Motor Vehicle Content Labeling |
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Christopher A. Hart
National Highway Traffic Safety Administration
July 21, 1994
[Federal Register: July 21, 1994]
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Part II
Department of Transportation
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National Highway Traffic Safety Administration
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49 CFR Part 583
Motor Vehicle Content Labeling; Final Rule
DEPARTMENT OF TRANSPORTATION
National Highway Traffic Safety Administration
49 CFR Part 583
[Docket No. 92-64; Notice 05]
RIN 2127-AE63
Motor Vehicle Content Labeling
AGENCY: National Highway Traffic Safety Administration (NHTSA), DOT.
ACTION: Final rule.
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SUMMARY: The American Automobile Labeling Act provides that, beginning
October 1, 1994, passenger cars and other light vehicles must be
labeled with information about their domestic and foreign content. The
new labels will enable consumers to take country of origin information
into account in deciding which new vehicle to purchase.
This final rule establishes a new regulation to implement this
statute. The regulation includes requirements which apply to motor
vehicle manufacturers, suppliers of passenger motor vehicle equipment,
and motor vehicle dealers. For model year 1995 and model year 1996
carlines which are first offered for sale to ultimate purchasers before
June 1, 1995, manufacturers and suppliers may, instead of following the
detailed calculation procedures set forth in this new regulation, use
procedures that they expect, in good faith, to yield similar results.
DATES: This regulation is effective August 22, 1994. Petitions for
reconsideration must be received not later than August 22, 1994.
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. Nelson Gordy, Office of Market
Incentives, National Highway Traffic Safety Administration, room 5313,
400 Seventh Street SW., Washington, DC 20590 (202-366-4797).
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Background
A. Statutory Requirements
B. Request for Comments and Public Meeting
C. Notice of Proposed Rulemaking
II. Summary of Comments
III. Overview of Final Rule
A. Manufacturers of Passenger Motor Vehicles
B. Suppliers of Passenger Motor Vehicle Equipment
C. Dealers of Passenger Motor Vehicles
D. First Year Requirements
IV. Agency Rationale and Response to Comments
A. Major Issues Concerning Information on the Label
1. Definitions (Sec. 583.4)
a. Carline
b. Final assembly/Final assembly point
c. Passenger motor vehicle equipment
2. Items to be Provided on the Label; Wording of the Label
(Sec. 583.5)
a. Use of the term ``parts content''
b. Explanatory note
c. Place of final assembly
3. Procedure for Determining U.S./Canadian Parts Content
(Sec. 583.6)
a. Determining the value of items of equipment
b. Determining the U.S./Canadian percentage of the value of
items of equipment
c. Determining the U.S./Canadian percentage of the total value
of a carline's passenger motor vehicle equipment
4. Procedure for Determining Major Foreign Sources of Passenger
Motor Vehicle Equipment (Sec. 583.7)
5. Procedure for Determining Country of Origin for Engines and
Transmissions (Sec. 583.8)
a. Assembly costs
b. Parts that are produced at engine and transmission plants
c. Other issues concerning determining country of origin for
engines and transmissions
B. Format/Location for Label
C. Attachment of Label
D. Requirements for Suppliers and Related Ones for Manufacturers
E. Requirements for Dealers
F. Authority to Exclude Vehicles with Low or High U.S./Canadian
Content
G. Multi-Stage Manufacturers and Small Businesses
H. Recordkeeping Requirements; Supplier Certifications
I. Reporting Requirements
J. Leadtime/First Year Requirements
K. Other Issues
1. Supplier definitions
2. Definitions of dealer and ultimate purchaser
3. Joint ventures
4. Currency exchange rate calculations
5. Value added by foreign suppliers
6. International agreements; Mexico
7. Consumer guide
L. May 1994 Congressional Comment
V. 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, Public Law 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.
NHTSA notes that on July 5, 1994, the President signed a bill (Pub.
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. 32304, Passenger motor vehicle
country of origin labeling. Since this final rule was essentially
completed before the new bill was signed and since the bill did not
contain substantive changes, NHTSA is not revising the preamble of this
final rule to delete references to section 210 and cite the new
statutory sections. However, the statutory citations in the regulatory
text have been updated. If the agency determines that additional
conforming changes are appropriate for the regulatory text, it will
make them at a later time.
Section 210 requires passenger motor vehicles1 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.
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\1\The term ``passenger motor vehicle,'' defined in section 2(1)
of the Cost Savings Act as a motor vehicle with motive power,
designed for carrying 12 persons or less, is amended for purposes of
section 210 to include any ``multipurpose passenger vehicle'' and
``light duty truck'' that is rated at 8,500 pounds gross vehicle
weight rating or less. Thus, the new 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 210(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 countries2 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;
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\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 point by city, state (where appropriate),
and country;
(4) The country of origin of the engine; and
(5) The country of origin of the transmission.3
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\3\As discussed elsewhere in this document, for purposes of
items four and five of the label, engine and transmission country of
origin determinations exclude assembly costs. Therefore, these items
can also be referred to as the country of origin of an engine's or
transmission's ``parts.'' This preamble refers to these items in
both manners, i.e., country of origin for the engine (or
transmission) and country of origin for the engine (or transmission)
parts.
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Section 210(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, e.g., body,
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 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 210(f)(5)(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 210(f)(5)(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
210(c) 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 210(d) 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 and U.S./Canada origin of the equipment of such
vehicles without imposing costly and unnecessary burdens on the
manufacturers. Finally, section 210(d) also specifies that the
regulations include provisions requiring suppliers to certify whether
their equipment is of U.S., U.S./Canadian, or foreign origin.
Section 210 does not specify a specific date for completing the
rulemaking. However, section 210(d) does direct that the regulations be
promulgated in time to provide adequate compliance leadtime before
content labeling becomes mandatory on October 1, 1994.
B. Request for Comments and Public Meeting
On November 18, 1992, NHTSA published in the Federal Register (57
FR 54351) a request for comments in order to obtain information which
would be of assistance in developing a proposal to implement section
210. To add an additional dimension to the effort to obtain public
input, a public meeting was held on December 17, 1992, during which the
agency heard nine speakers. More than 20 written comments were
subsequently received by the agency, including comments from vehicle
manufacturers, and manufacturer and dealer groups.
C. Notice of Proposed Rulemaking
On November 19, 1993, NHTSA published in the Federal Register (57
FR 61042) a notice of proposed rulemaking (NPRM) for a new regulation
to implement section 210. The NPRM reflected the agency's consideration
of the matters raised in the oral and written comments received in
response to the request for comments, as well as many other issues. In
developing the proposed regulation, the agency necessarily followed the
language of section 210 as closely as possible. NHTSA noted in the NPRM
that, given the high level of detail set forth in the statute, the
agency has little discretion with respect to many aspects of the
calculation and labeling scheme. A summary of the proposed regulation
follows.
Under the proposed regulation, vehicle manufacturers would be
required to affix to all new passenger motor vehicles a label which
provides the five items of content information specified by section
210. The agency proposed to require specific language for the label.
The NPRM included a sample label, consistent with the proposed
requirements, which read as follows:
PARTS CONTENT INFORMATION
For vehicles in this carline:
U.S./Canadian Parts Content: 50%
Major Sources of Foreign Parts Content:
Japan: 20%
Mexico: 15%
For this vehicle:
Final Assembly Point: Flint, Michigan, USA
Country of Origin:
Engine: U.S.
Transmission: Canada
Note: The PARTS CONTENT of a typical vehicle makes up about (a
range was to be specified in a final rule) percent of the vehicle's
total wholesale cost to the dealer.
NHTSA proposed to specify the heading ``PARTS CONTENT INFORMATION''
to draw the attention of consumers to the content information, and
indicate the subject of the information. The purpose of the proposed
sub-headings ``For vehicles in this carline'' and ``For this vehicle''
was to advise consumers which items of information relate to the
carline as a whole and which relate to the individual vehicle. The
purpose of the proposed explanatory note at the bottom of the label was
to inform consumers about the percentage of a typical vehicle's
wholesale cost to the dealer that is attributable to parts content,
thereby helping consumers avoid confusing the parts content information
specified on the label with overall vehicle value (which would include
other factors such as final assembly labor).
In order to ensure that vehicle manufacturers have the information
necessary to calculate the information for the content labels, NHTSA
proposed to require each supplier of passenger motor vehicle equipment
to provide specified information about the content of the equipment it
supplies. Under the proposal, the information was to be provided
directly to the party receiving the equipment, i.e., either a vehicle
manufacturer or an allied supplier, in the form of a certification. The
agency proposed specific provisions concerning when the information was
to be provided.
NHTSA also proposed specific procedures for manufacturers and
suppliers to follow in calculating values for the label. One issue of
particular note was which costs are to be regarded as costs incurred at
the final assembly point and beyond, including the costs of assembly
and labor. Section 210 provides that these costs are not to be included
in the calculation of parts content. NHTSA noted that manufacturers may
conduct some pre-assembly operations, e.g., production of equipment, at
the same location as final assembly. The agency tentatively concluded
that such operations should be treated in the same fashion as the
operations of an allied supplier. The agency proposed to specify a
particular phase in the assembly process, for both the body and
chassis, that would mark the beginning of final assembly.
Another significant issue which NHTSA addressed in the NPRM was
whether ``carline'' should encompass different countries of assembly.
At present, there are a number of vehicle models that include some
vehicles assembled in the U.S./Canada and other vehicles assembled in
other countries. The agency tentatively concluded that country of final
assembly should not be considered in making carline determinations,
since section 210 specifies that carline determinations are to be made
based on degree of commonality in construction. NHTSA recognized,
however, that additional subdivision of carlines by country of assembly
would result in labeling information that is more representative of the
individually labeled vehicles. The agency requested comments on
requiring additional labeling information for carlines assembled in
more than one country.
NHTSA also addressed the issue of whether any limited exclusions
should be provided from section 210's labeling requirements. The agency
stated that it was considering whether manufacturers of vehicles with
low U.S./Canadian content should be permitted to identify the amount of
such content as ``minimal'' instead of being required to calculate a
specific percentage. The agency also indicated that it was considering
excluding multi-stage and low volume manufacturers from the requirement
to provide the first two items of information on the label, i.e., the
two items which must be calculated on a carline basis. NHTSA stated
that, as part of considering whether any limited exclusions should be
provided, the agency was in the process of evaluating its authority to
provide such exclusions.
NHTSA also proposed to require manufacturers to report certain
content information to the agency, and to require manufacturers and
suppliers to maintain records of the information underlying the
information provided on the content label. The agency proposed to
require dealers to maintain the content label on each vehicle until the
vehicle is sold to a consumer.
II. Summary of Comments
The agency received about 80 comments on the NPRM, including ones
from vehicle manufacturers, suppliers, automotive trade associations,
and private citizens. A brief, representative summary of the major
comments follows. A more specific discussion of representative
comments, and the agency's responses, are set forth later in this
preamble.
The American Automobile Manufacturers Association (AAMA),
representing General Motors (GM), Ford and Chrysler, expressed concern
about the timing of the final regulation. That organization stated that
the proposed regulation will require extensive data collection and
calculation requirements, and that there are several areas of
uncertainty that will not be resolved until a final rule is issued.
AAMA stated that it has been working in conjunction with the Automotive
Industry Action Group (AIAG) and a number of suppliers to establish
processes to comply with the law, but has been unable to complete this
activity because of uncertainties about the final rule. AAMA stated
that manufacturers and suppliers will not be able to comply with all
the data collection and calculation requirements by the October 1994
implementation date. It requested NHTSA to allow manufacturers and
suppliers to use procedures that are expected to yield similar results
for at least 12 months after the final rule is published.
In addition to expressing its concern about timing, AAMA urged the
agency to make numerous changes in the proposed regulation. On the
subject of the wording of the label, that organization objected to
describing the first item of information as ``U.S./Canadian Parts
Content.'' AAMA argued that the statute specifies use of the term
``U.S./Canadian Content,'' and that the inclusion of the word ``parts''
is contrary to the statute. That commenter also recommended against
including an explanatory note concerning the percentage of a typical
vehicle's wholesale cost to the dealer that is attributable to parts
content. AAMA stated that such a note would be confusing to the
consumer and could be misleading because of the broad range of ratios
that exist for vehicles.
AAMA also recommended a number of changes with respect to the
proposed procedures for calculating the information on the label. One
of the recommendations concerned which operations should be considered
part of final assembly. That organization stated that under NHTSA's
proposal, the painted body and chassis would be considered a substrate
to which passenger motor vehicle equipment is attached to produce a
finished vehicle. AAMA stated that this approach is contrary to the
generally accepted definition of the passenger motor vehicle equipment
assembly process. That organization agreed, however, that the
production of certain equipment at the final assembly point should not
be considered part of final assembly but should instead be included in
the valuation of the motor vehicle equipment and content calculations.
AAMA recommended that the agency define ``final assembly'' to include
all operations involved in the assembly of the vehicle performed at the
final assembly point, 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.
AAMA also recommended numerous other changes related to such things
as how the value of passenger motor vehicle equipment is determined,
how the engine and transmission countries of origin are determined, the
responsibilities of suppliers, how values in the currency of one
country should be converted into values in the currency of another
country, the time when the label must be attached to the vehicle, and
what requirements are appropriate with respect to maintenance of
records and reporting content information to the agency. On the subject
of supplier requirements, AAMA stated that the proposal would require
that suppliers report on all parts supplied to a manufacturer or allied
supplier regardless of value of the item of equipment or the country of
manufacture. That organization recommended that the reporting
requirement be limited to providing content data on those items of
equipment for which such data was requested by the manufacturer.
On the subject of how vehicle models that are assembled in both the
U.S./Canada and other countries should be treated, AAMA stated that the
statute contains a sufficient definition of ``carline'' and that
additional information should not be provided on the label to indicate
that a carline is produced in more than one country. That organization
stated that separate content calculations, one set for each assembly
country and the entire carline, would cause unnecessary burdens and
confuse the consumer.
On the subject of possible exclusions, AAMA supported a limited
exclusion for vehicles with low U.S./Canadian parts content, albeit at
a lower content level from that discussed in the NPRM. AAMA also stated
that since the agency ``has implied'' that it has the authority to set
a minimal level for the U.S. and Canadian content which removes a
recordkeeping burden on the low end of content, it urged that such
relief also be provided for the high end of content. That organization
recommended that, for carlines with more than 85 percent U.S./Canadian
content, manufacturers be permitted to specify the content as ``at
least'' 85 percent instead of stating a specific percentage.
GM, Ford and Chrysler also each submitted individual comments. To a
large extent, these comments reiterated arguments made by AAMA. An
additional argument made by GM concerned the calculation methodology
for determining the percentage U.S./Canadian content for a carline. GM
stated that the agency had proposed that the proper method to establish
the U.S./Canadian content for a carline would be to reasonably project
the installation rates for all equipment options and choice offered on
that carline; multiply those rates by the U.S./Canadian content value
for each option or choice, and divide the result by the total value for
all equipment, domestic or foreign. That company stated that it has
found for cost management and planning purposes that the use of a high
volume configuration carline model results in better management control
of the assembly process than the so-called average equipped carline
model. GM stated that such a model has found wide acceptance in
calculations made for corporate average fuel economy (CAFE) emission
testing configurations and most recently for vehicle configurations
under NAFTA. That company recommended that the agency permit
manufacturers to use established carline cost management models for
establishing the percentage U.S./Canadian content required to be
included in the AALA domestic content label.
Foreign vehicle manufacturers also recommended numerous changes in
the proposed requirements, but often from a very different perspective
from that of the domestic vehicle manufacturers. For example, while the
domestic manufacturers urged a change in the proposed definition of
``final assembly'' so that it is considered to begin earlier in the
vehicle manufacturing process, the foreign manufacturers generally
urged changes in the definition so that it is considered to begin later
in the vehicle manufacturing process.
The Association of International Automobile Manufacturers (AIAM)
and Toyota stated that the point of final assembly should be considered
to be no sooner than the point at which the engine and vehicle body are
fastened together. AIAM argued that the Labeling Act defines ``final
assembly'' as the time when ``all component parts necessary to the
mechanical operation of such automobile are included,'' and stated that
the proposed definition would defy the stated intent of the Act and
defy all conventional wisdom with respect to the automotive
manufacturing process. Nissan stated that an appropriate point to be
identified as the beginning of final assembly is the moment in the
production process just before the attachment of the engine and drive
train to the chassis. Mitsubishi stated that the point where final
assembly begins should be defined as the point at which the engine and
body are fastened. According to that company, this would be more
consistent with the agency's proposed definition of ``final assembly
point'', where all components and parts necessary to the mechanical
operation of such automobile are included.
BMW commented that NHTSA's proposal defined ``final assembly'' with
regard to the body as the point at which the body leaves the paint
shop. That company stated that this portion of the definition is very
precise and that the costs associated with it will likely be similar
between manufacturers regardless of painting process or vehicle design.
BMW commented, however, with regard to definition of final assembly of
the chassis, that it believes a manufacturer would be able to tailor
the assembly process to take advantage of the definition and alter its
carline's part content percentages. That company stated that this
portion of the definition employs the point at which the engine and
transmission are placed on the chassis frame or on the assembly cradle.
According to BMW, because this point can be varied, a manufacturer
would have the opportunity to install or not install equipment such as
the brake system including ABS, wheels and tires, and interior
components and trim. BMW commented that a manufacturer could choose to
install the engine last, essentially including all labor and overhead
in its parts content calculations. BMW recommended that the agency
investigate assembly processes and include a more definitive point to
stop including costs associated with the chassis assembly.
The foreign vehicle manufacturers also generally had very different
views than the domestic manufacturers with respect to the treatment of
vehicle models including some vehicles assembled in the U.S./Canada and
other vehicles assembled in other countries. AIAM stated that failing
to allow manufacturers to distinguish between countries of production
within a particular carline directly contradicts the Act's stated
purpose of providing consumers with the best and most understandable
information possible. That organization stated that it believes that
NHTSA has the authority to adopt a country of production split for
determining the parts content percentages for carlines, in order to
follow the stated intent of the Act. According to AIAM, without carline
subdivision, the information presented to the consumer will be at best
misleading, and at worst totally inaccurate.
The Japan Automobile Manufacturers Association (JAMA) urged that
separate calculations for carlines manufactured in more than one
country at least be permitted. That organization stated that the
failure to specify such percentages separately would result in an
overstated domestic content on imported vehicles and an understated one
on domestically produced vehicles. According to JAMA, the U.S. consumer
cannot possibly be served by such misleading information.
While numerous foreign vehicle manufacturers objected to the
agency's proposal to exclude country of assembly as a factor to
consider in making carline determinations, several indicated that, if
NHTSA did not change that position, they supported the concept of
providing additional information on the label concerning such vehicles.
Honda, for example, stated that such additional information would
improve the accuracy of the information provided to the consumer.
The foreign vehicle manufacturers differed among themselves on the
question of whether an explanatory note should be provided concerning
the percentage of a typical vehicle's wholesale cost to the dealer that
is attributable to parts content. AIAM, for example, stated that such
additional information would only serve to confuse the consumer, and
that a single percentage range to be used by all manufacturers cannot
adequately illustrate the many variations involved in the manufacture
and distribution of motor vehicles. JAMA, however, argued that it is
vital to consumer understanding to clarify the fact that the label
calculation does not include vehicle final assembly labor.
The foreign vehicle manufacturers strongly supported a limited
exclusion for vehicles with low U.S./Canadian parts content. However,
several of them argued that unless the agency also permits a limited
exclusion from providing the information required for item two of the
label, i.e., the percentage parts content originating from major
sources of foreign content, there would be only a minimal benefit from
an exclusion from specifying the percentage U.S./Canadian parts
content. This is because the foreign manufacturers would have to
collect detailed information from most of their suppliers to calculate
the information for item two of the label. The foreign manufacturers
suggested various alternative approaches, such as requiring them to
specify the countries that constitute major sources of foreign content
but not the percentages from such countries.
Like the domestic vehicle manufacturers, the foreign manufacturers
recommended numerous other changes in the proposed regulation, relating
to such things as how the value of passenger motor vehicle equipment is
determined, how the engine and transmission countries of origin are
determined, the responsibilities of suppliers, how currencies should be
converted, the time when the label must be attached to the vehicle, and
what requirements are appropriate with respect to maintenance of
records and reporting content information to the agency.
NHTSA received comments from several suppliers and one supplier
trade association, the Automotive Parts Manufacturers' Association
(APMA). That association stated that if the agency does not adopt the
AIAG model of content calculation, the regulation should specifically
state how outside suppliers should calculate U.S./Canadian content.
APMA stated that the proposed rule relies on the definitions of ``value
added'' and ``foreign content'' in the statute, but that neither the
statute nor the regulation give specific regulatory direction
concerning how outside suppliers are to calculate ``value added in the
U.S./Canada.''
The agency also received comments from two dealer associations, the
National Automobile Dealers Association (NADA) and the American
International Automobile Dealers Association (AIADA). These
organizations submitted comments which focused on dealer
responsibilities and other issues of concern to dealers.
NHTSA also received comments from final stage manufacturers and the
National Truck Equipment Association (NTEA), a trade association
representing distributors and manufacturers of multi-stage produced
work-related trucks, truck bodies and equipment. These comments focused
on issues of concern to final stage manufacturers.
III. Overview of Final Rule
Today's final rule establishes a new regulation, 49 CFR Part 583,
Automobile Parts Content Labeling, to implement section 210 of the Cost
Savings Act. The regulation establishes 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.
A. Manufacturers of Passenger Motor Vehicles
Beginning on October 1, 1994, vehicle manufacturers are required to
affix to all new passenger motor vehicles (this category includes
passenger cars, certain small buses, and all trucks and multipurpose
passenger vehicles with a gross vehicle weight rating (GVWR) of 8,500
pounds or less) a label which provides the following information:
(1) U.S./Canadian Parts Content--the overall percentage, by value,
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 by using 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.
B. 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
or to a supplier wholly owned by the vehicle manufacturer (an allied
supplier), 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.
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.
C. Dealers of Passenger Motor Vehicles
Dealers are required to maintain the label on each vehicle until
the vehicle is sold to a consumer.
D. First Year Requirements
For model year 1995 vehicles and model year 1996 vehicles which are
offered for sale to ultimate purchasers before June 1, 1995,
manufacturers and suppliers may, instead of following the detailed
calculation procedures set forth in this new regulation, use procedures
that they expect, in good faith, to yield similar results.
IV. Agency Rationale and Response to Comments
A. Major Issues Concerning Information on the Label
In this section of the preamble, NHTSA presents its analysis of the
major issues and comments concerning the information on the label,
including, but not limited to, ones relating to what information is
provided on the label and the wording of the label, how manufacturers
must calculate the specified information, and how suppliers are to make
the necessary determinations concerning the origin of the equipment
they supply.
For ease of comparison with the proposed regulation, the discussion
of issues is generally organized according to the sections of the
proposed regulation to which they relate. The agency notes that in some
cases the cited sections are relevant not only to the major issues
concerning the information on the label, but also to other issues. The
other issues are discussed elsewhere in the preamble.
1. Definitions (Section 583.4)
The definitions section prescribes the meaning of terms and
concepts which are used throughout the content labeling regulation. As
discussed below, some of the terms and concepts have a significant
effect on the information to be provided on the label, and some of the
proposed definitions were controversial with many commenters.
a. Carline. Section 210(b) specifies that U.S./Canadian parts
content and major sources of foreign parts content (items one and two
on the label) are determined on a ``carline'' basis, instead of for
each individual vehicle. Section 210(f) defines carline as meaning a
name denoting a group of vehicles which has a degree of commonality in
construction (e.g., body, chassis), and not considering any level of
decor or opulence and not generally distinguished by such
characteristics as roof line, number of doors, seats, or windows,
except for light duty trucks. That section also provides that light
duty trucks are considered to be different carlines than passenger
cars.
NHTSA addressed a number of issues in the NPRM concerning whether
the meaning of carline should be further clarified by regulation. One
significant issue was whether carline should encompass vehicles
assembled in different countries. At present, there are a number of
vehicle models that are assembled in the U.S. and/or Canada and in
other countries. The agency tentatively concluded that country of final
assembly should not be considered in making carline determinations,
since section 210 specifies that carline determinations are to be made
based on degree of commonality in construction.
The agency noted that determining carlines on the basis of country
of assembly appears inconsistent with this statutory definition since
identical cars, i.e., ones with total commonality in construction,
could be placed in different carlines. NHTSA also noted that such a
result might result in consumer confusion. For example, if a consumer
ordered a car identical to one for which he or she had taken a test
drive, the consumer would find it very odd if the car he or she
received had a label indicating that it was in a different carline.
NHTSA recognized, however, that additional subdivision of carlines
by country of manufacture would result in content labeling information
that is more representative of the individually labeled vehicles. The
agency requested comments on a possible requirement for manufacturers
to include additional information on the label for carlines assembled
in more than one country, such as a statement of the U.S./Canadian
parts content and major foreign sources of that portion of the carline
produced in a given country.
NHTSA also requested comments on the possibility of differentiating
carlines by engine type, whether light trucks should be separated into
different carlines depending on whether they are 2-wheel drive or 4-
wheel drive, and on whether any other distinctions should be specified
for making carline determinations.
NHTSA received numerous comments concerning the definition of
carline. In the discussion which follows, the agency will first address
comments concerning the issue of whether ``carline'' should encompass
vehicles assembled in different countries, and the related issue of a
possible requirement for manufacturers to include additional
information on the label for carlines assembled in more than one
country. The agency will then discuss other issues related to the
definition of carline.
Carline and different countries of assembly. AAMA supported NHTSA's
tentative conclusion that carline is not distinguished by country of
final assembly. That organization noted that the statutory definition
is similar to the definition used in other Federal regulations and is
also used in industry to establish carlines. AAMA argued that to
maintain consistency among Federal regulations and to minimize the
administrative burden, the definitions and interpretation of carline
used for the Labeling Act should be the same as those used for CAFE.
AAMA also commented that it disagrees with including additional
information on the label for carlines that are assembled in more than
one country. That organization argued that separate content carline
calculations, one set for each assembly country and the entire carline,
would cause unnecessary burden and confuse consumers. According to
AAMA, this method would create the same or more confusion than allowing
manufacturers to separate carlines based on country of assembly. That
organization also commented that vehicles produced in both the U.S. and
Canada would have similar content values, and listing information twice
would cause confusion.
