Equipment (Sec. 583.7)

    D. Alternative Procedures for Manufacturers

    E. Legal Issues

    1. Federal Preemption

    2. Due Process

    3. Authority to Exclude Vehicles with Low U.S./Canadian Content

    F. Clarifying Amendments

    G. Letter from Ford

VI. Rulemaking Analyses and Notices

I. Background

A. Statutory Requirements

    Congress enacted the American Automobile Labeling Act (Labeling 
Act) as part of the Department of Transportation and Related Agencies 
Appropriation Act for Fiscal Year 1993, P.L. 102-388. The Labeling Act 
amended Title II of the Motor Vehicle Information and Cost Savings Act 
(Cost Savings Act) by adding a new section 210.

    Subsequently, on July 5, 1994, the President signed a bill (P.L. 
103-272) which revised and codified ``without substantive change'' the 
Cost Savings Act and two other NHTSA statutes. The content labeling 
provisions, which formerly existed as section 210 of the Cost Savings 
Act, are now codified at 49 U.S.C. Sec. 32304, Passenger motor vehicle 
country of origin labeling. NHTSA will use the new statutory citations 
in this notice.

    Section 32304 requires passenger motor vehicles 1 manufactured 
on or after October 1, 1994 to be labeled with information about their 
domestic and foreign content. The purpose of the section is to enable 
consumers to take country of origin information into account in 
deciding which vehicle to purchase.

     1  The term ``passenger motor vehicle,'' defined in 49 
U.S.C. 32101 as a motor vehicle with motive power designed to carry 
not more than 12 individuals, is amended for purposes of section 
32304 to include any ``multipurpose vehicle'' and ``light duty 
truck'' that is rated at not more than 8,500 pounds gross vehicle 
weight. Thus, the motor vehicle content labeling requirements apply 
to passenger cars, light trucks, multipurpose passenger vehicles, 
and certain small buses. Motorcycles are excluded.
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    Section 32304(b) requires each new passenger motor vehicle to be 
labeled with the following five items of information:

    (1) The percentage U.S./Canadian equipment (parts) content;

    (2) The names of any countries 2 other than the U.S. and 
Canada which individually contribute 15 percent or more of the 
equipment content, and the percentage content for each such country;

     2 If there are more than two such countries, only the 
names of the two countries providing the greatest amount of content 
need be listed.
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    (3) The final assembly place by city, state (where appropriate), 
and country;

    (4) The country of origin of the engine; and

    (5) The country of origin of the transmission.

    Section 32304(b) specifies that the first two items of information, 
the equipment content percentages for the U.S./Canada and foreign 
countries, are calculated on a ``carline'' basis rather than for each 
individual vehicle. The term ``carline'' refers to a name of a group of 
vehicles which has a degree of commonality in construction such as body 
and chassis.

    Manufacturers of passenger motor vehicles are required to establish 
the required information annually for each model year, and are 
responsible for the affixing of the required label to the vehicle. 
Dealers are responsible for maintaining the labels.

    In order to calculate the information required for the label, the 
vehicle manufacturer must know certain information about the origin of 
each item of passenger motor vehicle equipment used to assemble its 
vehicles. For example, in order to calculate the information for the 
first item of the label, i.e., the percentage of the value of the motor 
vehicle

[[Page 47879]]

equipment installed on passenger motor vehicles within a carline which 
originated in the U.S./Canada, the manufacturer must know the U.S./
Canadian content of each item of motor vehicle equipment.
    The statute specifies that suppliers of passenger motor vehicle 
equipment must provide information about the origin of the equipment 
they supply. For purposes of determining U.S./Canadian origin for the 
first item on the label, the statute provides different procedures 
depending on whether equipment is received from an allied supplier (a 
supplier wholly owned by the manufacturer) or an outside supplier.
    For equipment received from outside suppliers, section 
32304(a)(9)(A) provides that the equipment is considered U.S./Canadian 
if it contains at least 70 percent value added in the U.S./Canada. 
Thus, any equipment that is at least 70 percent U.S./Canadian is valued 
at 100 percent U.S./Canadian, and any equipment under 70 percent is 
valued at zero percent. This statutory provision is sometimes referred 
to as the ``roll-up, roll-down'' provision. For equipment received from 
allied suppliers, section 32304(a)(9)(B) provides that the actual 
amount of U.S./Canadian content is used.
    The statute requires the Department of Transportation to promulgate 
regulations implementing the content labeling requirements. Section 
32304(d) requires the promulgation of regulations which specify the 
form and content of the required labels, and the manner and location in 
which the labels must be affixed. Section 32304(e) requires 
promulgation of such regulations as may be necessary to carry out the 
labeling requirements, including regulations to establish a procedure 
to verify the required labeling information. That section also directs 
that such regulations provide the ultimate purchaser of a new passenger 
motor vehicle with the best and most understandable information 
possible about the foreign content and U.S/Canadian origin of the 
equipment of such vehicles without imposing costly and unnecessary 
burdens on the manufacturers. Finally, section 32304(e) also specifies 
that the regulations include provisions requiring suppliers to certify 
whether their equipment is of U.S., U.S./Canadian, or foreign origin.

B. July 1994 Final Rule

    On July 21, 1994, NHTSA published in the Federal Register (59 FR 
37294) a final rule establishing a new regulation, 49 CFR Part 583, 
Automobile Parts Content Labeling, to implement the Labeling Act. The 
regulation established requirements for (1) manufacturers of passenger 
motor vehicles; (2) suppliers of motor vehicle equipment used in the 
assembly of passenger motor vehicles; and (3) dealers of passenger 
motor vehicles. A summary of the requirements is set forth below.
1. Manufacturers of Passenger Motor Vehicles
    Vehicle manufacturers are required to affix to all new passenger 
motor vehicles a label which provides the following information:
    (1) U.S./Canadian Parts Content--the overall percentage, by value, 
of the U.S./Canadian content of the motor vehicle equipment installed 
on the carline of which the vehicle is a part;
    (2) Major Sources of Foreign Parts Content--the names of the two 
countries, if any, other than the U.S./Canada, which contributed the 
greatest amount (at least 15 percent), by value, of motor vehicle 
equipment for the carline, and the percentage, by value, of the 
equipment originating in each such country;
    (3) Final Assembly Point--the city, state (where appropriate), and 
country in which the final assembly of the vehicle occurred;
    (4) Country of Origin for the Engine Parts;
    (5) Country of Origin for the Transmission Parts.
    The label is also required to include a statement below this 
information reading as follows:

    Note: Parts content does not include final assembly, 
distribution, or other non-parts costs.

    Manufacturers are permitted, but not required, to provide at the 
end of the note the following additional statement for carlines 
assembled in the U.S. and/or Canada, and another country:

    This carline is assembled in the U.S. and/or Canada, and in 
[insert name of each other country]. The U.S./Canadian parts content 
for the portion of the carline assembled in [insert name of country, 
treating the U.S. and Canada together, i.e., U.S./Canada] is [  ]%.

    The information for items (1) and (2) of the label is calculated, 
prior to the beginning of the model year, for each carline. The 
information for items (3), (4) and (5) is determined for each 
individual vehicle. However, the country of origin for groups of 
engines and transmissions is determined once a model year.
    Vehicle manufacturers are to calculate the information for the 
label, relying on information provided to them by suppliers. Under the 
final rule, manufacturers and allied suppliers are required to request 
their suppliers to provide the relevant content information specified 
in Part 583, and the suppliers are required to provide the specified 
information in response to such requests. The vehicle manufacturers are 
required to maintain records of the information used to determine the 
information provided on the labels.
2. Suppliers of Motor Vehicle Equipment
    For any equipment that an outside supplier (a supplier not wholly 
owned by the vehicle manufacturer) supplies to a vehicle manufacturer, 
a supplier wholly owned by the vehicle manufacturer (an allied 
supplier) or, in the case of a joint venture vehicle assembly 
arrangement, a supplier that is wholly owned by one member of the joint 
venture arrangement, the outside supplier is required to provide, at 
the request of that manufacturer or allied supplier, the following 
information:
    (1) the price of the equipment to the manufacturer or allied 
supplier;
    (2) whether the equipment has, or does not have, at least 70 
percent of its value added in the U.S. and Canada;
    (3) for any equipment for which the U.S./Canadian content is less 
than 70 percent, the country of origin of the equipment (treating the 
U.S. and Canada together);
    (4) for equipment that may be used in an engine or transmission, 
the country of origin of the equipment (separating the U.S. and 
Canada).
    For any equipment that an allied supplier supplies to a vehicle 
manufacturer, the supplier is required to provide, at the request of 
the manufacturer, the following information:
    (1) the price of the equipment to the manufacturer;
    (2) the percentage U.S./Canadian content of the equipment;
    (3) the country of origin of the equipment (treating the U.S. and 
Canada together);
    (4) for equipment that may be used in an engine or transmission, 
the country of origin of the equipment (separating the U.S. and 
Canada).
    A supplier of engines and transmissions is, in addition to the 
above requirements, required to provide, at the request of the vehicle 
manufacturer, the country of origin for each engine or transmission it 
supplies to the manufacturer, determined as follows: the country in 
which the greatest percentage, by value (using the total cost of 
equipment to the engine or transmission supplier, while excluding the 
cost of final assembly labor), was added to the engine or transmission. 


[[Page 47880]]

    Both outside and allied suppliers that directly supply equipment to 
vehicle manufacturers are required to provide the specified information 
directly to the vehicle manufacturers, in the form of a certification. 
Outside suppliers that directly supply to allied suppliers are required 
to provide the specified information and certification directly to the 
allied suppliers. Suppliers are also required to maintain records of 
the information used to compile the information provided to the 
manufacturers and outside suppliers.
    The requirements apply only to suppliers which supply directly to 
the vehicle manufacturer or to an allied supplier. No requirements are 
imposed on suppliers earlier in the chain, e.g., a company which 
supplies an item of equipment to an outside supplier which then 
supplies it to a vehicle manufacturer.
3. Dealers of Passenger Motor Vehicles
    Dealers are required to maintain the label on each vehicle until 
the vehicle is sold to a consumer.

II. Petitions for Reconsideration

    NHTSA received petitions for reconsideration from the American 
Automobile Manufacturers Association (AAMA), General Motors (GM), the 
Association of International Automobile Manufacturers (AIAM), 
Volkswagen (VW), the American International Automobile Dealers 
Association (AIADA), and the Kentucky Cabinet for Economic Development 
(Kentucky Cabinet). A summary of these petitions follows.
    AAMA argued that certain requirements specified in section 583.6, 
Procedure for determining U.S./Canadian parts content, result in U.S./
Canadian content being understated and impose costly and unnecessary 
burdens on manufacturers and suppliers. That organization identified 
three major issues.
    First, AAMA was concerned that section 583.6 provides that 
materials used by a supplier located in the U.S./Canada are 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. AAMA stated that suppliers may avoid the 
costly process of tracing simply by defaulting U.S./Canadian content to 
zero, with the result that U.S./Canadian content will be understated. 
That organization urged that the regulation allow first-tier suppliers 
to use methods other than tracing to accurately calculate a material's 
U.S./Canadian value added.
    Second, AAMA was concerned that the U.S./Canadian content of 
components must be defaulted to zero if suppliers fail to respond to a 
manufacturer's or allied supplier's request for content information. 
That organization argued that the content information ultimately 
provided to consumers will be more accurate if manufacturers are 
permitted to establish the U.S./Canadian content of a component by 
other means when a supplier fails to respond.
    Third, AAMA was concerned that section 583.6 specifies that 
whenever material or motor vehicle equipment is imported into the U.S. 
or Canada from a third country, the value added in the U.S./Canada for 
that material or equipment is considered zero, even if part of the 
material originated in the U.S. or Canada. AAMA argued that this 
provision is inconsistent with the Labeling Act's definition of 
``foreign.'' It also noted that if a manufacturer installed identical 
parts both in a vehicle assembled in the U.S or Canada and in one 
assembled in a third country, the two parts would have different U.S./
Canadian content. AAMA urged that if a manufacturer is able to identify 
the U.S./Canadian content, it should be permitted to include the actual 
U.S./Canadian content of the imported component in the calculations.
    AAMA recommended specific changes to Part 583 in light of the three 
major issues it identified. That organization also recommended a number 
of other changes to provide clarification.
    GM joined in the AAMA petition and also submitted a separate 
petition urging the agency to permit manufacturers to use alternative 
procedures to determine U.S./Canadian parts content. That company 
expressed concern that Part 583 requires it to collect content data on 
millions of unique part numbers when tracing beyond the first tier of 
suppliers is required. According to GM, this represents the most 
burdensome and costly procedure possible, even more burdensome than any 
other trade- related content data requirements administered by any 
other U.S. government entity.
    With respect to AAMA's and GM's petitions, NHTSA notes that the FY 
1995 Conference Report on DOT Appropriations included the following 
language:

    The conferees are aware that several petitions for 
reconsideration have been submitted to NHTSA since the publication 
of the final rule. Among the issues raised in the petitions are 
whether it is consistent with the Act that the final rule requires 
that a first-tier supplier of equipment produced or assembled in the 
U.S. or Canada must consider material used in that equipment to have 
zero U.S./Canadian content unless the material's U.S./Canadian value 
has been verified by full tracing to its origin, and that a 
manufacturer or supplier that does not receive information from its 
suppliers concerning the U.S./Canadian content of equipment must 
consider the U.S./Canadian value of the equipment to be zero.
    These provisions of the final rule will not ensure that the most 
accurate, understandable, and cost-effective information is provided 
to consumers, and thus contradict the expressed intent of Congress 
in passing the AALA. Therefore, the conferees direct NHTSA to amend 
the final rule to permit first-tier suppliers to use other methods, 
such as country-of-origin marking, substantial transformation, or 
other customs data in their records, to determine the U.S./Canadian 
content of equipment, and manufacturers and allied suppliers to use 
other methods to determine U.S./Canadian content of equipment when 
suppliers fail to provide adequate information.
    Furthermore, to ensure that the final rule does not impose 
costly and unnecessary burdens on manufacturers, the conferees also 
direct NHTSA to amend the rule to allow manufacturers to propose 
alternative procedures for determining domestic content if such 
procedures produce reliable results.

