Interpretation ID: nht93-1.22

DATE: 01/29/93

FROM: JOSEPH S. KAPLAN -- ROSS & HARDIES

TO: JOSEPH S. KAPLAN -- ROSS & HARDIES

TITLE: REQUEST FOR A LEGAL INTERPRETATION NEW FLYER INDUSTRIES, INC.

ATTACHMT: ATTACHED TO LETTER DATED 2-12-93 FROM JOHN WOMACK TO JOSEPH S. KAPLAN (A40; PART 568; PART 591)

TEXT: On behalf of New Flyer Industries Limited of Winnipeg, Manitoba, Canada, ("NFIL") we request a legal interpretation that bus shells which NFIL manufactures at its plant in Winnipeg and exports to an affiliated manufacturer, New Flyer of America (N.D.) Inc., ("NFND") for completion and delivery are exempt from the statutory prohibition against importing noncomplying motor vehicles and items of vehicle equipment and are exempt from bonding, and that the shells are admissible under 49 CFR 591.5 (e). The basis for this claim is that the shells require further manufacturing operations other than the addition of readily attachable equipment items and minor finishing operations to perform their intended function.

Facts

NFIL produces five models of bus shells (forty foot-diesel, forty-foot trolley bus, sixty-foot diesel, low floor diesel, and sixty-foot trolley bus) at its Winnipeg plant for exportation to NFND in Grand Forks, North Dakota. As exported, the shells are painted and equipped with tire and rim assemblies. The average standard labor hours to build the shell is 800 hours. At Grand Forks the shells are further manufactured into completed New Flyer buses. The final stage work undertaken in Grand Forks represents more than 50% of the production cost of the completed buses.

Major components added in the United States in the final building stage include bumpers, engine and oil filter (or propulsion system), power plant, starter system, cooling system, fuel system, interior lighting, electric system, destination signs, seating and stanchions, heating and air conditioning system, chair lift (except on low floor buses) and various option packages. Average standard labor hours expended in North Dakota to complete a bus from an imported shell are 300.

Thus, final stage operations clearly require significant and complex assembly operations, and constitute much more than the addition of readily attachable equipment components. The final stage labor input is a significant percentage (on average 27%) of total bus construction time, and the work done is necessary to convert the shell to a bus capable of performing its intended function.

Among the components added to diesel buses in the United States is the power plant. New Flyer buses are equipped with U.S.-made engines and transmissions which are delivered by the manufacturers directly to the Grand Forks assembly facility. In Grand Forks, the engines are mounted on engine cradles assembled in Grand Forks from subcomponents manufactured in Canada. The activity in the United States required to prepare and install the engines and transmissions requires the use of skilled labor and consumes 75 standard labor hours. The work cannot properly be described as the simple installation of an engine shipped separately from an otherwise complete bus or one requiring no more than the addition of mirrors, tires and rims.

Trolley bus shells require more or less the same second stage effort. The chief difference is merely that the propulsion system is based on a United States made electric motor and gear box rather than a diesel engine and transmission.

NFND is a final stage original equipment motor vehicle manufacturer. New Flyer buses which it completes and delivers to customers must, and do, conform to all applicable safety standards and are certified as in conformity with such standards.

Discussion

Although it is obvious that NFIL's shells are subject to the National Traffic and Motor Vehicle Safety Act of 1966 (the "Act"), a determination as to whether the shells are either vehicles or equipment is necessary. As noted in the Facts section, there is no power train in the imported shells. As a result, the shells do not meet the definition of "incomplete vehicle" in 49 C.F.R. @ 568.3, which requires as a minimum, in addition to other features, all of which are presented in the imported shells, the presence of a power train.

There are two approaches to dealing with this request. Your office may either determine that NFIL shells are incomplete vehicles within the meaning of 49 C.F.R. @ 568.3, and direct the Customs Service to permit the importation of the shells as noncomplying motor vehicles or it may determine that the shells are motor vehicles or items of motor vehicle equipment within the scope of 15 U.S.C. @ 1397(e) and 49 C.F.R. @ 591.5(e), and direct Customs to permit their importation exempt from conformance and bonding. We believe that the second alternative is the sounder approach.