While the United Auto Workers (UAW) did not submit a comment on the
NPRM, it made the following argument in response to the agency's 1992
request for comments:
(I)n doing the model line calculations, imported vehicles must
be combined with vehicles produced in the United States. The
automakers do not have the option of splitting the two groups of
vehicles. The definition of ``carline'' in the new statute is based
on the definition under the CAFE program. Since those standards do
not permit foreign and domestic versions of the same carline to be
split, this should not be allowed under the vehicle content labeling
statute.
AIAM commented that failing to allow manufacturers to distinguish
between countries of production within a particular carline directly
contradicts the Act's stated purpose of providing consumers with the
best and most understandable information possible. That organization
stated that it believes that NHTSA has the authority to adopt a
country-of-production split for determining the parts content
percentages for carlines, in order to follow this stated intent of the
Act. According to AIAM, without carline subdivision, the information
presented to the consumer will be at best misleading, and at worst
totally inaccurate.
JAMA urged that separate calculations for carlines manufactured in
more than one country at least be permitted. That organization stated
that the failure to specify such percentages separately would result in
an overstated domestic content on imported vehicles and an understated
one on domestically produced vehicles. According to JAMA, the U.S.
consumer cannot possibly be served by such misleading information.
Toyota stated that it believes the agency's tentative conclusion
that country of assembly should not be considered in making carline
determinations is incorrect as a matter of statutory construction and
Congressional intent. It argued that the statute does not compel NHTSA
to require averaging of equipment content information on a worldwide
basis for a particular carline.
Toyota stated that since section 210(b)(1)(A) requires disclosure
of the percentage of U.S./Canadian-origin equipment ``installed on such
vehicle within a carline,'' the Labeling Act contemplates that the
percentage disclosed will have a relationship to both the individual
vehicle and the carline to which it belongs. (Emphasis in Toyota's
comment.) That company recognized that section 210(b)(2) requires the
calculation of the percentage to made ``for such carline,'' but argued
that it is incorrect to read section 210(b)(2) out of context and ``in
disregard of the requirement imposed by the literal language of section
210(b)(1)(A).'' Toyota argued that a model carline percentage that
fails to approximate the level of content on the particular vehicle
would not satisfy this requirement.
Toyota also argued that the lack of a reference in the statutory
definition of carline to the country or countries where a carline is
assembled indicates that the agency may exercise a level of discretion
in determining how the (b)(1)(A) calculation is to be performed with
respect to carlines manufactured in multiple countries. That company
stated that NHTSA's exercise of that discretion should be guided by
section 210(d)'s requirement that the ultimate purchaser should be
provided ``the best and most understandable information possible.''
Toyota argued that consumers reading the label will expect the
equipment content percentages disclosed on the label to apply to a
class of vehicles of which the particular vehicle being observed is
representative. That company argued that any such disclosure that
attempts to average, for example, vehicles manufactured in the United
States or Canada with vehicles manufactured in Japan cannot possibly
provide the consumer with meaningful information because of
dissimilarity with respect to the sourcing of equipment.
Toyota also argued that it believes the treatment of carline under
CAFE regulations is irrelevant to the issue of whether Labeling Act
equipment content reporting must be averaged for a carline produced in
more than one country. That company argued that the two statutes have
completely different purposes. Toyota stated that it may be appropriate
under CAFE to average fuel economy data, because fuel economy of a
carline is determined by vehicle design, an element that vehicles in a
carline have in common regardless of where they are produced. That
commenter stated that the opposite is the case for sourcing patterns,
which typically differ greatly by country of manufacture.
Honda argued that the agency's tentative decision to combine ``dual
nationality'' nameplates into a single carline is fundamentally
inconsistent with the stated goal of the sponsor of the legislation--
providing consumers sufficient information to ``buy American'' if they
so choose. That company argued that, under the agency's proposal, the
domestic content of the equipment on U.S./Canadian built ``dual
nationality'' vehicles will be understated, while the domestic content
of the equipment on their foreign-built twins will be overstated.
Honda stated that there is no reason to read the law to require
such a result that it believes would frustrate the fundamental purpose
of the Labeling Act. It noted the agency's stated concern that
determining carlines based on country of origin would permit identical
cars to be placed in different carlines, and argued that this result
will occur under the agency's proposal. That company cited the Ford
Taurus and Mercury Sable as an example. Honda also cited NHTSA's stated
concern that consumers might be confused if they took delivery of a
vehicle with a label indicating a different ``carline'' than the
vehicle they test drove. That company stated that this potential for
confusion is not greater than that which might arise if the delivered
vehicle shows a different final assembly point or country of origin of
the engine or transmission than those on the label of the test driven
model.
BMW also disagreed with the agency's tentative conclusion that
country of assembly should not be considered in making carline
determinations. First, that company argued that the Labeling Act does
not prohibit division of vehicles by country. That company stated that
given the fact that Congress defined carline as a ``name,'' which is
generally assigned by a manufacturer, it believes Congress intended
carlines to be established by manufacturers. BMW stated that it
believes Congress was attempting to alleviate the burden on
manufacturers by giving them the maximum flexibility to group vehicles
together, while not allowing completely unrelated vehicles to be
incorporated into one set of parts content calculations.
BMW argued that Congress placed the restriction of having
``commonality in construction'' to define the largest grouping by which
a manufacturer is allowed to divide its vehicles. According to that
company, this portion of the definition was not intended to force
manufacturers to group vehicles together but rather to limit the
vehicles that could be forced together into a carline. BMW stated that
if the Congress had intended to force such a grouping on manufacturers,
it would have explicitly defined carline as a ``name denoting a group
that shall include all vehicles which have a degree of commonality in
construction.'' (Emphasis in BMW's comment.)
Second, BMW argued that information based on a vehicle's country of
origin would be the most accurate and understandable to the consumer.
That company noted the agency's statement in the NPRM that consumers
might be confused if identical vehicles are considered to be in
different carlines. BMW argued that this should not be a concern
because such differences would provide better and more accurate
information.
Finally, BMW argued that NHTSA's tentative conclusion directly
conflicts with the portion of section 210 that requires the best and
most understandable information. That company argued that the latter
requirement should take precedence. BMW recommended that, rather than
debating such issues as the Congressional intent of the carline
definition, the agency should use the definition as worded in the
legislation and permit manufacturers to make independent
interpretations to achieve this goal.
While numerous foreign vehicle manufacturers, including ones in
addition to those mentioned above, objected to the agency's proposal to
exclude country of assembly as a factor to consider in making carline
determinations, several indicated that, if NHTSA did not change that
position, they supported the concept of providing additional
information on the label concerning such vehicles. Toyota stated that
requiring this additional information (or alternatively, allowing a
manufacturer to include it on the label on its own option) is
preferable to requiring (or permitting) only disclosure of an average
percentage for a carline on a worldwide basis.
Honda stated that such additional information would improve the
accuracy of the information provided to the consumer. It suggested the
following language:
This carline is produced in both the United States [or Canada,
as appropriate] and [add name of other country]. The U.S./Canadian
parts content for vehicles manufactured in the location noted in
line three of this label is [____]%.
Nissan stated that if manufacturers are not permitted to separate
parts content percentage calculation by production country origin, then
each manufacturer should be permitted the option to determine the most
appropriate method to provide additional information or explanation of
a label's parts content percentages to a potential vehicle purchaser.
That company argued that NHTSA should not prohibit the manufacturer
from providing additional explanations or require the manufacturer to
include generic wording to clarify the U.S./Canadian parts content
percentage calculation to consumers.
After carefully considering all of the comments, NHTSA has decided
that carline determinations may not be based on country of assembly,
but manufacturers should be permitted to provide specified additional
information for carlines assembled in both the U.S./Canada and another
country. In reaching this decision, the agency has focused both on the
Labeling Act's provisions related to ``carline'' and on section
210(d)'s requirement that regulations ``provide to the ultimate
purchaser the best and most understandable information possible about
the foreign and U.S./Canada origin of the equipment of such vehicles
without imposing costly and unnecessary burdens on the manufacturers.''
In enacting the Labeling Act, Congress decided that the parts
content percentages for the U.S./Canada and foreign countries should be
calculated for groups of vehicles rather than for each individual
vehicle. It also decided to adopt the concept of ``carline'' and its
definition from the CAFE program, as the basis for determining the
relevant groups of vehicles.
Section 210 expressly states that carline determinations are to be
made based on degree of commonality in construction. Basing carline
determinations on country of assembly would be a very different method
for making carline determinations, and one that is inconsistent with
the method specified in the statute.
Moreover, NHTSA disagrees with those commenters which argued that
carline determinations which exclude considerations of country of
assembly are inconsistent with the purpose of the Labeling Act. First,
the concept of ``carline'' is well understood by Congress, given its
use in the CAFE program. Since Congress decided to use this well-known
concept as the basis for making vehicle groupings under the Labeling
Act, it is reasonable to assume that the concept is consistent with the
purpose of Congress. The agency observes that while many foreign
vehicle manufacturers argued that basing carline determinations solely
on commonality of construction is inconsistent with the purpose of
Congress, this view was not shared by GM, Ford, Chrysler, or the UAW.
The agency specifically rejects Toyota's argument that the
treatment of carline under CAFE is irrelevant to Labeling Act issues.
Since Congress decided to adopt the same concept and definition for
grouping vehicles as used in CAFE, the treatment under CAFE is highly
relevant. The agency notes that Toyota's objection and the objections
of many of the foreign vehicle manufacturers are ultimately with the
statute rather than the agency's proposed regulations. Toyota suggests
that ``(i)t may be appropriate under CAFE to average fuel economy data,
because fuel economy of a carline is determined by vehicle design,''
but argues that ``(t)he opposite is the case for sourcing patterns,
which typically differ greatly by country of manufacture.'' However,
the Labeling Act expressly requires carline determinations to be
determined based on ``commonality of construction,'' i.e., vehicle
design.
Second, the mere fact that the exclusion of country of assembly
from carline determinations can result in overstated domestic content
on imported vehicles and an understated one on domestically produced
vehicles does not mean that the results are misleading. Any approach in
which U.S./Canadian parts content is determined based on groups of
vehicles will result in situations where the content is overstated or
understated for individual vehicles within the group. However,
prospective purchasers will know the U.S./Canadian parts content for
the group as a whole.
For example, if a particular make/model is assembled in both the
U.S./Canada and another country, consumers will know the average U.S./
Canadian content for that make/model. The agency believes that this is
relevant information for consumers which wish to buy a vehicle made in
the U.S. or Canada. Moreover, the carline information is not the only
information that Congress decided to require on the label. Consumers
will also know where the individual vehicle is assembled, and the
countries of origin of the engine and transmission for that individual
vehicle.
NHTSA disagrees with several of the statutory arguments made by
commenters favoring determination of carlines based on country of
assembly. As discussed above, Toyota argued that section 210(b)(1)(A)'s
requirement that the label indicate the percentage U.S./Canadian
equipment ``installed on such vehicle within a carline'' amounts to a
requirement that the carline percentage must ``approximate the level of
content'' on each individual vehicle. However, the quoted language of
section 210(b)(1)(A) simply means that the percentage to be provided on
the label is for the carline of which the individual vehicle is a part,
as is made clear by section 210(b). There is no basis to read section
210(b)(1)(A) as requiring the percentage to apply to both the
individual vehicle and the carline. If content is determined for a
group of vehicles, it necessarily follows that the content of each
individual vehicle may vary from that of the group as a whole.
The agency also disagrees with BMW's argument that the statutory
definition of carline is merely intended to define the largest grouping
by which a manufacturer is permitted to divide its vehicles but not
preclude further divisions in making carline determinations. NHTSA
notes that in addition to specifying ``commonality in construction'' as
the basis for making carline determinations, the section 210 definition
provides that even some attributes that are part of ``commonality in
construction,'' e.g., level of decor, are not to be considered in
making carline determinations. Moreover, manufacturers are not
permitted to make unlimited divisions for purposes of CAFE.
NHTSA also disagrees with BMW's suggestion that the agency should
essentially permit manufacturers to interpret the term ``carline'' in
any way they choose. In addition to being concerned that the
implementing regulations ensure results that are consistent with the
statutory requirements, NHTSA also believes it is important that
consumers be provided with information that is consistent among
manufacturers. It would be very confusing to consumers if they were
provided with content information determined on a carline basis by each
manufacturer, but the meaning of ``carline'' varied substantially among
manufacturers.
While NHTSA has concluded, for the reasons stated above, that
carline determinations may not be based on country of assembly, it
recognizes that additional subdivision of carlines by country of
manufacture would result in content labeling information that is more
representative of the individually labeled vehicles. NHTSA does not
believe it would be appropriate to permit unlimited additional
information to be provided on the label, since such additional
information could result in an ``overload'' to consumers and dilute the
impact of the required information. However, given the potential
significance of the impact that assembly of a carline in both the U.S./
Canada and other countries may have on the representativeness of the
carline information provided on the label, NHTSA has decided to permit,
but not require, the following additional statement to be provided on
the label:
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 agency is specifying specific language for the optional
information to ensure that it is both brief and easily understood, as
well as to maintain consistency among manufacturers. If a manufacturer
chooses to provide this optional information, the information must be
provided at the end of the label, as part of the explanatory note.
Moreover, if the additional information is provided for some vehicles
within a carline, it must be provided for all vehicles within the
carline. Otherwise, a manufacturer might provide the additional
information only for the portion of the carline which has higher U.S./
Canadian parts content.
NHTSA believes that permitting but not requiring manufacturers to
provide this additional information is appropriate in light of the
statutory requirement that the implementing regulation ``provide to the
ultimate purchaser the best and most understandable information
possible about the foreign and U.S./Canada origin of the equipment of
such vehicles without imposing costly and unnecessary burdens on the
manufacturers.'' The agency believes that the usefulness of the
additional information to consumers is not of a level that justifies
requiring it, but is sufficiently useful that manufacturers should be
permitted to provide it if they so choose.
Other issues related to the definition of ``Carline.'' NHTSA
received a number of comments concerning whether engine types, body
styles, and/or drive systems should be considered in making carline
determinations. The agency notes that these factors, unlike country of
assembly, are related to degree of commonality in construction.
As discussed above, AAMA argued that to maintain consistency among
Federal regulations and to minimize the administrative burden, the
definitions and interpretation of ``carline'' used for the Labeling Act
should be the same as those used for CAFE. That organization stated
that there should be no further segregation of carlines by engine type,
and that light trucks should not be divided by type of driveline.
According to AAMA, these separations would not provide more meaningful
information to the consumer. That commenter stated that items such as
4-wheel drive and engine types are customer options and should not be
used to differentiate carlines. AAMA noted that differences in engine
sourcing will be reflected on the label under country of origin of the
engine. AAMA stated that it supports the agency's proposal not to
subdivide the carline definition for sedans and station wagons or fuel
economy model types. It argued that adding more characteristics to
define carline would increase the compliance costs to the vehicle
manufacturer, would not add any value to the label, and would confuse
the customer. It stated that the proposed definition should be revised
by deleting a sentence stating that 2-wheel and 4-wheel drive versions
of light trucks are treated as separate carlines, and by replacing a
reference to ``utility vehicles'' with the term ``special purpose
vehicles.''
Toyota argued that manufacturers should have the option of
separating carlines by engines and by drive systems. That manufacturer
stated that such separations would further the Act's purpose of
providing the consumer information on equipment content, by giving
consumers more precise content information for the particular model
being considered for purchase. Toyota stated that because this would
create an additional burden, it should be at the option of the
manufacturer.
Honda stated that it supports differentiating carlines by engine
type, because such separation would improve the accuracy of the
information on the label. That company stated that sourcing of parts
may be different for different engine types. Honda indicated that it
strongly supports retaining station wagons within the carline of the
same name, consistent with EPA's inclusion of station wagons within the
carline of the same name for purposes of computing the carline's
domestic content for CAFE.
BMW stated that with respect to differentiating carline by engine
type and drive type, it believes the relevant portion of the carline
definition is for the purpose of providing relief to manufacturers
rather than imposing a requirement on them. It stated that it believes
that using the definition verbatim from the legislation and allowing
manufacturers discretion to decide which models to include in the
carline calculations, in conjunction with clarification from the
manufacturer of the models that were used in the calculations, would
result in the best and most accurate information to potential
consumers.
Nissan stated that it believes carlines should not be separated by
engine types, body styles or drive systems. According to that
manufacturer, it would take a major change in the foreign content of
those parts to result in a significant change in carline content
percentages. Nissan stated that additional calculation and the
resulting record keeping requirements by engine types, body styles, and
drive systems would impose a significant administrative burden on
manufacturers, and would not result in an appreciable increase in the
accuracy of the content information on the label.
After considering the comments, NHTSA has concluded that engine
types and drive systems should not be considered in making carline
determinations. These features are typically customer options for
particular make/models, similar to options related to level of decor.
The agency believes that these features are too insignificant to be
considered in making carline determinations, i.e., if vehicles are
essentially the same except for the fact that one has a larger engine
or 4-wheel drive, there is sufficient commonality of construction that
the vehicles should be in the same carline. NHTSA does not believe that
a manufacturer option should be provided in this area, because it could
confuse consumers if ``carline'' has a different meaning for different
vehicles. Moreover, the agency believes that separation by engine type
and drive system would be unlikely to have a significant impact on the
content percentages provided on the label.
The agency also generally agrees with AAMA that, to maintain
consistency among Federal regulations and to minimize the
administrative burden, the definitions and interpretation of
``carline'' used for the Labeling Act should be the same as those used
for CAFE. NHTSA notes that station wagons are included in the same
carline as similar sedans, as in CAFE. This follows from section 210's
language that carline is not generally distinguished by such
characteristics as roof line, except for light duty trucks. Consistent
with CAFE, special purpose vehicles, vans and pickup trucks are
considered to be in different carlines.
b. Final assembly/final assembly point. Section 210 provides that
costs incurred at the final assembly point and beyond, including the
costs of assembly and labor, are not included in the calculation of
parts content. NHTSA noted in the NPRM that manufacturers may conduct
some pre-assembly operations, e.g., production of equipment, at the
same location as final assembly. The agency tentatively concluded that
such operations should be treated the same as the operations of an
allied supplier. The agency proposed to specify a particular phase in
the assembly process, for both the body and chassis, that would mark
the beginning of final assembly. This was reflected in specific
proposed definitions for ``final assembly'' and ``final assembly
point.''
AAMA stated that under NHTSA's proposal, the painted body and
chassis would be considered a substrate to which passenger motor
vehicle equipment is attached to produce a finished vehicle. AAMA
stated that this approach is contrary to the generally accepted
definition of the passenger motor vehicle equipment assembly process.
That organization agreed, however, that the production of certain
equipment at the final assembly point should not be considered part of
final assembly but should instead be included in the valuation of the
motor vehicle equipment and content calculations.
AAMA recommended that the agency define ``final assembly'' to
include all operations involved in the assembly of the vehicle
performed at the final assembly point, 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. AAMA stated that its definition is consistent with the
statute and an improvement over the proposal in that it (1) eliminates
the conflict between regulations and normal business practice, (2)
eliminates the ability of a manufacturer to generate a considerable
amount of U.S./Canadian value added for the assembly operation that the
proposed regulations would allow prior to the ``final assembly,'' (3)
eliminates ability of a manufacturer to shift value added simply by
establishing ``transfer'' prices for all of the passenger motor vehicle
equipment that is produced prior to ``final assembly,'' and (4)
eliminates the burden on a manufacturer associated with changing
systems simply to meet NHTSA's proposed definition.
AAMA also recommended that the agency change the proposed
definition of final assembly point, in a manner consistent with its
recommendation concerning the definition of final assembly. That
commenter also stated that the proposed definition creates ambiguity by
introducing the term ``pre-final assembly,'' and that the proposed
regulation does not state how this equipment is to be treated for
determining origin. AAMA recommended a specific definition for ``final
assembly point.''
Ford stated that it agrees that in-plant pre-assembly and
manufacturing should be included in the domestic and foreign content of
the vehicle and the value treated as operations of an allied supplier.
It argued, however, that the proposed definition of ``final assembly''
goes beyond the point that most manufacturers track parts cost. Ford
stated that operations performed at the final assembly point, including
body assembly and painting, are usually not contained in the
manufacturer's final assembly bill of material. Ford argued that in-
plant pre-assembly should include only machining, stamping, molding
operations, and engine or transmission assembly.
AIAM stated that the point of final assembly should be considered
to be no sooner than the point at which the engine and vehicle body are
fastened together. That organization argued that the Labeling Act
defines final assembly as the time when ``all component parts necessary
to the mechanical operation of such automobile are included.'' AIAM
stated that the proposed definition would defy the stated intent of the
Act and defy all conventional wisdom with respect to the automotive
manufacturing process.
Toyota also argued that the point of final assembly should be
considered to be no sooner than the point at which the engine and
vehicle body are fastened together. It stated that for any vehicle,
regardless of the sequence of assembly operations, there is always a
point where the engine is united with the body. According to Toyota,
section 210(f)(14) defines point of final assembly in terms of
completeness. That commenter argued that the proposed final assembly
points for the body and chassis are inconsistent with the Act because
all component parts necessary to the mechanical operation of the
vehicle are not yet present and included with the vehicle at those
points.
Toyota also stated that the point of final assembly must serve as
the point before which assembly labor is included in the calculation
and after which it is not. That manufacturer stated that the proposed
regulation is not clear with respect to whether labor used in
manufacturing the body after the point at which it emerges from
painting but before it is attached to the chassis or cradle is included
or excluded. Toyota stated that only by specifying a single point of
final assembly can this technical problem be solved.
Several other foreign vehicle manufacturers made similar comments.
Nissan stated that an appropriate point to be identified as the
beginning of final assembly is the moment in the production process
just before the attachment of the engine and drive train to the
chassis. Mitsubishi stated that the point where final assembly begins
should be defined as the point at which the engine and body are
fastened. According to that company, this would be more consistent with
the agency's proposed definition of ``final assembly point,'' where all
components and parts necessary to the mechanical operation of such
automobile are included.
Honda took a different position in its comment. That manufacturer
stated that it strongly supports the agency's proposal to treat in-
house production of parts and components as if the equipment were
produced by an allied supplier. Honda stated that this is necessary for
consistency among manufacturers. Noting that the agency proposed to
define final assembly point as a particular phase in the assembly
process, Honda stated that the proposed treatment of this issue is
sensible. According to that manufacturer, defining ``final assembly
point'' as the moment in the process at which the body leaves the paint
shop is generally appropriate. However, Honda requested clarification
of this definition with respect to the substantial additional ``pre-
final assembly'' work that remains to be performed on its vehicles'
doors after the body leaves the paint shop. Honda argued that door
subassembly labor should be included within computation of U.S./
Canadian value added, and stated that it assumes this subassembly labor
would be included under the proposed regulation because the work is
performed off the main assembly line.
BMW stated that NHTSA's proposal defined ``final assembly'' with
regard to the body as the point at which the body leaves the paint
shop. That company commented that this portion of the definition is
very precise and that the costs associated with it will likely be
similar between manufacturers regardless of painting process or vehicle
design. BMW commented, however, with regard to definition of final
assembly of the chassis, that it believes a manufacturer would be able
to tailor the assembly process to take advantage of the definition and
alter its carline's part content percentages. That company stated that
this portion of the definition employs the point at which the engine
and transmission are placed on the chassis frame or on the assembly
cradle. According to BMW, because this point can be varied, a
manufacturer would have the opportunity to install or not install
equipment such as the brake system including ABS, wheels and tires, and
interior components and trim. BMW commented that a manufacturer could
choose to install the engine last, essentially including all labor and
overhead in its parts content calculations. BMW recommended that the
agency investigate assembly processes and include a more definitive
point to stop including costs associated with the chassis assembly.
NHTSA believes that the comments concerning the proposed
definitions for ``final assembly'' and ``final assembly point'' raise
two important, related issues: (1) What operations should be considered
to be part of ``final assembly'' and therefore excluded from parts
content calculations, and (2) Whether the proposed regulation
distinguishes such operations in a manner that is appropriate for all
manufacturers. As discussed below, after considering the comments in
light of these two issues, the agency has concluded that definitions
along the lines of those recommended by AAMA should be adopted.
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.
The agency notes the following argument made by the UAW in commenting
on the request for comments:
The definition of passenger motor vehicle equipment in section
210(f)(4) of the statute refers to components ``received at the
final vehicle assembly point.'' Section 210(f)(14) then goes on to
define ``final assembly point'' as meaning ``the plant, factory, or
other place at which a new passenger motor vehicle is produced or
assembled * * *.'' (Emphasis in UAW comment.) We believe these
definitions can and should be interpreted liberally to include parts
and components which are built ``in-house'' within the scope of
``passenger motor vehicle equipment.'' Even though such parts and
components may be built in the same manufacturing facility, they are
still built in a different ``place'' than where the vehicles are
actually assembled (i.e., in a different department or operation
within the plant) * * *. (T)he underlying purpose of the statute is
to distinguish between labor performed in the final assembly of a
vehicle and the value of the parts which go into the vehicle.
Including ``in-house'' parts does not do violence to this
distinction.
NHTSA agrees with this comment of the UAW. 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 agency believes that a similar problem could occur under the
proposed definitions for final assembly and final assembly point. As
suggested by BMW's comment, manufacturers could tailor the assembly
process to take advantage of the definition. This could also reduce the
costs of final assembly to a value close to a nullity.
NHTSA notes that the cost of painting the vehicle body is
considered to be part of the cost of final assembly under the
definitions being adopted for the final rule, assuming that it occurs
at the final assembly plant. While this is a different result than
under the proposed definitions, the agency believes it is appropriate
since painting is an operation that occurs at essentially all final
assembly plants.
The agency also notes that the fact that final assembly labor and
other costs are not included in parts content percentages does not mean
that they are not reflected on the label. The origin of these costs is
reflected in the portion of the label which states the final assembly
point by city, state and country.
c. Passenger motor vehicle equipment. Section 210(f)(4) provides
that the term passenger motor vehicle equipment means ``any system,
subassembly, or component received at the final vehicle 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.'' That section also provides that the term does not
include ``minor parts, such as attachment hardware (nuts, bolts, clips,
screws, pins, braces, etc.) and such other similar items'' as may be
prescribed by rule.
Dealer- and port-installed equipment. NHTSA tentatively concluded
in the NPRM that dealer- or port-installed optional equipment should be
excluded from content calculations. The agency noted that the
definition of passenger motor vehicle equipment in section 210(f)(4) is
limited to equipment delivered to the manufacturer's final assembly
point for installation on, or attachment to, a vehicle at the time of
its initial shipment by the manufacturer to a dealer. NHTSA noted
further that equipment sent directly to dealers or ports is never sent
to the manufacturer's final assembly point.