    NHTSA notes that the inclusion of this language in an 
Appropriations Report does not have the effect of changing the existing 
statute or the agency's duty to follow that statute. The agency will 
respectfully treat this language as expressing the sentiment of 
Congress as to how the issues raised by the petitions for 
reconsideration should be resolved.
    AIAM raised four issues in its petition for reconsideration. First, 
that organization stated that NHTSA did not respond to its comment on 
the NPRM urging that the regulation provide that any state action which 
challenges the information provided on the label is Federally 
preempted. Second, AIAM argued that the regulation contains an overly 
broad interpretation of the term ``final assembly.'' That organization 
stated that the definition includes within its scope (and thereby 
excludes from U.S./Canada parts content) assembly operations that are 
not performed on the motor vehicle but instead on parts and components 
of that motor vehicle. Third, AIAM argued that the provision in the 
regulation concerning tracing back to raw materials is inconsistent 
with the language of the Labeling Act and also outside the scope of 
notice of the NPRM. Finally, AIAM argued that a provision in the 
regulation which specifies that major foreign source percentages are 
``rounded down'' to bring the combined total of U.S./Canadian and major 
foreign source content to no higher than 100 percent is 

[[Page 47881]]
outside NHTSA's authority under the Labeling Act.
    VW, a member of AIAM, submitted a separate petition requesting that 
NHTSA reconsider its determination that it is statutorily prohibited 
from permitting manufacturers selling motor vehicles with minimal U.S./
Canadian parts content to state that fact rather than providing 
specific content numbers. That manufacturer cited the case of Alabama 
Power Company v. Costle, 636 F.2d 323 (1979), in support of its 
request.
    AIADA requested that the agency ``reconsider and vacate its final 
rule on Motor Vehicle Content Labeling.'' That organization stated that 
the rule is unconstitutionally vague and unequal and discriminatory in 
its application and therefore constitutes a denial of due process in 
violation of the Fifth Amendment to the Constitution and the 
Administrative Procedure Act. It also cited its comments to the agency 
on the NPRM and on an earlier request for comments but did not provide 
any other arguments or analysis in support of its petition.
    The Kentucky Cabinet argued that the tracing provisions included in 
the final rule impose unnecessary administrative burdens on the 
Kentucky automotive industry. It expressed concern that companies will 
be required to undergo expensive and time-consuming efforts to trace a 
part back to raw materials. It also stated that in some cases a second 
tier supplier may not want to divulge proprietary information. The 
Kentucky Cabinet also expressed concern that the calculations for 
domestic content do not include the value of labor performed by 
Kentuckians. It stated that consumers will be forced to make purchasing 
decisions based on information that does not reflect the actual amount 
of domestic content. The Kentucky Cabinet specifically expressed 
concern about the exclusion of final assembly in the calculation of 
domestic content. It stated that an automotive manufacturer which does 
substantial ``in-house'' final assembly will not be able to include the 
full value of domestic parts and therefore be at a competitive 
disadvantage.

III. Initial Response to Petitions

    In a notice published March 16, 1995 (60 FR 14228), the agency 
partially responded to the petitions for reconsideration by extending a 
temporary alternative approach for data collection and calculations. 
This approach permits manufacturers and suppliers to use procedures 
that are expected to yield similar results. This alternative was 
originally available, under the July 1994 final rule, for model year 
1995 and model year 1996 carlines which were first offered for sale to 
ultimate purchasers before June 1, 1995. The notice extended the 
alternative to all model year 1996 carlines and model year 1997 
carlines which are first offered for sale to ultimate purchasers before 
June 1, 1996.

IV. Overview of Further Response to Petitions

    In response to the petitions for reconsideration, NHTSA is making 
several changes in Part 583. These changes include:
    (1) Providing that whenever material or motor vehicle equipment is 
imported into the U.S. or Canada from a third country, the value added 
in the U.S. or Canada is presumed zero, but that if documentation is 
available to the supplier which identifies value added in the U.S. or 
Canada for that equipment, such value added in the U.S. or Canada is 
counted;
    (2) Amending the clarifying procedures concerning the determination 
of U.S./Canadian content to (a) make it clear that, for materials used 
by suppliers in producing passenger motor vehicle equipment (other than 
for materials imported from third countries), suppliers are to make a 
good faith estimate of the value added in the United States or Canada 
(to the extent necessary to make required determinations concerning the 
value added in the U.S./Canada of their passenger motor vehicle 
equipment), (b) provide suppliers greater flexibility in the 
information they can use in making these estimates, and (c) reduce the 
number of stages for which suppliers must consider where value was 
added (although not to the degree recommended by AAMA);
    (3) Providing that manufacturers can petition to use alternative 
calculation procedures based on representative or statistical sampling 
to determine U.S./Canadian parts content and major sources of foreign 
parts content; and
    (4) Several minor clarifying changes.
    NHTSA is granting the petitions to the extent that they are 
accommodated by these changes; the agency is otherwise denying the 
petitions.

V. Response to Petitions

    In this section, NHTSA presents its analysis of the issues raised 
by the petitioners and its response. The major issues are organized 
according to the sections of the final rule to which they relate.

A. Definition of Final Assembly (Section 583.4)

    Section 32304(a)(15) provides that ``costs incurred or profits made 
at the final assembly place and beyond (including advertising, 
assembly, labor, interest payments, and profits)'' are excluded from 
the calculation of parts content. In earlier notices, NHTSA recognized 
that manufacturers may conduct some pre-assembly operations, e.g., 
production of parts, at the same location as final assembly. The agency 
included a definition of ``final assembly'' in the final rule to 
distinguish between production of parts, for which labor and other 
costs are included in parts content calculations, and final assembly, 
for which labor and other costs are not included.
    Two of the petitions for reconsideration addressed the exclusion of 
final assembly costs from the calculation of U.S./Canadian parts 
content and/or the final rule's definition of final assembly. As 
indicated above, the Kentucky Cabinet expressed concern that the 
calculations for domestic content do not include the value of labor 
performed by Kentuckians. It stated that consumers will be forced to 
make purchasing decisions based on information that does not reflect 
the actual amount of domestic content. The Kentucky Cabinet expressed 
specific concern about the exclusion of final assembly costs in the 
calculation of domestic content. It stated that an automotive 
manufacturer which does substantial ``in-house'' final assembly will 
not be able to include the full value of domestic parts and therefore 
be at a competitive disadvantage.
    AIAM argued that the final rule contains an overly broad 
interpretation of the term ``final assembly'' that will mislead the 
motor vehicle purchaser to believe that the value of many auto parts 
made in-house by a U.S. motor vehicle manufacturer are not part of the 
U.S./Canadian parts content of the vehicle. It argued that the rule 
creates an unfair and anomalous situation, since a manufacturer that 
assembles a large number of components to produce a complex piece of 
equipment (other than an engine or transmission) must exclude the 
assembled value of that item from the reported U.S./Canadian parts 
content of the motor vehicle, while a less integrated manufacturer that 
obtained the same piece of equipment from an outside supplier in the 
United States or Canada would include its entire value in the U.S./
Canada parts content of the vehicle if the ``70 percent'' test was met. 
AIAM also argued that the definition of ``final 

[[Page 47882]]
assembly'' is so broad that it includes within its scope (and thereby 
excludes from U.S./Canada parts content) assembly operations that are 
not performed on the motor vehicle but instead are performed on parts 
and components of that motor vehicle. AIAM alleged that there is no 
statutory basis, or even a rational one, to exclude substantial U.S. 
value added to in-house produced components other than engines and 
transmissions.
    With respect to the Kentucky Cabinet's concerns about excluding 
final assembly costs, including the exclusion of the value of labor 
performed by Kentuckians, in the calculation of U.S./Canadian parts 
content, NHTSA notes that Congress decided to require manufacturers to 
provide prospective passenger motor purchasers with calculations of 
parts content rather than overall vehicle content. As indicated above, 
the statute specifically provides that final assembly costs, including 
labor costs, are excluded from these calculations. NHTSA does not have 
the authority to depart from the statute. The agency observes, however, 
that the value of final assembly labor is reflected on the label since 
the final assembly point is specified by city, state and country. Thus, 
prospective purchasers will know whether the vehicle they are 
considering purchasing was assembled in Kentucky.
    With respect to AIAM's concerns about the final rule's definition 
of ``final assembly,'' NHTSA notes that numerous commenters on the NPRM 
addressed this subject, and the agency discussed it at length in the 
preamble to the final rule. In its petition, AIAM did not address the 
agency's extensive analysis of this issue. The agency will repeat a 
portion of that discussion in this notice (the statutory references in 
the quoted language have been superseded, but the substance has not 
changed):

    The starting place for resolving the question of what operations 
should be considered to be part of ``final assembly'' and therefore 
excluded from parts content calculations is the language of the 
Labeling Act. The Act includes several relevant sections. First, 
section 210(b)(1)(A) provides that the label must indicate ``the 
percentage (by value) of passenger motor vehicle equipment installed 
in such vehicle within a carline which originated in the United 
States and Canada . . . .'' Second, section 210(f)(10) provides that 
``(c)osts incurred or profits made at the final vehicle assembly 
point and beyond (i.e., advertising, assembly, labor, interest 
payments, profits, etc.) shall not be included in [the calculation 
of value added in the United States and Canada].'' Third, section 
210(f)(14) defines ``final assembly point'' as ``the plant, factory, 
or other place at which a new passenger motor vehicle is produced or 
assembled by a manufacturer and from which such vehicle is delivered 
to a dealer or importer in such a condition that all component parts 
necessary to the mechanical operation of such automobile are 
included with such vehicle . . . .'' (Emphasis added.).
    While final assembly point can be considered as either a 
physical place or a phase in the assembly process, it is significant 
that section 210 defines it as a place, i.e., the plant, factory, or 
other place at which a new vehicle is produced or assembled. Thus, 
looking at the plain language of section 210, assembly and labor 
costs ``at'' the plant, factory or other place at which a new 
vehicle is assembled are excluded from parts content calculations.
    It is also significant that the language in section 210(f)(14) 
about the vehicle being in such a condition that ``all component 
parts necessary to the mechanical operation of such automobile are 
included with such vehicle'' refers to the vehicle when it leaves 
the final assembly point for delivery to a dealer or importer. In 
citing this language for the proposition that ``final assembly'' is 
defined in terms of completeness, AIAM and Toyota confuse the 
completion of final assembly with the final assembly process. 
Section 210(f)(14) defines ``final assembly point'' as the plant, 
factory, or other place at which a vehicle is ``produced or 
assembled'' by a manufacturer. All of the operations that make up 
the production or assembly process are part of final assembly. There 
is no basis to interpret section 210(f)(10)'s requirement that 
assembly and labor costs incurred ``at the plant, factory or other 
place'' at which a new vehicle is assembled only applies to the 
costs associated with the last step in completing the vehicle.
    Since section 210 expressly provides that assembly and labor 
costs at the plant, factory or other place at which a new vehicle is 
assembled are excluded from parts content calculations, NHTSA 
believes that all assembly and labor costs that are ordinarily 
associated with final assembly must be excluded. However, the agency 
believes that the costs associated with parts production that may 
occur at a final assembly plant should not be excluded from parts 
content calculations. . . .
    . . . A failure to consider parts produced at the final assembly 
plant as ``passenger motor vehicle equipment'' would result in 
significant differences among manufacturers. Further, if a plant 
were very highly integrated, it could result in a situation where 
the parts content percentages do not reflect the greater number of a 
vehicle's parts.
    At the same time, however, NHTSA must give full effect to the 
Congressional intent to exclude the costs of final assembly from 
parts content calculations. The agency believes that the best way to 
accomplish this is the method suggested by AAMA: define ``final 
assembly'' to include all operations involved in the assembly of the 
vehicle performed at the final assembly point (the final assembly 
plant), including but not limited to assembly of body panels, 
painting, final chassis assembly, and trim installation, except 
engine and transmission fabrication and assembly and the fabrication 
of motor vehicle equipment components produced at the same final 
assembly point using stamping, machining or molding processes.
    Under this approach, all costs incurred at the final assembly 
plant are excluded except for those that are incurred in producing 
either engines/transmissions or in producing parts using forming 
processes such as stamping, machining or molding. In addition to 
ensuring that final assembly costs are excluded as required by 
section 210, the agency also believes that a definition along these 
lines is much clearer than the proposed definition. For example, 
this type of definition will not raise issues concerning whether a 
part is assembled on the main assembly line or off of it.
    NHTSA cannot accept the recommendation of foreign vehicle 
manufacturers to define final assembly as starting at the time when 
the engine and body are fastened together. Under such a definition, 
manufacturers could add the engine to the body as the last step in 
assembling the vehicle, thereby reducing final assembly costs to a 
nullity. Such an approach would be inconsistent with the statutory 
requirement to exclude assembly and labor costs at the final 
assembly plant from parts content calculations.
    The arguments raised in AIAM's petition for reconsideration do not 
lead the agency to change the definition of ``final assembly.'' That 
organization argued that the definition includes within its scope 
assembly operations that are not performed on the motor vehicle but 
instead are performed on parts and components of that motor vehicle. 
However, this is an incorrect distinction. AIAM views final assembly as 
performing operations on a vehicle when, in fact, the final assembly 
process consists of assembling parts to produce a vehicle.
    NHTSA recognizes that there are many levels of ``parts.'' For 
example, any individual item that is used in the assembly of a chassis 
is a ``part,'' yet the chassis as a whole can also be called a 
``part.'' It appears that AIAM would like almost all assembly that 
takes place at the final assembly plant to be outside the definition of 
final assembly and instead be considered parts production, so that the 
costs of such assembly are included within the parts content 
calculations.
    However, NHTSA must give effect to section 32304(a)(15)'s 
requirement that costs incurred at the final assembly place, including 
assembly and labor, are excluded from the calculation of parts content. 
As discussed in the above-quoted section of the final rule preamble, 
the agency believes that all assembly and labor costs that are 
ordinarily associated with final assembly must be excluded.
    NHTSA believes that the definition of final assembly included in 
the final rule strikes an appropriate balance in distinguishing between 
parts production 

