[Federal Register Volume 61, Number 77 (Friday, April 19, 1996)]
[Rules and Regulations]
[Pages 17253-17256]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-9705]



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DEPARTMENT OF TRANSPORTATION
National Highway Traffic Safety Administration

49 CFR Part 583

[Docket No. 92-64; Notice 08]
RIN 2127-AG03


Motor Vehicle Content Labeling

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

ACTION: Denial of petition for reconsideration.

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SUMMARY: The American Automobile Labeling Act requires passenger motor 
vehicles (passenger cars and other light vehicles) to be labeled with 
information about their domestic and foreign parts content. NHTSA 
issued a final rule in July 1994 to implement that statute. In 
September 1995, in response to petitions for reconsideration, the 
agency issued a final rule modifying that final rule. This document 
responds to a petition for reconsideration of the September 1995 final 
rule. Upon review, the agency is denying the petition.

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

SUPPLEMENTARY INFORMATION:

Background

    On July 21, 1994, NHTSA published in the Federal Register (59 FR 
37294) a new regulation, 49 CFR Part 583, Automobile Parts Content 
Labeling, to implement the American Automobile Labeling Act (Labeling 
Act). That Act, which is codified at 49 U.S.C. 32304, requires 
passenger motor vehicles to be labeled with information about their 
domestic and foreign parts content.
    Under the Labeling Act and Part 583, vehicle manufacturers are 
required to affix to all new passenger motor vehicles a label which 
provides the following information: U.S./Canadian Parts Content, Major 
Sources of Foreign Parts Content, Final Assembly Point, Country of 
Origin for the Engine, and Country of Origin for the Transmission. 
Vehicle manufacturers must calculate the information for the label, 
relying on information provided to them by suppliers. Under the 1994 
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.
    NHTSA received a number of petitions for reconsideration of the 
1994 final rule, including one from the American Automobile 
Manufacturers Association (AAMA). NHTSA issued two notices in response 
to those petitions.
    In a final rule published in the Federal Register (60 FR 14228) on 
March 16, 1995, NHTSA partially responded to the petitions for 
reconsideration by extending, for an additional year, 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 to the full procedures set forth in 
Part 583. NHTSA provided this temporary alternative approach in the 
1994 final rule because there was insufficient remaining time, before 
the statutory date for beginning to provide labeling information, for 
manufacturers to complete the full procedures. The agency provided the 
one-year extension of the temporary approach in light of a substantial 
number of complex issues raised about the full procedures in the 
petitions for reconsideration and the time needed by the agency to 
address those issues.
    The agency completed its response to the petitions in a final rule 
published in the Federal Register (60 FR 47878) on September 15, 1995. 
The agency made a number of changes to reduce the burdens associated 
with making content calculations and to produce more accurate 
information.
    The agency received one petition for reconsideration of the 
September 1995 final rule. AAMA re-raised an issue that it had raised 
in its first petition, concerning a provision in Part 583 which 
specifies 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. In initially 
adopting this provision in the July 1994 final rule, the agency stated 
that it did not believe that this situation will occur very often and 
that the provision will ensure that U.S./

[[Page 17254]]

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's First Petition and NHTSA's Response

    In its first petition for reconsideration, AAMA argued that the 
agency's expectation that few suppliers will fail to report is 
unreasonable, especially within the first few years of implementation 
of Part 583. For purposes of comparison, that organization stated that 
requests by one of its members for data from suppliers for NAFTA 
certificates of origin had yielded a response rate of only 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 in its first petition 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./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.
    After considering AAMA's request in its petition for 
reconsideration of the July 1994 final rule, NHTSA concluded that it 
would be inappropriate under the statute to make the requested change. 
The agency provided the following explanation:

    * * * 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.