Ford stated that it agrees that dealer- and port-installed items of
equipment should be excluded from content calculations since they do
not come within the statutory definition of passenger motor vehicle
equipment. That company added, however, that the agency should reserve
the option to address this issue if it appears that any manufacturer
is, to a significant degree, installing options beyond the final
assembly point.
AIADA stated that it strongly supports the tentative conclusion
that dealer- or port-installed optional equipment should be excluded
from content calculations. That organization stated, however, that the
definition of passenger motor vehicle equipment should be clarified.
AIADA argued that while the authors of the Labeling Act may have
attempted to exclude port-installed and dealer-installed parts such as
air conditioners, wheels and stereo systems, the words ``for
installation on, or attachment to, such vehicle at the time of its
initial shipment by the manufacturer to a dealer'' may not be
interpreted to exclude these parts. AIADA suggested adding the words
``and installed on'' to the definition, i.e., components received at
final assembly point for installation on, or attachment to, and
installed on such vehicle.
After considering the comments, NHTSA continues to believe that
dealer- or port-installed optional equipment should generally be
excluded from content calculations since such equipment is ordinarily
not received at the final assembly point. However, the agency does not
agree with AIADA's suggested clarification. That organization appears
to be referring to equipment which is received at the final assembly
point and travels with the vehicle to the dealer, where the final
installation is made. NHTSA believes that such equipment does fall
within the definition of motor vehicle equipment, i.e., it is received
at the final vehicle 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. The agency
views the fact that the equipment travels with the vehicle as a form of
attachment to the vehicle.
Exclusion of minor parts. The agency tentatively concluded in the
NPRM that all parts received at the final assembly point, including
paint, sealers and solvents, are to be included as ``equipment'' for
purposes of the Labeling Act, with the exception of the minor parts
specified in the statute. However, NHTSA encouraged commenters to
suggest other specific minor parts that should be excluded, and to
comment on whether paint, sealers and solvents should be included as
equipment.
AAMA argued that the exclusions should be broadened. That
organization stated that it would prefer the agency to exclude all
items not covered under NAFTA Annex 403.1. AAMA stated that since the
agency had elected not to parallel that aspect of NAFTA, it recommended
the following additional exclusions: lubricants, grease, gasoline, oil,
blackout, phosphate rinse, sealers, windshield washer fluid, auto
transmission fluid, anti-freeze, tape, straps, hinge covers, valve
stems, labels, owners manuals, hinges, bulbs, power steering fluid,
knobs, bushings, fasteners, decals, isolators, tire assembly fluid,
spacers, clamps, rivets, retainers, deadeners, adhesives, links,
springs (except springs for suspension systems), grommets, wheel
weights, fuses, plugs, paint, clear coat, and primer.
AAMA stated that the listed components represent less than three
percent of material value, but 30-35 percent of the number of part
numbers in a passenger motor vehicle. That organization argued that the
recommended list would exclude a minimal value from the definition of
passenger motor vehicle equipment, while significantly reducing the
number of parts and suppliers that have to be solicited for content
information. AAMA also recommended that outside and allied suppliers be
permitted to default the values of these components to the country of
origin of the passenger motor vehicle equipment in which they are
incorporated.
Ford stated that items such as paints, sealers and solvents should
not be included in the definition of passenger motor vehicle equipment.
That company stated that both bulk parts and raw materials should be
excluded from the vehicle content calculations.
Ford noted that the Labeling Act defines passenger motor vehicle
equipment as ``a system, sub-assembly or component'' received at the
final vehicle assembly point for installation on, or attachment to, the
vehicle. Ford argued that if Congress had intended to add bulk items or
items such as paint and solvents or bulk parts, such as wheel weights
and rivets, to the calculation, it would not have used the terms
``system, sub-assembly or component.'' That company stated that in
other sections of the Act, where Congress intended raw and bulk
materials to be included, it used the terms ``foreign content'' or
``material.'' Ford stated that paint, solvents, and sealers should not
be considered systems, sub-assemblies, or components because, among
other reasons, these items only have part numbers when ordered in bulk
quantities. That company supported the list of additional exclusions
set forth in AAMA's comment.
A number of manufacturers, including Toyota, Honda, and Nissan
supported treating paint, sealers and solvent as equipment. Honda
stated that it believes that NHTSA appropriately defined minor parts to
be excluded from the calculation in the NPRM. Nissan, however, stated
that it is not sure whether everything other than attachment hardware
can be properly considered passenger motor vehicle equipment and
suggested that NHTSA consider how other regulatory and/or legislative
schemes may determine whether a particular item is an auto part.
Isuzu stated that it believes attachment hardware such as nuts,
bolts, clips, screws, pins and braces must be included in, rather than
excluded from, the definition of ``passenger motor vehicle equipment.''
That company stated that the vehicle manufacturer specifies part
numbers for these parts. It is not easy to identify these parts on the
carline parts list and then separate them from other parts.
BMW stated that it supports including items that become a permanent
part of the vehicle such as adhesives, sealers, and paint. However,
that manufacturer recommended that consumable items such as windshield
washer and gasoline not be included.
APMA stated that it supports the exclusion of paint, sealers and
solvents on the grounds that they are almost invariably of local
origin, and their exclusion will reduce the regulatory burden to
manufacturers and paint suppliers.
The UAW stated in its comment on the request for comments that, to
avoid undermining the intent of the Labeling Act, the exclusion for
minor parts should be narrowly construed. The UAW stated that it does
not believe the definition should be interpreted to exclude paint or
sealer, or raw materials, fasteners, or general purpose hardware. The
UAW stated that many of these items have substantial value, and that
excluding them would only serve to provide consumers with a misleading
impression of the domestic versus foreign content of motor vehicles.
After considering the comments, the agency has decided to exclude
some additional items from the definition of ``motor vehicle
equipment,'' but not the entire list suggested by AAMA. With respect to
AAMA's comment that it would prefer that all items not covered under
NAFTA Annex 403.1 be excluded, the agency notes some major items of
motor vehicle equipment are not covered by that annex, including air
bags. Therefore, it would not be appropriate to use NAFTA Annex 403.1
as the basis for determining what additional ``minor parts'' should be
excluded. NHTSA also notes that it cannot adopt Isuzu's suggestion to
include attachment hardware such as nuts, bolts, clips, screws, pins
and braces within the definition of ``passenger motor vehicle
equipment,'' since those items are expressly excluded by the statutory
definition.
The agency has decided to exclude the following additional items
from the definition of passenger motor vehicle equipment: phosphate
rinse, tire assembly fluid, gasoline, oil, windshield washer fluid,
fasteners, rivets, grommets, and wheel weights. The first five items
are consumable items which are either consumed in the assembly of the
vehicle or are replaced within the first few days or months of vehicle
ownership. Therefore, the agency believes that those items should not
be considered part of the vehicle. The last four items are either forms
of attachment hardware similar to the other ones listed in the
statutory definition, or types of items whose collective value for a
particular motor vehicle will always be negligible.
The agency is not adopting the other exclusions suggested by AAMA
because the items are not similar to the ones listed in the statutory
definition and because the collective value of the items for a
particular motor vehicle can be substantial. With respect to Ford's
comment concerning the meaning of ``system, subassembly, or
component,'' the agency believes that the term ``component'' is
sufficiently broad to include such things as paint.
For the minor items which are excluded from the definition of
passenger motor vehicle equipment, the agency is permitting allied and
outside suppliers to treat the cost of the minor items as value added
in the country of assembly of the equipment. NHTSA notes that this
treatment is only necessary to the extent that such minor items are
part of other equipment supplied by a supplier. To the extent that such
minor items are supplied directly to a manufacturer, or are used by a
manufacturer in assembly of a vehicle, they are not considered
passenger motor vehicle equipment.
2. Items To Be Provided on the Label; Wording of the Label (Section
583.5)
NHTSA proposed to require manufacturers to affix to all new
passenger motor vehicles a label which provides the following five
items of information:
(1) U.S./Canadian Parts Content--the overall percentage, by value,
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;
(5) Country of Origin for the Transmission.
The agency proposed to require specific language for the label,
including a heading, two subheadings, and an explanatory note
concerning the meaning of parts content. The NPRM included a sample
label, consistent with the proposed requirements, which read as
follows:
PARTS CONTENT INFORMATION
For vehicles in this carline:
U.S./Canadian Parts Content: 50%
Major Sources of Foreign Parts Content:
Japan: 20%
Mexico: 15%
For this vehicle:
Final Assembly Point: Flint, Michigan, USA
Country of Origin:
Engine: U.S.
Transmission: Canada
Note: The Parts Content of a typical vehicle makes up about (a
range was to be specified in a final rule) percent of the vehicle's
total wholesale cost to the dealer.
The agency stated in the NPRM that it believed the proposed
explanatory note would clarify the meaning of ``parts content'' to
consumers, and help them understand the significance of the content
information provided on the label. NHTSA noted that since the
percentage of a vehicle's total wholesale cost which is made up of
parts content varies for different vehicles, it believed that it would
be appropriate to state the information in a range, e.g., 60 to 70
percent, 70 to 80 percent, etc. Since the agency did not have this
information, it requested manufacturers to provide the information for
several specific vehicles, as well as their recommendation for a range
to include in a final rule.
a. Use of the term ``parts content.'' AAMA objected to the term
``U.S./Canadian Parts Content'' for describing the first item of
information on the label. It argued that the statute specifies use of
the term ``U.S./Canadian Content,'' and that the inclusion of the word
``parts'' is contrary to the statute.
NHTSA acknowledges that section 210(b)(1)(A) specifies that the
information ``be identified with the words `U.S./Canadian content.'''
However, the agency believes the term U.S./Canadian Parts Content is
consistent with this statutory requirement. The statutory language
``U.S./Canadian content'' is included within the term ``U.S./Canadian
Parts Content.'' Consistent with its authority to specify the form and
content of the required label, the agency added the word ``parts'' to
indicate to prospective purchasers that the identified U.S./Canadian
content is for a vehicle's parts (within a carline) rather than for the
vehicle as a whole. To the extent that AAMA objects to the agency
breaking up the phrase ``U.S./Canadian content,'' NHTSA could instead
specify a parenthetical at the end of the term U.S./Canadian content,
such as (parts). However, the agency believes that the term U.S./
Canadian Parts Content is preferable since it is easier to read.
NHTSA notes that AAMA also objected to use of the term ``parts''
instead of ``equipment'' in the purpose section of Part 583. That
objection would presumably also apply to the wording on the label. AAMA
contended that the calculations required by the statute are based on
the value and content of passenger motor vehicle equipment and not
``parts.'' Since the term ``passenger motor vehicle equipment''
includes all parts except minor parts such as attachment hardware,
NHTSA believes that the terms ``equipment'' and ``parts'' are
interchangeable. For purposes of the label, the agency believes that
the term ``parts'' is preferable to ``equipment.'' The former term is
shorter and therefore takes less space. Moreover, the agency believes
that consumers are more likely to understand the term ``parts.'' While
it is common to refer to a vehicle being made up of parts, one does not
ordinarily refer to a vehicle being made up of equipment. Also, the
term ``equipment'' may have the connotation of optional accessories to
consumers.
b. Explanatory note. The agency received numerous comments on its
proposal to require an explanatory note concerning the meaning of parts
content. As discussed below, some commenters argued that no note should
be permitted or required; others agreed that a note should be provided
but argued that it should be worded differently. No commenters
supported the proposed wording. Numerous manufacturers argued that the
ratio of parts content value to wholesale dealer cost varies so widely
among vehicles that there is no such thing as a ``typical vehicle'' in
this context.
AAMA argued against including the explanatory note. It stated that
the note is not required by statute and adds a measure of confusion to
the consumer because of the broad range of ratios that exist for
vehicles. GM argued that there is no authority under the Labeling Act
for such a note. It stated that the proposed note does not clarify the
information on the label, is an approximation, and includes elemental
costs not considered by the Act. Ford stated that if NHTSA believes
that clarification is necessary, it should consider an explanatory
brochure.
AIAM stated that it is opposed to requiring information on the
label concerning a parts content percentage range as it relates to the
total wholesale cost to the dealer, as this additional information
would only serve to confuse the consumer.
JAMA, however, argued that it is vital to consumer understanding to
clarify the fact that the label calculation does not include vehicle
final assembly labor. That organization stated that the proposed note
would clarify this to some degree, but does not go far enough. It
suggested adding the following words to the note: ``and does not
include vehicle final assembly labor.'' JAMA also argued that the note
should include an additional statement about assembly labor for engines
and transmissions not being included in country of origin label
calculations for those items.
Toyota stated that the proposed note would not be helpful because
of the necessary broadness of the range and the potential for
additional consumer confusion. That manufacturer also stated that it
does not believe a required, industry-wide explanatory statement is
necessary. Toyota indicated, however, that if the agency does require
an explanatory statement, it believes the statement should be one that
consumers readily would understand and that would avoid confusion. It
suggested the following statement: ``The U.S./Canada parts content on
this label does not include final assembly or distribution costs for
this vehicle.''
Honda supported the idea of an explanatory note, since it believes
that consumers are likely to be misled by the label without it. That
company did not support the proposed wording, however, since the
language does not clearly tell consumers that certain specific costs
are excluded. Honda also stated that it believes the inclusion of a
range of the percentage of parts costs would be confusing to consumers.
Honda suggested the following explanatory note: ``U.S./Canadian parts
content on this label does not include final assembly or distribution
costs for this vehicle.''
Nissan suggested that each manufacturer be allowed, at its
discretion, to include or not include additional information or
explanation relevant to that manufacturer or particular carline. It
stated that introducing a new percentage on the label that is
calculated from a different base will only add to the consumer's
confusion. Nissan stated that if the agency decides to require a
statement, it suggests the following language: ``The parts content
percentages identified here do not value similar parts equally nor
reflect the value of final assembly labor or parts or distribution
expenses, all necessary aspects of determining the ultimate value of a
vehicle.''
AIADA stated that it supports the proposal to include a statement
on the label to indicate that parts content of a vehicle does not
represent the total value of the vehicle. That organization stated that
it believes the statement should include a mention of what is not
included, specifically labor and distribution costs. That organization
also argued that the agency should go further than providing a simple
note. It argued that the label should explain such things as roll-up,
roll-down for outside suppliers (roll-up, roll-down is discussed later
in this preamble), and whether or not the vehicle is domestic or import
for CAFE purposes.
After considering all of the comments, and noting that none of the
commenters provided information concerning the range of parts content
as a percentage of wholesale cost, NHTSA has decided to require a brief
explanatory note to explain the meaning of parts content. Since
consumers are not likely to be familiar with the concept of parts
content, the agency is concerned that they are likely to confuse parts
content with overall vehicle content without such a note.
NHTSA is persuaded by the comments, however, that the note should
not provide a range for the ratio of parts content value to wholesale
dealer cost for a typical vehicle. The agency agrees that such a
statement might confuse consumers.
The agency has decided to require the following explanatory note at
the end of the label: ``Parts content does not include final assembly,
distribution, or other non-parts costs.'' NHTSA believes that the same
note should be provided for all vehicles, to ensure brevity and
clarity. With respect to GM's comment concerning authority, the agency
notes that section 210(c) provides the agency with authority to
prescribe the form and content of the required label. The agency also
notes that manufacturers choosing the option, discussed earlier in this
preamble, of providing additional information for carlines assembled in
both the U.S./Canada and other countries, would be required to include
it at the end of this explanatory note.
c. Place of final assembly. Toyota stated that the city of assembly
should only be required for vehicles assembled in the U.S. That
manufacturer argued that vehicles assembled in other countries should
be labeled only with the country, not city, of final assembly, since
the names of many cities in foreign countries in which automobiles are
assembled are likely to be unfamiliar to many if not most consumers.
NHTSA notes that section 210(b)(1)(B) expressly states that the
label must indicate ``the final assembly point by city, State (where
appropriate), and country of such automobile.'' Therefore, the agency
does not have the discretion to permit the names of foreign cities to
be excluded.
3. Procedure for Determining U.S./Canadian Parts Content (Section
583.6)
As discussed in the NPRM, in order to calculate the percentage
U.S./Canadian parts content (the first item of information on the
label), the vehicle manufacturer must know:
(1) the U.S./Canadian content (by value) of each item of motor
vehicle equipment used to assemble the vehicles within the carline;
(2) the total value of each such item of equipment, i.e., the price
it will pay for each such item of equipment; and
(3) the unit volume of each such item of equipment for each
carline.
The agency stated in the NPRM that, in calculating the U.S./
Canadian parts content for each carline, the manufacturer must
reasonably project the installation rates for all equipment offered on
that carline. For example, if a carline with a standard manual
transmission is offered with an optional automatic transmission, the
manufacturer must project the sales of each transmission in advance of
the model year. This also applies to all other equipment options or
choices for the vehicle.
Much of the information that manufacturers use to calculate the
first item on the label must come from parts suppliers. These
calculations are made once for each model year, prior to the model
year. As discussed later in this preamble, the agency is requiring
suppliers to provide information to manufacturers concerning the
content of the parts they supply.
NHTSA proposed a specific procedure in Sec. 583.6 of the proposed
regulation for determining U.S./Canadian parts content. Section
583.6(b) set forth a procedure for determining the value of items of
equipment. It provided that the value of an item of equipment is
generally the price paid by the manufacturer for the equipment as
delivered to the final assembly point, and that the value of an item of
equipment produced at the final assembly plant is the fair market price
that a manufacturer of similar size and location would pay a supplier
for such equipment.
Section 583.6(c) set forth a procedure for determining the U.S./
Canadian percentage of the value of equipment. It set forth different
procedures for outside and allied suppliers, to reflect the fact that
the statutory ``roll-up, roll-down'' provision applies to outside
suppliers, but not allied suppliers.
Section 583.6(d) set forth a procedure for determining the U.S./
Canadian percentage of the total value of a carline's passenger motor
vehicle equipment. This procedure involved adding up the total value of
all of the equipment to be installed in that carline during the next
model year, dividing the value of the U.S./Canadian content of such
equipment by the total value of the equipment, and multiplying the
resulting number by 100.
a. Determining the value of items of equipment. AAMA commented that
583.6(b) puts the valuation emphasis on where material is received as
opposed to from whom it is purchased. That organization stated that for
equipment purchased from outside suppliers by either a vehicle
manufacturer or allied supplier, valuation should be based on the price
that exists in the financial records at the time the content is
calculated. AAMA stated that for equipment purchased from allied
suppliers, valuation should be based on the established practices of
the manufacturer, which could include a transfer cost or transfer price
methodology. That organization stated that if a transfer price is used,
the price should be consistent with customs valuation or that used for
internal management. AAMA also noted that Sec. 583.6 does not address
determination of value for items of equipment delivered to allied
suppliers.
NHTSA notes that valuation is based on where material is received
because section 210(f)(13) provides, with respect to passenger motor
vehicle equipment which is of U.S./Canadian origin, that ``(f)or both
outside suppliers and allied suppliers the value used shall be the
purchase price of the passenger motor vehicle equipment as paid at the
final assembly point.'' The agency also notes that section
210(f)(10)(A) provides, with respect to the term ``value added in the
United States and Canada,'' that costs incurred or profits made at the
final vehicle assembly point and beyond * * * shall not be considered
in such calculation.'' This implies that all costs up to delivery of
the equipment to the final assembly point are included. NHTSA therefore
believes, with respect to motor vehicle equipment that is delivered to
the final assembly point, that the value of the equipment should be the
price paid by the manufacturer for the equipment as delivered to the
final assembly point.
The agency believes that a specification that valuation be based on
the price that exists in the financial records at the time the content
is calculated would be too vague. It would be unclear, for example,
whether the price in question was for the equipment as delivered to the
final assembly point. Similarly, a specification that valuation be
based on the established practices of the manufacturer would also be
vague.
To the extent that it is not possible to value equipment based on
the price paid by the manufacturer for the equipment as delivered to
the final assembly point, e.g., because the equipment is produced at
the final assembly point or a transfer price methodology is used, the
agency believes, for purposes of consistency among manufacturers, that
value should be based on the price that the manufacturer would have
paid for the equipment as delivered to the final assembly point. The
final rule therefore provides that the value of each such item of
equipment is the fair market price that a manufacturer of similar size
and location would pay a supplier for such equipment. NHTSA is also
setting forth essentially the same valuation procedures for equipment
delivered to an allied supplier, except that valuation is based on the
price paid for the equipment as delivered to the allied supplier.
b. Determining the U.S./Canadian percentage of the value of items
of equipment. APMA stated that if NHTSA does not adopt the AIAG model
of content calculation, the regulation should specifically state how
outside suppliers should calculate U.S./Canadian content. That
organization stated that, in the NPRM, the agency relied on the
definitions of value added and foreign content in the statute. APMA
stated that value added is defined as the total purchase price
(presumably paid by the customer) less the total purchase price
(presumably paid by the supplier) of foreign content. APMA stated that
foreign content is simply defined as equipment which is ``not
determined to be U.S./Canadian origin.'' That organization stated that
the statute and regulation give no direction as to how this
determination is to be made. APMA also stated that while the agency
noted that suppliers ``may need in some cases to arrange to obtain
information from their supplier,'' it did not explain what that
information is and how it is to be obtained.
APMA stated that the absence of any specific regulatory direction
on the way in which outside suppliers are to calculate ``valued added
in the U.S./Canada'' is likely to lead to numerous interpretations and
challenges. For example, can suppliers count all costs and profit or
are some costs and profits excluded? How will a supplier know with
certainty that an input qualifies as U.S./Canadian content? APMA stated
that it believes that adoption of the AIAG content calculation is the
best approach and would have minimal regulatory cost burden. That
organization stated that if the agency does not follow that approach,
it suggests adding the following additional definition:
Value is added in the United States or Canada by an allied
supplier or outside supplier to the extent that the supplier
produces or assembles passenger motor vehicle equipment at a plant
or factory located within the territorial boundaries of the United
States or Canada.
All costs incurred (other than the purchase price of foreign
material received at such plant) and all profits made at such plant
shall form part of the value added in the United States and Canada.
Foreign material shall be limited to materials which have been
produced or assembled outside of the territorial boundaries of the
United States or Canada and which have not undergone any further
production or other operation within the territorial boundaries of
the United States or Canada before being received by such supplier
or an affiliate of such supplier.
Nippondenso America stated that the specified method for
calculating U.S./Canadian content should state that value added in the
U.S. and Canada includes profit and processing costs such as labor,
depreciation, expenses, etc. (originating in the U.S. or Canada), to
avoid any misunderstandings or confusion regarding determinations of
the U.S./Canadian content.
Nissan stated that the proposed regulation does not address how
suppliers should treat duty. Nissan recommended that suppliers treat
duty paid as domestic. It stated that this would be consistent with the
treatment of duty under CAFE.
NHTSA agrees with the commenters that it is appropriate to provide
additional clarification in the regulation concerning how suppliers are
to calculate value added in the U.S./Canada. The agency notes that only
allied suppliers typically need to calculate actual value added in the
U.S./Canada of their equipment. 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.
NHTSA believes that APMA's recommendation that the agency adopt the
AIAG content calculation procedure as the best approach for calculating
value added in the U.S./Canada is unclear. The AIAG, as an
organization, represents an industry effort to, among other things,
help suppliers comply with the Labeling Act. As pointed out by AAMA,
however, ``due to the lack of regulatory guidance, complete process
definition has not been established.'' The agency assumes that AIAG
will continue its efforts to help suppliers once today's final rule is
issued. Since the AIAG has not completed the process of establishing a
content calculation procedure, NHTSA does not know what APMA means in
recommending that the AIAG procedure be adopted.
After considering the comments, the agency has decided to add the
following clarifying language to Sec. 583.6(c):
(4)(i) Value is added in the United States or Canada by an
allied supplier or outside supplier to the extent that the supplier
produces or assembles passenger motor vehicle equipment at a plant
or factory located within the territorial boundaries of the United
States or Canada.
(ii) 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.
Except as provided in (c)(3), 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. For any material 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. Neither
suppliers nor anyone else is required to trace the value added in
the United States or Canada backwards; 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. Example: A supplier located
in the United States or Canada uses sheet steel to produce exterior
panels which are shipped to a final assembly plant. In determining
the valued added in the United States or Canada of the exterior
panels, the supplier must subtract the price it paid for the sheet
steel except to the extent that the supplier determines that the
price paid represents value added in the United States or Canada.
(iii) 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.
(iv) 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 or Canada is
zero, even if part of its material originated in the United States
or Canada.
(v) The payment of duty does not result in value added in the
United States or Canada.
In clarifying how suppliers are to calculate value added in the
U.S./Canada, NHTSA believes it is important to keep in mind the
statutory requirement that it adopt regulations that provide the best
and most understandable information possible about the foreign and
U.S./Canada origin of the equipment of such vehicles without imposing
costly and unnecessary burdens on the manufacturers. In order to make
perfect determinations of the value added in the U.S./Canada of all
passenger motor vehicle equipment, it would be necessary to trace all
costs involved in producing such equipment, including the costs of all
component parts, all the way back to raw materials. Even if such an
effort were possible, it would be extremely costly.
In light of submissions from GM, Ford, Chrysler, Mitsubishi and
AIAM in response to its request for comments, NHTSA explained in the
NPRM that it agreed with the general premise that tracking and
reporting requirements should be limited to ``first tier'' suppliers
(including both suppliers which deliver equipment to the manufacturer
itself and ones which deliver equipment to an allied supplier). The
agency stated that no requirements would be imposed on suppliers
earlier in the chain, but noted that suppliers which are subject to the
proposed information requirements may need in some cases to arrange to
obtain information from their suppliers.
A basic issue raised by APMA's comment is how, in the absence of
extensive tracking requirements, ``first tier'' suppliers will know
enough about the content of the materials they purchase from other
sources, for incorporation into their equipment, to make the required
determinations about U.S./Canadian content. In fact, the suppliers may
not know, or be able to find out, the amount of the cost of such
materials that represents value added in the U.S./Canada. APMA's
comment also raises the issue of how suppliers are to treat such things
as costs and profits.
The agency believes that the best way to resolve this potential
problem is to specify simple procedures concerning the determination of
value added in the U.S./Canada. NHTSA notes that the total value of an
item of passenger motor vehicle equipment is determined under
Sec. 583.6(b). The relevant issue, therefore, is what part of that
total value represents value added in the U.S./Canada.
NHTSA agrees with APMA that the basic way suppliers add value in
the U.S./Canada is by producing or assembling passenger motor vehicle
equipment within the territorial boundaries of the United States or
Canada. The simplest method of determining the value added in the U.S./
Canada for equipment produced or assembled within the territorial
boundaries of the United States or Canada is to subtract from the total
value of the equipment the value of any foreign materials used in such
production or assembly.