[[Page 47883]]
at a final assembly plant and final assembly. First, all costs 
associated with producing engines and transmissions are excluded from 
the definition of final assembly, and hence counted as parts content. 
These are very expensive parts, and it is common both for manufacturers 
to assemble them at vehicle final assembly plants and to assemble them 
at separate plants. Therefore, including these costs in parts content, 
notwithstanding the fact that these items may have been produced at a 
final assembly plant, helps maintain comparability of the information 
provided on the labels of different vehicles.
    Second, all costs incurred in producing parts using forming 
processes such as stamping, machining or molding are excluded from the 
definition of final assembly. The production of parts using forming 
processes is not assembly, and these operations are thus readily 
distinguishable from final assembly.
    All other costs incurred at the final assembly plant are included 
within the definition of final assembly, and are thus not included in 
parts content. These costs basically reflect all assembly costs at the 
final assembly plant other than those associated with producing engines 
and transmissions. NHTSA believes that the bulk of these costs, e.g., 
assembling body panels, building up the chassis, etc., come within the 
generally understood meaning of final assembly and must therefore be 
excluded from parts content calculations under the statute.
    NHTSA notes that AIAM did not provide specific details or examples 
about differences between more integrated and less integrated 
manufacturers. Since manufacturing processes differ among 
manufacturers, it is inevitable that some differences will be reflected 
on the label. However, the final's rule inclusion of all costs 
associated with engine/transmission production and production of parts 
using forming processes within parts content will reduce such 
differences.

B. Procedure for Determining U.S./Canadian Parts Content (Section 
583.6)

    Section 583.6 of the final rule specifies a procedure for 
determining U.S./Canadian parts content. A number of the major issues 
raised by the petitioners for reconsideration relate to this section.
1. Calculation by Suppliers of the Portion of their Equipment's Value 
that Represents Value Added in the U.S./Canada
    One of the major issues addressed in the final rule was how 
suppliers are to calculate the portion of their equipment's value that 
represents value added in the U.S./Canada. It is necessary for 
suppliers to make such calculations 3 since the Labeling Act 
provides that determinations of U.S./Canadian parts content are based 
on the value added in the U.S./Canada of the equipment used to assemble 
vehicles within a carline.

     3 As noted in the final rule preamble, however, only 
allied suppliers typically need to calculate actual value added in 
the U.S./Canada of their equipment. 59 FR 37309. As a result of the 
roll-up, roll-down provision, outside suppliers only need to 
determine whether the value added in the U.S./Canada is at least 70 
percent or not. In order to make this determination, of course, 
outside suppliers need to understand how value added in the U.S./
Canada is calculated. Moreover, if the value added in the U.S./
Canada of their equipment is close to 70 percent, outside suppliers 
will need to calculate actual value added.
    As part of avoiding unnecessary costs and keeping the regulatory 
scheme as simple as possible, NHTSA decided to limit tracking and 
reporting requirements to ``first-tier'' suppliers (including both 
suppliers which deliver equipment to the vehicle manufacturer itself 
and ones which deliver equipment to an allied supplier). The agency 
noted in the NPRM, however, that suppliers which are subject to the 
information requirements may need in some cases to arrange to obtain 
information from their suppliers.
    Commenters on the NPRM raised a number of issues about how 
suppliers are to make the required determinations about U.S./Canadian 
content. NHTSA therefore included in the final rule clarifying 
procedures concerning the determination of value added in the U.S./
Canada.
    NHTSA recognized that the basic way suppliers add value in the 
U.S./Canada is by producing or assembling passenger motor vehicle 
equipment within the territorial borders of the United States or 
Canada. The final rule (Sec. 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. As 
explained in the final rule preamble, under this approach, neither 
suppliers nor anyone else is required to trace the value added in the 
United States or Canada back to raw materials; however, any portion of 
the cost of a material which is not traced to value added in the United 
States or Canada is considered foreign.
    The clarifying procedures (Sec. 583.6(c)(4)(ii) and (iv)) also 
provided that for any material or equipment which is imported into the 
United States or Canada from a third country, the value added in the 
United States or Canada is zero, even if part of the material 
originated in the United States or Canada. NHTSA stated that, for 
purposes of simplicity and consistency, it believed it appropriate to 
deem any materials which are imported in the United States or Canada 
from a third country as foreign. The agency did not believe that any 
attempt to separate out the possible portion of such materials that may 
have originated in the United States or Canada would provide 
significantly more useful information to the consumer.
    The petitioners for reconsideration raised concerns about both the 
tracing provision and the provision deeming any equipment or materials 
which are imported into the United States or Canada from a third 
country as foreign. The agency will discuss the latter concern first.
    a. Issues concerning equipment or materials imported into the U.S. 
or Canada. AAMA argued that the final rule's provisions stipulating 
that whenever material or motor vehicle equipment is imported into the 
U.S. or Canada from a third country, the value added in the U.S. or 
Canada is zero, even if part of the material originated in the U.S. or 
Canada, are inconsistent with the Labeling Act's definition of 
``foreign.'' That organization noted that section 210(f)(16) defined 
foreign or foreign content as ``passenger motor vehicle equipment not 
determined to be U.S./Canadian origin.'' (This reference has been 
superseded by 49 U.S.C. 32304(a)(6).) AAMA believed that the provisions 
at issue are inconsistent with that section since a portion of the 
value of the material or equipment could be determined to be of U.S./
Canadian origin. AAMA also noted that if a manufacturer installed 
identical parts both in a vehicle assembled in the U.S or Canada and in 
one assembled in a third country, the two parts would have different 
U.S./Canadian content.
    In additional information provided to the agency in support of its 
petition, AAMA cited a specific example of the consequences of these 
provisions. In the example, it was assumed that $800 of U.S. engine 
parts were shipped abroad to the foreign engine assembly plant of an 
allied supplier. If the engine were shipped back to the U.S., it would 
be 

[[Page 47884]]
considered to have $0 U.S./Canadian content. This would occur as a 
result of the provision which specifies that any motor vehicle 
equipment imported into the U.S. or Canada from a third country is 
considered to have zero U.S./Canadian content. However, if the engine 
were shipped to a foreign vehicle assembly plant, it would be 
considered to have $800 U.S./Canadian content. This would occur because 
the provision about motor vehicle equipment being imported into the 
U.S. or Canada from a third country would not apply.
    AAMA urged that if a manufacturer is able to identify the U.S./
Canadian content, it should be permitted to include the actual U.S./
Canadian content of the imported component in the calculations.
    After considering AAMA's arguments, NHTSA has decided to make a 
change along the lines recommended by the petitioner. The revised final 
rule provides that whenever material or motor vehicle equipment is 
imported into the U.S. or Canada from a third country, the value added 
in the U.S. or Canada is presumed zero, but that if documentation is 
available to the supplier which identifies value added in the United 
States or Canada for that equipment, such value added in the United 
States or Canada is counted.
    The agency fully agrees with AAMA that $800 of U.S. engine parts 
should not be converted to foreign content simply because the engine is 
assembled in another country. NHTSA included the provision deeming any 
materials which are imported into the United States or Canada from a 
third country as foreign for reasons of simplicity and because it did 
not believe that separating out the portion that may have originated in 
the United States or Canada would significantly affect the information 
provided on the label. Since AAMA has clearly demonstrated that the 
provision can have a significant effect on the label, the agency 
believes that the change recommended by that organization is 
appropriate.
    b. Issues concerning tracing provision. Three of the petitioners 
for reconsideration, AAMA, AIAM, and the Kentucky Cabinet, raised 
concerns about the tracing provision. The agency will first discuss two 
issues raised by AIAM concerning whether NHTSA has the authority to 
specify such a provision.
    AIAM argued in its petition that the requirement to trace back to 
raw materials is contrary to the language of the Labeling Act. AIAM 
also argued that the tracing provision was not included in the NPRM and 
was therefore imposed without notice and opportunity for comment.
    In arguing that the requirement to trace back to raw materials is 
contrary to the language of the Labeling Act, AIAM stated that the Act 
expressly provides that for purposes of determining U.S./Canada value 
added for an equipment item, only incorporated foreign passenger motor 
vehicle equipment, not foreign raw material, is to be treated as 
foreign content. AIAM's explanation for this position is as follows. 
First, the term ``value added in the United States and Canada'' is 
defined in the Labeling Act to mean a percentage derived as follows: 
value added equals the total purchase price, minus total purchase price 
of foreign content, divided by the total purchase price. Second, 
``foreign content'' is defined to mean passenger motor vehicle 
equipment not determined to be of U.S./Canadian origin. Third, 
``passenger motor vehicle equipment'' is defined to mean any system, 
subcomponent or assembly and does not include materials or raw 
materials. Thus, according to AIAM, the term ``foreign content'' can 
only refer to passenger motor vehicle equipment and not raw materials.
    NHTSA notes that since AIAM's argument cites the specific language 
of section 210, the agency will respond in the context of that language 
(while recognizing that language has since been superseded in form but 
not substance). While AIAM may appear at first glance to simply be 
applying the statutory definitions, the agency believes that there are 
several problems with AIAM's argument.
    First, a more complete quotation of the definition of ``passenger 
motor vehicle equipment'' cited by AIAM reads as follows: The term 
``passenger motor vehicle equipment'' means any system, subassembly, or 
component received at the final assembly point for installation on, or 
attachment to, such vehicle at the time of its initial shipment by the 
manufacturer to a dealer for sale to an ultimate purchaser. Since this 
definition is limited to items received at the final assembly point, 
neither it, nor a definition of ``foreign content'' incorporating it, 
can be directly applied to items being received by a supplier for 
purposes of producing equipment.
    Second, the Labeling Act's primary section concerning the 
determination of the U.S./Canadian origin of equipment, section 
210(f)(5), indicates that, in at least some instances, the foreign 
content of passenger motor vehicle equipment is determined by 
subtracting the value of the foreign material in that equipment. That 
section read as follows:

    The terms ``originated in the United States and Canada,'' and 
``of U.S./Canadian origin,'' in referring to automobile equipment, 
means--
    (A) for outside suppliers, the purchase price of automotive 
equipment which contains at least 70 percent value added in the 
United States and Canada; and
    (B) for allied suppliers, the manufacturer shall determine the 
foreign content of any passenger motor vehicle equipment supplied by 
the allied supplier by adding up the purchase price of all foreign 
material purchased from outside suppliers that comprise the 
individual passenger motor vehicle equipment and subtracting such 
purchase price from the total purchase price of such equipment. 
Determination of foreign or U.S./Canadian origin from outside 
suppliers will be consistent with subparagraph (A).