Treatment of the shells as either vehicles or equipment was specifically contemplated in the Notice of Proposed Rule Making proposing the addition of a new Part 591 to Title 49 C.F.R. (54 Fed. Reg. 17772 April 25, 1989). In connection with proposed section 491.5(e), NHTSA explained that it is intended to implement new section 108(e) of the Act as amended by the Imported Vehicle Safety Compliance Act of 1988, P.L. 100-562, and in turn that new section 108(e), encompassing vehicles and equipment requiring further manufacture to perform their intended function, broadens the pre-existing exception from conformance available to vehicles built in two or more steps. Also the NPRM noted the practice of offering for importation vehicles without engines or other running gear parts, which NHTSA had treated as de facto importations of noncomplying motor vehicles, and specifically mentioned that such importations are now covered by section 108(e). Further, in a discussion in the same NPRM of motor vehicle equipment importations, the agency commented:

Under new section 108(e), an equipment item need not comply on importation if it requires further manufacturing to perform its intended function.

Clearly, therefore NFIL shells come within NHTSA's existing understanding of exempt articles under section 108(e) and this understanding is consistent with the plain meaning of both the statute and the regulation. Having so concluded however, it is still necessary to determine whether for the purpose of 49 C.F.R. @ 591.6(b) the shells are subject to the documentation requirements of @ 591.6(b) (1) (if vehicles) or @ 591.6(b)(2) (if equipment).

We have expressed our preference that the shells be deemed equipment rather than incomplete vehicles. There are two reasons. First, that would eliminate the need to deviate and explain away the deviation from the definition of incomplete vehicle in 49 C.F.R. @ 568.3. Second, it would reduce the paperwork burden on NFIL without compromising the beneficial purposes of the Act. NFIL does not contend that the shells are equipment to which no standard applies, and the commercial circumstances of their importation provide assurances that they will be brought into conformity in the course of final-stage manufacture. Thus the problems which caused NHTSA to treat imports without engines as vehicles despite the definitional requirements of section 568.3 are not present, and such de facto treatment is unnecessary. With regard to the documentation requirements of 49 C.F.R. @ 568.4 applicable to incomplete vehicles, the information required will be furnished when the completed buses are sold and delivered. Thus there is no harm or threat of harm to the public interest in permitting NFIL to enjoy the less burdensome documentary requirements of 49 C.F.R. @ 591.6(b)(2).

Requested Interpretation

For the foregoing reasons, we request that you hold that New Flyer forty and sixty foot diesel bus shells, low floor diesel bus shells and forty and sixty foot trolley bus shells are exempt from the bonding and conformance requirements of section 108(a) (1) (A) of the National Traffic and Motor Vehicle Safety Act of 1966, 15 U.S.C. 1397(a) (1) (A) pursuant to section 108(e) of the Vehicle Safety Act as amended by the Imported Vehicle Safety Compliance Act of 1988, P.L. 100-562, and may be declared on entry as vehicles or equipment items requiring further manufacturing operations to perform their intended function, other than the addition of readily attachable equipment items, or minor finishing operations, pursuant to 49 C.F.R. Part 591 and section 591.5(e) thereof. Based on the facts presented we request that you find that New Flyer bus shells are equipment items which require further manufacturing operations to perform their intended functions, and, thus, are exempt on compliance with the appropriate documentary requirements of 49 C.F.R. @ 591.6(b) applicable to items of vehicle equipment.

New Flyer bus shells covered by a @ 591.5(e) declaration will be accompanied by an appropriate written statement issued by NFIL.

Should any question exist concerning NFIL's entitlement to the requested determination, we will appreciate being notified and provided with an opportunity to discuss the issues with you and to amplify the record.