The clarifying procedures therefore specify 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 also specify
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.
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. NHTSA believes that this approach is consistent with section
210(f)(16), which specifies that ``foreign'' or ``foreign content''
mean ``passenger motor vehicle equipment not determined to be U.S./
Canadian origin.''
The clarifying procedures also provide that for any material 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. For purposes of
simplicity and consistency, NHTSA believes it is appropriate to deem
any materials which are imported in the United States or Canada from a
third country as foreign. The agency believes that any attempt to
separate out the possible portion of such materials that may have
originated in the United States or Canada would involve extremely
complex issues concerning how various costs are attributed to different
countries. This would not provide significantly more useful information
to the consumer, but would require a much more complicated regulatory
scheme.
NHTSA notes that APMA recommended a somewhat different approach
with respect to the treatment of foreign material. Under its suggested
provision, foreign material would be limited to materials which have
been produced or assembled outside of the territorial boundaries of the
United States or Canada and which have not undergone any further
production or other operation within the territorial boundaries of the
United States or Canada before being received by such supplier or an
affiliate of such supplier. The problem with this recommended provision
is that the entire value of foreign material which has undergone
further production or other operation within the U.S./Canada would be
transformed into value added in the U.S./Canada. This would create a
giant loophole by which foreign material could be transformed into
U.S./Canadian content.
The above discussion has primarily concerned 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. For equipment which is imported into the
United States or Canada from a third country, the clarifying
regulations specify that the value added in the United States or Canada
is zero. The agency is taking this approach for the same reasons
discussed above with respect to imported material that is used to
produce or assemble passenger motor vehicle within the United States or
Canada.
The clarifying regulations also specify that the payment of duty
does not result in value added in the United States or Canada. While it
may be necessary to pay duty as a condition of an item crossing a
national border, such payment does not add any value to the item in the
country to which duty is paid.
NHTSA is also including a provision 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. While the agency does not believe that this situation
will occur very often, the provision ensures 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. The 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.
c. Determining the U.S./Canadian percentage of the total value of a
carline's passenger motor vehicle equipment. GM stated that the agency
had proposed that the proper method to establish the U.S./Canadian
content for a carline is to estimate the installation rates for all
equipment options and choices offered on that carline multiplied by the
U.S./Canadian content value for each option or choice divided by the
total value for all equipment, domestic or foreign. That company stated
that it has found for cost management and planning purposes that the
use of a high volume configuration carline model results in better
management control of the assembly process than the so called average
equipped carline model. GM stated that such a model has found wide
acceptance in calculations made for corporate average fuel economy
(CAFE) emission testing configurations, and most recently, for vehicle
configurations under NAFTA. That company recommended that the agency
permit manufacturers to use established carline cost management models
for establishing the percentage U.S./Canadian content required to be
included in the AALA domestic content label.
JAMA stated that it understands that it is NHTSA's intention that
manufacturers project the sales mix of all of the potentially many
models within a carline, including differences in series, engine type,
transmission type, and other optional equipment, and to perform the
weighted average carline calculation based on this model and equipment
mix. That organization stated that it believes this calculation method
would impose an unnecessarily great burden on manufacturers without a
significant increase in the accuracy of the computed percentage. It
recommended that agency permit a manufacturer, at its option, to use
the U.S./Canadian parts content of a specific model, e.g., the best
selling model of a carline, on a projected sales basis, which is
considered to reasonably represent the entire carline.
Mazda stated that it believes proposed calculation method would
impose too much burden on manufacturers, and recommended that NHTSA
permit manufacturers to use U.S./Canadian parts content of a specific
representative model within a carline, e.g., best selling model, as the
parts content of the carline.
NHTSA does not disagree with the concept of permitting simplified
procedures for estimating U.S./Canadian content, if such procedures
would always ensure reliable results. However, the procedures suggested
by the commenters, which are based on either a high volume
configuration or best selling model, would not appear to always ensure
meaningful results.
For example, as discussed above, vehicles within a carline may be
assembled in both the U.S./Canada and a foreign country. If the high
volume configuration or best selling model was produced in the U.S./
Canada and the rest of the carline was produced in a foreign country,
content calculations based on the portion of the carline assembled in
the U.S./Canada would not be representative of the carline as a whole.
The agency believes it would inappropriate to permit simplified
procedures that could produce unreliable results.
4. Procedure for Determining Major Foreign Sources of Passenger Motor
Vehicle Equipment (Section 583.7)
As discussed in the NPRM, item two on the label, listing the main
foreign sources of a carline's equipment, is necessary only if one or
more foreign countries (i.e., countries other than the U.S./Canada)
individually contribute at least 15 percent of the value of the
carline's equipment. If there is one such country, the manufacturer
must list that country and the percentage by value that originated in
that country for the carline. If there are two such countries, the
manufacturer must list those countries and the percentage by value that
originated in those countries for the carline, in descending order of
percentage. Manufacturers need not list more than two such countries.
As with the first item on the label, much of the information that
manufacturers need to calculate the information for the second item
must come from parts suppliers.
NHTSA proposed a specific procedure in Sec. 583.7 of the proposed
regulation for determining major foreign sources of passenger motor
vehicle equipment. The section specified the same procedure for
determining the value of items of equipment as Sec. 583.7, and also
specified procedures for determining the country of origin of items of
equipment and for 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.
NHTSA noted in the NPRM that the statute does not specify how
country of origin is determined for purposes of item two on the label.
The agency tentatively concluded that the simplest method would be to
specify one country of origin for each item of equipment, using the
country from which the greatest share of value originated for the item
of equipment. The agency noted that this is the method that Congress
prescribed for the only other country of origin calculation in section
210, i.e., country of origin for engines and transmissions in section
210(f)(12).
Ford commented that due to differences in calculation methods for
U.S./Canadian and foreign content, it would be possible for the sum of
the domestic and foreign label values of a vehicle to be either over
100 percent or zero percent, thereby causing confusion to consumers.
That company suggested an alternative method for determining country of
origin which, among other things, would attribute the total value of
outside supplied equipment that contains less than 70 percent value
added in the U.S./Canada to the country other than the U.S./Canada
which contributed the greatest amount of value to that item. Ford
stated that if the agency did not adopt its recommendation, it should
clarify that the sum of U.S./Canadian content is considered one
country, to preclude the classification of an item of equipment that is
more than 50 percent U.S./Canadian to be classified as a foreign item
of equipment.
Chrysler argued that the proposed regulation could result in an
anomaly. It stated, among other things, that under the proposed method
for determining country of origin, the country of origin could be the
U.S. or Canada in situations where U.S./Canadian content is less than
70 percent. Chrysler recommended an alternative method for determining
foreign country of origin. The method would only consider passenger
motor vehicle equipment that contains less than 70 percent valued added
in the U.S./Canada, and would consider the foreign value of the
equipment to be its value multiplied by the percent of content that
originated outside of the U.S. and Canada.
Toyota stated that a ``greatest share of value originated'' test
for purposes of item two on the label would represent a new and
different test that is inconsistent with all other origin tests in use.
Toyota stated that it believes that imposing this test would result in
more work for suppliers with no benefit to the consumer. That company
stated that if this test is used at all, it should be confined to
instances in which the country of origin of passenger motor vehicle
equipment, as determined for Customs purposes, is unknown and cannot be
determined.
BMW commented that with regard to foreign parts content
calculations and country of origin certification, NHTSA should
incorporate an alternative means to allow manufacturers with existing,
substantial business records to use these records as proof of foreign
content to comply with the requirements. That company argued that
without such an alternative, NHTSA would be imposing an unnecessary
burden which would be increased further due to language barriers. BMW
stated that it already has a system in place to handle customs duties
and preferential treatment of goods with Germany and the EC
jurisdiction which provides information on more than 400,000 active BMW
parts. That manufacturer stated that by using the parts database and by
inputting the appropriate parameters for a given group of vehicles, it
can receive information that could be utilized to complete the
calculations for the foreign parts content of Item Two on the label.
BMW stated that while the wording of the definition of country of
origin for customs purposes does not match the language in the NPRM
verbatim, the practical use of either definition essentially would be
the same for calculating the foreign content of Item Two. BMW
acknowledged that circumstances would not be precluded where the
country of origin would be different given the two definitions, but
argued that these exceptions will not influence the accuracy of the
calculated percentages.
After considering the comments, the agency has decided to make
changes in Sec. 583.7 to prevent the possibility that the specified
U.S./Canadian content and major sources of foreign content for a
carline will together exceed 100 percent and to provide greater
flexibility concerning determination of country of origin for purposes
of item two of the label.
As discussed above, the first two items on the label provide parts
content percentages for the U.S./Canada and for up to two major sources
of foreign parts content. For example, a label might indicate the
following parts content percentages: U.S./Canada, 50%; Japan, 20%; and
Mexico, 15%. Since the label does not purport to indicate all sources
of content, the percentages are not expected to add up to 100%.
However, the agency agrees that consumers would be confused if the
numbers added up to more than 100 percent.
One way to prevent the numbers from adding up to more than 100
percent would be to specify a procedure for determining country of
origin for item two of the label that is more closely tied to the
statutory method for determining U.S./Canadian content. However, such a
procedure would necessarily be very complicated, given certain aspects
of the procedure for determining U.S./Canadian content, e.g., the roll-
up, roll-down provision for outside suppliers.
The agency has therefore 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.
The U.S./Canada percentage is not changed. The agency believes that
this is the more important of the two items of information for
consumers, and the method for determining the U.S./Canada percentage,
unlike the methodology for major foreign source percentages, is
explicitly set forth in the statute.
Since section 210 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, and
the specific percentage attributable to each such foreign country.
Given that the U.S. and Canada are treated together in determining
the U.S./Canada content, the agency agrees with Ford that they should
also be treated together in making determinations under Sec. 583.7.
Beyond that, however, NHTSA believes that since the statute does not
specify a particular method for making the country of origin
determinations for item two of the label, and given the limited purpose
of these determinations, manufacturers should be permitted greater
flexibility. The agency is therefore specifying that, in making country
of origin determinations for item two of the label only, manufacturers
may use the greatest share of value approach or any other approach that
is used for customs (U.S. or foreign) purposes, so long as a consistent
methodology is employed for all parts and so long as the U.S. and
Canada are treated together.
NHTSA notes that regardless of what approach a manufacturer selects
for making country of origin determinations for item two of the label,
it will have no effect on the specified U.S./Canadian content of a
carline. Assume, for example, that an outside supplier provides
equipment with 65 percent U.S./Canadian content. Under the roll-up,
roll-down provision, the equipment is considered 0 percent U.S./
Canadian for item one of the label. Under the greatest share of value
approach and possibly under other approaches, the equipment would be
considered U.S./Canadian for item two of the label. However, this would
merely mean that the equipment does not show up in the percentages
attributable to Japan, Germany or some other foreign country in the
item two calculations; it would never be reflected as U.S./Canadian on
the label.
NHTSA does not agree with the specific approaches recommended by
Ford and Chrysler. The agency believes that both approaches are
unnecessarily complicated. The agency also notes that the Ford approach
would result in country of origin determinations being made on a very
small percentage of value for items with substantial, but less than 70
percent, U.S./Canadian content.
5. Procedure for Determining Country of Origin for Engines and
Transmissions (Section 583.8)
As discussed in the NPRM, the fourth and fifth items on the label,
the countries of origin for the engine and transmission, are also
determined separately for each vehicle, instead of on a carline basis.
The information needed to make these determinations also needs to come
from suppliers.
Section 210(f)(12) states that the ``country of origin'' of an
engine or transmission is the country that contributed the greatest
percentage of dollar value to the engine or transmission, based upon
the purchase price of direct materials received at the individual
engine or transmission plant. It also states that the U.S. and Canada
are to be treated separately for determining the country of origin.
Thus, the country of origin might be the U.S. or Canada, but could not
be U.S./Canada.
NHTSA explained in the NPRM that the term ``direct materials'' is
not defined in section 210 of the Cost Savings Act. The agency referred
to similar terms in the CFTA to assist it in defining the term, and
tentatively concluded that the term ``direct materials'' refers to the
items (i.e., the materials) that make up the final good (either an
engine or a transmission), but does not include the ``costs'' (i.e.,
items such as labor) that go into assembling the final good. Those
``costs'' are not ``materials.'' Further, they are not ``received at
the individual engine or transmission plants.'' (Emphasis added.)
NHTSA therefore concluded that, in calculating the country of
origin for engines and transmissions, the country to which the engine
or transmission is attributed is that country in which the greatest
percentage by value was added, based on the purchase price of all
equipment that makes up the completed engine or transmission. In
addition, the country of origin calculation is based on the purchase
price an engine or transmission supplier pays for all equipment it
receives at the plant at which the engine or transmission is assembled
into a completed unit. Based on the language in section 210(f)(12),
costs incurred once the engine or transmission supplier has received
the equipment at its engine or transmission assembly plants (e.g.,
labor costs, depreciation of equipment, insurance, etc.) are not
permitted to be taken into account for purposes of determining the
country of origin of an engine or transmission.
The agency recognized that some engine/transmission suppliers may
produce their own equipment that is integrated into the fully-assembled
engine/transmission. NHTSA requested comments on whether such ``on-
site'' production should be treated similarly to on-site production at
a manufacturer's final assembly point, i.e., by including all costs
related to the production of such components, including labor.
The agency stated that under such an approach, for engine
suppliers, production that occurs on-site prior to the point at which
the engine parts are assembled to the engine block would not be
considered ``engine assembly,'' and non-parts costs would be taken into
account in determining the value of the engine in order to determine
its country of origin. After that point in the process, assembly and
other non-parts costs would be disallowed. For transmission suppliers,
production that occurs on-site prior to the point at which the
transmission parts are assembled in the transmission casing (or
transmission housing) would not be considered ``transmission
assembly,'' and non-parts costs would be taken into account in
determining the value of the transmission in order to determine its
country of origin. Again, after that point in the process, assembly and
other non-parts costs would be disallowed.
NHTSA proposed a specific procedure in Sec. 583.8 of the proposed
regulation for determining country of origin for engines and
transmissions. NHTSA noted in the NPRM that while the proposed
regulatory text did not reflect taking parts production costs at the
engine or transmission plant into account in determining country of
origin for the engine or transmission, the agency might, depending on
the comments, adopt such an approach in the final rule.
a. Assembly costs. AAMA stated that it agrees that the statute
provides that determination of country of origin for engine and
transmission does not include the cost of assembling and fabricating
the engine or transmission.
Toyota, however, stated that it disagrees with this conclusion.
That manufacturer argued that the statute does not expressly require
such exclusion, and the Act's use of the words ``dollar value added''
in the first sentence of section 210(f)(12) connotes that the cost of
assembling the engine or transmission is to be included. Toyota stated
that it recognizes that the third sentence in (f)(12) provides that the
estimate of value is based on the purchase price of direct materials,
but argued that the sentence does not require that the estimate be
based solely on the value of direct materials. Toyota urged the agency
to interpret this section based on what it considers to be the plain
meaning of both of these sentences, under which materials are a
component of the value added calculation but not the sole component.
Mitsubishi argued that exclusion of the cost of labor required to
build or assemble engines and transmission is not consistent with other
provisions of the regulations, and the value of labor should therefore
be included. That manufacturer stated that since the term ``direct
materials'' is not defined in the AALA, the agency should use its
discretion to interpret the undefined and vague language in a manner
that is consistent with the rest of the Act.
JAMA also argued that assembly labor for engines and transmission
should be included in the country of origin label calculations. That
organization stated that if NHTSA believes that the statute precludes
such inclusion, the agency should provide in the final regulations a
clear disclaimer statement to that effect. JAMA stated that this could
be accomplished by adding a sentence to the explanatory note or a
parenthetical to the label following the words country of origin.
After considering the comments, NHTSA concludes, based on the
language in section 210(f)(12), that determination of country of origin
for engine and transmission does not include the cost of assembling and
fabricating the engine or transmission. The agency does not accept
Toyota's argument about the first and third sentences of (f)(12). Since
the third sentence expressly provides that ``(t)he estimate of the
percentage of dollar value shall be based upon the purchase price of
direct materials as received at the individual engine or transmissions
plants of engines of the same displacement and transmission of the same
transmission type,'' it limits the meaning of the term ``value added''
in the first sentence.
The agency also does not agree that significance should be accorded
the fact that (f)(12) does not expressly provide that the estimate must
be based solely on the value of direct materials. A basic rule of
statutory construction provides that where a form of conduct, the
manner of its performance and operation, and the persons and things to
which it refers are designated, there is an inference that all
omissions should be understood as exclusions. See Sutherland Stat Const
Sec. 47.23 (5th Ed). Since (f)(12) provides that the estimate is to be
based on the value of direct materials received at the individual
engine or transmission plant, other items such as assembly costs are
excluded in making estimates.
NHTSA disagrees with Mitsubishi's argument that exclusion of the
cost of labor is inconsistent with the rest of the regulation. The
agency notes that Sec. 583.8 applies only to the determination of
country of origin for engines/transmissions for purposes of items four
and five on the label; the cost of labor in assembling engines and
transmissions is not excluded for purposes of determining U.S./Canadian
parts content and major foreign sources of foreign content (items one
and two of the label). NHTSA also notes that the exclusion of labor and
assembly costs in determining the country of origin for engines/
transmissions is directly analogous to the exclusion of final assembly
costs in determining U.S./Canadian parts content and major foreign
sources of content. The agency also disagrees that the term ``direct
materials'' is so vague that it can be interpreted to include labor in
assembling the equipment received at engine/transmission plants into
engines/transmissions.
NHTSA has, however, decided to specify the addition of the word
``parts'' after ``engine'' and ``transmission'' on the label. The
agency believes that this will make it clear to consumers that these
country of origin determinations exclude assembly costs. Because this
change involves adding only two words to the label, it will not result
in an information overload for consumers or an unnecessarily long
label. NHTSA believes that this change is consistent with the statutory
directive that the regulations provide to the ultimate purchaser of new
passenger motor vehicles the best and most understandable information
possible about the foreign and U.S./Canada origin of the equipment of
such vehicles without imposing costly and unnecessary burdens on
manufacturers.
b. Parts that are produced at engine and transmission plants. AAMA
recommended that the regulation provide that ``(a)ll value added at the
transmission and engine plant is excluded from the calculation of
origin.'' APMA stated that the agency asked whether it should include
non-parts costs of on-site production prior to the point at which
engine parts are assembled to engine block or transmission parts are
assembled in the transmission casing. APMA stated that it supports the
regulation as drafted, which does not include non-parts costs for on-
site production, as being the only approach consistent with the
statutory language.
A number of other commenters, however, urged that ``on-site''
production of parts at an engine/transmission plant should be treated
similarly to on-site production at a manufacturer's final assembly
point, i.e., by including all costs related to the production of such
components, including labor. Honda stated that it strongly supports
inclusion of costs of in-house production of parts and subcomponents
that are subsequently integrated into the engine or transmission during
final assembly. It also stated that the agency's proposed definition of
final assembly point for the engine (the point at which the engine
parts are assembled to the engine block) and the transmission (the
point at which the transmission part are assembled in the transmission
casing or housing) seems appropriate.
Nissan stated that it agrees that in-house parts and components
production should be included as parts content in determining country
of origin for engines and transmissions. It also stated that, as
proposed, final engine assembly should be designated to begin at the
point in the production process when the block and head are joined, and
that for transmissions, final assembly should be designated to begin at
the point in the production process at which transmission parts are
assembled in the transmission casing.
Toyota stated that because an assembled engine block is not
equivalent to an engine (for any piston engine, gasoline or diesel,
there must also be a cylinder head), it recommends that the point of
engine assembly should occur no sooner than the point at which the
block and head are attached to one another. That commenter stated that
assembly labor prior to the attachment of the head to the block should
not be excluded, as such labor constitutes, by definition, part of the
value of the individual engine block and cylinder head, neither of
which by itself constitutes an engine.
BMW stated that it supports treating on-site production of engine
and transmission parts in a similar manner to on-site production of
parts at a manufacturer's final assembly plant. BMW added, however,
that it believes the definitions for the starting points of final
assembly for the engine and transmission need to be precise so that
substantial variances cannot be achieved by modifying the assembly
sequence.
After considering the comments, NHTSA has concluded that production
of parts at an engine or transmission plant should be treated in a
similar manner with respect to determining country of origin of the
engine or transmission as the production of parts at a final assembly
plant is treated with respect to determination of a vehicle's parts
content. The agency notes that the basic value of an engine or
transmission is not primarily related to either the costs of assembly
or the costs of the raw materials, but is instead related to the costs
of producing parts. If an engine or transmission plant was highly
integrated and all parts were produced at the plant, a determination of
country of origin that did not reflect the costs of producing parts
would be based entirely on the costs of raw materials. The agency
believes that such a determination would be of little meaning.
At the same time, however, the agency must give full effect to the
congressional intent to exclude the costs of assembling engines and
transmissions. NHTSA believes that the best way to accomplish this is
to specify that all value added at the transmission and engine plant is
excluded from the calculation of origin, with the exception of the
costs of producing individual parts of the transmission/engine.
Individual parts refers to the most basic level of parts used to
assemble an engine or transmission and not subassemblies.
In addition to ensuring that engine and transmission assembly costs
are excluded as required by section 210, the agency also believes that
this approach is much clearer than the specific one discussed in the
NPRM preamble. The agency believes it could be difficult or impossible
to define the starting points of final assembly for the engine and
transmission in ways that are appropriate for all manufacturers. NHTSA
is particularly concerned that, under such an approach, manufacturers
might be able to modify the assembly process in ways that would reduce
the costs of assembling the engine/transmission to a nullity. This
would be possible, for example, under the approach suggested by Toyota.
Such a result would be inconsistent with the statutory requirement that
engine and transmission origin determinations be made based on the
costs of direct materials.
c. Other issues concerning determining country of origin for
engines and transmissions. AAMA stated that Sec. 583.8 refers to
determining country of origin for each individual engine and
transmission. That organization stated that this is inconsistent with
section 210(f)(10)(B) of the statute, which specifies that the
following groupings are used in determining the origin and value added
of engines/transmissions: engines of the same displacement produced at
the same plant and transmissions of the same type produced at the same
plant. AAMA noted that neither the statute nor proposed regulation
defines ``type'' of transmission. It suggested that transmission type
be defined as follows: In determining the origin of transmissions
produced in the same plant, a type should have the same
characteristics: driveline, number of forward gears, controls, and
layout.
AAMA also commented that the regulation should specify that country
of origin is determined once a model year using same methodology as
vehicles, except United States and Canada are treated separately. That
organization also stated that the regulation should make it clear that
calculation of origin of engine/transmission is different for
determining overall U.S./Canadian content.
Honda stated that the proposed regulation does not address the
appropriate groupings of engines and transmissions for purposes of
calculating country of origin. It also noted that the proposed
regulatory text refers to a separate country of origin determination
for each individual engine and transmission, and argued that this is
not contemplated by the Labeling Act and would be extremely burdensome.
Honda stated that it believes the statutory groupings in some cases
may be broader than appropriate to give meaningful information to
consumers. It cited the example of an engine that is available in two
types, both of same displacement and both manufactured at same plant,
one of which is supercharged and the other standard. Honda stated that
the two engines may have very different parts sources. Honda suggested
that final rule provide manufacturers discretion to make country of
origin determinations for engine and transmission subgroupings within
the statutory grouping framework.
NHTSA agrees with the commenters that section 210 requires country
of origin determinations for engines and transmissions, for items four
and five of the label, to be based on groups of engines. The agency
also agrees with AAMA's suggested definition for transmission type. For
purposes of consistency and clarity, the agency believes it is more
appropriate to provide a definition than simply leave subgroupings to
the discretion of the manufacturer. The final rule reflects these
changes. The agency does not agree that it is appropriate to permit
subgroupings of engines below the level specified in section 210, since
the statute specifies the groups to be used.
As part of the procedure for determining country of origin for
engines and transmissions (for purposes of items four and five of the
label only), the agency is specifying a similar procedure for
determining country of origin of the components that comprise the
engine/transmission as for making country of origin determinations for
item two of the label, i.e., manufacturers may use the greatest share
of value approach or any other approach that is used for customs (U.S.
or foreign) purposes, so long as a consistent methodology is employed
for all parts. The U.S. and Canada, however, are treated separately for
making these determinations.
Since the statute does not specify a particular method for making
country of origin determinations for the components comprising an
engine/transmission, NHTSA believes that this approach will provide
appropriate flexibility. The agency notes that after country of origin
determinations are made for each component comprising an engine/
transmission, the ``greatest share of value added'' approach is used to
determine the origin of the engine/transmission. The agency also notes
that this approach will not have any effect on item one of the label.
B. Format/Location for Label
NHTSA proposed to require that the label be placed in a prominent
location on each vehicle where it can be read from the exterior of the
vehicle. The agency proposed three options for the format of the label:
(1) A stand-alone label that is at least 5 inches wide by 3 inches
long, (2) an addition at the end of the Monroney pricing label (15
U.S.C. 1232), or (3) an addition at the end of the fuel economy label
(15 U.S.C. 2006). Under all three options, the label would be required
to read as follows:
For vehicles in this carline:
U.S./Canadian Parts Content: ____%
Major Source of Foreign Parts Content: [fill in country/countries]:
____%
For this vehicle:
Final Assembly Point: __________
Country of Origin:
Engine: __________
Transmission: __________
In addition, the label would include the heading ``PARTS CONTENT
INFORMATION'' at the top, and an explanatory note at the bottom. The
second item of the label (i.e., ``Major Source of Foreign parts
Content'') would be omitted if no individual country other than the
U.S./Canada contributed a minimum of 15 percent of the value of a
vehicle's equipment.
NHTSA stated in the NPRM that to ease comparisons among various
carlines and to make the information available to consumers in as clear
and consistent a manner as possible, it believed it was appropriate to
specify minimum requirements for label and letter size. The agency
noted that the label, whether separate or attached to the price or fuel
economy labels, must be large enough for all the content information to
be easily read, yet small enough to avoid cluttering the limited window
space on the vehicle. The agency proposed to require a separate label
to be rectangular with a minimum dimension of 5.0 inches (125 mm) in
width and 3.0 inches (75 mm) in length. The characters for items one
through five of the parts content label would be required to be printed
at a minimum height of 12 points (one-sixth of an inch) in boldface
type. The required explanatory note at the bottom of the label would be
required to be printed in characters two points smaller than the
information for items one through five.