60 FR 47888.

AAMA's Second Petition and NHTSA's Response

    AAMA continues to be concerned about the provision in Part 583 
which specifies 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. In its new petition 
for reconsideration, AAMA noted that the September 1995 final rule 
provided outside suppliers additional flexibility for determining U.S./
Canadian content and argued that the same flexibility should be 
provided for vehicle manufacturers in situations where suppliers fail 
to respond to requests for content information. AAMA argued that 
NHTSA's expectation that simple contractual provisions can resolve 
problems in gathering required data is incorrect and that the existing 
``default-to-zero'' provision will result in inaccurate information 
being provided to consumers.
    NHTSA has carefully considered AAMA's arguments. For reasons 
discussed below, the agency continues to believe that it would be 
inappropriate under the statute to make the requested change.
    The purported need to change the current provision rests on the 
assumption that the vehicle manufacturers will be unable to obtain the 
necessary content information from outside suppliers, notwithstanding 
that Federal law requires the suppliers to provide this information. 
Further, as discussed above, NHTSA noted in the September 1995 notice 
that the vehicle manufacturers can put specific provisions in their 
purchase agreements to ensure that they receive the required 
information.
    AAMA stated in its new petition for reconsideration that while 
NHTSA assumes that all problems in gathering the required data can be 
resolved by simple contractual provisions, its member companies' 
extensive real-world experience refutes this notion. AAMA stated that 
the elements of cost that lead to the ultimate price of a product are 
considered by most business entities to be proprietary and are not 
shared with the customer. AAMA stated that the industry's experience 
demonstrates that, even with protracted efforts to obtain the data from 
suppliers and multiple follow-up contacts, not all suppliers will 
respond. According to AAMA, ``best efforts'' for one manufacturer have 
resulted in response rates of approximately 70 percent. AAMA also 
argued that in an age of increased single-sourcing and reliance on 
just-in-time delivery, it is unrealistic for the agency to believe a 
nonresponsive supplier could or would be replaced by a manufacturer 
simply for not providing content data.
    NHTSA notes that AAMA's petition did not discuss whether its member 
companies experienced difficulty in obtaining content information from 
suppliers in the presence or absence of specific contractual provisions 
intended to ensure the provision of content information by suppliers. 
As stated in the September 1995 notice, outside suppliers are dependent 
on the vehicle manufacturers for their business. Therefore, the agency 
believed, and continues to believe, that the ability to obtain the 
necessary content

[[Page 17255]]

