Motor Vehicle Content Labeling

DEPARTMENT OF TRANSPORTATION

National Highway Traffic Safety Administration

49 CFR Part 583

[Docket No. NHTSA-98-5064, Notice 2]

RIN 2127-AH33

Motor Vehicle Content Labeling

AGENCY: National Highway Traffic Safety Administration (NHTSA),

Department of Transportation (DOT).

ACTION: Final rule.

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SUMMARY: This final rule amends the regulation we issued to implement

the American Automobile Labeling Act. That Act requires passenger motor

vehicles to be labeled with information about their domestic and

foreign parts content. Congress amended that Act last year to make a

number of changes in the labeling requirement. This final rule makes

the regulation consistent with those changes.

DATES: Effective date: The amendments made in this rule are effective

June 1, 2000. Manufacturers may voluntarily comply with the amendments

before that time.

Petitions for reconsideration: Petitions for reconsideration must

be received not later than September 27, 1999.

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: For nonlegal issues: Henrietta

Spinner, Office of Planning and Consumer Programs, National Highway

Traffic Safety Administration, 400 Seventh Street, SW, Washington, DC

20590 (202-366-4802).

For legal issues: Edward Glancy, Office of the Chief Counsel,

National Highway Traffic Safety Administration, 400 Seventh Street, SW,

Washington, DC 20590 (202-366-2992).

SUPPLEMENTARY INFORMATION:

Background

On July 21, 1994, NHTSA published in the Federal Register (59 FR

37294) a new regulation, 49 CFR part 583, Automobile Parts Content

Labeling, to implement the American Automobile Labeling Act (AALA).

That Act, which is codified at 49 U.S.C. 32304, requires passenger

motor vehicles to be labeled with information about their domestic and

foreign parts content.

As part of the NHTSA Reauthorization Act of 1998,1

Congress amended the AALA to make a number of changes in the labeling

requirement. The changes are set forth in section 7106(d) of the NHTSA

Reauthorization Act.

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\1\ This Act was part of the Transportation Equity Act for the

21st Century (TEA-21). The full text of TEA-21 and the conference

report is available on the Web at http://www.fhwa.dot.gov/tea21/.

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On February 8, 1999, we published in the Federal Register (64 FR

6021) a notice of proposed rulemaking (NPRM) to amend Part 583 to

conform it to the amended AALA. We discussed each of the changes made

by the Congress and the conforming amendments proposed for part 583.

Three of the changes made by Congress were of particular

significance. One of these concerned the ``roll-up, roll-down''

provision. The original Act specified that, for purposes of determining

percentage U.S./Canadian parts content, any equipment from outside

suppliers that was at least 70 percent U.S./Canadian was rolled-up and

treated as though it were 100 percent U.S./Canadian. Any equipment

under 70 percent was rolled-down and treated by the Act as though it

were zero percent U.S./Canadian.

The 1998 amendments eliminated the ``roll-down'' aspect of this

provision. While equipment from an outside supplier that is at least 70

percent U.S./Canadian is still to be valued at 100 percent U.S./

Canadian, any equipment under 70 percent is now valued to the nearest

five percent. Thus, equipment whose calculated U.S./Canadian content is

63 percent is now to be valued at 65 percent, instead of zero percent.

The second of these changes concerned the origin of the engine and

transmission. The original Act specified that the label must state the

names of the countries of origin for the engine and for the

transmission. The Act provided that the determinations of country of

origin were to be based on the purchase price of materials received at

individual engine/transmission plants, but were to exclude engine/

transmission assembly costs. The 1998 amendments specified that

assembly and labor costs incurred for the assembly of engines and

transmissions are now to be included in making these country of origin

determinations.

The third of these changes made permanent a limited, temporary

[[Page 40778]]

provision in the part 583 content calculation procedures giving a

vehicle manufacturer added flexibility in making content determinations

in those instances in which outside suppliers have not responded to the

manufacturer's requests for content information.

In addition to proposing specific changes to conform Part 583 to

the amended AALA, we also proposed a change in the format of the

messages on the label to make them easier to understand. Part 583

currently requires a brief explanatory note concerning parts content to

be provided at the end of the label. We proposed to require that this

note be moved to the middle of the label, directly below the items of

information for which the note is relevant, i.e., below the specified

U.S./Canadian Parts Content and Major Sources of Foreign Parts Content.