If the information required by section 210 is attached to the price
or fuel economy labels, the information would be required to be
separated from the information required to be on those labels by a line
that is a minimum of 3 points wide. The words ``PARTS CONTENT
INFORMATION'' would be required to be printed in bold, uppercase
letters, centered, and in not less than 12 point type.
AAMA stated that the agency should permit the label information on
any prominently displayed window label. That organization stated that
as various government agencies add more labeling requirements, many
companies have been developing consumer labels containing information
on several different issues. On the issue of format, AAMA stated that
because of increasing labeling requirements such as bumper standards
and CFC content, deviations should be permitted with the prior approval
of the agency.
GM stated that label space is at a premium, especially for labels
which are required to be left in place until delivery. That
manufacturer stated that the information required on the label is
specifically set out in the legislation, and additional information
should not be required. GM also argued that the label location, format,
size, appearance and type style should be discretionary with the
manufacturer to give the manufacturer the greatest flexibility. GM
indicated that it intends to include this label information in a
consumer information label combining several consumer notices on one
label, including such things as bumper system performance information.
GM stated that the regulation should allow consolidation of this label
with other consumer notices as part of another window label displayed
for consumer review at time of sale.
GM stated that in its combined consumer information label format, a
title size of 12 points with the label information printed in
characters two points smaller would make the label consistent with the
other information. That manufacturer argued that in no case should the
type size be larger than 12 points. GM stated that type size changes
and bolding are more practical for implementing emphasis than
underlining. According to GM, to maximize use of label space, the
format should be discretionary, not mandated. That company stated, for
example, that various information should be allowed on the same line if
width permits to save label space. GM also argued that the title line
should be ``Content Information'' to comply with the disclosure intent
of the Labeling Act.
Toyota stated that a separate Labeling Act label should not be
required to be placed on the same window as the Monroney label. That
company stated that section 210(b) does not require such placement and
provides only that the label appear in a prominent place. Toyota also
stated that the proposed 3 x 5 inch minimum size requirement for a
separate label would pose problems concerning placement on some
vehicles for which available space is limited. It noted that a
manufacturer choosing to place the information on the Monroney label
will be able to devote less space to Labeling Act disclosures than the
15 square inches of a 3 x 5 inch label. Toyota stated that for the sake
of consistency, a separate label should not have to be substantially
larger than the available space on the Monroney label.
NADA urged the agency to allow manufacturers to set out parts
content information in the certification label required by 49 CFR part
567. That organization argued that a vehicle's right door frame is a
prominent place and that nothing in the Act requires parts content
labels to be affixed to vehicle exteriors. NADA also stated permanent
attachment would provide information to subsequent purchasers.
NADA stated that the agency should prohibit the affixing of any
separate parts content labels on the vehicle window. That organization
stated that new vehicle windows are already cluttered with the Monroney
and fuel economy labels. It also stated that vehicles in demonstrator
service must also have used car rule warranty labels affixed. NADA
stated that, by law, only used car rule labels may be removed during
test drives. It noted that many state laws regulate vehicle window
obstruction, but Federal law requires Monroney and fuel economy labels
to be maintained. NADA stated that the agency, consistent with its
primary mission to ensure vehicle safety, must not exacerbate this
concern by allowing the potential for an additional window label.
After considering the comments, NHTSA has decided to require the
label to be placed in a prominent location on each vehicle where it can
be read from the exterior of the vehicle with the doors closed. NHTSA
does not accept NADA's recommendation to permit the label to be
included as part of the certification label on the door frame. The
agency disagrees that the door frame would be a prominent location for
a consumer information label, since prospective purchasers would need
to open the door of a vehicle, and probably have to stoop down as well,
to read the label.
NHTSA does not believe that it would be appropriate to prohibit
stand-alone labels from being affixed to vehicle windows. Section 210
expressly provides that the agency must permit manufacturers to use,
among other options, a readily visible separate label. A window
location is the most practicable location for consumer information
labels since a label installed on the inside of the glass can be read
from outside the vehicle, yet is also protected from the elements. In
addition, affixing labels to exterior painted surfaces could damage the
paint. While NHTSA recognizes the importance of driver visibility, it
observes that since a stand-alone label would be very small, such a
label could be placed in an area where it would have little or no
impact on visibility. The agency notes, in response to Toyota's
comment, that stand-alone labels are not required to be on the same
window as the Monroney label.
The agency is adopting format requirements that are similar to
those in the NPRM, but with some minor changes. The agency is requiring
the heading ``PARTS CONTENT INFORMATION'' for all labels. The agency
notes that the NPRM preamble suggested that the heading would only be
required for content labels included as part of other labels. However,
the agency believes that a heading is useful for all labels, since it
draws attention to the information and identifies its purpose. The
agency believes the word ``parts'' is appropriate for reasons discussed
earlier in this preamble. NHTSA also notes that the wording of the
explanatory note has also been changed and the word ``parts'' has been
added after ``engine'' and ``transmission,'' for reasons discussed
earlier in the preamble.
NHTSA agrees that manufacturers should be permitted to include the
content label as part of any larger labels meeting the specified
location requirements, since this increases manufacturer flexibility
without lessening the usefulness or visibility of the content
information. The agency disagrees, however, that it should drop all of
the proposed format and size requirements. Without such requirements,
manufacturers might use fine print that is not easily read. Similarly,
the agency believes that the label would be harder to read if multiple
items of information were placed on the same line. NHTSA is not
adopting the proposed requirement that certain information be
underlined, since it agrees that the use of capital letters and bold
type provides sufficient emphasis. The agency is adopting minimum type
size requirements. The agency is not adopting any overall size
requirement for a separate label, since it believes that the minimum
type size requirements are sufficient to ensure that the content label
will be visible and easily read.
C. Attachment of Label
NHTSA proposed to require manufacturers to affix the content label
to each new vehicle before the vehicle is shipped from the final
assembly point to the dealer, shipping agent, or importer.
Virtually all of the vehicle manufacturers requested more
flexibility as to when the label must be affixed to the vehicle, and
relied on the same basic arguments. They noted that section 210(b) does
not expressly require manufacturers to attach the label but instead
specifies that each manufacturer shall ``cause to be affixed'' the
required label. The manufacturers also noted that section 210(c)
specifies that manufacturers must be permitted the option of including
the content information as part of the Monroney or fuel economy label,
and indicated that, for imported vehicles, these labels are ordinarily
affixed at the port of entry, a distribution center or the dealership.
Some of the manufacturers requested that the label be required to
be affixed prior to the delivery of a vehicle to the dealership. AAMA
requested that the label be required to be affixed prior to a motor
vehicle being ``offered for sale to an ultimate purchaser.'' Ford
commented that some vehicles which are shipped to dealers prior to
introduction dates are only consigned to the dealer, and the dealer
does not take possession until the vehicle is invoiced.
In response to an inquiry from NHTSA concerning when Monroney
labels are affixed, the Justice Department noted that manufacturers are
required by statute, ``prior to the delivery of any new automobile to
any dealer, or at or prior to the introduction date of new models
delivered to a dealer prior to such introduction date'' to affix the
Monroney label. That Department noted that the language requiring the
Monroney label be affixed ``prior to the delivery'' is straightforward
and places the responsibility squarely on the manufacturer. With
respect to the ``introduction date'' exception, however, the Justice
Department indicated that models are introduced at varying times and
vehicles may sometimes arrive at a dealership several months ahead of
the ``introduction date'' minus the Monroney labels. The Department
stated that this makes compliance problematic at times and raises
enforcement issues that NHTSA may wish to consider.
After considering the comments, NHTSA has decided to generally
require labels to be affixed prior to the delivery of a vehicle to the
dealer, but to provide an exception for vehicles delivered to
dealerships prior to introduction dates. The agency believes it is
desirable for labels to be present on vehicles when they are delivered
to the dealership, since consumers may see such vehicles at any time
after such delivery. There is no reason to require the labels to be
affixed any earlier, such as at the final assembly plant, since
consumers will not see the vehicles prior to their arrival at the
dealership. Since the Labeling Act provides that manufacturers may
include the content information as part of the Monroney label, the
agency believes it is appropriate to provide the same ``introduction
date'' exception as is provided for Monroney labels.
D. Requirements for Suppliers and Related Ones for Manufacturers
As discussed above, much of the information that manufacturers need
to calculate the required items for the label must come from suppliers.
Section 210(d) specifies that the agency must issue regulations which
include provisions applicable to outside and allied suppliers to
require such suppliers to certify whether equipment provided by such
suppliers is United States, U.S./Canadian or foreign and to provide
such other information as may be necessary to enable the manufacturer
to reasonably comply with the provisions of section 210 and to rely on
such certification and information.
NHTSA proposed specific requirements for suppliers. In order to
enable manufacturers to calculate the information required for items
one and two of the label, i.e., the percentage U.S./Canadian content
and major foreign sources of equipment, NHTSA proposed (Sec. 583.10) to
require outside suppliers to provide the following information for any
equipment they supply to a vehicle manufacturer or to an allied
supplier:
(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 for the equipment.
The agency proposed (Sec. 583.11) to require allied suppliers to
provide the following information for any equipment they supply to a
vehicle manufacturer:
(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, i.e., the country in
which the greatest percentage, by value (using purchase price), of
value was added to the equipment.
Under the proposal, both outside and allied suppliers that directly
supply vehicle manufacturers would be required to provide the specified
information directly to the vehicle manufacturer, accompanied by a
certification of the information's accuracy. Outside suppliers that
directly supply allied suppliers would be required to provide the
specified information and certification directly to the allied
supplier. Suppliers would also be required to maintain records of the
information used to determine the information provided to the
manufacturers or allied suppliers.
The agency noted in the NPRM that since the information required
for items one and two of the label must be calculated before the
beginning of the model year, it is important that manufacturers and
outside suppliers receive the required information in a timely manner.
NHTSA proposed to require suppliers to provide the information by
specified dates, based on typical model year production periods. The
agency also proposed to require suppliers to base the information they
provide on what they expect to supply during specified production
periods. However, recognizing that manufacturers may establish
different model year production periods for particular carlines, the
agency proposed to permit manufacturers and suppliers to conclude
agreements specifying alternative production periods and alternative
times for providing the information to the manufacturer.
As discussed above, the information for items four and five of the
label, i.e., countries of origin for the engine and transmission, is
calculated for individual vehicles rather than on a carline basis.
Under the agency's proposal (Sec. 583.12), suppliers of engines and
transmissions would be required to provide the vehicle manufacturer
with the country of origin for each engine or transmission it supplies
to the manufacturer, i.e., the country in which the greatest
percentage, by value (using the total cost of equipment to the engine
or transmission supplier), was added to the engine or transmission. The
agency proposed to require this information to be provided no later
than the time the engine or transmission is delivered to the
manufacturer.
NHTSA received numerous comments concerning the proposed
requirements for suppliers. AAMA noted that the proposed regulation
would require outside suppliers to provide a manufacturer or allied
supplier content information for each unique type of equipment. It
stated that the requirement should be limited to providing content data
on those items of equipment requested by a manufacturer.
AAMA also noted that the proposed regulation would require
suppliers' best estimates of price, content and origin for unique type
of equipment expected to be supplied during a 12-month period. That
organization stated that it believes it is highly unlikely that
suppliers would be willing or able to release estimates ``for future
model year costs,'' as this information is confidential business
information and suppliers may not be able anticipate changes that may
be required to contract price during the year due to unforeseen design
changes. AAMA suggested that to ease this potential point of friction
between suppliers and manufacturers, it recommends that suppliers' best
estimates of price, content and origin be based on the price which
exists in the financial records of the manufacturer at the time when
the content is calculated. That organization stated that if this
information does not yet exist because the part is new, suppliers
should be required to provide their best estimates of what the price,
content or country of origin will be at start of production.
AAMA also stated that the proposed requirements would not provide
manufacturers the data necessary to determine engine and transmission
country of origin because they do not specify separate (as well as
combined) U.S. and Canadian content for transmission and engine items
of equipment. Information on a combined basis is needed for items one
and two of the label; information on a separate basis is needed for
items four and five of the label. Ford stated that since it is not
always known if an item of equipment is going to be installed on an
engine or transmission, and to reduce complexity, the separate and
combined U.S. and Canadian content data should be obtained for all
items of equipment. That manufacturer stated that this would also
permit the basic information collected from suppliers to support
Labeling Act requirements to be used for other reporting and analysis
purposes.
A number of manufacturers argued that because carlines are not
introduced on a rigid schedule, it would be difficult or impossible for
suppliers to adhere to the proposed timing schedule. AAMA stated that
suppliers and manufacturers should be allowed flexibility to establish
their own internal guidelines.
Nissan stated that since vehicle model changeovers may occur at
varying times throughout the year, it urges NHTSA to specify that
supplier content reporting requirement dates be negotiated by contract
among suppliers and manufacturers rather than a date prescribed by
regulations. BMW stated that it believes exact dates for suppliers
should be left to agreements between the manufacturers and suppliers
and, therefore, not included in the regulation. That company noted that
the manufacturer has ultimate responsibility to provide a label on the
vehicle. BMW stated that the manufacturer will require from its
suppliers that information is received in a timely manner because
without the information the vehicle cannot be sold.
Other vehicle manufacturers, including Toyota and Honda, also
emphasized the need for manufacturer flexibility but stated that the
agency's proposal to permit manufacturers and suppliers to conclude
agreements specifying alternative production periods and alternative
times for providing the information to the manufacturer would provide
the needed flexibility.
APMA stated that if NHTSA adopts the AIAG format, requisite
reporting would be jointly submitted by the outside supplier to the
allied supplier or manufacturer. That organization stated that if the
AIAG format is not adopted, it recommends (1) that a common reporting
date be used for reporting to both allied suppliers and manufacturers,
and (2) that an outside supplier's obligation to report be conditioned
on the receipt of at least 90 days advance written notice from an
allied supplier or manufacturer.
On the issue of supplier certifications, AAMA stated that since
allied suppliers are wholly owned by the manufacturer, the manufacturer
has control over the information as well as the timing required from
suppliers. It stated that the information required of allied suppliers
should be the same as for outside suppliers, but the certificate should
be optional.
Toyota stated that it believes 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.
After considering the comments concerning requirements for
suppliers, NHTSA has decided to specify specific requirements
concerning the information suppliers must provide manufacturers and
allied suppliers, but with some changes from the proposal. First, the
agency is persuaded by AAMA's comment that suppliers should only be
required to provide content data on those items of equipment requested
by a manufacturer or its allied supplier. NHTSA is therefore specifying
that manufacturers must request the specified information from their
suppliers for relevant motor vehicle equipment, and that the suppliers
must provide the specified information in response to such request (or
a request from an allied supplier). The agency believes that this
approach offers two primary advantages: (1) Suppliers will not be
required to provide unnecessary information, i.e., information that
would not be used for parts content calculations, and (2) suppliers are
less likely to have compliance problems from not knowing about the
requirements of 49 CFR part 583 than in a situation where they did not
receive a specific request for the required information. NHTSA also
believes that, as a practical matter, manufacturers would in any event
need to be contacting suppliers concerning such things as where to send
the required information.
NHTSA is also persuaded that it is unnecessary to specify any
specific calendar dates for suppliers to provide the information. The
agency is simply specifying that manufacturers must request the
information in time to enable them to calculate the information
required on the label.
While the agency believes that it is generally appropriate to
permit manufacturers and suppliers to work out timing and other details
among themselves, it believes that a few simple requirements are
necessary for the benefit of outside suppliers. Specifically, the
agency is specifying the following requirements with respect to
manufacturer and allied supplier requests for content information from
outside suppliers: (1) The requester must indicate that the request is
being made pursuant to 49 CFR part 583, and that the regulation is
administered by the National Highway Traffic Safety Administration, (2)
the requester must indicate that 49 CFR part 583 requires outside
suppliers to provide specified information upon the request of a
manufacturer or allied supplier to which it supplies passenger motor
vehicle equipment and that, to the best of the requester's knowledge,
the outside supplier is required to provide the requested information,
(3) if any information other than that required by 49 CFR part 583 is
requested, the requester must indicate which information is required by
49 CFR part 583 and which is not, and (4) the requester must indicate
that 49 CFR part 583 specifies that while information may be requested
by an earlier date, the outside supplier is not required to provide the
information until the date specified by the requester or the date 45
days after receipt of the request, whichever is later. The agency is
not specifying the specific language by which requesters must provide
this information.
Since compliance by an outside supplier with 49 CFR part 583 is
based upon providing information in response to a request from a
manufacturer or allied supplier, the agency believes these requirements
are necessary to protect outside suppliers. The requirements ensure
that an outside supplier is aware that it is required by Federal
regulation to provide the requested information, and that it knows the
citation for the regulation and the agency which administers it. The
requirements also ensure that outside suppliers will, in the event they
receive requests for more information than that required by 49 CFR part
583, know which information is required by the regulation and which is
not. Finally, the requirements ensure that outside suppliers will have
adequate time to respond to the request. NHTSA notes that APMA
recommended that the regulation specify notice of at least 90 days.
However, that organization did not justify that amount of time. The
agency believes that 45 days provides ample time, since today's final
rule puts outside suppliers on notice that, from now on, they must
provide the specified content information in response to requests from
manufacturers and allied suppliers.
NHTSA believes that similar requirements are unnecessary to protect
allied suppliers, given that allied suppliers are wholly owned by
vehicle manufacturers. Also, any specific timing requirements as to
when allied suppliers must provide requested information would be more
complicated, since allied suppliers may need to request information of
outside suppliers in order to provide the requested information.
With respect to AAMA's comment that certifications should be
optional for allied suppliers, NHTSA notes that section 210(d)
specifies that regulations ``shall include provisions applicable to
outside and allied suppliers to require such suppliers to certify
whether a component provided by such suppliers is United States, U.S./
Canadian or foreign * * *.'' Therefore, the agency does not have the
discretion to make certifications optional. NHTSA also observes that
while allied suppliers are owned by manufacturers, they are nonetheless
separate entities with independent legal obligations.
Given this statutory provision, the agency also cannot permit the
use of ordinary business records instead of specific certifications
from suppliers, as recommended by Toyota. The agency notes, however,
that a certification can cover multiple items of equipment and can be
part of documents containing other information. Suppliers may be able
to incorporate the certification into other business records that they
provide manufacturers.
The agency does not accept AAMA's suggestion that supplier
estimates of price, content and origin for unique type of equipment not
be based on a period of time generally corresponding to the model year
for which content calculations are to be made. Estimates that are based
on current production or on the start of production might be very
different from what the supplier anticipates for the model year as a
whole. For example, a supplier might plan to manufacture a part in both
the United States and overseas, and to begin production in one place
slightly before the other place. In such an instance, an estimate based
on start of production would not be meaningful. In order to ensure
meaningful label information, NHTSA believes that estimates must be for
an overall production period that corresponds to the relevant model
year. The agency emphasizes, however, that suppliers are only required
to provide good faith estimates and are not prevented from making
subsequent changes in price, content and origin for their equipment.
The final rule clarifies that suppliers are required to provide
both separate and combined information concerning the U.S. and Canadian
content of parts that may be used in engines or transmissions. With
respect to Ford's suggestion that separate U.S. and Canadian content
information be required for all equipment, NHTSA notes that it would be
inappropriate for the regulation to require suppliers to provide
information that is not relevant to Labeling Act requirements. However,
manufacturers are free to request suppliers to provide such information
outside the context of 49 CFR part 583.
The agency notes that additional issues related to supplier
certifications are discussed below in the section entitled
``Recordkeeping Requirements; Supplier Certifications.''
E. Requirements for Dealers
NHTSA proposed to require dealers to maintain the label on each
vehicle until the vehicle is sold to a consumer. The agency noted in
the NPRM that AIADA had submitted a comment on the request for comments
arguing that dealers should be permitted to remove the label from a
vehicle if state law requires it, such as when dealers are operating
demonstrator vehicles, or when dealers move cars in an intra-dealer
exchange. AIADA had also recommended that dealers be permitted to affix
duplicate labels in the event that the manufacturer-supplied label
becomes torn or otherwise mutilated.
NHTSA addressed this issue as follows in the NPRM:
NHTSA has tentatively concluded that dealers should not be
permitted to remove the label for any reason before sale to a
consumer. The agency believes that it is appropriate to treat this
label in same manner as Monroney and fuel economy labels, since all
three labels are intended to provide information to aid consumers in
making their purchase decision. Neither the EPA or Department of
Justice permit dealers to remove fuel economy or Monroney labels,
even temporarily, prior to sale to a consumer. The Department of
Justice has advised that neither the Monroney nor fuel economy
labeling statutes contain exceptions for situations in which labels
purportedly constitute safety hazards in demonstrator cars (i.e.,
those cars that dealers allow potential customers to test drive),
and went on to state that it was unaware of any judicial
interpretations that would create such exceptions. Section 210 is
similar to the other two labeling statutes in that it does not grant
NHTSA the authority to permit dealers to remove the label. Indeed,
section 210(b)(1) states explicitly that each dealer shall cause the
label required by this Act to be maintained on the vehicle.
NHTSA is also concerned that, if dealers were permitted to
remove labels for demonstrator vehicles, consumers would not have
the labeling information available to them at a crucial time in
their purchasing decision, i.e., the time they were evaluating a
vehicle for purchase. In addition, the labels might be re-attached
inadvertently to the wrong vehicle or not re-attached at all.
The Department of Justice has advised that most manufacturers
have been applying Monroney and fuel economy labels to the rear left
windows of vehicles, and affixing the vehicles with labels that do
not easily tear or loosen from the windows to which they are
attached. Such placement does not ordinarily interfere with the
driver's vision in the event of a test drive or other similar
purpose. Additionally, the dealer could not easily remove the label,
even for temporary purposes, without tearing or destroying it.
NHTSA will not, therefore, propose to permit dealers to remove
labels for any reason prior to a first sale to a consumer, with one
exception: the agency agrees with the AIADA that it is necessary for
dealers to replace any label that becomes mutilated or otherwise
damaged prior to sale to a consumer so that the information is no
longer legible. 58 FR 61053.
As discussed earlier in this preamble, NADA argued that existing
labels including the Monroney and fuel economy labels create safety
concerns for vehicles which are test driven prior to their delivery to
first purchasers, because the labels obstruct visibility. Noting that
the agency indicated in the NPRM that dealers would not be allowed to
remove a parts content label except in the event that it becomes
mutilated or damaged, that organization urged the agency to prohibit
the placement of separate parts content labels on vehicle windows. NADA
stated that the final rule should specify that dealers may remove
labels prior to sale when instructed by a manufacturer to replace them
with substitutes containing updated or corrected information. AIADA
repeated its earlier argument that dealers should be permitted to
remove the label from a vehicle if state law requires it, such as when
dealers are operating demonstrator vehicles, or when dealers move cars
in an intra-dealer exchange.
After considering the comments, NHTSA has concluded that there is
no basis to change its view, discussed in the NPRM, that section 210
prohibits temporary removal of labels for test drives. The Justice
Department concurs in this view. Section 210 specifically requires each
dealer to ``cause to be maintained, on each such vehicle,'' the
required label. (Emphasis added.) Therefore, the required label must be
maintained by dealers ``on each * * * vehicle.'' Moreover, the
similarity of the language in section 210 for the content label with
that for the Monroney and fuel economy labels indicates that the same
result should be obtained. The commenters did not present any legal
analysis challenging the legal analysis presented in the NPRM or
suggesting that the Justice Department analysis is incorrect.
The final rule does clarify that dealers may replace labels with
substitutes containing corrected information when instructed to do so
by a manufacturer. It is unnecessary to specify that labels may be
replaced for updated information, since the information specified on
the label is not subject to change (except for purposes of correction).
F. Authority To Exclude Vehicles With Low or High U.S./Canadian Content
NHTSA stated in the NPRM that, for vehicles with less than 35
percent U.S./Canadian content, it was considering providing
manufacturers with the option of simply stating that the percentage
U.S./Canadian content is ``minimal'' instead of determining and
providing the precise amount of such content. The agency addressed this
issue as follows in the NPRM:
Several manufacturers requested more limited labeling
requirements for manufacturers of new passenger motor vehicles that
contain minimal U.S./Canadian content. In effect, the label would
state that the vehicle contained less than a certain percentage of
U.S./Canadian content. It would also state the final assembly point,
and the country of origin of the engine and transmission.
Volvo suggested the simplified procedure be implemented for
imported vehicles containing under 15 percent U.S./Canadian content.
The AAMA agreed with the 15 percent level, stating that Congress
appeared to indicate that higher percentages of U.S./Canadian
content were significant for purposes of labeling. Volkswagen and
the AIAM, however, suggested a level of 35 percent, stating that
lower levels would not affect enough vehicles to make implementation
of the special provisions worthwhile. Lamborghini, in its testimony
at the public meeting in December 1992, suggested a cutoff of 20
percent.
As a practical matter, NHTSA agrees that once the domestic
content gets below a certain point, the precise amount of that
content becomes immaterial, i.e., the vehicle is foreign and small
differences in domestic content are not likely to be relevant to
consumer purchasing decisions.
Therefore, for vehicles with less than 35 percent U.S./Canadian
content, the agency is considering providing manufacturers with the
option of simply stating that the percentage U.S./Canadian content
is ``minimal'' instead of determining and providing the precise
amount of such content.
The primary benefit of this option would be to eliminate
manufacturer costs associated with keeping precise records and
making precise calculations about the U.S./Canadian content of a
vehicle, when the manufacturer knows such content is very low. Under
this option, manufacturers would still be required to provide items
2, 3, 4, and 5 of the label, i.e., major foreign sources of vehicle
equipment, place of final assembly and countries of origin of the
engine/transmission. 58 FR 61053-54.
However, NHTSA also noted that such an option would represent a
limited exclusion from one of section 210's labeling requirements. The
agency stated that as part of considering this option, as well as
possible special requirements discussed below for multi-stage and low
volume manufacturers, it was in the process of determining whether it
had authority to provide limited exclusions from section 210's labeling
requirements. NHTSA stated that it would complete its evaluation before
reaching a final decision about possible exclusions. 58 FR 61054.
In commenting on the NPRM, AAMA stated that it supported a limited
exclusion for vehicles with low U.S./Canadian parts content, although
at a 15 percent content level rather than 35 percent. AAMA also stated
that since the agency ``has implied that it has the authority to set a
minimal level for the U.S. and Canadian content which removes a
recordkeeping burden on the low end of content, it urged that such
relief also be provided for the high end of content. That organization
recommended that, for carlines with more than 85 percent U.S./Canadian
content, manufacturers be permitted to specify the content as ``at
least'' 85 percent instead of specifying a percentage.