    This section's reference to determining the foreign content of 
passenger motor vehicle equipment by subtracting the value of the 
foreign material in that equipment applies to equipment supplied by 
allied suppliers rather than equipment supplied by outside suppliers, 
the focus of AIAM's comment. It is significant, however, that the 
section uses the term ``foreign content'' differently from AIAM's 
reading of section 210's definition of ``foreign content.''
    Third, AIAM's argument begs the ultimate question of how suppliers 
are to determine the U.S./Canada value added for their equipment. That 
organization asserts that ``only incorporated foreign passenger motor 
vehicle equipment, not foreign raw material, is to be treated as 
foreign content.'' However, first-tier suppliers rarely use raw 
materials in producing passenger motor vehicle equipment. AIAM's 
argument leaves unanswered the question of how a supplier determines 
whether, and the extent to which, the so-called ``passenger motor 
vehicle equipment'' which it uses to produce passenger motor vehicle 
equipment is foreign.
    For the reasons discussed above, NHTSA does not accept AIAM's 
argument that tracing back to raw materials is contrary to the Labeling 
Act. The agency notes that Act's definition of ``value added in the 
United States and Canada'' makes it clear that, in making that 
calculation, the purchase price of ``foreign content'' is to be 
subtracted. As indicated above, the Labeling Act defines ``foreign 
content'' as meaning passenger motor vehicle equipment not determined 
to be U.S./Canadian origin. In applying this provision in the context 
of suppliers determining whether an item they receive to produce 
passenger 

[[Page 47885]]
motor vehicle equipment is foreign, the agency believes that the best 
reading of the provision is that the cost of the item is considered 
foreign to whatever extent part or all of the cost is not determined to 
represent value added in the United States or Canada. Since value is 
added to items at many stages, it is appropriate, in determining the 
extent to which an item represents value added in the United States or 
Canada, to take into account the location where value is added in the 
various stages.
    NHTSA also does not accept AIAM's argument that the tracing 
provision was outside the scope of notice of the NPRM. The NPRM clearly 
put at issue the subject of how suppliers are to make determinations of 
U.S./Canadian content. While the NPRM did not mention tracing as such, 
the inclusion of the provision in the final rule is a logical outgrowth 
of the proposal.
    NHTSA now turns to the other issues raised by the petitioners 
concerning the tracing provision. These issues relate to the accuracy 
of the information that will result from that provision and the 
difficulties associated with tracing.
    AAMA expressed concern that suppliers may avoid the costly process 
of tracing simply by defaulting U.S./Canadian content to zero, with the 
result that U.S./Canadian content will be understated. That 
organization added that even if a supplier chooses to trace, it will be 
difficult and costly for sub- suppliers to certify the actual U.S./
Canadian value added. AAMA stated that sub-suppliers may not maintain 
the required financial inventory records, and that if actual data are 
not available, the rule would require these suppliers to default their 
material content to foreign.
    AAMA also noted that the Labeling Act requires that a foreign 
country providing at least 15 percent of a vehicle's content must be 
identified. That organization stated that the final rule does not 
address how ``default-to-foreign content'' would be allocated to a 
foreign country or how that foreign country would be identified.
    Based on the above arguments, AAMA expressed concern that, under 
the final rule, Labeling Act data may be subject to significant 
variability depending on the response and efforts of the manufacturer's 
suppliers. It recommended that first-tier suppliers be allowed to base 
the determination of value added in the U.S./Canada on the country-of-
origin markings on the materials it purchases, the first-tier 
supplier's knowledge of the second-tier supplier's processes and the 
rule of substantial transformation, or if the material is identified as 
U.S. or Canadian using any other methodology that is used for customs 
purposes (U.S. or foreign), so long as a consistent methodology is 
employed for all items of equipment.
    As indicated above, the FY 1995 Conference Report on DOT 
Appropriations stated that the tracing provision, among others, will 
not ensure that the most accurate, understandable, and cost-effective 
information is provided to consumers, and directed NHTSA to amend the 
final rule to permit first-tier suppliers to use other methods, such as 
country-of-origin marking, substantial transformation, or other customs 
data in their records, to determine the U.S./Canadian content of 
equipment.
    In addition to the arguments AIAM made with respect to agency 
authority to specify a tracing provision, that organization also argued 
that the tracing provision is inconsistent with the Congressionally 
stated purpose to provide the best and most understandable information 
possible without imposing costly and unnecessary burdens on the 
manufacturers. The Kentucky Cabinet expressed concern that companies 
will be required to undergo expensive and time-consuming efforts to 
trace a part back to raw materials and that, in some cases, a second 
tier supplier may not want to divulge proprietary information.
    NHTSA has carefully considered the arguments of all of the 
petitioners, as well as the Congressional report. The agency shares the 
concern about the possibility that suppliers may choose to avoid the 
costly process of tracing simply by defaulting the U.S./Canadian 
content of materials to zero, with the result that U.S./Canadian 
content will be understated. The agency also shares the concern that 
actual tracing may be overly burdensome in some instances.
    As discussed below, in light of these concerns, NHTSA has decided 
to amend the clarifying procedures to (1) make it clear that, for 
materials used by suppliers in producing passenger motor vehicle 
equipment (other than for materials imported from third countries), 
suppliers must make a good faith estimate of the value added in the 
United States or Canada (to the extent necessary to make required 
determinations concerning the value added in the U.S./Canada of their 
passenger motor vehicle equipment), (2) provide suppliers greater 
flexibility in the information they can use in making these estimates, 
and (3) reduce the number of stages for which suppliers must consider 
where value was added, although not to the degree recommended by AAMA.
    As indicated above, AAMA urged that first-tier suppliers be allowed 
to base the determination of value added in the U.S./Canada on the 
country-of-origin markings on the materials it purchases, the first-
tier supplier's knowledge of the second-tier supplier's processes and 
the rule of substantial transformation, or if the material is 
identified as U.S. or Canadian using any other methodology that is used 
for customs purposes (U.S. or foreign), so long as a consistent 
methodology is employed for all items of equipment. NHTSA believes that 
a methodology this broad for determining value added in the U.S./Canada 
would be inconsistent with the Labeling Act's requirement that 
determinations of U.S./Canadian origin be based on the value added in 
the U.S./Canada.
    NHTSA notes that country of origin determinations for customs 
purposes do not connote value content. The substantial transformation 
test is a traditional means of making country of origin determinations 
for customs purposes. Under this test, an imported good becomes a 
product of the country where it emerges from a process with a new name, 
character and use different from that possessed by the good prior to 
processing. However, application of the test does not indicate any 
particular level of value content from that country of origin. 
Therefore, even though the product's country-of-origin might be the 
United States or Canada, it might have little U.S./Canadian content.
    In enacting the Labeling Act, Congress decided, for purposes of 
making determinations about the U.S./Canada origin of motor vehicle 
equipment, to specify a value added test rather than substantial 
transformation. More specifically, Congress decided to require items 
supplied to vehicle manufacturers or their allied suppliers by outside 
suppliers to have at least 70 percent value added in the U.S./Canada in 
order to be considered U.S/Canadian.
    NHTSA believes that permitting outside suppliers to use the 
substantial transformation test for purposes of determining the origin 
of the materials it uses to produce equipment could allow substantial 
amounts of foreign content to be converted into the U.S./Canadian 
content and counted toward the 70 percent threshold. This can be 
illustrated by a hypothetical situation where a first-tier outside 
supplier purchases casings from a second-tier supplier to use in 
producing transmissions. The second-tier supplier, located in the U.S., 
produces the casings by casting them from imported aluminum. Under 
AAMA's suggested approach, the entire value of the casings would be 
considered to be U.S./

[[Page 47886]]
Canadian (since the second-tier supplier had performed a substantial 
transformation) and counted toward the 70 percent threshold, even 
though the casings were made of imported aluminum. NHTSA observes that 
just as it agrees with AAMA that $800 of U.S. engine parts should not 
be converted into foreign content as a result of a regulatory provision 
intended to provide simplicity, it is equally concerned about the 
possibility of such a regulatory provision permitting the conversion of 
a large amount of foreign content into U.S./Canadian content.
    A comment on the NPRM signed by Senator Carl Levin and several 
House members also illustrates how methodologies that permit conversion 
of substantial foreign content into U.S./Canadian content, for purposes 
of making country-of-origin determinations for materials suppliers use 
to produce equipment, could substantially affect the information on the 
vehicle label.
    The comment stated:

    We are writing to urge you to draft American Automobile Labeling 
Act implementing regulations that reflect the legislation's intent 
to provide an accurate means of measuring the parts value content of 
a vehicle.
    The trend has been for Japanese transplants to purchase parts 
assembled in the U.S. by Japanese affiliated parts makers, a high 
percentage of which are merely assembled here using subcomponents 
and materials imported from Japan. Nonetheless, they are erroneously 
counted as U.S. parts for the purposes of calculating U.S. content 
levels. The Labeling Act was an attempt by Congress to establish a 
tool to more accurately measure the ``actual'' U.S. and Canadian 
content of vehicles sold in the U.S. based on the origin of where 
the parts are made, not where the parts are purchased or assembled. 
It is our hope that the Labeling Act will achieve this objective by 
imposing a stringent definition of what is an ``American or Canadian 
made'' auto part.
    Currently, Japanese transplant auto makers claim high levels of 
U.S. content in their U.S. made vehicles. But they will not provide 
the necessary data to measure accurately the U.S. content levels of 
the auto parts used in these vehicles, and thus, it is impossible to 
verify their claims. After tracing the actual source of parts, a 
1992 Economic Strategy Institute study found that the U.S. auto 
parts used in a 1991 Honda Accord contained \2/3\ Japanese content 
and only \1/3\ ``actual'' U.S. content. Even with these low levels 
of U.S. content, Honda took credit for these parts being totally 
U.S.-made.
    In order to adequately distinguish between parts assembled in 
the U.S. using imported materials and parts made in the U.S. using 
U.S. materials, the Labeling Act must include tracing requirements 
similar to the tracing requirements in the NAFTA rule of origin, 
with the exception that Mexican parts would not be included as U.S. 
or Canadian. Tracing should be used to determine if suppliers can be 
designated as North America (U.S. or Canadian)--if they achieve the 
70% North American content value--as well as to determine the 
country of origin for the engine and transmission. For example, if 
tracing were required, an engine or transmission that contains 75% 
Japanese content but is assembled in the U.S. would be correctly 
found to be primarily of Japanese origin, not of U.S. origin.

    NHTSA has also concluded that the concerns identified by the 
petitioners for reconsideration and the Congressional report can be 
adequately addressed by making other changes in the procedures for 
determining value added in the U.S./Canada.
    First, the agency is specifying in the regulation that, for 
materials used by suppliers in producing passenger motor vehicle 
equipment (other than for materials imported from third countries), 
suppliers must make a good faith estimate of the value added in the 
United States or Canada (to the extent necessary to make required 
determinations concerning the value added in the U.S./Canada of their 
passenger motor vehicle equipment). Thus, suppliers are not permitted 
to simply default the U.S./Canadian value of the materials they use to 
zero, since that would not represent a good faith estimate.
    Second, NHTSA is providing greater flexibility to suppliers 
concerning the information they may use to make their good-faith 
estimates. Rather than specifying tracing as such, the regulation will 
permit suppliers to base their estimate on all information that is 
available to the supplier, e.g., information in its records, 
information it can obtain from its suppliers, the supplier's knowledge 
of manufacturing processes, etc.
    Third, NHTSA has concluded that it can reduce the number of stages 
for which suppliers must consider where value was added, although not 
to the degree recommended by AAMA. As indicated above, the basic 
problem with adopting AAMA's specific recommendation is that it would 
permit large amounts of foreign content to be transformed into U.S./
Canadian content and counted toward the 70 percent threshold. The 
agency believes that this possibility can be substantially reduced or 
eliminated by adopting an approach that requires a supplier to 
consider, for materials it uses which were produced or assembled in the 
U.S. or Canada, where value was added at each stage back to and 
including the two closest stages which represented a substantial 
processing operation into a new and different product with a different 
name, character and use, rather than all the way back to raw materials.
    NHTSA is adopting the following provision concerning how outside 
suppliers are to determine the U.S./Canadian content of materials used 
by the supplier which are produced or assembled in the U.S./Canada:

    (A)(1) For any material used by the supplier which was produced 
or assembled in the U.S. or Canada, the supplier will subtract from 
the total value of the material any value that was not added in the 
U.S. and/or Canada. The determination of the value that was not 
added in the U.S. and/or Canada shall be a good faith estimate based 
on information that is available to the supplier, e.g., information 
in its records, information it can obtain from its suppliers, the 
supplier's knowledge of manufacturing processes, etc.
    (2) The supplier shall consider the amount of value added and 
the location in which that value was added--
    (i) At each earlier stage, counting from the time of receipt of 
a material by the supplier, back to and including the two closest 
stages each of which represented a substantial transformation into a 
new and different product with a different name, character and use.
    (ii) The value of materials used to produce a product in the 
earliest of these two substantial transformation stages shall be 
treated as value added in the country in which that stage occurred.