We proposed to apply the new requirements to all model year 2000

carlines that were first offered for sale to ultimate purchasers on or

after June 1, 1999. Since the changes were relatively straightforward

and the statutory amendments left us little discretion, we believed the

vehicle manufacturers could implement the changes needed to comply with

the new requirements quickly.

Public Comments

We received public comments from several vehicle manufacturers and

their associations, and from the National Automobile Dealers

Association (NADA). Also, pursuant to the Agreement on Technical

Barriers to Trade, the World Trade Organization (WTO) Secretariat was

notified of the proposed rule. The European Commission sent comments to

the WTO Enquiry Point for the United States, which forwarded the

comments to our Docket. A summary of the more significant comments

follows.

Several of the commenters reraised previous criticisms of the basic

program established by the AALA. However, these comments were not

within the scope of the NPRM. Moreover, the criticisms were directed to

the AALA itself.

Commenters representing nearly all motor vehicle manufacturers

stated that the proposed effective date of June 1, 1999 provided

insufficient lead time. The Alliance of Automobile Manufacturers

(Alliance) stated that its members would face extreme difficulties in

implementing the proposed changes in such a short period. It stated

that the elimination of the ``roll-down'' provision will require new,

detailed certifications from outside suppliers which cannot reasonably

be prepared and obtained in such a short time frame. The Alliance also

stated that its member companies may need to adapt their computer

systems supporting the AALA parts content calculation. The Alliance

recommended an effective date of June 1, 2000.

The Association of International Automobile Manufacturers, Inc.

(AIAM) similarly stated that the proposed effective date was neither

reasonable nor practicable. That organization stated that auto

manufacturers and their suppliers require considerable lead time to

prepare an AALA label. AIAM stated that these preparations can often

require up to seven months lead time to complete. AIAM provided a chart

showing a typical AALA compliance schedule, including specific details

of activities manufacturers must undertake.

Commenters also made several recommendations to reduce costs. The

Japan Automobile Manufacturers Association (JAMA) stated that while

elimination of the ``roll-down'' provision will result in a more

accurate picture of actual parts content, it will do so at increased

cost to the outside supplier, and hence to the vehicle manufacturer and

ultimately the consumer. JAMA stated that one means of addressing this

cost burden would be to permit suppliers of parts with low U.S./

Canadian content to report that such content is ``minimal'' or

``negligible'' without the burdensome certification requirements

otherwise required.

JAMA noted that the agency had previously stated that it did not

have authority to permit manufacturers to label vehicles with low U.S./

Canadian content as ``minimal,'' given the statutory requirement for

manufacturers to provide a specific percentage. That organization

stated that it believes the agency placed too much emphasis on its

estimate on Congressional intent with respect to the issue.

JAMA stated that, at the very least, the agency should permit

outside suppliers to employ the ``minimal'' concept, allowing vehicle

manufacturers the option to state that all parts imported from a given

overseas supplier are all ``non-U.S./Canadian,'' without keeping

records by the individual part. That organization stated that this

would serve to reduce the burden and simplify the calculation without

compromising the integrity of the statute.

AIAM and Volkswagen made a recommendation with respect to a change

to the AALA which specifies that the costs of miscellaneous parts

(e.g., nuts, bolts, windshield wiper fluid, etc.) are now allocated to

the country where final assembly of the vehicle takes place. These

parts previously were not considered in making parts content

calculations. AIAM and Volkswagen stated that it is difficult to

identify the value of the miscellaneous parts on a particular carline

and asked that an averaging concept be permitted, e.g., permit

manufacturers to calculate a total value for all of the miscellaneous

parts used to produce vehicles at a particular assembly plant and then

divide that total by the number of vehicles produced.

One commenter, DaimlerChrysler, objected to the proposal to move

the explanatory note to the middle of the label. That company stated

that any change to the content label involves a good deal of

coordination and programming effort and substantial lead time, and that

the change would add additional cost and burden with little or no

tangible benefit.

Agency Decision

After carefully considering the comments, we have decided to make

the proposed rule final, but with a later effective date.