The foreign vehicle manufacturers strongly supported a limited
exclusion for vehicles with low U.S./Canadian parts content. However,
several of them argued that unless the agency also permits a limited
exclusion from providing the information required for item two of the
label, i.e., the percentage parts content originating from major
sources of foreign content, there would be only a minimal benefit from
an exclusion from specifying the percentage U.S./Canadian parts
content. This is because the foreign manufacturers would have to
collect detailed information from most of their suppliers to calculate
the information for item two of the label. The foreign manufacturers
suggested various alternative approaches, such as requiring them to
specify the countries that constitute major sources of foreign content
but not the percentages from such countries.
Since publishing the NPRM, the agency has completed the analysis of
its authority to provide exclusions from the Labeling Act requirements.
For reasons which are summarized below, NHTSA has concluded that it
does not have the authority to provide exclusions from the express
statutory labeling requirements for either vehicles with low U.S./
Canadian content or vehicles with high U.S./Canadian content. As
discussed in the next section of this preamble, however, the agency may
provide limited exclusions for multi-stage manufacturers and low volume
manufacturers, based on the de minimis doctrine.
As discussed above, the Labeling Act expressly requires
manufacturers to label each vehicle with five items of information: (1)
The ``percentage'' U.S./Canadian parts content; (2) the names of
foreign countries providing at least 15 percent of the parts content
and the ``percentage'' for each such country; (3) final assembly point;
and (4) and (5) countries of origin for the engine and transmission.
Items (1) and (2) are calculated on a ``carline'' basis. See section
210(b)(1).
There is a limit to the degree of precision in the percentages
required by the Labeling Act. Section 210(b)(2) provides that ``[t]he
percentages required to be indicated by this section may be rounded to
the nearest 5 percent by the manufacturers.''
To implement these and other requirements, section 210(d) requires
the Secretary to:
Promulgate such regulations as may be necessary to carry out
this section * * * Such 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./
Canada origin of the equipment of such vehicles without imposing
costly and unnecessary burdens on the manufacturers.
The Labeling Act does not provide any express authority to create
exclusions from the statutory requirements which apply to vehicle
manufacturers. NHTSA notes that while section 210(d) provides that the
regulations must not impose costly and unnecessary burdens on
manufacturers, this is not an invitation for the agency to second-guess
Congress about the requirements it has established regarding the
specific content information which must be provided to consumers. As a
matter of statutory construction, the agency notes that general
provisions cannot be construed as overriding specific ones. Since all
of the exclusions identified above are inconsistent with the statutory
language, the relevant legal question is whether NHTSA has implied
authority to create the exclusions notwithstanding such language.
Where a statute does not provide express authority to create
exclusions, there are only two circumstances recognized by the courts
in which an agency has implied authority to create exclusions. The
first is administrative need, related to an agency's inability to carry
out a mandate fully, and the second is de minimis circumstances, where
following the plain meaning of a statute would lead to ``absurd or
futile results'' or to ``a gain of trivial or no value.'' The courts
indicate that both bases for exclusions from the clear command of a
statute are disfavored and that agencies bear a strong burden of proof
in attempting to show that adhering to a statute would have the effects
described above.
Since exclusions are not necessary for the agency to carry out its
mandate, the only relevant issue is whether the exclusions can be
justified on the de minimis theory. The exclusions cannot be justified
if non-trivial benefits are provided by a regulation in those
circumstances.
NHTSA has concluded that it does not have authority to provide the
above-discussed exclusions from the express statutory labeling
requirements for either vehicles with low U.S./Canadian content or
vehicles with high U.S./Canadian content because the exclusions 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.
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. Similarly, a ``high-end''
exclusion would permit most domestic vehicles to be labeled with the
words ``greater than 85% 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 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 section 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.
As discussed above, several foreign vehicle manufacturers requested
an exclusion from the statutory requirement to specify the percentage
parts content originating from major sources of foreign content.
Volkswagen stated that its recommendation for such an exclusion is
``consistent with the intent of the original bill,'' but recognized
that the statutory requirement to list the percentage parts content
originating from major sources of foreign content was added by the
House/Senate Conference Committee. Volkswagen argued that ``the
Committee did not appear to have assigned great importance to the
inclusion of foreign sourced parts percentages.''
NHTSA notes that it must implement a statute as finally passed by
the Congress, and not an earlier version that was not passed. Moreover,
the agency must follow the plain meaning of a statute and cannot ignore
express statutory requirements based on a belief that a Congressional
committee may not have assigned great importance to a particular
requirement. The committee, and ultimately the Congress, thought the
requirement at issue was important enough to pass into law. Congress
decided that prospective purchasers should know the percentage parts
content that originated from major sources of foreign content. This
particular requirement primarily applies to foreign vehicles, since
domestic vehicles are less likely to have major sources of foreign
content. Yet, the exclusions recommended by the foreign manufacturers
would permit a large percentage of foreign vehicles to labeled without
this information. Such exclusions cannot be considered de minimis. The
agency does observe that the additional flexibility it is providing
with respect to how country of origin is determined for purposes of
item 2 of the label should help reduce manufacturer costs in this area.
G. Multi-Stage Manufacturers and Small Businesses
NHTSA proposed to exclude multi-stage manufacturers of ``carlines''
of fewer than 1,000 vehicles from providing items 1 and 2 of the label
(the two items that are determined on a carline basis). However, these
manufacturers would be required to provide items 3, 4 and 5 of the
label. Similarly, the agency proposed to apply the same limited
requirements to businesses that produce a total of fewer than 1,000
passenger motor vehicles for sale in the United States annually.
The agency explained that the concept of carline is largely
meaningless for many multi-stage manufacturers. Many of the vehicles
made in the multi-stage process are highly specialized, and are often
built to order. A ``carline'' in this instance could consist of only
several vehicles. The agency stated that it did not believe that
Congress had this situation in mind when it defined carline. Moreover,
to the extent that vehicles are built to order, prospective purchasers
may not be able to inspect a content label prior to making a purchase
decision. NHTSA also stated in the NPRM that it believes that the same
arguments made concerning multi-stage manufacturers, regarding carlines
with a minimal number a vehicles produced annually, can be made in a
discussion of small businesses.
In its discussion of multi-stage vehicles, the agency noted that
alterers are not covered by section 210 for reasons similar to those
discussed above concerning dealer and port-installed options. Alterers
modify completed vehicles, after they have left the manufacturer's
final assembly point. The parts they use are not considered equipment
by section 210 of the Cost Savings Act, because they are never shipped
to the final assembly point. Their modifications cannot affect carline-
basis calculations made before the start of the model year, and cannot
be known in advance of the model year by the manufacturer.
NTEA stated that it agrees with agency's tentative determination
that the label on vehicles produced in multiple stages should differ
from the label on mass produced vehicles. It also stated that it is
confident the agency has authority under the Labeling Act to promulgate
different rules, and believes the Act could be interpreted to allow
even a full exclusion for multi-stage vehicles. NTEA stated that
requiring small business multi-stage manufacturers to calculate U.S./
Canadian versus foreign percentages would be extremely burdensome in
both an economic and practical sense as they would need to do so on a
per vehicle basis. That organization added that any ancillary reporting
or recordkeeping requirements would also need to be done on a per
vehicle basis. NTEA noted that the proposed multi-stage rules would
require information on final assembly point and place of manufacture of
the engine and transmission. That commenter stated that this would
allow a consumer to know where the vehicle was built and whether the
most valuable individual mechanical components, the engine and
transmission, are of foreign or domestic origin. NTEA also stated that
the burden on small business multi-stage manufacturers would be
minimal.
AIAM stated that it applauds NHTSA's recognition of providing some
regulatory relief to small automotive manufacturers. It suggested that
the agency expand the proposed exclusion for small manufacturers from
fewer than 1,000 vehicles to fewer than 2,500 vehicles. That
organization stated that this would provide relief from the costly
burdens the Act imposes on additional small manufacturers without
depriving consumers of information deemed necessary by the Act.
Coachmen stated that the ``concessions'' made in the NPRM fall far
short of what was requested by RVIA in commenting on the request for
comments. Coachmen argued that the proposed requirements would impose
an undue and costly and unnecessary burden on Coachmen. It recommended
that the final rule should exclude carlines of less than 20,000 per
year, exclude recreation vehicle manufacturers and van converters, or,
as a less desirable alternative, provide simplified and less costly
compliance recordkeeping and reporting requirements based on using the
information provided solely by the original vehicle manufacturer on a
pass through basis. Coachmen stated that it has several divisions, some
of which are final stage manufacturers and others van converters. It
stated that the process of documenting and re-computing percentage of
domestic content of vehicles would require large amounts of paperwork,
additional labor and possible delays in shipments, but result in a
minuscule change in the original vehicle manufacturer's domestic
content.
Coachmen stated that the motor vehicles it receives for further
manufacture are supplied by the Big Three, which Coachmen assumed would
have a domestic content label affixed to the incomplete vehicle. That
company argued that individual per unit costs of implementation would
be significantly higher than for the Big Three, creating a competitive
disadvantage. Coachmen argued that the intent of the legislation
relates to large volume producers, and that regulations should not be
extended to multi-stage manufacturers, final stage manufacturers or van
converters. That company stated that in addition to the interpretation
as to the types of vehicles to be included, the issue of what
constitutes a carline should be redefined. Coachmen stated that by
using the figure of 1,000 vehicles per year as the upper limit of
applicability, NHTSA has not considered the intent of the legislation.
Coachmen noted that it has a van conversion division whose annual
production is a small fraction of the total market but does exceed the
1,000 unit limit by a considerable amount.
After considering the comments, NHTSA has decided to exclude all
final stage manufacturers, as well as all businesses that produce a
total of fewer than 1,000 passenger motor vehicles for sale in the
United States annually, from providing items 1 and 2 of the label (the
two items that are determined on a carline basis). However, these
manufacturers are required to provide items 3, 4 and 5 of the label.
The agency believes that these exclusions are justified on the de
minimis theory, i.e., only trivial additional benefits would be
provided by not adopting the exclusions. First, NHTSA believes that the
total number of vehicles affected by the exclusions is less than one
percent of the vehicles covered by the statutory requirements. This is
very different than the ``low end'' and ``high end'' exclusions
considered above, which would each affect a large percentage of total
vehicles. Second, these exclusions largely affect vehicles which are
likely to be made to order and for which consumers would often not be
able to inspect a label prior to making a purchase decision. Thus, even
if full labeling information was provided for these vehicles, it often
could not be used by consumers in making purchase decisions.
NHTSA disagrees with AIAM's suggestion that the exclusion for small
manufacturers be changed to apply to manufacturers which produce fewer
than 1,000 vehicles to ones which produce fewer than 2,500 vehicles. As
discussed above, the agency's implied authority to provide exclusions
from express statutory requirements is very limited. It is the agency's
judgment that the proposed limit is sufficient to cover small
manufacturers which are likely to only produce vehicles to order and
for which consumers are unlikely to be able to inspect a vehicle label
(e.g., on a demonstrator vehicle) prior to making a purchase decision.
Moreover, the concerns about carline determinations being made for only
a few vehicles are not likely to be relevant. In short, the agency
believes that AIAM's recommended exclusion cannot be justified on the
de minimis theory. Extending the scope of the exclusion would
unnecessarily deny prospective vehicle purchasers relevant content
information that Congress decided they should have.
For the same reasons, NHTSA is not adopting Coachmen's
recommendation that the final rule exclude carlines of less than 20,000
per year and exclude recreation vehicle manufacturers, i.e., the
exclusions would unnecessarily deny prospective vehicle purchasers
relevant content information that Congress decided they should have.
With respect to that company's recommendation that the final rule
exclude van converters, NHTSA notes that many van converters are
excluded as a result of being alterers.
However, NHTSA has decided to exclude all final stage manufacturers
from the requirements to provide items 1 and 2 on the label, rather
than limiting the exclusion to multi-stage manufacturers of
``carlines'' of fewer than 1,000 vehicles. The reason for this relates
both to the relatively small number of multi-stage vehicles subject to
the Labeling Act requirements and the fact that key statutory
definitions relevant to parts content calculations do not appear to
contemplate vehicles manufactured in more than one stage.
As discussed above, section 210 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 * * *.'' Moreover, section
210 provides that costs incurred at or beyond the final assembly point
are not included in parts content calculations.
For multi-stage vehicles, it is not clear from the statutory
definition whether ``final assembly point'' refers to the place where
an incomplete vehicle is assembled or to the place of final stage
manufacture. Regardless of which location is considered to be the point
of final assembly, problems can occur in applying the statutory
requirements.
Assume, for example, the possibility of considering the place where
the incomplete vehicle is assembled as the final assembly point. An
incomplete vehicle includes, as a minimum, a frame and chassis
structure, power train, steering system, suspension system, and braking
system, to the extent that those systems are to be part of the
completed vehicle. See 49 CFR Part 568. It might have all component
parts necessary for mechanical operation. However, the vehicle is not
delivered to a dealer or importer from the plant where the incomplete
vehicle is assembled. Moreover, a large number of the vehicle's parts
may not be included at this time.
Assume instead the possibility of considering the place of final
stage manufacture as the final assembly point. It might be argued that
the incomplete vehicle manufacturer should be considered an outside
supplier of passenger motor vehicle equipment. However, section 210
defines passenger motor vehicle equipment as ``any system, subassembly,
or component received at the final vehicle assembly point for
installation on, or attachment to, such vehicle * * *.'' An incomplete
vehicle does not fit this definition. Moreover, if the incomplete
vehicle manufacturer were considered an outside supplier of equipment,
the bulk of final assembly costs (of the incomplete vehicle) would be
included in parts content calculations, a result that is clearly
inconsistent with Congressional intent.
It might be possible for NHTSA to develop an alternative approach
to solve these problems, such as considering the place where the
incomplete vehicle is manufactured and the place of final stage
manufacture to both be final assembly points. However, any such
approach would be complicated and itself require a departure from the
express statutory language. Given that the total number of multi-stage
vehicles subject to the Labeling Act is relatively small and the fact
that the statutory definitions do not appear to contemplate vehicles
manufactured in more than one stage, the agency believes it is
appropriate to simply exclude all such vehicles from the requirements
related to items 1 and 2 of the label.
Final stage manufacturers are required to provide items 3, 4 and 5
of the label. The agency is specifying, for purposes of item 3 of the
label, that the final assembly point for multi-stage vehicles is the
location where the incomplete vehicle is assembled. The agency is
specifying this location because, unlike the location of final
manufacture, it will always involve significant final assembly
operations.
H. Recordkeeping Requirements; Supplier Certifications
Section 210(d) provides that the agency must promulgate such
regulations as may be necessary to carry out section 210, including
regulations to establish a procedure to verify the required labeling
information, and regulations applicable to outside and allied suppliers
to require such suppliers to certify whether a component provided by
such suppliers is United States, U.S./Canadian or foreign. As discussed
in the NPRM, in order to verify the information provided on labels,
NHTSA contemplates that it would conduct, on an occasional basis, an
audit of the information provided on a label. Such an audit would
involve requiring the vehicle manufacturer to provide the agency with
the manufacturer's basis for the information it provided on the label,
e.g., all relevant certifications from suppliers, a listing of parts,
cost information, and all calculations used by the manufacturer to
derive the information provided on the label. NHTSA would check whether
the manufacturer's methodology was consistent with agency regulations.
The agency would similarly require individual suppliers to provide the
basis for the information and certification that they provided
manufacturers or allied suppliers.
In order to ensure that the agency can conduct such an audit, as
well as otherwise enforce the labeling requirements, NHTSA proposed to
require manufacturers to maintain all records which provide a basis for
the information they provide on labels, and to similarly require
suppliers to maintain records providing the basis for the information
and certification they provide to manufacturers or allied suppliers.
Noting that EPA requires fuel economy records to be retained for five
years after the model year to which they relate, NHTSA proposed to
require manufacturers to maintain records for five years after December
31 of the model year to which the records relate, and to require
suppliers to maintain records, which form a basis for the information
they provide to manufacturers or allied suppliers, for six years after
December 31 of the calendar year set forth in their submissions to
manufacturers/allied suppliers.
NHTSA also addressed the issue of whether manufacturers should have
the option of maintaining records electronically. The agency stated
that it believes manufacturers and allied suppliers should retain the
original copies of information provided by suppliers, but sought
comment on whether to allow them to retain the certifications and other
information obtained from suppliers electronically, specifically in the
form of electronic images. NHTSA proposed to permit manufacturers and
suppliers to maintain all other records in either paper or electronic
form for purposes of data storage, provided that in every case all of
the information contained in the record is retained.
Numerous commenters argued that certifications and other
information should be permitted to be submitted to manufacturers/allied
suppliers electronically, as well as stored electronically. AAMA stated
that it objects to manufacturers receiving and maintaining original
copies of certificates. That organization stated that with the
enactment of the Customs Modernization Act, GM, Ford and Chrysler are
developing process to collect all content and customs data
electronically. Ford argued that electronic storage is more efficient
and cost effective and is consistent with the recently signed Customs
Automation Act.
Toyota also recommended against any requirement to obtain or retain
actual paper certificates. It stated that the rules should allow all
required records to be retained electronically. APMA stated that the
proposed requirements to require suppliers to generate paper originals
for certificates would be burdensome and impede the spread of EDI. That
organization stated that the adoption of the AIAG/EDI package into the
content reporting requirements under NAFTA is expected to begin in
1995. It recommended that all records be allowed to be kept in any
medium.
Honda stated that it supports the proposal to require written
certifications by suppliers to manufacturers.
Nissan stated that it believes that a five to six year retention
period is excessive. It suggested a retention period for manufacturers
of three years after December 31 of the model year to which records
relate, and, for suppliers, a retention period of four years after
December 31 of the calendar year set forth in the certificate.
After considering the comments, NHTSA has decided to permit
certifications and other records to be submitted and retained
electronically. The agency believes that this is consistent with the
approach being taken by the Federal government in related areas, and
with section 210's requirement to establish regulations that avoid
imposing unnecessary and costly burdens on the manufacturers.
NHTSA has also decided to require records to be maintained for the
periods proposed in the NPRM. As discussed above, these requirements
ensure that records are maintained for five years after the end of the
model year to which they relate. The agency disagrees with Nissan that
the retention period is excessive. A possible audit of the information
provided on a label could take substantial time, particularly given the
need to trace the information back to suppliers. NHTSA also notes that
the cost of maintaining records is substantially reduced to the extent
that manufacturers use electronic means.
I. Reporting Requirements
NHTSA proposed to require vehicle manufacturers to submit to the
agency three copies of the information that will appear on each
carline's label. The agency proposed to require submittal of this
information for each carline not later than the date the first vehicle
of the carline is delivered to dealers for that model year.
The agency stated that it believes this reporting requirement is
necessary for several reasons. It would provide one central location
from which information can be gathered concerning the labels. Inquiries
could come from within the agency, or from interested members of the
public. In addition, such reporting would aid the agency in deciding
whether to initiate any investigations or audits.
The agency received several comments on the proposed reporting
requirements. AAMA stated that the proposed requirements should be
modified to require submittal of information not later than the date
the first vehicle of the carline is offered for sale to the ultimate
purchaser. Isuzu suggested that flexibility be introduced to permit
manufacturers to submit a report whenever a major specification change
has been made in the middle of a model year or whenever the
manufacturer opts to change the model year at a timing different from
normally accepted model year changes. NTEA stated that it understands
that small multi-stage businesses are not subject to the reporting
requirements unless they produce carlines of over 1,000 vehicles.
After considering the comments, the agency has decided to adopt
reporting requirements along the line of the proposal, but to require
submittal of information not later than the date the first vehicle of
the carline is offered for sale to the ultimate purchaser. This date
will be adequate for the agency's purposes in monitoring the
information on the labels. Moreover, this date is consistent with the
agency's decision, discussed above, not to require labels to be placed
on vehicles prior to the introduction date.
The agency cannot provide flexibility to permit manufacturers to
update labels during a model year, since section 210(b) provides that
content percentages are ``established at the beginning of each model
year for such carline and shall be applicable to that carline for the
entire model year.'' There is therefore no reason to provide
flexibility with respect to reporting updated information. However, if
a manufacturer discovers an error in the information reported to the
agency, it should send information to the agency correcting that error.
NHTSA agrees with NTEA that any manufacturer that is not required
to provide information on a carline basis, i.e., items one and two on
the label, is not subject to the reporting requirements.
J. Leadtime/First Year Requirements
A number of manufacturers and suppliers argued that they cannot
comply with all the data collection and calculation requirements by the
October 1994 implementation date. AAMA stated that the proposed
regulation will require extensive data collection and calculation
requirements, and that there are several areas of uncertainty that will
not be resolved until a final rule is issued. It stated that it has
been working in conjunction with the AIAG and a number of suppliers to
establish processes to comply with the law, but has been unable to
complete this activity because of uncertainties about the final rule.
AAMA stated that manufacturers and suppliers will not be able to comply
with all the data collection and calculation requirements by October
1994. It requested NHTSA to allow manufacturers and suppliers to use
procedures that are expected to yield similar results for at least 12
months after the final rule is published.
GM stated that because of the scope of the effort to comply with
the new requirements, at least one year is required between the
publication of the final rule and the effective date of the rule. That
manufacturer stated that it supports the interim AAMA proposal of
making a best efforts determination of domestic and foreign content for
the AALA required label using presently available CAFE cost and origin
data for the first year after publication of the final rule.
Ford submitted a comment along the lines of that of AAMA. It also
provided NHTSA with a copy of an EPA final rule, published in February
1993, which established labeling requirements for products manufactured
with certain ozone-depleting substances. EPA stated in the preamble for
that final rule that it recognized the practical problems the regulated
community would have in meeting a May 15, 1993 statutory deadline for
labeling, ``given the late publication of this rule.'' 58 FR 8136,
February 11, 1993. EPA stated that ``(a)s a result of the concerns, it
is the Agency's policy to take no enforcement action for matters
occurring during the first nine months following the publication of
these regulations.''
BMW stated that if NHTSA does not permit manufacturers a permanent
alternative of using existing, substantial business records to make
parts content calculations, it should allow such an alternative on an
interim basis in lieu of granting additional leadtime.
Calsonic stated that the proposed leadtime for suppliers was
extremely short and requested postponement of at least a year.
Nippondenso also stated that the proposed leadtime for suppliers was
short, and requested that the effective date of the regulations be
postponed for at least six months.
After considering the comments, NHTSA agrees, given the complexity
of the data collection and calculation requirements, that it is
impossible for manufacturers and suppliers to fully comply with all of
the requirements by October 1, 1994. The agency notes that this
conclusion is partly based on the fact that manufacturers cannot
complete their calculations until they receive specified information
from suppliers, and allied suppliers cannot complete their calculations
until they receive specified information from outside suppliers. The
conclusion is also partly based on the fact that many of the
requirements are in the regulation as opposed to section 210, i.e.,
manufacturers and suppliers could not comply with the data collection
and calculation requirements absent a final rule.
NHTSA is nonetheless faced with the section 210(b) requirement that
labels be provided on each vehicle manufactured on or after October 1,
1994. The agency agrees with AAMA that the most appropriate means for
resolving this problem is to permit manufacturers and suppliers to use
procedures that are expected to yield similar results, for about a
year. The agency believes that this temporary alternative will ensure
that consumers receive the best information possible about the foreign
and U.S./Canada origin of vehicles they are considering purchasing
during this period, given that full compliance by manufacturers and
suppliers is not possible. NHTSA has decided to adopt the following
specific requirement:
For model year 1995 and model year 1996 carlines which are first
offered for sale to ultimate purchasers before June 1, 1995,
manufacturers and suppliers may, instead of following the
calculation procedures set forth in this part, use procedures that
they expect, in good faith, to yield similar results.
NHTSA notes several things about this temporary alternative
approach. First, it is available for all model year 1995 vehicles and
for any model year 1996 vehicles which are introduced before June 1,
1995. The agency selected the June 1, 1995 date because it ensures
manufacturers additional flexibility for about a one-year period. NHTSA
notes that since most model year 1996 vehicles will be introduced in
the fall of 1995, manufacturers will have additional flexibility for
early introductions (a model year 1996 vehicle could be introduced as
early as January 1995, for which full compliance might not be
possible), but will need to meet the full requirements for the vast
majority of model year 1996 vehicles.
Second, manufacturers may use any procedures that they expect, in
good faith, to yield ``similar results.'' For example, the
manufacturers could use the CAFE procedures for making content
determinations so long as they made adjustments to attempt to account
for differences between the CAFE content requirements and Labeling Act
requirements, e.g., CAFE does not exclude assembly, sales, and
marketing costs.
Third, manufacturers may choose to rely entirely on information
they already have in their possession or, at their option, obtain
additional information from some suppliers to help them make the
necessary calculations. To the extent that manufacturers are following
this alternative approach, their suppliers may as well.
NHTSA notes that Nissan asked, in a telephone call to NHTSA's
Office of Chief Counsel, how the Labeling Act requirements apply to MY
1994 vehicles that are manufactured on or after October 1, 1994. As
discussed below, it is the agency's opinion that the Act's requirements
do not apply to any MY 1994 vehicles.
The first sentence of section 210(b)(1) reads as follows: ``Each
manufacturer of a new passenger motor vehicle distributed for commerce
for sale in the United States shall annually establish for each model
year and cause to be affixed * * * on each vehicle manufactured on or
after October 1, 1994, in a prominent place, one or more labels * *
*.'' Section 210(b)(2) provides that the percentages required for the
label ``shall be established at the beginning of the model year * *
*.'' With respect to the issue of how the Labeling Act requirements
apply to MY 1994 vehicles, NHTSA believes it is significant that: (1)
The requirement to label vehicles takes effect on the date
traditionally considered to be the beginning of MY 1995 (October 1,
1994), and (2) the percentages required to be included on the label are
to be established at the beginning of the model year. Reading these
provisions together, the agency believes that the statute requires the
labeling requirements to begin with MY 1995 vehicles, since the time
when the percentages are to be established for that model year
corresponds to the effective date of the requirements. NHTSA notes that
very few MY 1994 vehicles are likely to be manufactured on or after
October 1, 1994.
K. Other Issues
1. Supplier Definitions
Section 210(f)(15) defines allied supplier to mean ``a supplier of
passenger motor vehicle equipment that is wholly owned by the
manufacturer, or in the case of a joint venture vehicle assembly
arrangement, any supplier that is wholly owned by one member of the
joint venture arrangement.'' Section 210(17) defines outside supplier
to mean ``a supplier of passenger motor vehicle equipment to a
manufacturer's allied supplier or anyone other than an allied supplier
who ships directly to the manufacturer's final assembly point.''