    This approach can be illustrated by returning to the hypothetical 
situation involving a first-tier supplier of transmissions which 
purchases aluminum casings from a second-tier supplier located in the 
United States.
Under the July 1994 final rule, the first-tier supplier could count the 
full value of the aluminum in those casings as U.S./Canadian content 
only if it traced the aluminum back to raw materials, i.e., back to 
bauxite, and found the bauxite to be of U.S. or Canadian origin.
    Under today's amendments, the first-tier supplier need only 
consider where value was added back through two stages, i.e., the 
casting of the casing and the production of the aluminum. The second-
tier supplier, with which the first-tier supplier directly deals, will 
have information on both of these stages, i.e., it will know about its 
own casting operations and it will know the source of the aluminum it 
uses for the casting.
    If the casing was cast in the U.S. using aluminum made in the U.S. 
or Canada, the full value of the casing would be counted as U.S./
Canadian content for purposes of determining whether the 70 percent 
threshold were met. If the casing was cast in the U.S. using imported 
aluminum, the value of the imported aluminum would have to be 
subtracted from the value of the casing 

[[Page 47887]]
in determining the amount that could be counted as U.S./Canadian 
content.
    It would not be necessary, under those two circumstances, for the 
supplier to attempt to determine the origin of the bauxite used to 
produce the aluminum. For example, if the aluminum were produced in 
U.S. or Canada, the value of the materials used to make it would be 
treated as value added in the country where the aluminum was produced. 
The agency believes that the value of a material this many stages back 
is likely to be so small as not to affect labeling information. 
Moreover, it would be much more difficult to obtain information for a 
still earlier stage (before the aluminum production), since it would 
likely require contacting parties with which the first-tier supplier 
does not ordinarily have privity or any other connection.
    NHTSA notes that this approach for the materials used by suppliers 
is similar to the double substantial transformation test specified by 
customs for determining foreign value content. As indicated above, 
country of origin determinations for customs purposes do not connote 
value content. However, there are a number of programs where certain 
determinations of value must be made. The full value of imported 
materials is counted toward the full value of the good for purposes of 
programs such as the Generalized Systems of Preferences, the Caribbean 
Basin Economic Recovery Act, etc., only when the imported materials 
undergo what is known in customs law as a ``double substantial 
transformation.'' Under this standard, foreign materials can be 
considered ``materials produced in the beneficiary country'' when those 
materials are substantially transformed in that country into a new or 
different article of commerce which is then used in the production or 
manufacture of yet another new or different article (the final 
product). For a further discussion of this concept, see Treasury 
Decision 88-17, 53 FR 12143, April 13, 1988.
    Particularly given the changes discussed in this section, NHTSA 
believes that the requirement for suppliers to make content 
determinations will not be burdensome. The agency notes again that the 
Labeling Act does not require outside suppliers to provide specific 
estimates of the U.S./Canada value added of their equipment, but 
instead only requires them to indicate whether the U.S./Canada value 
added is at least 70 percent.
    NHTSA notes that AAMA indicated that a typical item of motor 
vehicle equipment represents 59 percent value added by the first-tier 
supplier and 41 percent purchased material. In order to determine in 
such an instance whether the 70 percent threshold is satisfied, a U.S./
Canada outside first--tier supplier of transmissions would only need to 
determine whether enough of the 41 percent material cost (i.e., the 
cost of the casings and other transmission parts) represented value 
added in the U.S./Canada so as to raise the 59 percent figure for the 
transmissions to at least 70 percent. The agency notes that, assuming 
the same 59:41 ratio for value added to material cost for second-tier 
suppliers, about 83 percent (59 percent + (59 percent)(41 percent)) of 
the total value added of the transmissions would typically represent 
value added by the transmission supplier itself or the second-tier 
suppliers from which it purchases materials. Moreover, the second-tier 
suppliers will know the source of the materials they use.
    As discussed above, the first-tier supplier is not limited to 
basing its estimates on actual tracing, but may instead consider all 
available information. To the extent that the value added in the U.S./
Canada of motor vehicle equipment is well above or well below 70 
percent, it will be easy for suppliers to make the required 
determination. The most difficult determinations will be for equipment 
whose value added in the U.S./Canada is close to 70 percent. To the 
extent that the reasonably available information to the supplier 
indicates that the U.S./Canada value added is near 70 percent, the 
supplier will simply have to make its best good-faith judgment whether 
it is ``at least'' 70 percent.
    NHTSA believes that the revised clarifying procedures will, in 
addition to providing appropriate additional flexibility to suppliers, 
result in more accurate information being provided to consumers. Full 
tracing back to raw materials may often be impossible, and, for 
materials made in the U.S./Canada which are used by suppliers located 
in the U.S./Canada to make their motor vehicle equipment, the agency 
believes that good faith estimates by the suppliers of the U.S./Canada 
value added will be more accurate than a procedure which specifies that 
any untraced portions of the materials be considered foreign. The 
agency believes that the concerns expressed by Senator Levin and others 
in the Congressional comment on the NPRM will be adequately addressed 
by requiring the suppliers' estimates to reflect consideration of where 
value was added at each stage back to and including the two closest 
stages which represented a substantial processing operation into a new 
and different product with a different name, character and use.
2. Non-Responsive Suppliers
    NHTSA included a provision in the final rule which specifies that 
if a manufacturer or allied supplier does not receive information from 
one or more of its suppliers concerning the U.S./Canadian content of 
particular equipment, the U.S./Canadian content of that equipment is 
considered zero. The agency stated that it does not believe that this 
situation will occur very often, and that the provision will ensure 
that U.S./Canadian content is not overstated as a result of the 
manufacturer or allied supplier simply assuming that equipment is of 
U.S./Canadian origin in the absence of information from the supplier.
    AAMA argued that the agency's expectation that few suppliers will 
fail to report is unreasonable, especially within the first few years 
of implementation. That organization stated that, for a comparison, one 
of its members' requests for data from suppliers for NAFTA certificates 
of origin has yielded a response rate of 50 to 60 percent. (In later 
information provided to the agency, AAMA indicated that the percentage 
of suppliers reporting under NAFTA ranged from 60 to 65 percent for GM, 
Ford and Chrysler.)
    AAMA argued that the content information ultimately provided to 
consumers will be more accurate if manufacturers are permitted to 
establish the U.S./Canadian content of components by other means when a 
supplier fails to respond. That organization recommended that if a 
manufacturer or allied supplier does not receive a response to its 
request for information, the manufacturer or allied supplier should be 
permitted to use the information in its records to determine the U.S. 
and Canadian content. The determination could be made by such means as 
examining the customs marking country, applying the substantial 
transformation test, or other methodologies used for customs purposes.
    As indicated above, the FY 1995 Conference Report on DOT 
Appropriations stated that this provision of the final rule, among 
others, will not ensure that the most accurate, understandable, and 
cost-effective information is provided to consumers, and directed NHTSA 
to amend the final rule to permit manufacturers and allied suppliers to 
use other methods to determine U.S./Canadian content of equipment when 
suppliers fail to provide adequate information. 

[[Page 47888]]

    NHTSA has carefully considered AAMA's request and the Congressional 
report. As discussed below, the agency has concluded that it would be 
inappropriate under the statute to make the requested change. However, 
the agency believes that its one-year extension of the temporary 
alternative approach for data collection and calculations will provide 
appropriate flexibility in this area.
    As discussed above, the Labeling Act provides that passenger motor 
vehicle equipment supplied by outside suppliers is considered U.S./
Canadian if at least 70 percent of its value is added in the U.S./
Canada. See 49 U.S.C. 32304(a)(9). The Labeling Act also provides that 
outside suppliers are required to certify, among other things, whether 
their equipment is of U.S./Canadian origin.
    While it might appear at first glance to be reasonable to permit 
manufacturers and allied suppliers to make origin determinations 
concerning equipment provided by an outside supplier in the event that 
the outside supplier fails to do so, the problem is that the 
manufacturers and allied suppliers will not possess the information 
needed to make the required determination. The agency assumes that this 
is why AAMA suggests that manufacturers and allied suppliers be 
permitted to determine whether equipment is U.S./Canadian based on 
methods other than the value added approach specified in the statute. 
However, the results that would be obtained from those other methods 
would not necessarily be consistent with the value added approach.
    NHTSA also notes that the most likely instance in which an outside 
supplier would not want to provide the required information is when the 
U.S./Canadian content was below 70 percent. In such an instance, it 
would be particularly inappropriate to permit the manufacturer to use 
alternative methods for determining whether the equipment was U.S./
Canadian.
    Moreover, the agency believes that vehicle manufacturers can obtain 
the required information from suppliers, assuming that the 
manufacturers and suppliers have the time to make any necessary 
arrangements. Apart from the fact that outside suppliers are required 
by Federal law to provide the information to manufacturers and allied 
suppliers, the outside suppliers are dependent on the auto 
manufacturers for their business. While NHTSA understands that there 
may be some confusion at the time a new program is first implemented, 
it does not believe that suppliers will deliberately refuse to provide 
the information in response to manufacturers' and allied suppliers' 
requests. The agency notes that the manufacturers can put specific 
provisions in their purchase agreements to ensure that they receive the 
required information.
    In its March 1995 initial response to petitions, NHTSA extended by 
one year the temporary alternative approach for data collection and 
calculations which permits manufacturers and suppliers to use 
procedures that are expected to yield similar results. For a more 
complete discussion of this alternative, see 59 FR 37324-25, July 21, 
1994.
    The extension of this temporary alternative gives an extra year for 
manufacturers and suppliers to work out any arrangements that are 
necessary to ensure that suppliers provide the necessary information to 
manufacturers. The agency believes that this should provide appropriate 
flexibility in light of AAMA's concerns.

C. Procedure for Determining Major Foreign Sources of Passenger Motor 
Vehicle Equipment (Section 583.7)

    As part of the procedure for determining major foreign sources of 
passenger motor vehicle equipment, NHTSA included a provision to 
prevent the possibility that the specified U.S./Canadian content and 
major foreign sources of foreign content for a carline will together 
exceed 100 percent. The agency was concerned that, due to differences 
in calculation methods for U.S./Canadian and foreign content, it would 
otherwise be possible for the sum of the U.S./Canadian and foreign 
label values of a carline to be over 100 percent, which could cause 
confusion for consumers. The agency decided to simply specify that if 
the U.S./Canada and major foreign source percentages add up to more 
than 100 percent, the foreign source percentages are proportionately 
reduced to the extent necessary to bring the percentages down to 100 
percent.
    AIAM stated that there are a number of serious problems raised by 
this provision, all involving the central question of the agency's 
authority to take this step. That organization made the following 
argument:

    As NHTSA implicitly acknowledges, the statute does not provide 
authority for such an arbitrary reduction, yet elsewhere in the 
preamble the Agency has argued that it is strictly bound by the 
language of the statute, (see e.g., the Agency's discussion on the 
authority to exclude vehicles with low or high U.S./Canadian content 
. . .). The Agency has not identified what specific authority the 
statute affords NHTSA to reduce that number to 100 percent. The 
excuse the Agency relies upon--that ``such a procedure would 
necessarily be very complicated, given certain aspects of the 
procedure for determining U.S./Canadian content'' . . . has, in an 
analogous situation, been found wanting by NHTSA for giving relief 
to companies with little U.S. content and who for the sake of 
``simplicity'' would agree to claim essentially all foreign content 
by merely indicating on the label that the U.S. content fell below a 
specified level. The Agency has refused to grant such a common sense 
exclusion because ``NHTSA has concluded that it does not have the 
authority to provide exclusions.'' * * *
    A second problem is the absence of any basis in the statute for 
the Agency's assertion (or justification) that U.S./Canadian 
percentage ``is the more important of the two items of information 
for consumers.'' . . . Again, we are unable to find in the language 
of the statute such a prioritization of the information. 
Accordingly, AIAM asks the Agency to amend the Rule by deleting 
Sec. 583.7 to require the use of the percentages as calculated in 
accordance with the terms of the statute regardless of what the 
total might be.

    NHTSA disagrees with the petitioner's suggestion that the agency 
lacks authority in this area. Section 32304(e) expressly provides that 
the agency is to prescribe regulations to carry out [the Labeling Act].
    Moreover, AIAM draws an incorrect analogy in comparing this issue 
with that of whether the agency has authority to exclude vehicles with 
high or low U.S./Canadian content from certain statutory provisions. In 
the latter case, the relevant issue was whether the agency could 
create, by rule, exclusions from express statutory requirements. The 
provision concerning reducing foreign source percentages does not 
represent an exclusion from a statutory requirement but instead is 
simply part of the procedure for determining foreign source 
percentages.
    Rather than representing a departure from the statutory 
requirements, the provision AIAM objects to was intended to ensure that 
the statutory provisions concerning determination of U.S./Canadian 
content are not effectively diluted. NHTSA explained in the final rule 
preamble that while the method for determining the U.S./Canada 
percentage is explicitly set forth in the statute, the methodology for 
determining major foreign source percentages is not in the statute. The 
agency also explained that since the statute provides a specific 
methodology for determining the U.S./Canada percentage, ``the 
Sec. 583.7 procedures have the limited purpose of providing a method 
for calculating the extent to which the remaining percentage is 
attributable to foreign countries which individually contribute at 
least 15 percent of the parts content, 

[[Page 47889]]
and the specific percentage attributable to each such foreign 
country.''
    In the absence of a specific statutory procedure, NHTSA decided to 
provide wide flexibility concerning how manufacturers are to determine 
country of origin for purposes of major foreign source percentages. 
This was for the purpose of minimizing regulatory burdens on 
manufacturers and suppliers. At the same time, the procedure must not 
be so flexible that it interferes with other aspects of the statutory 
scheme. Permitting manufacturers to identify the U.S./Canadian content 
and major sources of foreign content for a carline as exceeding 100 
percent would both confuse consumers and dilute the meaning of U.S./
Canadian content as determined under the more specific statutory 
procedures. NHTSA therefore believes that, far from being arbitrary or 
inconsistent with the statute, the provision at issue was a reasonable 
limitation on how major foreign source percentages are determined.
    On reconsideration, however, NHTSA has considered whether there may 
be a better way of addressing this potential problem. The agency notes 
that the only significant way \4\ that U.S./Canadian content and major 
sources of foreign content can exceed 100 percent is if there is 
double-counting, i.e., the same value is considered to be both U.S./
Canadian and foreign. Such double-counting would be inconsistent with 
the statute, which specifies that foreign content means passenger motor 
vehicle equipment that is not of United States/Canadian origin.