We have decided to establish an effective date of June 1, 2000, as

recommended by the Alliance, while permitting optional early

compliance. The proposed effective date of June 1, 1999 was based on an

assumption that vehicle manufacturers and suppliers had already begun

to collect the information needed to make the revised calculations

required by the NHTSA Reauthorization Act of 1998. However, since the

comments indicated that this was not true in many cases, the agency has

concluded that a significantly longer leadtime is needed.

By permitting optional early compliance, vehicle manufacturers

which are able to comply with the new requirements earlier, including

for some or all of their model year 2000 vehicles, can do so. We

recognize that consumers comparing the labels on different model year

2000 vehicles may sometimes be faced with differing labels. However,

the changes are sufficiently minor that we do not believe this will

cause any significant confusion.

We note that the AALA and part 583 contemplate that U.S./Canadian

parts content and major sources of foreign parts content are determined

on a once-a-model-year basis for a particular carline. The June 1, 2000

effective date means that new model year carlines introduced to the

public on or after that date must bear the revised labels. New model

year carlines introduced before

[[Page 40779]]

that date may continue to bear the old labels for the balance of the

model year, even for vehicles manufactured after June 1, 2000.

While we have considered JAMA's request to permit suppliers of

parts with low U.S./Canadian content to report such content as

``minimal'' or ``negligible'' rather than as a percentage (to the

nearest five percent), we do not believe that such an exception from

the express statutory requirements has been justified. Most

significantly, JAMA has not shown that such an exception would not

result in a loss of non-trivial benefits. The agency would not have

authority to create such an exception, absent such a showing. Moreover,

JAMA has not provided support for its contention that the requirement

to provide a percentage is burdensome.

As to the AIAM/Volkswagen request that an averaging concept be

permitted for calculating the value of miscellaneous parts, we note

that the proposed rule did not include a procedure for calculating the

value of these parts. It is our opinion that manufacturers need not

identify the individual cost of each nut and bolt, but may simply make

a good faith estimate of the overall value of miscellaneous parts. We

do not believe it is necessary to state this in the regulatory text

itself. One way of making such a good faith estimate might be to

calculate a total value for all of the miscellaneous parts used to

produce vehicles at a particular assembly plant and then divide that

total by the number of vehicles produced. However, if substantially

different vehicles were produced at the same plant, the vehicle

manufacturer might need to make an adjustment so that the estimated

value was reasonable for each individual carline.

While we have considered DaimlerChrysler's arguments against moving

the explanatory note, we have decided to adopt this proposed change. As

discussed in the NPRM, we believe that moving the note to the middle of

the label, directly below the items of information for which the note

is relevant, will make the label easier to read. While DaimlerChrysler

stated that there is a cost to making any format change, it did not

quantify the cost. Given that the label will have to be changed in

other ways anyway, we believe that any cost impacts for moving the note

will be negligible.

As noted earlier, several of the commenters criticized the basic

requirements of the AALA. NADA stated that the rule is of little value

to most consumers. AIAM stated that while Congress addressed some of

its concerns in last year's amendments, it believes the law continues

to provide misleading and inaccurate information. JAMA argued that the

statute is costly to implement, burdensome to vehicle manufacturers and

outside suppliers, and of little interest or use to vehicle purchasers

in their buying decisions.

The EC submitted a comment stating:

The EC thinks that the label is superfluous, it is getting

harder and harder to determine the real origin of details. Many

companies manufacture in several countries and they can also be

owned by several large owners. The new procedure makes it even more

cumbersome when additional details such as screws and clips must be

taken into account when determining the origin. The vehicle

manufacturers must also get a certificate from each large supplier.

While we understand that a number of parties continue to have

objections to the current content labeling program, we note that the

objections are with the underlying statute. Since most of the details

of the content labeling program are set forth in the AALA, any

significant changes could only come from the Congress. We do note,

however, that the extended leadtime provided for today's rule and our

interpretation that good faith estimates may be made concerning the

value of miscellaneous parts will help minimize costs.

We also note that this agency is in the process of conducting an

evaluation of the AALA. This evaluation is being conducted pursuant to

Executive Order 12866, Regulatory Planning and Review, which requires

agencies to conduct periodic evaluations of the effectiveness of its

existing regulations and programs. This evaluation is listed in the

April 1999 Semiannual Regulatory Agenda. See 64 FR 21706, April 26,

1999. We plan to publish the evaluation of the AALA in the summer of

2000 in the Federal Register and will solicit comments from all

parties.