NHTSA addressed several issues concerning the supplier definitions
in the NPRM. In commenting on the request for comments, Ford had asked
that NHTSA consider a supplier owned jointly by more than one parent
company as an allied supplier of both parents, especially in situations
such as those in Canada, in which the Canadian government has laws
requiring partial Canadian ownership of share. NHTSA stated that it
believes that such a situation is akin to the joint venture agreement
mentioned in section 210(f)(15) of the Cost Savings Act. The agency
tentatively decided to treat the supplier in such a case as being
wholly owned by one of the manufacturers in the joint venture
agreement, and therefore an allied supplier for purposes of any carline
jointly manufactured.
After further consideration, however, NHTSA has decided that it
cannot fully accommodate this suggestion by Ford. The agency notes that
Ford made the following statement in its comment on the request for
comments:
We believe that suppliers and plants owned, operated, or
controlled by the parent company (i.e., a consolidated subsidiary of
the parent company or ``joint venture'' of partners in which the
parent holds a majority interest) should be treated as allied
suppliers.
Thus, Ford appears to have been asking that the agency replace the
specification in the statute that suppliers be ``wholly owned'' with a
specification that they merely have to be ``controlled.'' NHTSA does
not believe there is any justification for such a departure from the
statute. Moreover, the agency believes that the statement in the NPRM
that the situation is ``akin'' to the joint venture agreement mentioned
in section 210(f)(15) was incorrect, i.e., there is no analogy between
the two situations.
As discussed below, the agency is clarifying the definition of
allied supplier to encompass varying corporate structures where
ownership is complete. However, a mere control relationship is not
sufficient to make a supplier ``allied.''
In the NPRM, the agency specifically addressed the issue of a
supplier owned by the parent company of the manufacturer. NHTSA stated
that it recognizes that a supplier owned by the parent company of a
manufacturer is not strictly wholly owned by the manufacturer. The
agency noted, however, that if the parent is a holding company that
wholly owns both the manufacturer and the supplier, there is no
meaningful difference in this situation from that in which the strict
definition of wholly owned occurs. In other words, there are no outside
interests represented (as occurs if there are outside shareholders).
Therefore, the agency tentatively decided to treat a supplier wholly
owned by the parent holding company of a manufacturer as an allied
supplier, provided that the parent holding company also wholly owns the
manufacturer.
Finally, NHTSA indicated that it read section 210(f)(17) as
requiring wholly owned suppliers to allied suppliers to be treated as
outside suppliers.
The agency received a number of comments on the supplier
definitions. Ford stated that to clarify the difference between
suppliers and distributors, a definition of supplier should be
incorporated into the definition section. It recommended the following
definition, which it indicated is consistent with NAFTA--The term
supplier means a person or an enterprise that manufactures or assembles
passenger motor vehicle equipment.
The agency does not agree that distributors should be eliminated
from the definition of supplier. NHTSA observes that a distributor may
supply passenger motor vehicle equipment to a manufacturer. Moreover, a
manufacturer might have a relationship with a distributor to obtain
certain equipment but not with the company which manufacturers or
assembles the equipment.
Ford also stated that the outside supplier definition requires
clarification. It argued that the definition in the statute was not
intended to include, in any way, allied suppliers. It stated that the
regulation should clearly eliminate allied suppliers from the
definition. Ford noted that an interpretation that an allied supplier
becomes an outside supplier to the extent that it supplies equipment to
another allied supplier could result in an allied supplied part having
two sets of content values: the actual U.S./Canadian content when the
component is supplied to the final assembly plant, and a rolled-up or
down U.S./Canadian content when the component is sent to another allied
manufacturing facility.
After considering Ford's comment, NHTSA has reconsidered its view
that section 210(f)(17) requires wholly owned suppliers to allied
suppliers to be treated as outside suppliers. The basis for that view
was that a wholly owned supplier to an allied supplier falls within the
section 210(f)(17) definition of outside supplier. However, such a
supplier also falls within the section 210(f)(15) definition of allied
supplier. The agency agrees that it is appropriate to resolve this
ambiguity in the regulation.
The only significant difference between the statutory treatment of
allied and outside suppliers is that allied suppliers must provide
actual U.S./Canadian content information, while the roll-up, roll-down
provision applies to outside suppliers. Thus, Congress decided that
suppliers which are wholly owned by manufacturers should generally be
held to a higher standard concerning the specificity of the U.S./
Canadian content information that they provide. Given this difference,
the agency agrees with Ford that an allied supplier should not be
considered an outside supplier simply because it supplies equipment to
an allied supplier. NHTSA also notes that if an allied supplier were to
be treated as an outside supplier in such a context, manufacturers
could obtain the benefits of the roll-up, roll-down provision for their
allied suppliers, simply by having them ship their equipment through
another allied supplier. This position is reflected in the definition
of allied supplier set forth in the final rule.
Toyota stated that the proposed regulation does not address the
scope of the statutory term allied supplier. That manufacturer stated
that because some issues have arisen concerning the statutory
definition, it recommends that the regulation provide certain
clarifications. Toyota stated that the determination of whether the
allied supplier relationship exists within the statutory meaning does
not depend on the number of levels of ownership but on the nature of
ownership, i.e., whether it is complete ownership. That manufacturer
stated that it should not matter whether ownership is direct or
indirect.
Honda stated that NHTSA proposed to treat as allied a supplier
wholly owned by the same parent company that wholly owns the
manufacturer. That company stated that NHTSA's analysis does not extend
quite far enough to encompass Honda's corporate structure. According to
that manufacturer, two parent companies within the Honda group together
wholly own both the manufacturer and the supplier. No outside interests
are represented. Honda requested clarification in the final rule.
NHTSA agrees with these comments of Honda and Toyota, which the
agency believes are consistent with the approach taken in the NPRM for
suppliers owned by the parent company of the manufacturer. The
definition of allied supplier in the final rule clarifies the meaning
of that term with respect to the corporate relationships discussed by
those commenters.
2. Definitions of Dealer and Ultimate Purchaser
Section 210(f)(7) defines dealer to mean ``any person or resident
located in the United States, including any territory of the United
States, or the District of Columbia, engaged in the sale or the
distribution of new automobiles to the ultimate purchaser.'' Section
210(f)(6) defines new passenger motor vehicle to mean ``a passenger
motor vehicle the equitable or legal title to which has never been
transferred by a manufacturer, distributor, or dealer to an ultimate
purchaser.''
AIADA stated that in the case where a state or local jurisdiction
has chosen to regulate the automobile industry and the conduct of the
industry through franchise laws, it believes the definition of dealer
in the state or local franchise law should apply to this Act. That
organization stated that in promulgating regulations without clarifying
the term dealer, NHTSA could inadvertently undermine state and local
franchise laws.
NHTSA notes that since the Labeling Act includes an express
definition of the meaning of dealer, the agency cannot delegate to
states or local jurisdictions the right to change the definition for
purposes of the Labeling Act. The agency notes, however, that the
Labeling Act and implementing regulation merely require persons engaged
in the sale or distribution of new automobiles to the ultimate
purchaser to maintain the content label. Neither the Act nor the
regulation specifies any requirements concerning who is permitted to be
a dealer.
AIADA also stated that clarification is needed with respect to the
meaning of ultimate purchaser. That organization stated that without
such clarification, there could be confusion and unnecessary liability
for dealers. AIADA stated that for vehicles in rental service,
demonstrator service and executive service, the law is unclear as to
who is the ultimate purchaser. That organization asked the agency to
specify what transaction results in an individual or entity being an
ultimate purchaser.
NHTSA has decided to add the following definition of ultimate
purchaser to the regulation: The term ultimate purchaser means with
respect to any new passenger motor vehicle, the first person, other
than a dealer purchasing in its capacity as a dealer, who in good faith
purchases such new passenger motor vehicle for purposes other than
resale. This definition is based on one used in the Automobile
Information Disclosure Act (AIDA), 15 U.S.C. 1231-1233, the Act which
requires the Monroney label. NHTSA believes that it is appropriate to
adopt this definition given that the Labeling Act's definitions of
dealer and new passenger motor vehicle, which use the term ultimate
purchaser, are also based on definitions included in the AIDA.
Except to the extent otherwise provided in the regulation
established by today's final rule, e.g., with respect to temporary
removal of separate content labels for test drives, NHTSA plans to
treat vehicles in rental service, demonstrator service and executive
service the same for Labeling Act purposes as the Justice Department
treats these vehicles for purposes of Monroney labels. NHTSA believes
that this is appropriate, given the same general purposes of the
labels, and the similarity of the relevant definitions in the statutes
and, in the case of the Labeling Act, the implementing regulation. The
agency is including in the docket a copy of a February 24, 1994 letter
from the Justice Department which provides additional guidance in these
areas.
3. Joint Ventures
NHTSA stated in the NPRM that several commenters on the request for
comments had noted that there are carlines manufactured jointly by two
manufacturers, and requested that the agency permit the manufacturers
to determine between themselves which would be responsible for
tracking, record keeping and labeling. The agency tentatively agreed
that this would be an appropriate approach and proposed requirements to
permit multiple manufacturers to determine among themselves which of
them is to be considered the vehicle manufacturer for purposes of the
labeling requirements. The agency also proposed to specify that, in the
absence of such an agreement, the carline ``shall be attributed to the
single manufacturer that markets the carline.''
Nissan stated that it would not like to see language that specifies
a procedure to determine the manufacturer of record. It stated that the
selection of the manufacturer of record should be determined in
accordance with the statutory language and agreement between the
partners involved.
Isuzu stated that it believes the final rule must specify that if
no written article exists in a joint-venture agreement regarding
manufacturer responsibility, carline responsibility is attributed to
the manufacturer mentioned in certification label with respect to the
safety standards.
In a telephone call to NHTSA's Office of Chief Counsel, an attorney
representing Toyota asked whether the Geo and the Corolla, are in one
or two carlines. These are very similar vehicles, produced on the same
assembly line, one of which is marketed by GM and the other by Toyota.
NUMMI stated that the Corolla is manufactured in Japan, at NUMMI in
California, and in Canada. That company stated that the NPRM, in
discussing joint ownership/joint production relationships, attributed
carline to the manufacturer that markets the carline, subject to
certain conditions. NUMMI argued that the use of the word
``manufacturer'' in this case implies each production location.
After considering the comments, the agency has decided that
multiple manufacturers should generally be permitted to determine among
themselves which of them is considered the vehicle manufacturer for
purposes of the labeling requirements. NHTSA also believes it is
appropriate to specify that, in the absence of such an agreement, a
vehicle is attributed to the manufacturer which markets the vehicle.
This approach provides maximum manufacturer flexibility, while also
specifying who is responsible for labeling in the absence of an
agreement among the joint venturers.
NHTSA believes, however, that additional clarification is needed
concerning the meaning of ``carline'' in the joint venture context.
While manufacturers may determine between themselves who is responsible
for tracking, recordkeeping and labeling, they must follow the
specified requirements for making carline determinations. As discussed
earlier in this notice, section 210 specifies that the term ``carline''
means a name denoting a group of vehicles which has a degree of
commonality in construction. It is the agency's opinion that the Geo
and Corolla are in different carlines, because they have different
names. Moreover, to the extent that NUMMI produced Corollas in
California and Toyota produced similar or identical Corollas in Japan,
all of the Corollas must be placed in the same carline, given the
statutory definition.
4. Currency Exchange Rate Calculations
Since currency exchange rates may fluctuate on a day-to-day basis,
thereby affecting domestic content valuations, NHTSA proposed a
methodology for determining the exchange rate to be used. The agency
stated in the NPRM that it believes that, in the interest of
consistency, the percentages printed on the labels required by section
210 should be determined using the same basis. The agency proposed a
specific procedure for calculating currency exchange rates, similar to
that set forth in EPA's CAFE regulation. Manufacturers would be
required to take the mean of the exchange rates in effect at the end of
each quarter set by the Federal Reserve Bank of New York for twelve
calendar quarters prior to and including the calendar ending one year
prior to the date that the manufacturer submits information to the
agency for a carline. The agency proposed essentially the same
procedure for suppliers, replacing the date the manufacturer submits
information to the agency with the date of the information the supplier
provides to a manufacturer or allied supplier.
NHTSA noted that EPA had suggested that NHTSA allow exchange rate
calculations based on Purchasing Power Parity Rates (PPP), provided
that a manufacturer was already using an approved PPP calculation for
EPA purposes. EPA allows an exemption from the normally required
exchange rate calculations, based on a petition. EPA stated that it
believes that, by coordinating the fuel economy and content labeling
decisions, consistency between the two agencies will be maintained.
NHTSA stated that it was considering adopting the EPA suggestion,
particularly by requiring a manufacturer to use the same conversion
method for content label purposes as was approved by the EPA for fuel
economy purposes. The agency sought suggestions on this proposal.
AAMA stated that manufacturers and suppliers should have the option
to convert foreign currency utilizing the exchange rates used in the
financial records at the time the content calculations are made. It
stated that under this option, all financial data used to calculate
content will be internally consistent and tie directly with the
financial records. That organization also stated that this option would
avoid the major systems revisions that may be required under the
proposed average exchange rate methodology. AAMA also stated that the
option maintains consistency between the treatment of the prices of
many commodities, where the prices fluctuate dramatically, and currency
prices in that none of these prices are smoothed by averaging. Finally,
AAMA stated that the option facilitates the same base cost data that is
required to calculate origin under NAFTA, which will reduce the burden
on manufacturers and suppliers.
Toyota urged the agency to adopt a rule under which all
manufacturers must use the same method for converting currency. That
manufacturer argued that EPA's suggested approach would depart from
this principle by requiring a manufacturer to use the same method as
approved by EPA for fuel economy purposes. Toyota stated that the EPA
approach is legally unsound and will produce inconsistent information
for consumers comparing vehicles for possible purchase. Toyota argued
that, from a legal standpoint, the fuel economy calculation is made
pursuant to a different statute with a different purpose. That
manufacturer stated further that, with respect to the currency exchange
method that should be used, it believes that PPP is the most
appropriate method for currency conversion and that use of this method
by all manufacturers will result in consistency of calculation and
avoid difficulties caused by rapid fluctuations in exchange rates.
Toyota stated that if NHTSA does not require PPP, the agency should
require currency conversion to be conducted according to Generally
Accepted Accounting Principles (GAAP). Toyota stated that it believes
that GAAP is preferable for Labeling Act purposes to the proposed
method.
Mitsubishi stated that manufacturers should have the option of
using PPP. It stated that this would be consistent with the EPA
domestic content calculation for CAFE purposes. That company added
that, in the interests of fairness, the same restrictions should apply
as under the CAFE regulations--manufacturers should have the option of
using PPP, but first they must get approval, and then cannot switch
back and forth merely to get the optimal rate.
After considering the comments, NHTSA has decided to adopt the
proposed method for determining exchange rates, including requiring a
manufacturer to use the same conversion method for content label
purposes as was approved by the EPA for fuel economy purposes. The
agency believes that this approach provides flexibility to
manufacturers, while ensuring that they use appropriate methods for
determining exchange rates.
The agency believes that AAMA's recommendation to permit
manufacturers and suppliers to use the currency rates that are used in
their financial records at the time the content calculations are made
is so broad as not to amount to any specification for determining
exchange rates. A manufacturer could use any method it chose and could
switch back and forth between methods to obtain the rates it desired.
By contrast, EPA permits a degree of flexibility, but ensures that an
appropriate method is used and that it is not changed back and forth
between years. The agency notes that if a manufacturer obtains EPA
approval for whatever method is reflected in its financial records, it
can use that method for both EPA and Labeling Act purposes.
While Toyota is correct that different manufacturers can use
different methods for determining exchange rates, it has not shown that
this will result in significant differences in label values. Moreover,
it has not shown why differences in the purposes of the CAFE and
Labeling statutes should result in different approaches for determining
exchange rates. Since both statutes require making determinations about
the content of passenger motor vehicles, NHTSA believes it is
appropriate for EPA and NHTSA to follow the same approach for
determining exchange rates.
5. Value Added by Foreign Suppliers
NHTSA noted in the NPRM that section 210(f)(5)(B) provides a
specific formula for determining the U.S./Canadian content of equipment
received by manufacturers from allied suppliers. The formula provides
first that the foreign content is determined by adding up the purchase
price of all foreign material purchased from outside suppliers that
comprise the individual passenger motor vehicle equipment, and then
subtracting such purchase price from the total purchase price of such
equipment. The remainder is the U.S./Canadian content of the equipment.
The agency noted that this formula does not appear to take into
account the possibility that an allied supplier may be foreign, since
it assumes that everything, except for the foreign value passed through
from outside suppliers, is U.S./Canadian. Based on a reading of the
statute as a whole, NHTSA stated that it does not believe Congress
intended to convert the entire value added by allied suppliers located
outside the U.S./Canada into domestic content. Therefore, the proposed
regulation treated the value added by allied suppliers located outside
the U.S./Canada as non-U.S./Canadian. NHTSA specifically requested
comments on this issue.
AAMA stated that it agrees with NHTSA that value added by allied
suppliers located in a foreign country should be treated as foreign.
Nissan stated that it agrees that it may not have been the intent of
the law to treat parts obtained from allied suppliers outside the U.S./
Canada as U.S./Canadian parts content. APMA stated that it supports
this part of the proposal on the ground that it is responsive to
Congress' intent.
BMW stated that it agrees with NHTSA that the intent of the
legislation was not to include value added outside U.S./Canada from
foreign allied suppliers as domestic content and that, accordingly, it
supports the language NHTSA has proposed. BMW expressed concern,
however, that in many instances throughout the NPRM preamble, NHTSA
referred to the explicit language of the legislation and stated that
deviation from this language is not allowed. BMW stated that if NHTSA
is able to deviate from the explicit language of the legislation in
this case, the reasoning for refusing to modify other wording seems
inconsistent.
After considering the comments, NHTSA has decided to follow the
approach discussed in the NPRM. The agency notes that no commenters
disagreed with the agency's view that Congress did not intend to
convert the entire value added by allied suppliers located outside the
U.S./Canada into domestic content.
With respect to BMW's comment, the agency notes that its
interpretation is based on principles of statutory construction related
to ``whole statute'' interpretation and limits of literalism. See
Sutherland Stat Const Secs. 46.05 and 46.07 (5th Ed). Basically, a
statute should not be read literally where such a reading is contrary
to its purposes. NHTSA does not believe that anyone could reasonably
argue that Congress intended to convert the entire value added by
allied suppliers located outside the U.S./Canada into domestic content;
that result flies in the face of the statute as a whole and its
purpose. The agency does not believe that any of the other situations
referred by BMW are similar.
6. International Agreements; Mexico
AIAM stated that before promulgating a final rule, NHTSA should
consult with USTR to determine whether the rule is consistent with
NAFTA and particularly Article 300 providing for national treatment of
goods produced in the territories of the signatory parties. AIAM also
stated that USTR should be asked whether the rule is consistent with
those U.S. treaties of Friendship, Commerce and Navigation that convey
most favored national treatment and national treatment for investors
and goods, particularly in light of the special treatment afforded to
Canadian production. Nippondenso stated that Mexico should be treated
on the same basis and Canada under the Labeling Act.
The European Community (EC) stated that it considers the proposal
to be more trade restrictive than necessary to fulfil the aim of
consumer information. More specifically, the EC stated the following:
The proposed labelling system would indeed not give any useful
information about the product as such or its characteristics. The
only information contained on the label would be whether, and to
what extent, the individual parts of the product are of American or
Canadian origin. In the opinion of the EC, the U.S. measure can only
have the objective to influence consumers to buy American or
Canadian motor vehicles.
The EC believes that the U.S. proposal constitutes an
unjustifiable discrimination, contrary to article 2.1 of the GATT
Code on Technical Barriers to trade:
the U.S. proposed obligation to indicate the origin of
the engine and gearbox could discourage U.S. constructors to import
them from their European subsidiaries or from European component
manufacturers.
within the European Community, the assembly of vehicles
is quite flexible regarding the origin of car components, due to the
internal market. For a single model of motor vehicle, a specific
part may originate from one of several countries. The U.S. proposal
will therefore have greater administrative costs on European
importers than other importers.
The EC is seriously concerned that such a proposal will create
unnecessary trade barriers. Should the U.S. rules be adopted as
proposed, this would put an excessive financial burden on importers
to access the U.S. market.
The U.S. proposal may involve the disclosure of confidential
data from manufacturers other than U.S. manufacturers.
In consequence, since the U.S. authorities, in accordance with
Article 2.1 of the GATT Agreement on Technical Barriers to Trade,
have an obligation to ensure that technical regulations are not
prepared with a view to creating unnecessary obstacles to
international trade, the European Community requests the U.S.
authorities to take the above comments into account and adapt their
proposal accordingly.
As discussed in the NPRM, NHTSA does not believe that section 210
contravenes the spirit or letter of GATT for the simple reason that it
is informational in nature, and has no other effect. Violations of GATT
occur when barriers to trade are established by raising tariffs on
selected countries, or by granting preferences to local goods over
foreign goods. Under section 210, no tariffs are levied and no
preferences are given to vehicles based on the U.S./Canadian content.
No quotas are established, and no vehicle is forbidden to be sold in
the U.S. The only effect of section 210 is to provide consumers
information about the origin of the equipment in vehicles they are
considering purchasing. If a consumer is not concerned with the country
of origin of a vehicle's equipment, the label will have no bearing on
the purchasing decision whatsoever. If, on the other hand, a purchaser
wishes to buy a vehicle that is comprised of equipment from the U.S./
Canada, Germany, England, Japan, Korea, or some other country, the
label will give that consumer information needed to help make such a
decision.
With respect to the EC's concern about administrative costs for
European manufacturers, NHTSA notes that since the requirements imposed
by the rule are strictly informational and do not require any product
changes other than the addition of a label, the costs for all
manufacturers are small. The agency also observes that, as discussed
above, it made some changes in the final rule to provide greater
flexibility, and hence reduced costs, for manufacturers.
NHTSA notes that the Conference Report includes the following
explanation concerning combined treatment of U.S. and Canadian content:
The conferees also note the reasons that the percentage of USA
and Canadian content value required to be listed in this bill is
combined. The conferees believe it is appropriate to make this new
labeling requirement as consistent as possible with existing laws
and regulations. The conferees also do not want this legislation to
increase the cost of automobiles to consumers.
The conferees also recognize that the USA and Canada have a
longstanding and specific automobile free trade pact (the US and
Canada Automotive Parts Agreement), one that predates the USA-Canada
Free Trade Agreement by over 20 years. This special relationship in
automotive trade, and other factors, justify listing both US and
Canadian automobile value as a combined percentage. The conferees do
not intend that any other country is to be combined with the USA and
Canada in the percentage of total automotive value required to be
listed by this legislation.
7. Consumer Guide
AIADA stated that it believes the labeling law will be misleading
and confusing for consumers, and that the dealer will ultimately bear
the burden and be in the difficult position of explaining what it
believes to be illogical content information. That organization stated
that to aid dealers and consumers, it believes NHTSA should publish and
make publicly available a consumer guide that explains just what the
content figures represent and do not represent. It stated, for example,
that the guide should explain the distinction between allied and
outside suppliers and how that affects the value of motor vehicle
content.
NHTSA believes that a consumer guide that attempted to explain the
details of the content calculation procedures, such as the distinction
between allied and outside suppliers, would not be helpful to consumers
but would instead cause unnecessary confusion. NHTSA believes that the
vehicle labels required by this final rule will be readily understood
by consumers and help those that wish to do so to take content
information into account in making a purchase decision.
L. May 1994 Congressional Comment
In May 1994, NHTSA received a letter concerning this rulemaking
signed by Senator Carl Levin and Representatives Sander Levin, Marcy
Kaptur and Nancy Johnson. The agency was also advised by phone that
Representative Ralph Regula supported the letter. The letter reads as
follows:
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 part
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.
Finally, the Labeling Act requires that the names of all
countries supplying 15% or more total parts value be listed. To be
meaningful, this requirement should not only include the name of the
country, but also the approximate percentages those countries
contribute * * *.
NHTSA notes that it is addressing this comment here in this
separate section instead of addressing it in each of the several
relevant sections earlier in this preamble, since this approach is
simpler and since the comment was received near the end of the
preparation of the preamble.
The agency believes that today's final rule adequately
distinguishes between parts assembled in the U.S. using imported
materials and parts made in the U.S. using U.S. materials. For purposes
of calculating item one of the label, the percentage U.S./Canadian
parts content for vehicles within the carline, tracing is required to
the extent that a supplier claims that an item of equipment is U.S./
Canadian. An outside supplier cannot designate a part as U.S./Canadian
unless it determines, on the basis of tracing the part's materials back
to the raw material stage, that at least 70 percent of the cost of the
part represents value added in the U.S. or Canada. This is true for all
items of equipment, including engines and transmissions.
The procedures for making country of origin determinations for
purposes of items four and five of the label, countries of origin for
the engine and transmission, do not require tracing back to raw
materials. However, country of origin determinations must be made for
each component delivered to the engine or transmission assembly plant
(or produced at such plant), and the cost of assembling the engine or
transmission is not considered in making such determinations.
Therefore, engines and transmissions that are assembled in the U.S.
largely of imported materials will not be determined to be of U.S.
origin under the procedures. As discussed above, the label will
indicate that these country of origin determinations are for ``engine
parts'' and ``transmission parts,'' to make it clear to consumers that
these country of origin determinations exclude assembly costs. NHTSA
does not believe that it would be appropriate to impose additional
tracing requirements, since such requirements could be very burdensome.
As to the foreign countries which contribute 15 percent or more
parts content for vehicle within a carline, manufacturers are required
to list not only the names of those countries, but also the specific
percentage originating in each such country. If there are more than two
such countries, the manufacturer need only provide the information for
the two countries with the highest percentages.
V. 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. This action has been 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.
NHTSA has estimated the costs associated with the rule in a Final
Regulatory Evaluation which is being placed in the docket for this
rulemaking. That document analyzes the comments concerning costs. The
requirements imposed by the rule are strictly informational and do not
require any product changes other than the addition of a label. NHTSA
estimates the cost of a separate label to be $0.06 to $0.11, and the
cost of expanding a Monroney or fuel economy label to be less than
$0.01. The total cost for labels for the estimated 14 million vehicles
sold in the U.S. annually that are affected by the rule would therefore
range from $140,000 to $1,540,000.
Based on manufacturers' comments, NHTSA estimates that a one-time
cost to implement a system to collect and store the necessary
information for the labels is about $1 million apiece for the three
large domestic manufacturers, and $500,000 apiece for 20 other large
vehicle manufacturers. Ford estimated annual maintenance costs of
$150,000. The agency assumes that this figure is reasonable for the
three large domestic manufacturers, and that the other large
manufacturers will experience annual costs of about $75,000.