    \4\ The U.S./Canadian content and major sources of foreign 
content could also potentially exceed 100 percent as a result of the 
vehicle manufacturer rounding the percentages to the nearest five 
percent, as permitted by the statute. However, this result does not 
appear likely.
---------------------------------------------------------------------------

    The agency has considered the extent to which such double-counting 
might occur under Part 583, absent the provision about reducing foreign 
percentages.
    Double-counting would not occur for equipment supplied by outside 
suppliers. Such equipment is considered 100 percent U.S./Canadian if 70 
percent or more of its value is added in the U.S. and/or Canada and 0 
percent U.S/Canadian if less than 70 percent of its value is added in 
the U.S. and/or Canada. Moreover, the outside supplier is only to 
provide a country of origin, for purposes of major sources of foreign 
content, for equipment which has less than 70 percent of its value 
added in the U.S. and/or Canada. See section 583.10(a)(5).
    NHTSA believes that Part 583 is not so clear with respect to 
possible double-counting for equipment supplied by allied suppliers. 
Under section 583.11, allied suppliers are to provide a specific 
percentage U.S./Canadian content for their equipment, as well as a 
country of origin for purposes of major sources of foreign content. A 
manufacturer might believe that it should count the actual U.S./
Canadian content of such equipment for purposes of determining U.S./
Canadian parts content, and the total value of such equipment for 
purposes of determining major sources of foreign content. This would, 
of course, result in double-counting. The agency has decided to replace 
the provision about reducing foreign percentages with one that makes it 
clear that, in calculating major sources of foreign content, 
manufacturers are not to count any value that has been counted as U.S./
Canadian content.

D. Alternative Procedures for Manufacturers

    In the final rule preamble, NHTSA addressed comments by a number of 
manufacturers urging it to permit simplified procedures for estimating 
U.S./Canadian content. GM, for example, had recommended the use of a 
high volume configuration model as the basis for establishing the U.S./
Canadian content value for a carline.
    NHTSA stated that it does not disagree with the concept of 
permitting simplified procedures for estimating U.S./Canadian content, 
if such procedures would always ensure reliable results. The agency 
concluded, however, that the procedures which were suggested by the 
commenters, which were based on either a high volume configuration or 
best selling model, would not appear to always ensure meaningful 
results. By way of example, the agency cited a situation where the high 
volume configuration or best selling model of a carline was produced in 
the U.S./Canada and the rest of the carline was produced in a foreign 
country. NHTSA noted that content calculations based on the portion of 
the carline assembled in the U.S./Canada would likely not be 
representative of the carline as a whole.
    In petitioning for reconsideration, GM noted the agency's concern 
that alternative procedures must always produce reliable results, and 
requested that alternative, simplified procedures be permitted if the 
Administrator determines that the procedures produce substantially 
equivalent results. That manufacturer also stated that an optional 
procedure can be designed to take care of the problem in the example 
cited by the agency.
    GM noted the Labeling Act's provision stating that regulations are 
to provide the best and most understandable information possible 
without imposing costly and unnecessary burdens on manufacturers. That 
company argued that the agency has chosen as the only allowed method of 
determining U.S./Canadian content the most burdensome and costly 
procedure possible. GM explained an optional calculation procedure as 
follows:

    When attempting to average a very large number of values when 
all of the values themselves are not known, certain well accepted 
and reasonable approximation procedures can be employed to reduce 
the amount of data gathering required to calculate with an 
acceptable level of confidence. In other words, a great deal of the 
burden can be reduced while maintaining reliable and equivalent test 
results. Such procedures are accepted by the Commerce Department 
under North American Free Trade Agreement and by the Environmental 
Protection Agency in determining whether vehicles are in the 
manufacturer's domestic or foreign fleet for Corporate Average Fuel 
Economy (CAFE) purposes. Also such a procedure is used when 
determining a manufacturer's CAFE. * * * As with any volume-weighted 
calculation, only that data associated with high volumes will 
significantly impact the final calculation. Any further data 
collecting would add significant burden and provide diminishing 
returns on the accuracy of the calculated average.
    GM believes that NHTSA should accept optional calculation 
methods as an accurate measure of the average percent of U.S./
Canadian content. This will dramatically reduce the content data 
gathering burden while still maintaining a level of accuracy and 
reliability required by the AALA in the average content value 
calculation for the carline.

    The FY 1995 Conference Report on DOT Appropriations stated that to 
ensure that the final rule does not impose costly and unnecessary 
burdens on manufacturers, the conferees also direct NHTSA to amend the 
rule to allow manufacturers to propose alternative procedures for 
determining domestic content if such procedure produces reliable 
results.
    After considering GM's petition and the Congressional report, NHTSA 
has decided to add a provision along the lines suggested by GM. The 
agency wishes to reduce manufacturer and supplier costs to the extent 
possible, and the agency believes that the process recommended by GM is 
consistent with the agency's concern that alternative procedures must 
always ensure meaningful results. 

[[Page 47890]]

    NHTSA notes that GM suggested adding a single sentence to the 
regulation indicating that manufacturers may use alternative procedures 
to determine U.S./Canadian parts content provided the Administrator has 
determined that the alternative procedure will produce substantially 
equivalent results. The agency believes that it is also necessary for 
the regulation to specify the type of alternative procedures that 
manufacturers can petition for, and a more detailed procedure for 
manufacturers to follow in submitting petitions.
    NHTSA is specifying that manufacturers may petition for an 
alternative calculation procedure that is based on representative 
sampling and/or statistical sampling. The agency notes that GM's 
request to use an optional calculation procedure was in the context of 
a representative sampling approach, such as the one used by EPA for 
calculating CAFE.
    EPA's procedures provide that a manufacturer's CAFE is calculated 
based on testing a limited number of vehicles. Because EPA's procedures 
ensure that the tested vehicles are representative, with respect to 
fuel economy, of the manufacturer's fleet, the procedures result in a 
calculated average representative of the manufacturer's actual fleet 
average. (A manufacturer's actual fleet average would be the average 
fuel economy that would be measured using the prescribed test 
procedures if every car produced were actually tested.)
    NHTSA believes it is appropriate to similarly permit manufacturers 
to use a calculation procedure for the motor vehicle content labeling 
program that is based on vehicles that are representative, with respect 
to content, for the carline. The agency recognized in the preamble to 
the July 1994 final rule that a particular high volume configuration 
carline model might not be representative, with respect to content, of 
the overall carline. However, the agency believes that the petition 
process recommended by GM will ensure that manufacturers select 
vehicles that are representative.
    The agency also believes it is appropriate to permit manufacturers 
to petition for alternative calculation procedures that are based on 
statistical sampling. NHTSA notes that EPA, in developing its 
calculation procedures, considered statistical sampling approaches as 
well as representative sampling. That agency decided not to adopt a 
statistical sampling approach because it would have been much more 
costly than representative sampling, due to a need to test more 
vehicles. The motor vehicle content labeling program does not, of 
course, involve costly testing. Moreover, a statistical sampling 
approach would likely be less costly than the main approach specified 
by Part 583 and might, in some cases, be easier for manufacturers to 
implement than a representative approach. Therefore, NHTSA believes 
that statistical sampling, as well as representative sampling, should 
be included as an option for which manufacturers may petition. (For a 
further discussion of EPA's consideration of representative and 
statistical sampling approaches, see 41 FR 38677-79, September 10, 
1976.)
    The procedures specified in today's amendments require 
manufacturers to provide analysis demonstrating that the alternative 
procedure will produce substantially equivalent results. If the 
Administrator determines that the petition contains adequate 
justification, he or she will grant the petition.
    The procedures also provide that the agency will publish a notice 
of receipt of the petition and provide an opportunity for the public to 
submit comments on the petition. The Administrator will consider the 
public comments in deciding whether to grant the petition. While a 
manufacturer may submit confidential business information in support of 
a petition, the basic alternative procedure and supporting analysis 
must be public information.
    NHTSA notes that it is possible that alternative procedures may 
raise issues which require complex analysis. The agency is therefore 
including a provision in the regulation which specifies that petitions 
must be submitted not later than 120 days before the manufacturer 
wishes to use the procedure.
    While GM's petition requested that manufacturers be permitted to 
petition for alternative procedures for calculating carline U.S./
Canadian content, the agency is also making this option available for 
calculating major sources of foreign parts content. The latter 
calculations are also made on a carline basis, and the same 
considerations relevant to this issue apply to calculations for both 
items.

E. Legal Issues
1. Federal Preemption
    AIAM stated that NHTSA did not respond to the concerns it raised in 
its comment on the NPRM about the possibility of actions taken against 
automotive manufacturers by state or local authorities as a result of 
the differential treatment of suppliers or what AIAM termed ``the 
misleading nature of the information required by the underlying statute 
or compliance with the final rule.'' That organization argued that the 
label could foster consumer confusion and requested that NHTSA provide 
an express statement of Federal preemption of any state or local action 
initiated as a result of providing the required information on the 
label in accordance with the rule.
    NHTSA wishes to emphasize that, while it will respond to the issue 
of Federal preemption raised by AIAM, the agency is not accepting the 
petitioner's argument that the underlying statute or regulation results 
in misleading information or consumer confusion.
    It is a basic principle of Constitutional law that Federal law, 
including agency regulations, can preempt state law. Section 32304(f) 
expressly provides that ``(w)hen a label content requirement prescribed 
under this section is in effect, a State or a political subdivision of 
a State may not adopt or enforce a law or regulation related to the 
content of vehicles covered by a requirement under this section,'' 
although a state may prescribe requirements related to the content of 
passenger motor vehicles obtained for its own use. Moreover, Federal 
law impliedly preempts state law when, among other things, it is 
impossible to comply with both. In this context, ``state law'' includes 
the state's common law, as established through litigation.
    Given these principles, and since manufacturers are required to 
comply with section 32304 and with Part 583, no person may bring an 
action under state or local law seeking to impose liability against a 
manufacturer on the basis that it provided information required by 
Federal law. This result follows from Constitutional law, and it is not 
necessary to put a specific provision to that effect in the regulation.
2. Due Process
    AIADA submitted a very brief petition requesting that the agency 
``reconsider and vacate its final rule on Motor Vehicle Content 
Labeling.'' As grounds for its request, it stated that ``(t)he rule is 
unconstitutionally vague and unequal and discriminatory in its 
application and therefore constitutes a denial of due process in 
violation of the Fifth Amendment to the United States Constitution and 
the Administrative Procedure Act.'' The petitioner also cited ``(a)l 
the reasons set forth in AIADA's letters * * * dated January 11, 1992 
and January 18, 1994.''
    NHTSA cannot grant AIADA's request. The agency notes that it cannot 


[[Page 47891]]
simply ``vacate'' the content labeling final rule, since the rule is 
required by section 32304. NHTSA also notes that AIADA's stated concern 
about ``due process'' is so vague that it is not possible to identify 
what specific concerns about the final rule it might relate to. While 
the petition cites that organization's earlier letters, NHTSA has 
already responded to those issues in previous Federal Register notices, 
including the final rule preamble. AIADA did not discuss why it is 
unsatisfied with the agency's responses or even acknowledge the 
responses. Therefore, there is no basis for the agency to give any 
further consideration to AIADA's petition.
3. Authority to Exclude Vehicles With Low U.S./Canadian Content
    VW requested the agency to reconsider its determination that it 
lacks authority to permit manufacturers selling vehicles with low U.S./
Canadian content, e.g., less than 35 percent, from stating such content 
as ``minimal'' or ``less than 35 percent,'' instead of indicating an 
actual percentage, as specified in the statute. That company made the 
following argument:

    The NHTSA acknowledges that it has implied authority to create 
exclusions from the statutory requirements of the [Labeling Act] in 
cases of administrative need and where a literal application of the 
statutory language would lead to absurd or futile results or 
produces a gain of trivial value or of no value at all. The NHTSA 
concluded, however, that all manufacturers have the capability of 
implementing the statutory language literally and that disclosure on 
the label of the actual U.S./Canadian parts content percentage per 
carline offers a benefit to the consumer which is more than trivial. 
We disagree.
    While one may argue over whether or not disclosure of the actual 
percentage in the case of a carline with marginal U.S./Canadian 
parts content bestows more than trivial benefits on the public when 
compared with a disclosure of that content as ``minimal,'' we note 
that the Federal Court of Appeals in the case of Alabama Power 
Company v. Costle, 636 F.2d 323 (1979) did not view the ``trivial'' 
standard to be relevant to a situation where the benefits are 
exceeded by the costs associated with providing those benefits. The 
court stated that in that event, the Agency should be guided by the 
aims of the statute it is implementing and the Congressional intent 
as expressed in the statute's legislative history.
    In the case before us there appears to be no need to explore the 
legislative history because the statute is plain on its face in 
providing in section 210(d) that ``the regulations shall provide to 
the ultimate purchaser of a new passenger motor vehicle the best and 
most understandable information possible about the foreign and U.S./
Canadian origin of equipment of such vehicles without imposing 
costly and unnecessary burdens on the manufacturers.'' (Emphasis 
supplied by VW)
    VW submits that the statute is clear in directing the NHTSA to 
strike a balance between communicating to the public ``the best and 
most understandable information possible'' and the ``cost'' and 
``necessity'' of burdening the manufacturer. We believe that the 
NHTSA erred in striking the correct balance between these competing 
considerations as Congress directed it to do.