Rulemaking Analyses and Notices

A. Executive Order 12866 and DOT Regulatory Policies and Procedures

We have considered the impact of this rulemaking action under

Executive Order 12866 and the Department of Transportation's regulatory

policies and procedures. This rulemaking document was not reviewed by

the Office of Management and Budget under E.O. 12866, ``Regulatory

Planning and Review.'' The rulemaking action has been determined not to

be significant under the Department's regulatory policies and

procedures.

This final rule amends 49 CFR part 583 to conform the agency's

content labeling requirements and calculation procedures to recent

statutory changes. The changes are so minor that they will not have any

measurable effect on vehicle prices.

The change most likely to result in any cost impacts is the one

requiring outside suppliers to make calculations of U.S./Canadian

content, to the nearest five percent, for equipment with U.S./Canadian

content below 70 percent. This will increase compliance costs for some

outside suppliers. The agency notes that there are about 15,000

suppliers to vehicle manufacturers. However, many small suppliers

procure all their materials and components from the same country, and

will experience negligible costs. NHTSA believes that cost impacts for

other suppliers will be small and will diminish over time. Somewhat

higher costs are likely to be experienced the first year as suppliers

become familiar with the new calculation procedures and incorporate

them into their programming or other systems. While the agency has

concluded that the cost impacts will be small, it does not have

sufficient information to quantify such costs. No commenter quantified

any of the cost impacts. Because the economic impacts of this proposal

are so minimal, preparation of a full regulatory evaluation is not

necessary.

B. Regulatory Flexibility Act

We have considered the effects of this rulemaking action under the

Regulatory Flexibility Act (5 U.S.C. 601 et seq.) I hereby certify that

the final rule 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. The requirements are strictly informational and, as discussed

above, cost impacts small.

C. National Environmental Policy Act

We have analyzed this final rule for the purposes of the National

Environmental Policy Act and determined that it will not have any

significant impact on the quality of the human environment.

D. Executive Order 12612 (Federalism)

We have analyzed this final rule in accordance with the principles

and criteria set forth in Executive Order 12612. We have determined

that it does not have sufficient federalism implications to warrant the

preparation of a Federalism Assessment.

[[Page 40780]]

E. Paperwork Reduction Act

Information collection requirements established in this final rule

differ from those approved by the Office of Management and Budget under

the provisions of the Paperwork Reduction Act (Pub. L. 96-511) and

assigned OMB Control Number 2127-0573. The current approval will expire

on June 30, 2001. Since NHTSA believes that the changes will result in

a small increase in the paperwork burden of this reporting requirement,

NHTSA will ask OMB for approval to amend OMB Control Number 2127-0573

to account for any additional information collection burdens imposed on

the public.

F. Executive Order 12778 (Civil Justice Reform)

This final rule does not have any retroactive effect. States are

preempted from promulgating laws and regulations contrary to the

provisions of this 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

Imports, Motor vehicles, Labeling, Reporting and recordkeeping

requirements.

In consideration of the foregoing, 49 CFR Part 583 is amended as

follows:

PART 583--AUTOMOBILE PARTS CONTENT LABELING

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

follows:

Authority: 49 U.S.C. 32304, 40 CFR 1.50, 501.2(f).

2. Section 583.4 is amended by revising paragraph (b)(7) to read as

follows:

Sec. 583.4 Definitions.

* * * * *

(b) * * *

(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. 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.

* * * * *

3. Section 583.5 is amended by revising paragraph (a)(4), (a)(5),

(b), and (i) to read as follows:

Sec. 583.5 Label requirements.

(a) * * *

(4) Country of origin for the engine. The country of origin of the

passenger motor vehicle's engine (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 (the procedure for making

this country of origin determination is set forth in Sec. 583.8);

* * * * *

(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) %

Note: Parts content does not include final assembly,

distribution, or other non-parts costs.

For this vehicle:

Final Assembly Point: (city, state, country)

Country of Origin:

Engine: (name of country)

Transmission: (name of country)

* * * * *

(i) Carlines assembled in more than one assembly plant. (1) If a

carline is assembled in more than one assembly plant, the manufacturer

may, at its option, add the following additional information at the end

of the explanatory note specified in paragraph (a)(6) of this section,

with the specified information inserted in the places indicated:

Two or more assembly plants produce the vehicles in this

carline. The vehicles assembled at the plant where this vehicle was

assembled have a U.S./Canadian parts content of [__]%.