The above cost estimates do not include the compliance costs for
suppliers. NHTSA has limited information concerning the costs that will
be experienced by the approximately 15,000 parts suppliers to the
vehicle manufacturing industry. Some large suppliers (e.g., Rockwell,
Dana Corp., or TRW) make hundreds of parts and could experience costs
similar to those of a large vehicle manufacturer. Many small suppliers
procure all of their inputs from the same country and will experience
negligible costs. NHTSA notes that APMA estimated that parts
manufacturers will experience costs ranging from $40,000 to $80,000 in
the first year, with a reduction in successive years.
Final stage manufacturers will experience only minor costs, since
they only need to provide labels showing the final assembly point and
the country of origin for the engine and transmission.
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, NHTSA amends chapter V of title
49 of the Code of Federal Regulations as follows:
1. Part 583 is added to read as follows:
PART 583--AUTOMOBILE PARTS CONTENT LABELING
Sec.
583.1 Scope.
583.2 Purpose.
583.3 Applicability.
583.4 Definitions.
583.5 Label requirements.
583.6 Procedure for determining U.S./Canadian parts content.
583.7 Procedure for determining major foreign sources of passenger
motor vehicle equipment.
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).
583.9 Attachment and maintenance of label.
583.10 Outside suppliers of passenger motor vehicle equipment.
583.11 Allied suppliers of passenger motor vehicle equipment.
583.12 Suppliers of engines and transmissions.
583.13 Supplier certification and certificates.
583.14 Currency conversion rate.
583.15 Joint ownership.
583.16 Maintenance of records.
583.17 Reporting.
Authority: 49 U.S.C. 32304, 49 CFR 1.50, 501.2(f).
Sec. 583.1 Scope.
This part establishes requirements for the disclosure of
information relating to the countries of origin of the equipment of new
passenger motor vehicles.
Sec. 583.2 Purpose.
The purpose of this part is to aid potential purchasers in the
selection of new passenger motor vehicles by providing them with
information about the value of the U.S./Canadian and foreign parts
content of each vehicle, the countries of origin of the engine and
transmission, and the site of the vehicle's final assembly.
Sec. 583.3 Applicability.
This part applies to manufacturers of new passenger motor vehicles
manufactured or imported for sale in the United States, suppliers of
passenger motor vehicle equipment, and dealers of new passenger motor
vehicles.
Sec. 583.4 Definitions.
(a) Statutory terms. The terms allied supplier, carline, country of
origin, dealer, foreign content, manufacturer, new passenger motor
vehicle, of U.S./Canadian origin, outside supplier, passenger motor
vehicle, passenger motor vehicle equipment, percentage (by value),
State, and value added in the United States and Canada, defined in 49
U.S.C. 32304(a), are used in accordance with their statutory meanings
except as further defined in paragraph (b) of this section.
(b) Other terms and further definitions.
(1) Administrator means the Administrator of the National Highway
Traffic Safety Administration.
(2) Allied supplier means a supplier of passenger motor vehicle
equipment that is wholly owned by the manufacturer, or in the case of a
joint venture vehicle assembly arrangement, any supplier that is wholly
owned by one member of the joint venture arrangement. A supplier is
considered to be wholly owned by the manufacturer if a common parent
company owns both the manufacturer and the supplier, or if a group of
related companies own both the manufacturer and the supplier and no
outside interests (interests other than the manufacturer itself or
companies which own the manufacturer) own the supplier.
(3) Carline means a name denoting a group of vehicles which has a
degree of commonality in construction (e.g., body, chassis). Carline
does not consider any level of decor or opulence and is not generally
distinguished by such characteristics as roof line, number of doors,
seats, or windows, except for light duty trucks. Carline is not
distinguished by country of manufacture, final assembly point, engine
type, or driveline. Light duty trucks are considered to be different
carlines than passenger cars. A carline includes all motor vehicles of
a given nameplate. Special purpose vehicles, vans, and pickup trucks
are classified as separate carlines.
(4) Final assembly means all operations involved in the assembly of
a vehicle, performed at the final assembly point including but not
limited to assembly of body panels, painting, final chassis assembly,
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 forming processes such
as stamping, machining or molding processes.
(5) Final assembly point means the plant, factory, or other place,
which is a building or series of buildings in close proximity, where a
new passenger motor vehicle is produced or assembled from passenger
motor vehicle equipment 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 whether or not such component parts are permanently
installed in or on such vehicle. For multi-stage vehicles, the final
assembly point is the location where the first stage vehicle is
assembled.
(6) Outside supplier means:
(i) A non-allied supplier of passenger motor vehicle equipment to a
manufacturer's allied supplier and
(ii) Anyone other than an allied supplier who ships directly to the
manufacturer's final assembly point.
(7) 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 except: Nuts, bolts, clips, screws, pins, braces,
gasoline, oil, blackout, phosphate rinse, windshield washer fluid,
fasteners, tire assembly fluid, rivets, adhesives, grommets, and wheel
weights. Passenger motor vehicle equipment also includes any system,
subassembly, or component received by an allied supplier from an
outside supplier for incorporation into equipment supplied by the
allied supplier to the manufacturer with which it is allied.
(8) Person means an individual, partnership, corporation, business
trust, or any organized group of persons.
(9) Ultimate purchaser means with respect to any new passenger
motor vehicle, the first person, other than a dealer purchasing in its
capacity as a dealer, who in good faith purchases such new passenger
motor vehicle for purposes other than resale.
Sec. 583.5 Label requirements.
(a) Except as provided in paragraphs (f) and (g) of this section,
each manufacturer of new passenger motor vehicles shall cause to be
affixed to each passenger motor vehicle manufactured on or after
October 1, 1994, a label that provides the following information:
(1) U.S./Canadian parts content. The overall percentage, by value,
of the passenger motor vehicle equipment that was installed on vehicles
within the carline of which the vehicle is part, and that originated in
the United States and/or Canada (the procedure for determining U.S./
Canadian Parts Content is set forth in Sec. 583.6);
(2) Major sources of foreign parts content. The names of any
countries other than the United States and Canada which contributed at
least 15 percent of the average overall percentage, by value, of the
passenger motor vehicle equipment installed on vehicles within the
carline of which the vehicle is part, and the percentages attributable
to each such country (if there are more than two such countries, the
manufacturer need only provide the information for the two countries
with the highest percentages; the procedure for determining major
foreign sources of passenger motor vehicle equipment is set forth in
Sec. 583.7);
(3) Final assembly point. The city, state (in the case of vehicles
assembled in the United States), and country of the final assembly
point of the passenger motor vehicle;
(4) Country of origin for the engine. The country of origin of the
passenger motor vehicle's engine (this is referred to as the country of
origin of the ``engine parts'' on the label; the procedure for making
this country of origin determination is set forth in Sec. 583.8);
(5) Country of origin for the transmission. The country of origin
of the passenger motor vehicle's transmission (this is referred to as
the country of origin of the ``transmission parts'' on the label; the
procedure for making this country of origin determination is set forth
in Sec. 583.8);
(6) Explanatory note. A statement which explains that parts content
does not include final assembly, distribution, or other non-parts
costs.
(b) Except as provided in paragraphs (e), (f) and (g) of this
section, the label required under paragraph (a) of this section shall
read as follows, with the specified information inserted in the places
indicated (except that if there are no major sources of foreign parts
content, omit the section ``Major Sources of Foreign Parts Content''):
PARTS CONTENT INFORMATION
For vehicles in this carline:
U.S./Canadian Parts Content: (insert number) %
Major Sources of Foreign Parts Content:
(name of country with highest percentage): (insert number) %
(name of country with second highest percentage): (insert number) %
For this vehicle:
Final Assembly Point: (city, state, country)
Country of Origin:
Engine Parts: (name of country)
Transmission Parts: (name of country)
Note: Parts content does not include final assembly,
distribution, or other non-parts costs.
(c) The percentages required to be provided under paragraph (a) of
this section may be rounded by the manufacturer to the nearest 5
percent.
(d) The label required by paragraph (a) of this section shall:
(1) Be placed in a prominent location on each vehicle where it can
be read from the exterior of the vehicle with the doors closed, and may
be either part of the Monroney price information label required by 15
U.S.C. 1232, part of the fuel economy label required by 15 U.S.C. 2006,
or a separate label. A separate label may include other consumer
information.
(2)(i) Be printed in letters that have a color that contrasts with
the background of the label; and
(ii) Have the information required by paragraphs (a)(1) through (5)
of this section vertically centered on the label in boldface capital
letters and numerals of 12 point size or larger; and
(iii) Have the information required by paragraph (a)(6) of this
section in type that is two points smaller than the information
required by paragraphs (a)(1) through (5) of this section.
(3) In the case of a label that is included as part of the Monroney
price information label or fuel economy label, or a separate label that
includes other consumer information, be separated from all other
information on those labels by a solid line that is a minimum of three
points in width.
(4) The information required by paragraphs (a)(1) through (6) of
this section shall be immediately preceded by the words, ``PARTS
CONTENT INFORMATION,'' in boldface, capital letters that are 12 point
size or larger.
(e) Carlines assembled in the U.S./Canada and in one or more other
countries.
(1) If a carline is assembled in the U.S. and/or Canada, and in one
or more other countries, the manufacturer may, at its option, add the
following additional information at the end of the explanatory note
specified in (a)(6), with the specified information inserted in the
places indicated:
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
[____]%.
(2) A manufacturer selecting this option shall divide the carline
for purposes of this additional information into the following
portions: the portion assembled in the U.S./Canada and the portions
assembled in each other country.
(3) A manufacturer selecting this option for a particular carline
shall provide the specified additional information on the labels of all
vehicles within the carline.
(f) A final stage manufacturer of vehicles assembled in multiple
stages need not provide the U.S./Canadian Parts Content or Major
Foreign Sources items of the label otherwise required under paragraphs
(a)(1) and (2) of this section.
(g) A manufacturer that produces a total of fewer than 1000
passenger motor vehicles in a model year need not provide the U.S./
Canadian Parts Content or Major Foreign Sources items of the label
otherwise required under paragraphs (a)(1) and (2) of this section.
(h) Requests for information and certifications relevant to
information on the label.
(1) Each manufacturer and allied supplier shall request its
suppliers to provide directly to it the information and certifications
specified by this part which are necessary for the manufacturer/allied
supplier to carry out its responsibilities under this part. The
information shall be requested sufficiently early to enable the
manufacturer to meet the timing requirements specified by this part.
(2) For requests made by manufacturers or allied suppliers to
outside suppliers:
(i) The requester shall indicate that the request is being made
pursuant to 49 CFR part 583, and that the regulation is administered by
the National Highway Traffic Safety Administration;
(ii) The requester shall indicate that 49 CFR part 583 requires
outside suppliers to provide specified information upon the request of
a manufacturer or allied supplier to which it supplies passenger motor
vehicle equipment and that, to the best of the requester's knowledge,
the outside supplier is required to provide the requested information;
(iii) If any information other than that required by 49 CFR Part
583 is requested, the requester shall indicate which information is
required by 49 CFR part 583 and which is not;
(iv) The requester shall indicate that 49 CFR part 583 specifies
that while information may be requested by an earlier date, the outside
supplier is not required to provide the information until the date
specified by the requester or the date 45 days after receipt of the
request, whichever is later.
(i) Manufacturers need not provide any of the information specified
in this part for model year 1994 vehicles. For model year 1995 and
model year 1996 carlines which are first offered for sale to ultimate
purchasers before June 1, 1995, manufacturers and suppliers may,
instead of following the calculation procedures set forth in this part,
use procedures that they expect, in good faith, to yield similar
results.
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 or Canada; and
(ii) 0 percent U.S./Canadian, if less than 70 percent of its value
is added in the United States 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 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 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 or Canada; and
(ii) 0 percent U.S./Canadian, if less than 70 percent of its value
is added in the United States or Canada.
(4)(i) Value is added in the United States or Canada by an allied
supplier or outside supplier to the extent that the supplier produces
or assembles passenger motor vehicle equipment at a plant or factory
located within the territorial boundaries of the United States or
Canada.
(ii) 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. Except as provided
in (c)(3), 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. For
any material 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.
Neither suppliers nor anyone else is required to trace the value added
in the United States or Canada backwards; 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. Example: A supplier located in
the United States or Canada uses sheet steel to produce exterior panels
which are shipped to a final assembly plant. In determining the value
added in the United States or Canada of the exterior panels, the
supplier must subtract the price it paid for the sheet steel except to
the extent that the supplier determines that the price paid represents
value added in the United States or Canada.
(iii) 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.
(iv) 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 or Canada is zero, even
if part of its material originated in the United States or Canada.
(v) The payment of duty does not result in value added in the
United States 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.
Sec. 583.7 Procedure for determining major foreign sources of
passenger motor vehicle equipment.
(a) Each manufacturer, except as specified in Sec. 583.5 (f) and
(g), shall determine the countries, if any, which are major foreign
sources of passenger motor vehicle equipment and the percentages
attributable to each such country for each carline on a model year
basis, before the beginning of each model year. The manufacturer need
only determine this information for the two such countries with the
highest percentages. 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. In making
determinations under this section, the U.S. and Canada are treated
together as if they were one (non-foreign) country.
(b) Determining the value of items of equipment. The value of each
item of equipment is determined in the manner specified in
Sec. 583.6(b).
(c) Determining the country of origin of items of equipment.
(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.
(2) Instead of making country of origin determinations in the
manner specified in (c)(1), a manufacturer may, at its option, use 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, and the U.S. and Canada are treated together.
(d) Determination of 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. The percentage of
the value of a carline's passenger motor vehicle equipment that is
attributable to each country other than the U.S. and Canada is
determined on a model year basis by--
(1) Adding up the total value of all of the passenger motor vehicle
equipment (regardless of country of origin) expected to be installed in
that carline during the next model year;
(2) Adding up the value of such equipment which originated in each
country other than the U.S. or Canada;
(3) Dividing the amount calculated in paragraph (d)(2) of this
section for each country by the amount calculated in paragraph (d)(1)
of this section, and multiplying each result by 100.
(e) A country is a major foreign source of passenger motor vehicle
equipment for a carline only if the country is one other than the U.S.
or Canada and if 15 or more percent of the total value of the carline's
passenger motor vehicle equipment is attributable to the country.
(f) If the sum of the percentage U.S./Canadian parts content
(determined under Sec. 583.6) and the percentages of the two largest
major foreign sources of content exceeds 100%, the major foreign source
percentages are proportionately reduced to the extent necessary to
bring the sum down to 100%.
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).
(a) Each supplier of an engine or transmission shall determine the
country of origin once a year for each engine and transmission. The
origin of engines shall be calculated for engines of the same
displacement produced at the same plant. The origin for transmissions
shall be calculated for transmissions of the same type produced at the
same plant. Transmissions are of the same type if they have the same
attributes including: Drive line application, number of forward gears,
controls, and layout. The U.S. and Canada are treated separately in
making such determination.
(b) The value of an engine or transmission is determined by adding
up the prices paid by the manufacturer of the engine/transmission for
each component comprising the engine/ transmission, as delivered to the
assembly plant of the engine/transmission, and the fair market value of
each individual part produced at the plant. All value added at the
engine/transmission plant is otherwise excluded from the calculation of
origin. Individual parts refers to the most basic level of parts used
to assemble an engine or transmission and not subassemblies.
(c) Determining the country of origin of components.
(1) Except as provided in (c)(2), the country of origin of each
component is the country which contributes the greatest amount of value
added to that item.
(2) Instead of making country of origin determinations in the
manner specified in (c)(1), a manufacturer may, at its option, use any
other methodology that is used for customs purposes (U.S. or foreign),
so long as a consistent methodology is employed for all components.
(d) Determination of the total value of an engine/transmission
which is attributable to individual countries. The value of an engine/
transmission that is attributable to each country is determined by
adding up the total value of all of the components installed in that
engine/transmission which originated in that country.
(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.
Sec. 583.9 Attachment and maintenance of label.
(a) Attachment of the label.
(1) Except as provided in (a)(2), each manufacturer shall cause the
label required by Sec. 583.5 to be affixed to each new passenger motor
vehicle before the vehicle is delivered to a dealer.
(2) For vehicles which are delivered to a dealer prior to the
introduction date for the model in question, each manufacturer shall
cause the label required by Sec. 583.5 to be affixed to the vehicle
prior to such introduction date.
(b) Maintenance of the label.
(1) Each dealer shall cause to be maintained each label on the new
passenger motor vehicles it receives until after such time as a vehicle
has been sold to a consumer for purposes other than resale.
(2) If the manufacturer of a passenger motor vehicle provides a
substitute label containing corrected information, the dealer shall
replace the original label with the substitute label.
(3) If a label becomes damaged so that the information it contains
is not legible, the dealer shall replace it with an identical,
undamaged label.
Sec. 583.10 Outside suppliers of passenger motor vehicle equipment.
(a) For each unique type of passenger motor vehicle equipment for
which a manufacturer or allied supplier requests information, the
outside supplier shall provide the manufacturer/allied supplier with a
certificate providing the following information:
(1) The name and address of the supplier;
(2) A description of the unique type of equipment;
(3) The price of the equipment to the manufacturer or allied
supplier;
(4) A statement that the equipment has, or does not have, at least
70 percent of its value added in the United States and Canada,
determined under Sec. 583.6(c);
(5) For equipment which has less than 70 percent of its value added
in the United States and Canada, the country of origin of the
equipment, determined under Sec. 583.7(c);
(6) For equipment that may be used in an engine or transmission,
the country of origin of the equipment, determined under Sec. 583.8(c);
(7) A certification for the information, pursuant to Sec. 583.13,
and the date (at least giving the month and year) of the certification.
(8) A single certificate may cover multiple items of equipment.
(b) The information and certification required by paragraph (a) of
this section shall be provided to the manufacturer or allied supplier
no later than 45 days after receipt of the request, or the date
specified by the manufacturer/allied supplier, whichever is later. (A
manufacturer or allied supplier may request that the outside supplier
voluntarily provide the information and certification at an earlier
date.)
(c)(1) Except as provided in paragraph (c)(2) of this section, the
information provided in the certificate shall be the supplier's best
estimates of price, content, and country of origin for the unique type
of equipment expected to be supplied during the 12 month period
beginning on the first July 1 after receipt of the request. If the
unique type of equipment supplied by the supplier is expected to vary
with respect to price, content, and country of origin during that
period, the supplier shall base its estimates on expected averages for
these factors.
(2) The 12 month period specified in (c)(1) may be varied in time
and length by the manufacturer or allied supplier if it determines that
the alteration is not likely to result in less accurate information
being provided to consumers on the label required by this part.
(d) For outside suppliers of engines and transmissions, the
information and certification required by this section is in addition
to that required by Sec. 583.12.
Sec. 583.11 Allied suppliers of passenger motor vehicle equipment.
(a) For each unique type of passenger motor vehicle equipment which
an allied supplier supplies to the manufacturer with which it is
allied, the allied supplier shall provide the manufacturer with a
certificate providing the following information:
(1) The name and address of the supplier;
(2) A description of the unique type of equipment;
(3) The price of the equipment to the manufacturer;
(4) The percentage U.S./Canadian content of the equipment,
determined under Sec. 583.6(c);
(5) The country of origin of the equipment, determined under
Sec. 583.7(c);
(6) For equipment that may be used in an engine or transmission,
the country of origin of the equipment, determined under Sec. 583.8(c);
(7) A certification for the information, pursuant to Sec. 583.13,
and the date (at least giving the month and year) of the certification.
(8) A single certificate may cover multiple items of equipment.
(b)(1) Except as provided in paragraph (b)(2) of this section, the
information provided in the certificate shall be the supplier's best
estimates of price, content, and country of origin for the unique type
of equipment expected to be supplied during the 12 month period
beginning on the first July 1 after receipt of the request. If the
unique type of equipment supplied by the supplier is expected to vary
with respect to price, content, and country of origin during that
period, the supplier shall base its estimates on expected averages for
these factors.
(2) The 12 month period specified in (b)(1) may be varied in time
and length by the manufacturer if it determines that the alteration is
not likely to result in less accurate information being provided to
consumers on the label required by this part.
(d) For allied suppliers of engines and transmissions, the
information and certification required by this section is in addition
to that required by Sec. 583.12.
Sec. 583.12 Suppliers of engines and transmissions.
(a) For each engine or transmission for which a manufacturer or
allied supplier requests information, the supplier of such engine or
transmission shall provide the manufacturer or allied supplier with a
certificate providing the following information:
(1) The name and address of the supplier;
(2) A description of the engine or transmission;
(3) The country of origin of the engine or transmission, determined
under Sec. 583.8;
(4) A certification for the information, pursuant to Sec. 583.13,
and the date (at least giving the month and year) of the certification.
(b) The information provided in the certificate shall be the
supplier's best estimate of country of origin for the unique type of
engine or transmission. If the unique type of equipment used in the
engine or transmission is expected to vary with respect to price,
content, and country of origin during that period, the supplier shall
base its country of origin determination on expected averages for these
factors.
(c) The information and certification required by paragraph (a) of
this section shall be provided by outside suppliers to the manufacturer
or allied supplier no later than 45 days after receipt of the request,
or the date specified by the manufacturer/allied supplier, whichever is
later. (A manufacturer or allied supplier may request that the outside
supplier voluntarily provide the information and certification at an
earlier date.)
(d) In the event that, during a model year, a supplier of engines
or transmissions produces an engine of a new displacement or
transmission of a new type or produces the same engine displacement or
transmission in a different plant, the supplier shall notify the
manufacturer of the origin of the new engine or transmission prior to
shipment of the first engine or transmission that will be installed in
a passenger motor vehicle intended for public sale.
(e) A single certificate may cover multiple engines or
transmissions. If a certificate provided in advance of the delivery of
an engine or transmission becomes inaccurate because of changed
circumstances, a corrected certificate shall be provided no later than
the time of delivery of the engine or transmission.
(f) For suppliers of engines and transmissions, the information and
certification required by this section is in addition to that required
by Secs. 583.10 and 583.11.
Sec. 583.13 Supplier certification and certificates.
Each supplier shall certify the information on each certificate
provided under Secs. 583.10, 583.11, and 583.12 by including the
following phrase on the certificate: ``This information is certified in
accordance with DOT regulations.'' The phrase shall immediately precede
the other information on the certificate. The certificate may be
submitted to a manufacturer or allied supplier in any mode (e.g.,
paper, electronic) provided the mode contains all information in the
certificate.
Sec. 583.14 Currency conversion rate.
For purposes of calculations of content value under this part,
manufacturers and suppliers shall calculate exchange rates using the
methodology set forth in this section.
(a) Manufacturers. (1) Unless a manufacturer has had a petition
approved by the Environmental Protection Agency under 40 CFR 600.511-
80(b)(1), for all calculations made by the manufacturer as a basis for
the information provided on the label required by Sec. 583.5,
manufacturers shall take the mean of the exchange rates in effect at
the end of each quarter set by the Federal Reserve Bank of New York for
twelve calendar quarters prior to and including the calendar quarter
ending one year prior to the date that the manufacturer submits
information for a carline under Sec. 583.17.
(2) A manufacturer that has had a petition approved by the
Environmental Protection Agency under 40 CFR 600.511-80(b)(1), which
provides for a different method of determining exchange rates, shall
use the same method as a basis for the information provided on the
label required by Sec. 583.5, and shall inform the Administrator of the
exchange rate method it is using at the time the information required
by Sec. 583.5 is submitted.
(b) Suppliers. For all calculations underlying the information
provided on each certificate required by Secs. 583.10, 583.11, and
583.12, suppliers shall take the mean of the exchange rates in effect
at the end of each quarter set by the Federal Reserve Bank of New York
for twelve calendar quarters prior to and including the calendar
quarter ending one year prior to the date of such certificate.
Sec. 583.15 Joint ownership.
(a) A carline jointly owned and/or produced by more than one
manufacturer shall be attributed to the single manufacturer that
markets the carline, subject to paragraph (b) of this section.
(b)(1) The joint owners of a carline may designate, by written
agreement, the manufacturer of record of that carline.
(2) The manufacturer of record is responsible for compliance with
all the manufacturer requirements in this part with respect to the
jointly owned carline. However, carline determinations must be
consistent with Sec. 583.4(3).
(3) A designation under this section of a manufacturer of record is
effective beginning with the first model year beginning after the
conclusion of the written agreement, or, if the joint owners so agree
in writing, with a specified later model year.
(4) Each manufacturer of record shall send to the Administrator
written notification of its designation as such not later than 30 days
after the conclusion of the written agreement, and state the carline of
which it is considered the manufacturer, the names of the other persons
which jointly own the carline, and the name of the person, if any,
formerly considered to be the manufacturer of record.
(5) The joint owners of a carline may change the manufacturer of
record for a future model year by concluding a written agreement before
the beginning of that model year.
(6) The allied suppliers for the jointly owned carline are the
suppliers that are wholly owned by any of the manufacturers of the
jointly owned carline.
Sec. 583.16 Maintenance of records.
(a) General. Each manufacturer of new passenger motor vehicles and
each supplier of passenger motor vehicle equipment subject to this part
shall establish, maintain, and retain in organized and indexed form,
records as specified in this section. All records, including the
certificates provided by suppliers, may be stored in any mode provided
the mode contains all information in the records and certificates.
(b) Manufacturers. Each manufacturer shall maintain all records
which provide a basis for the information it provides on the labels
required by Sec. 583.5, including, but not limited to, certificates
from suppliers, parts lists, calculations of content, and relevant
contracts with suppliers. The records shall be maintained for five
years after December 31 of the model year to which the records relate.
(c) Suppliers. Each supplier shall maintain all records which form
a basis for the information it provides on the certificates required by
Secs. 583.10, 583.11, and 583.12, including, but not limited to,
calculations of content, certificates from suppliers, and relevant
contracts with manufacturers and suppliers. The records shall be
maintained for six years after December 31 of the calendar year set
forth in the date of each certificate.
Sec. 583.17 Reporting.
For each model year, manufacturers shall submit to the
Administrator 3 copies of the information required by Sec. 583.5(a) to
be placed on a label for each carline. The information for each carline
shall be submitted not later than the date the first vehicle of the
carline is offered for sale to the ultimate purchaser.
Issued on: July 14, 1994.
Christopher A. Hart,
Deputy Administrator.
[FR Doc. 94-17574 Filed 7-18-94; 8:45 am]
BILLING CODE 4910-59-P