information is within the control of the vehicle manufacturers.
    The purpose of including any specific provision in a business 
contract is to make observance of the terms of that provision a 
required element of the business relationship. Just as such things as 
meeting material specifications, strength requirements and specified 
time of delivery are a necessary part of a supplier's doing business 
with a vehicle manufacturer and are ensured by provisions included in 
contractual agreements, the providing of content information can also 
be made a necessary part of that business relationship and be reflected 
in the purchase contract.
    Moreover, just as liquidated damages clauses can be inserted in a 
contract for failure to comply with any other part of the contract, so 
can such a provision be included for failure to provide timely content 
reports. If a supplier knows that it will be paid less money if it 
fails to provide content information, it will have a strong incentive 
to provide the information.
    The agency also notes that the supplier industry is highly 
competitive. If one supplier is unwilling to agree to provide content 
information (an agreement to do no more than comply with existing 
Federal law), other suppliers would step in to take advantage of the 
opportunity for new business.
    For the above reasons, including those presented in the September 
1995 notice, NHTSA continues to believe that the vehicle manufacturers 
will be able to obtain the required content information from their 
suppliers. While the rest of AAMA's arguments appear to be premised on 
the manufacturers' inability to obtain that information, the agency 
will nonetheless discuss those arguments.
    AAMA argued that substantial nonreporting, such as the 30 percent 
experienced despite the ``best efforts'' of one of its members, would 
result in inaccurate labeling. However, NHTSA believes that substantial 
nonreporting can be avoided if the vehicle manufacturers utilize the 
types of contractual provisions discussed above. Moreover, as suppliers 
become familiar with the content labeling program, those providing 
parts having at least 70 percent U.S./Canadian content have an 
additional incentive to report that information. To the extent that 
vehicle manufacturers wish to adverse their vehicles with as high a 
domestic percentage as possible, it is to the competitive advantage of 
suppliers with parts having at least 70 percent U.S./Canadian content 
to provide the necessary information to the vehicle manufacturers. For 
this reason, and the others discussed above and in the September 1995 
notice, the agency believes that these suppliers will not refuse to 
provide information to the vehicle manufacturers. Therefore, 
substantial nonreporting will not result in inaccurate labeling.
    AAMA also argued that NHTSA should not assume that the vehicle 
manufacturers have insufficient knowledge of their suppliers to make 
reliable content estimates. As indicated above, AAMA noted that the 
September 1995 final rule provided outside suppliers additional 
flexibility for determining U.S./Canadian content and argued that the 
same flexibility should be provided for vehicle manufacturers in 
situations where suppliers fail to respond to requests for content 
information.
    The November 1994 final rule specified that outside suppliers could 
only count the materials they used in producing equipment as U.S./
Canada to the extent that they had ``traced'' value added in the U.S./
Canadian to the extent that they had ``traced'' value added in the 
U.S./Canada, back to raw materials. In the September 1995 final rule, 
the agency provided additional flexibility to suppliers by permitting 
them to base their estimate of value added in the U.S./Canada 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. AAMA argued that the 
nonresponsive supplier issue is essentially the ``same basic issue at 
the manufacturers' level'' as the tracing issue was at the supplier 
level and that the agency should not have treated the issues 
differently.
    NHTSA believes that there are fundamental differences between the 
tracing issue and the nonresponsive supplier issue. The agency decided 
to permit greater flexibility with respect to how suppliers determine 
the U.S./Canadian value of the materials they use to produce equipment 
primarily to avoid unnecessary burdens on suppliers. Tracing would have 
been costly, and potentially impossible at production stages far 
removed from the supplier. The nonresponsive supplier issue is not 
related to regulatory burdens and, as discussed above, the agency 
believes vehicle manufacturers have the ability to obtain the required 
information from suppliers.
    The agency also notes that there appears to be a paradox in AAMA's 
suggesting that vehicle manufacturers have sufficient knowledge of 
their suppliers to make reliable content estimates, while at the same 
time stating that suppliers consider the elements of cost that lead to 
the ultimate price of a product to be proprietary information not to be 
shared with the customer. The content determination at issue is whether 
a particular item of equipment has, or does not have, at least 70 
percent value added in the U.S./Canada. To make this determination, it 
is necessary to know a great deal about the value added by the supplier 
and the source of materials used by the supplier. The supplier is 
obviously in a much better position to make this determination about 
its own equipment than the vehicle manufacturer because, for one thing, 
the supplier knows how much value it added to the equipment.
    While AAMA's petition focused on the nonresponsive supplier issue, 
that organization also raised an issue concerning the specified 
procedures for outside suppliers to use in estimating the U.S./Canadian 
content of materials they purchase to produce items of passenger motor 
vehicle equipment. Under the September 1995 final rule, the suppliers 
are to make a good faith estimate of the value added in the U.S. 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), 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.'' See Sec. 583.6(c)(4)(ii). AAMA stated that when 
applying any of the optional methods, outside suppliers should not be 
required to obtain value information from suppliers that have no 
responsibility under the statute to respond.
    NHTSA notes that the Labeling Act (Sec. 32304(e)) required the 
agency to issue regulations which include provisions requiring outside 
suppliers to certify whether their passenger motor vehicle equipment is 
of U.S./Canadian origin. Moreover, as indicated above, the Labeling Act 
provides that this determination must be based on whether the equipment 
has at least 70 percent value added in the U.S./Canada. Therefore, the 
content of the materials used to produce the equipment is a significant 
factor in determining whether the equipment is U.S./Canadian.
    The agency decided not to include requirements for lower-tier 
suppliers in Part 583, as part of an effort to avoid unnecessary costs 
and keep the regulatory scheme as simple as possible. This does not, 
however, change the fact

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that ``first-tier'' outside suppliers must certify whether their 
equipment has at least 70 percent value added in the U.S./Canada. It 
also does not change the fact that lower-tier suppliers, especially the 
ones with which the outside suppliers deal directly, are a reliable 
source for obtaining information that is relevant to making that 
determination.
    NHTSA believes it is reasonable to require outside suppliers to 
make good faith estimates based on the information that is available to 
them, and reliable information may well be available from their 
suppliers. Therefore, the agency believes the current requirement is 
reasonable.
    Upon review, based on the reasons discussed above, NHTSA denies 
AAMA's petition for reconsideration.

    (Authority: 49 U.S.C. 32304; delegation of authority at 49 CFR 
1.50.)

    Issued on: April 15, 1996.
Ricardo Martinez,
Administrator.
[FR Doc. 96-9705 Filed 4-18-96; 8:45 am]
BILLING CODE 4910-59-P