    VW noted that it imports vehicles from both Germany and Mexico. It 
stated that the German vehicles are estimated to have a small fraction 
of U.S./Canadian parts content which could not reasonably be relevant 
to a U.S. consumer's purchasing decision. That company stated that 
while its Mexican vehicles are likely to have a greater U.S./Canadian 
parts content, that content is not sufficient to permit the conclusion 
that disclosure of the actual percentage would not be dictated by a 
correct balancing of the factors described in section 210(d). VW argued 
that its vehicles originating in Mexico are largely manufactured with 
equipment originating in Europe and Mexico, are marketed and perceived 
by the U.S. market as foreign made, and are purchased because they are 
unlike any other offerings to the market by the transplants or the 
domestic manufacturers.
    VW also estimated that the assignment of a staff of five full time 
employees at a total cost of approximately $500,000 annually will be 
necessary at its various manufacturer locations to comply with the 
regulations as adopted, and that $150,000 of that amount is 
attributable to those portions of the regulation which require the 
calculation and disclosure of actual percentage figures rather than 
estimates designed to determine whether or not a particular carline has 
U.S./Canadian parts content below a range of about 20 percent to 35 
percent.
    VW argued that the Labeling Act is very specific in directing NHTSA 
to take costs into account in determining the form and content of the 
information which the manufacturer must disclose. That company argued 
that this directive is specific rather than general in nature and that 
it leaves no room for debate irrespective of whether or not the benefit 
to the public is trivial or non-trivial.
    While NHTSA has carefully considered VW's arguments, it continues 
to believe that it lacks authority to provide exclusions, along the 
lines discussed above, for vehicles with low U.S./Canadian content. As 
discussed below, the agency believes that VW is incorrectly 
interpreting one sentence in section 210(d) (now replaced by 49 U.S.C. 
32304(e)) as overriding more specific statutory provisions.
    Since VW based its argument in part on the case of Alabama Power 
Co., the agency will begin its analysis by quoting the relevant portion 
of that case:

    Exemptions for De Minimis Circumstances. Categorical exemptions 
may also be permissible as an exercise of agency power, inherent in 
most statutory schemes, to overlook circumstances that in context 
may fairly be considered de minimis. . . .
    Determination of when matters are truly de minimis naturally 
will turn on the assessment of particular circumstances, and the 
agency will bear the burden of making the required showing. But we 
think most regulatory statutes . . . permit such agency showings in 
appropriate cases.
    While the difference is one of degree, the difference of degree 
is an important one. Unless Congress has been extraordinarily rigid, 
there is likely a basis for an implication of de minimis authority 
to provide exemption when the burdens of regulation yield a gain of 
trivial or no value. That implied authority is not available for a 
situation where the regulatory function does provide benefits, in 
the sense of furthering the regulatory objectives, but the agency 
concludes that the acknowledged benefits are exceeded by the costs. 
For such a situation any implied authority to make cost-benefit 
decisions must be based not on a general doctrine but on a fair 
reading of the specific statute, its aims and legislative history. . 
. . 636 F.2d at 360-61.

    In the final rule preamble, NHTSA explained that an exclusion 
cannot be justified on the de minimis theory if non-trivial benefits 
would otherwise be provided. The agency concluded that it does not have 
authority to provide the relevant exclusion for vehicles with low U.S./
Canadian content because such an exclusion would permit the labels on a 
substantial portion of the vehicles sold to provide the consumer with 
significantly less information than Congress intended, thereby 
eliminating much of the benefit that the Labeling Act was intended to 
provide.
    The agency added:

    For example, a ``low-end'' exclusion would permit a large 
percentage of foreign vehicles to be labeled with the words 
``minimal'' or less than 35 percent (or some other specified 
percentage) U.S./Canadian content, instead of being labeled with a 
specific percentage. Consumers would not know whether vehicles 
bearing such labels contained (on a carline basis) 0 percent, about 
15 percent, or possibly even nearly 35 percent U.S./Canadian 
content. A consumer wishing to make a purchase decision among 
vehicles bearing such labels would not be able to compare their 
U.S./Canadian content. . . .
    NHTSA notes that section 210(b)(2) allows rounding of the 
percentages, but limits the 

[[Page 47892]]
rounding ``to the nearest five percent.'' This indicates that specific 
percentages must be listed (since general percentages aren't 
amenable to rounding) and that any rounding to a greater degree is 
prohibited. In this regard, it is particularly important to note 
that the degree of permissible rounding permitted by the enacted 
version of Sec. 210 is significantly less than the degree that would 
have been permitted in the introduced version. In the introduced 
version, rounding would have been permitted to the nearest 10 
percent. The enacted version permits rounding only to the nearest 5 
percent. Thus, Congress focused particular attention on the issue of 
rounding and decided to adopt strict limits. Moreover, implicit in 
the enacted rounding provision is a judgment by Congress that 
differences in content of as little as five percentage points are 
significant enough to be considered by the consumer.

    The agency continues to believe that the Labeling Act and its 
legislative history make it clear that requirements which enable 
consumers to distinguish vehicles with 0 percent, 5 percent, 10 
percent, 15 percent, 20 percent, 25 percent, 30 percent, and 35 percent 
U.S./Canadian content provide non-trivial benefits. While such 
information may not make a difference to consumers who wish to purchase 
a vehicle that is primarily of U.S./Canadian origin, the information 
may be relevant for consumers in making a purchase decision between 
vehicles with relatively low U.S./Canadian content, e.g., for a 
consumer who may be deciding between a vehicle with 0 percent U.S./
Canadian content and one which has 20 percent U.S./Canadian content.
    VW's primary argument on reconsideration is that ``NHTSA did not 
properly balance the statutory considerations requiring the parts 
content label to contain `the best and most understandable information' 
to the consumer with the cost and administrative burdens imposed upon a 
manufacturer such as VW, as Congress expressly directed it to do in the 
form of a clear and precise mandate.'' However, VW is incorrectly 
reading a general statutory provision as overriding most of the rest of 
the statute.
    Section 32304(e) reads in relevant part as follows:

    (e) REGULATIONS.--. . . The Secretary of Transportation shall 
prescribe regulations necessary to carry out this section, including 
regulations establishing a procedure to verify the label information 
required under subsection (b)(1) of this section. Those regulations 
shall provide the ultimate purchaser of a new passenger motor 
vehicle with the best and most understandable information possible 
about the foreign content and United States/Canadian origin of the 
equipment of the vehicles without imposing costly and unnecessary 
burdens on the manufacturers. . . .

    VW is reading the second sentence of section 32304(e) outside of 
context. The first sentence makes it clear that the required 
regulations are ``to carry out this section.'' The term ``this 
section'' refers to section 32304, which includes numerous very 
specific requirements concerning the content information which 
manufacturers are required to provide. The second sentence is not an 
invitation for NHTSA to second-guess Congress on all of the specific 
requirements in section 32304 concerning content information, e.g., 
whether the information Congress decided to require manufacturers to 
provide is ``best,'' whether that information is ``most 
understandable,'' etc. The sentence instead indicates the factors NHTSA 
must consider in exercising its limited discretion in developing the 
required regulation. The agency observes that VW's reading of this 
sentence would reduce virtually all of the specific requirements of 
section 32304 to suggestions for NHTSA's consideration.
    VW argued that the sentence at issue is specific rather than 
general in nature. That argument was apparently made in response to the 
agency's statement in the final rule preamble that, as a matter of 
statutory construction, general provisions cannot be construed as 
overriding specific ones. NHTSA isn't arguing that it need not follow 
that sentence. What is significant is that the second sentence of 49 
U.S.C. 32304(e) is general as compared to other relevant provisions of 
the statute.
    Of particular significance, section 32304(b) reads as follows:

    (b) MANUFACTURER REQUIREMENT.--(1) Each manufacturer of a new 
passenger motor vehicle * * * shall establish each year for each 
model year and cause to be attached in a prominent place on each of 
those vehicles, at least one label. The label shall contain the 
following information:
    (A) the percentage (by value) of passenger motor vehicle 
equipment of United States/Canadian origin installed on vehicles in 
the carline to which that vehicle belongs, identified by the words 
``U.S./Canadian content.'' (Emphasis added.)

    This subsection expressly and specifically requires manufacturers 
to provide certain information, on the label, including the percentage 
U.S./Canadian parts content. Following accepted principles of statutory 
construction, the agency cannot interpret a more general provision as 
overriding this specific provision.

F. Clarifying Amendments

    NHTSA is making several amendments suggested by AAMA for purposes 
of clarity. The amendments help clarify when the U.S. and Canada are 
treated together and when they are treated separately in making country 
of origin determinations. The amendments also help clarify requirements 
concerning optional information for carlines assembled in the U.S./
Canada and in one or more other countries.

G. Letter From Ford

    Ford submitted a letter requesting NHTSA's concurrence on a 
procedure for determining the U.S./Canadian content and country of 
origin for foreign-sourced allied and outside supplier components. That 
company explained its request as follows:

    [Part 583] assigns zero domestic content to all passenger motor 
vehicle equipment which is imported into the territorial boundaries 
of the United States or Canada from a third country, even if part of 
its material originated in the United States or Canada. 49 CFR 583.7 
allows the supplier to use methodologies that are used for customs 
purposes to determine the country of origin. Ford expects that for 
any imported component, both allied and outside, suppliers would 
report that the domestic content is zero and the country of origin 
is the country of manufacture, based on the rules of substantial 
transformation.
    Ford can obtain the same information (zero domestic content, 
country of manufacture, purchase price) expected to be received from 
our foreign suppliers from our present purchasing systems. Since the 
process of soliciting the supplier is costly, Ford plans to assign 
the domestic content and country of origin of the foreign sourced 
components without soliciting the data from our foreign suppliers. 
We are concerned that even if Ford did submit the request to foreign 
suppliers, that suppliers would have to expend additional resources 
creating a document which Ford already knows the answer. Even if the 
foreign supplier does not respond, the domestic content and country 
of origin will not be any different than if they did respond. Ford 
believes that requiring these suppliers to respond will impose 
costly and unnecessary burdens on our foreign suppliers.

    NHTSA notes that it decided to address Ford's request in this 
notice, since it was related to some of the issues raised by the 
petitions for reconsideration.
    After carefully considering Ford's request in light of the Labeling 
Act and Part 583, NHTSA has decided that, for equipment supplied by 
foreign suppliers and imported into the U.S. or Canada, manufacturers 
may use any available information to make determinations of zero U.S./
Canadian content, country of manufacture, and purchase price, as an 
alternative to relying on supplier certifications. The agency notes 
that this represents a change in position from the final rule preamble. 
The reasons for the agency's new position are set forth below. 

[[Page 47893]]

    In the final rule preamble, NHTSA noted that Toyota had commented 
that ``blanket certifications'' should be authorized for use where a 
supplier's parts contain no U.S./Canadian content and where the country 
of origin of the equipment is indicated in ordinary business records. 
In responding to this comment, the agency noted that the Labeling Act 
provides that the agency's ``regulations shall include provisions 
applicable to outside suppliers and allied suppliers to require those 
suppliers to certify whether passenger motor vehicle equipment provided 
by those suppliers is of United States origin, of United States/
Canadian origin, or of foreign content and to provide other information 
* * * necessary to allow each manufacturer to comply reasonably with 
this section and to rely on that certification and information.'' 49 
U.S.C. 32304(e). NHTSA concluded that, given this statutory provision, 
it cannot permit the use of ordinary business records instead of 
specific certifications. See 59 FR 37319. (The agency did note that a 
certification can cover multiple items of equipment and be incorporated 
into business records that contain other information.)
    On further consideration, NHTSA has concluded that the above-quoted 
sentence of section 32304(e) should not be read to require 
manufacturers to obtain information from suppliers that the 
manufacturer can determine on its own. The agency believes that 
statutory requirement is met literally by section 583's requirement for 
suppliers to provide manufacturers and allied suppliers, upon their 
request, a certificate providing the relevant information. The agency 
also believes that there is no reason to require manufacturers to 
request information for which they already know the answer.
    With respect to whether manufacturers can make the relevant content 
determinations, NHTSA believes that it is important to distinguish 
between passenger motor vehicle equipment that is assembled or produced 
in the U.S. or Canada, and equipment imported into the U.S. or Canada 
that was produced in third countries. For reasons discussed in the 
section on ``non-responsive suppliers,'' manufacturers and allied 
suppliers will not possess the information needed to determine whether 
equipment produced in the U.S. or Canada is of U.S./Canadian origin, 
i.e., whether the equipment has at least 70 percent U.S./Canadian 
content.
    However, manufacturers may possess the information necessary to 
make content determinations for equipment imported into the U.S. or 
Canada that was produced in third countries. Under section 583.6(c), 
the U.S./Canadian content of such equipment is presumed to be zero. 
Moreover, section 583.7 provides considerable flexibility in making 
country-of-origin determinations for such equipment. Therefore, for 
equipment supplied by foreign suppliers which is imported into the U.S. 
or Canada, the agency believes it is reasonable to permit manufacturers 
to use any available information to make determinations of zero U.S./
Canadian content, country of manufacture, and purchase price, as an 
alternative to relying on supplier certifications. Manufacturers can, 
of course, request the information of foreign suppliers instead of 
making their own determinations.
    NHTSA does not believe that there is a need to change the 
regulation to reflect this new position. The agency notes that section 
583.5(h) requires manufacturers and allied suppliers to request their 
suppliers to provide directly to them the information and 
certifications ``which are necessary for the manufacturer/allied 
supplier to carry out its responsibilities under [Part 583].'' Thus, 
manufacturers and allied suppliers are not required to request 
information which is unnecessary for them to carry out their 
responsibilities.