(2) A manufacturer selecting this option shall divide the carline

for purposes of this additional information into portions representing

each assembly plant.

(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.

4. Section 583.6 is amended by revising paragraphs (a), (c)(1)(ii),

(c)(3)(ii), and (c)(6) to read as follows:

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

(a) Each manufacturer, except as specified in Sec. 583.5 (f) and

(g), shall determine the percentage U.S./Canadian Parts Content for

each carline on a model year basis. This determination shall be made

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, is excluded from the

calculation of U.S./Canadian parts content. The country of origin of

nuts, bolts, clips, screws, pins, braces, gasoline, oil, blackout,

phosphate rinse, windshield washer fluid, fasteners, tire assembly

fluid, rivets, adhesives, grommets, and wheel weights, used in final

assembly of the vehicle, is considered to be the country where final

assembly of the vehicle takes place.

* * * * *

(c) * * *

(1) * * *

(ii) to otherwise have the actual percent of its value added in the

United States and/or Canada, rounded to the nearest five percent.

* * * * *

(3) * * *

(ii) to otherwise have the actual percent of its value added in the

United States and/or Canada, rounded to the nearest five percent.

* * * * *

(6) If a manufacturer or allied supplier requests information in a

timely manner from one or more of its outside suppliers concerning the

U.S./Canadian content of particular equipment, but does not receive

that information despite a good faith effort to obtain it, the

manufacturer or allied supplier may make its own good faith value added

determinations, subject to the following provisions:

(i) The manufacturer or allied supplier shall make the same value

added determinations as would be made by the outside supplier;

(ii) The manufacturer or allied supplier shall consider the amount

of value added and the location in which the value was added for all of

the stages that the outside supplier would be required to consider;

(iii) The manufacturer or allied supplier may determine that

particular value is added in the United States and/

[[Page 40781]]

or Canada only if it has a good faith basis to make that determination;

(iv) A manufacturer and its allied suppliers may, on a combined

basis, make value added determinations for no more than 10 percent, by

value, of a carline's total parts content from outside suppliers;

(v) Value added determinations made by a manufacturer or allied

supplier under this paragraph shall have the same effect as if they

were made by the outside supplier;

(vi) This provision does not affect the obligation of outside

suppliers to provide the requested information.

* * * * *

5. Section 583.7 is amended by revising paragraph (a) to read as

follows:

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. The country of

origin of nuts, bolts, clips, screws, pins, braces, gasoline, oil,

blackout, phosphate rinse, windshield washer fluid, fasteners, tire

assembly fluid, rivets, adhesives, grommets, and wheel weights, used in

final assembly of the vehicle, is considered to be the country where

final assembly of the vehicle takes place.

* * * * *

6. Section 583.8 is amended by revising paragraphs (b) and (d) to

read as follows:

Sec. 583.8 Procedure for determining country of origin for engines and

transmissions (for purposes of determining the information specified by

Secs. 583.5(a)(4) and 583.5(a)(5) only).

* * * * *

(b) The value of an engine or transmission is determined by first

adding 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. The assembly and

labor costs incurred for the final assembly of the engine/transmission

are then added to determine the value of the engine or transmission.

* * * * *

(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 the total value of all of the components installed in that

engine/transmission which originated in that country. For the country

where final assembly of the engine/transmission takes place, the

assembly and labor costs incurred for such final assembly are also

added.

* * * * *

7. Section 583.10 is amended by revising paragraph (a)(5) to read

as follows:

Sec. 583.10 Outside suppliers of passenger motor vehicle equipment.

(a) * * *

(5) For equipment which has less than 70 percent of its value added

in the United States and Canada,

(i) The country of origin of the equipment, determined under

Sec. 583.7(c); and

(ii) The percent of its value added in the United States and

Canada, to the nearest 5 percent, determined under Sec. 583.6(c).

* * * * *

Issued on: July 21, 1999.

Frank Seales, Jr.,

Acting Deputy Administrator.

[FR Doc. 99-19318 Filed 7-27-99; 8:45 am]

BILLING CODE 4910-59-P