VI. Rulemaking Analyses and Notices

A. Executive Order 12866 and DOT Regulatory Policies and Procedures

    NHTSA has considered the impacts of this rulemaking action under 
Executive Order 12866 and the Department of Transportation's regulatory 
policies and procedures. This rulemaking document was reviewed under 
Executive Order 12866. The July 1994 final rule was determined to be 
``significant'' under the Department's regulatory policies and 
procedures, given the degree of public interest and the relationship to 
other Federal programs and agencies, particularly those related to 
international trade. This final rule is sufficiently related to that 
final rule to also be considered significant.
    NHTSA discussed the costs associated with the July 1994 rule in a 
Final Regulatory Evaluation which was placed in the docket for this 
rulemaking. Today's amendments should slightly reduce manufacturer and 
supplier costs by simplifying the process for making content 
determinations.

B. Regulatory Flexibility Act

    Pursuant to the Regulatory Flexibility Act, the agency has 
considered the impact this rulemaking will have on small entities. I 
certify that this action will not have a significant economic impact on 
a substantial number of small entities. Therefore, a regulatory 
flexibility analysis is not required for this action. Although certain 
small businesses, such as parts suppliers and some vehicle 
manufacturers, are affected by the regulation, the effect on them is 
minor since the requirements are informational.

C. National Environmental Policy Act

    The agency has analyzed the environmental impacts of the regulation 
in accordance with the National Environmental Policy Act, 42 U.S.C. 
4321 et seq., and has concluded that it will not have a significant 
effect on the quality of the human environment.

D. Executive Order 12612 (Federalism)

    This action has been analyzed in accordance with the principles and 
criteria contained in Executive Order 12612, and it has been determined 
that the rule does not have sufficient Federalism implications to 
warrant the preparation of a Federalism Assessment.

E. Paperwork Reduction Act

    The reporting and recordkeeping requirements associated with this 
final rule are being submitted to the Office of Management and Budget 
for approval in accordance with 44 U.S.C. chapter 35.

F. Executive Order 12778 (Civil Justice Reform)

    This rule does not have any retroactive effect. States are 
preempted from promulgating laws and regulations contrary to the 
provisions of the rule. The rule does not require submission of a 
petition for reconsideration or other administrative proceedings before 
parties may file suit in court.

List of Subjects in 49 CFR Part 583

    Motor vehicles, Imports, Labeling, Reporting and recordkeeping 
requirements.

    In consideration of the foregoing, 49 CFR part 583 is amended as 
follows:

PART 583--AUTOMOBILE PARTS CONTENT LABELING

    1. The authority citation for part 583 continues to read as 
follows:

    Authority: 49 U.S.C. 32304, 49 CFR 1.50, 501.2(f).

    2. Section 583.5 is amended by revising paragraph (e)(3) to read as 
follows:


Sec. 583.5  Label requirements.

* * * * *
    (e) * * *
    (3) A manufacturer selecting this option for a particular carline 
shall 

[[Page 47894]]
provide the specified additional information on the labels of all 
vehicles within the carline, providing the U.S./Canadian content that 
corresponds to the U.S./Canadian content of the manufacturing location 
shown as the final assembly point (with all U.S. and Canadian locations 
considered as a single assembly point) on the label.
* * * * *
    3. Section 583.6 is revised to read as follows:


Sec. 583.6  Procedure for determining U.S./Canadian parts content.

    (a) Each manufacturer, except as specified in Sec. 583.5(f) and 
(g), shall determine the percentage U.S./Canadian Parts Content for 
each carline on a model year basis, before the beginning of each model 
year. Items of equipment produced at the final assembly point (but not 
as part of final assembly) are treated in the same manner as if they 
were supplied by an allied supplier. All value otherwise added at the 
final assembly point and beyond, including all final assembly costs, 
are excluded from the calculation of U.S./Canadian parts content.
    (b) Determining the value of items of equipment.
    (1) For items of equipment received at the final assembly point, 
the value is the price paid by the manufacturer for the equipment as 
delivered to the final assembly point.
    (2) For items of equipment produced at the final assembly point 
(but not as part of final assembly), the value is the fair market price 
that a manufacturer of similar size and location would pay a supplier 
for such equipment.
    (3) For items of equipment received at the factory or plant of an 
allied supplier, the value is the price paid by the allied supplier for 
the equipment as delivered to its factory or plant.
    (c) Determining the U.S./Canadian percentage of the value of items 
of equipment. 
    (1) Equipment supplied by an outside supplier to a manufacturer or 
allied supplier is considered:
    (i) 100 percent U.S./Canadian, if 70 percent or more of its value 
is added in the United States and/or Canada; and
    (ii) 0 percent U.S./Canadian, if less than 70 percent of its value 
is added in the United States and/or Canada.
    (2) The extent to which an item of equipment supplied by an allied 
supplier is considered U.S./Canadian is determined by dividing the 
value added in the United States and/or Canada by the total value of 
the equipment. The resulting number is multiplied by 100 to determine 
the percentage U.S./Canadian content of the equipment.
    (3) In determining the value added in the United States and/or 
Canada of equipment supplied by an allied supplier, any equipment that 
is delivered to the allied supplier by an outside supplier and is 
incorporated into the allied supplier's equipment, is considered:
    (i) 100 percent U.S./Canadian, if at least 70 percent of its value 
is added in the United States and/or Canada; and
    (ii) 0 percent U.S./Canadian, if less than 70 percent of its value 
is added in the United States and/or Canada.
    (4)(i) Value added in the United States and/or Canada by an allied 
supplier or outside supplier includes--
    (A) The value added in the U.S. and/or Canada for materials used by 
the supplier, determined according to (4)(ii) for outside suppliers and 
(4)(iii) for allied suppliers, plus,
    (B) For passenger motor vehicle equipment assembled or produced in 
the U.S. or Canada, the value of the difference between the price paid 
by the manufacturer or allied supplier for the equipment, as delivered 
to its factory or plant, and the total value of the materials in the 
equipment.
    (ii) Outside suppliers of passenger motor vehicle equipment will 
determine the value added in the U.S. and/or Canada for materials in 
the equipment as specified in paragraphs (A) and (B).
    (A)(1) For any material used by the supplier which was produced or 
assembled in the U.S. or Canada, the supplier will subtract from the 
total value of the material any value that was not added in the U.S. 
and/or Canada. The determination of the value that was not added in the 
U.S. and/or Canada shall be a good faith estimate based on information 
that is available to the supplier, e.g., information in its records, 
information it can obtain from its suppliers, the supplier's knowledge 
of manufacturing processes, etc.
    (2) The supplier shall consider the amount of value added and the 
location in which that value was added--
    (i) At each earlier stage, counting from the time of receipt of a 
material by the supplier, back to and including the two closest stages 
each of which represented a substantial transformation into a new and 
different product with a different name, character and use.
    (ii) The value of materials used to produce a product in the 
earliest of these two substantial transformation stages shall be 
treated as value added in the country in which that stage occurred.
    (B) For any material used by the supplier which was imported into 
the United States or Canada from a third country, the value added in 
the United States and/or Canada is presumed to be zero. However, if 
documentation is available to the supplier which identifies value added 
in the United States and/or Canada for that material (determined 
according to the principles set forth in (A), such value added in the 
United States and/or Canada is counted.
    (iii) Allied suppliers of passenger motor vehicle equipment shall 
determine the value that is added in the U.S. and/or Canada for 
materials in the equipment in accordance with (c)(3).
    (iv) For the minor items listed in the Sec. 583.4 definition of 
``passenger motor vehicle equipment'' as being excluded from that term, 
outside and allied suppliers may, to the extent that they incorporate 
such items into their equipment, treat the cost of the minor items as 
value added in the country of assembly.
    (v) For passenger motor vehicle equipment which is imported into 
the territorial boundaries of the United States or Canada from a third 
country, the value added in the United States and/or Canada is presumed 
to be zero. However, if documentation is available to the supplier 
which identifies value added in the United States and/or Canada for 
that equipment (determined according to the principles set forth in the 
rest of (c)(4)), such value added in the United States and/or Canada is 
counted.
    (vi) The payment of duty does not result in value added in the 
United States and/or Canada.
    (5) If a manufacturer or allied supplier does not receive 
information from one or more of its suppliers concerning the U.S./
Canadian content of particular equipment, the U.S./Canadian content of 
that equipment is considered zero. This provision does not affect the 
obligation of manufacturers and allied suppliers to request this 
information from their suppliers or the obligation of the suppliers to 
provide the information.
    (d) Determination of the U.S./Canadian percentage of the total 
value of a carline's passenger motor vehicle equipment. The percentage 
of the value of a carline's passenger motor vehicle equipment that is 
U.S./Canadian is determined by--
    (1) Adding the total value of all of the equipment (regardless of 
country of origin) expected to be installed in that carline during the 
next model year;
    (2) Dividing the value of the U.S./Canadian content of such 
equipment by the amount calculated in paragraph (d)(1) of this section, 
and
    (3) Multiplying the resulting number by 100.

[[Page 47895]]

    (e) Alternative calculation procedures.
    (1) A manufacturer may submit a petition to use calculation 
procedures based on representative or statistical sampling, as an 
alternative to the calculation procedures specified in this section to 
determine U.S./Canadian parts content and major sources of foreign 
parts content.
    (2) Each petition must--
    (i) Be submitted at least 120 days before the manufacturer would 
use the alternative procedure;
    (ii) Be written in the English language;
    (iii) Be submitted in three copies to: Administrator, National 
Highway Traffic Safety Administration, 400 Seventh Street SW., 
Washington, DC 20590;
    (iv) State the full name and address of the manufacturer;
    (v) Set forth in full the data, views and arguments of the 
manufacturer that would support granting the petition, including--
    (A) the alternative procedure, and
    (B) analysis demonstrating that the alternative procedure will 
produce substantially equivalent results to the procedure set forth in 
this section;
    (vi) Specify and segregate any part of the information and data 
submitted in the petition that is requested to be withheld from public 
disclosure in accordance with part 512 of this chapter (the basic 
alternative procedure and basic supporting analysis must be provided as 
public information, but confidential business information may also be 
used in support of the petition).
    (3) The NHTSA publishes in the Federal Register, affording 
opportunity for comment, a notice of each petition containing the 
information required by this part. A copy of the petition is placed in 
the public docket. However, if NHTSA finds that a petition does not 
contain the information required by this part, it so informs the 
petitioner, pointing out the areas of insufficiency and stating that 
the petition will not receive further consideration until the required 
information is submitted.
    (4) If the Administrator determines that the petition does not 
contain adequate justification, he or she denies it and notifies the 
petitioner in writing, explaining the reasons for the denial. A copy of 
the letter is placed in the public docket.
    (5) If the Administrator determines that the petition contains 
adequate justification, he or she grants it, and notifies the 
petitioner in writing. A copy of the letter is placed in the public 
docket.
    (6) The Administrator may attach such conditions as he or she deems 
appropriate to a grant of a petition, which the manufacturer must 
follow in order to use the alternative procedure.

    4. Section 583.7 is amended by revising paragraphs (c)(1) and (f) 
to read as follows:


Sec. 583.7  Procedure for determining major foreign sources of 
passenger motor vehicle equipment.

* * * * *
    (c) * * *
    (1) Except as provided in (c)(2), the country of origin of each 
item is the country which contributes the greatest amount of value 
added to that item (treating the U.S. and Canada together).
* * * * *
    (f) In determining the percentage of the total value of a carline's 
passenger motor vehicle equipment which is attributable to individual 
countries other than the U.S. and Canada, no value which is counted as 
U.S./Canadian parts content is also counted as being value which 
originated in a country other than the U.S. or Canada.

    5. Section 583.8 is amended by revising paragraphs (c)(1) and (e) 
to read as follows:


Sec. 583.8  Procedure for determining country of origin for engines and 
transmissions for purposes of determining the information specified by 
Secs. 583.5(a)(4) and 583.5(a)(5) only.

* * * * *
    (c) * * *
    (1) Except as provided in (c)(2), the country of origin of each 
item of equipment is the country which contributes the greatest amount 
of value added to that item (the U.S. and Canada are treated 
separately).
* * * * *
    (e) The country of origin of each engine and the country of origin 
of each transmission is the country which contributes the greatest 
amount of value added to that item of equipment (the U.S. and Canada 
are treated separately).

    Issued on: September 11, 1995.
Ricardo Martinez,
Administrator.
[FR Doc. 95-22902 Filed 9-14-95; 8:45 am]
BILLING CODE 4910-59-P