Current Issues and Positions of APRA - June 2011

by Michael Conlon, APRA Legal Counsel

 A. Promotion of Remanufacturing

1. Use of Remanufactured Products for Energy Efficiency and Conservation

History: Recycling efforts and efforts to promote energy efficiency have focused on reusing the raw materials in products headed for the trash heap, ignoring the energy that could be saved if the finished product could be reused.

APRA Position: Legislation and regulations at both the federal and state levels should promote the reuse of spent products, not only to recycle the materials that originally were used to create the product but also to conserve the energy which was originally used. Remanufacturing is more energy efficient than materials recycling because it takes less energy to remanufacture a spent product that currently exists than to create that same product from recycled materials.

Status: As a result of efforts by APRA and other remanufacturing associations and companies, more legislators and government officials have become aware of the energy benefits which can be obtained from greater remanufacturing. APRA will continue to promote this benefit of remanufacturing whenever the opportunity arises.

What You Can Do: Nothing at present.

2. Grants for Remanufacturing Research and Development

History: Because the benefits of remanufacturing were not widely recognized, the overwhelming majority of government and business grants for research and development for reuse of spent products have gone to projects to recycle the raw materials from those products have gone to projects to recycle the raw materials.

APRA Position: Government and industry should provide more funding for research and development of remanufactured products and the science of remanufacturing, especially in the form of grants to the National Center for Remanufacturing in Rochester, New York.

Status: The Advanced Vehicle Technology Act of 2011 has been re-introduced in Congress this year as two companion bills, H.R. 1367 in the House and S. 734 in the Senate as well as in part of a larger bill on Clean Energy (H.R. 1875) The bill would increase Federal funding for advanced vehicle technology in the motor vehicle sector. One area which qualifies for funding under the bill is “recycling and remanufacture of vehicle batteries and other vehicle components for reuse in vehicles”. A previous version of the bill had passed the House of Representatives in 2009 but no action was taken on the bill in the Senate.

What You Can Do: Write your Congressman and Senators and tell them to vote for these bills.

B. Small Business Issues

1. Affordable Health Insurance for Small Businesses

History: The cost to employers of providing health insurance for their employees is an even greater burden for small businesses than for large ones. Small firms' plans are usually subject to stricter state regulation and their smaller policy groups mean that they pay an average of 18% more for the same coverage as larger firms. More favorable Federal rules and larger groups over which to spread the risks allow larger corporations and unions to pay lower premiums.

APRA Position: APRA supports enactment of legislation which would allow trade, industry and professional associations to sponsor health care plans for their members throughout the US. These plans would be Federally regulated, would allow aggregation of the risks and would therefore reduce premiums.

Status: Last spring Congress passed and the President signed the Patient Protection and Affordable Care Act (PPACA), possibly the most sweeping change in health care law in the US ever. The PPACA is very complex and its changes take effect gradually over the next ten years. For that reason the full extent of its affect on small businesses will not be known for some time. The principle provisions which affect small businesses are as follows:

Small business tax credit --- Starting in 2010, this credit is available for six years for firms which provide 50% or more of their employee’s insurance costs through a qualified insurance arrangement. Only employers who have 10 or fewer full time employee equivalents (FTEs) are eligible for the full credit. Employers who have between 10 and 25 FTEs are eligible for a partial credit. An FTE is counted for every 2080 hours of time for which you pay employee wages. Therefore, no matter how many employees you have if you do not pay wages for more than 25 times 2080 hours you meet this criteria. To be eligible for a partial credit, the average annual wages of your employees must be less than $50,000 per employee. The full credit is only available if your average annual wages are $25,000 or less. The credit is 35% of the eligible health care costs. (Note that this is a credit against tax due not a deduction.) The credit is available for tax years 2010 through 2013. An increased credit of 50% of eligible costs is available in 2014 and 2015 if the employer purchases insurance through a health insurance exchange.

Medicare payroll taxes --- In 2013 the Medicare payroll tax will increase to 2.35% on wages and self-employment income in excess of $200,000 ($250,000 for a couple) and there will be an additional 3.8% tax on investment income such as interest, dividends, annuities, royalties and rents on taxpayers with income above $200,000 ($250,000 for a couple). Some of these funds are likely to be used to cover non-Medicare health expenses, such as increased Medicaid coverage and coverage for non-Medicare eligible individuals.

Health insurance mandates --- Starting in 2014, individuals will be required to have health coverage and many small businesses will be required to provide health coverage for their employees. Those individuals and businesses that fail to do so will pay a penalty.

Health insurance exchanges --- Staring in 2014, each state is required to have health insurance exchanges which will offer multiple plans open to individuals and small businesses. Private insurers will be able to offer multi-state plans through these exchanges. The exchanges are intended to create larger insurance pools thus spreading risk and lowering rates. If private insurers do not offer multi-state plans through the exchanges, the benefits of these exchanges could be lessened.

Tax on high cost employer-sponsored health coverage – Starting in 2018 there will be a 40% excise tax on the cost of health coverage provided by employer plans which cost more than $10,200 annually for an individual and $27,500 annually for a family. The tax will be levied on the cost of the plans above those thresholds.

Many bills have been introduced in both houses of Congress which seek to modify, repeal or limit the Patient Protection Act. The provisions of these bills are too diverse to discuss here. While the House may be able to pass bills which substantively change the Act, such bills have little chance of success in the Senate or to escape a presidential veto. Republicans may however, have some success in affecting the Act’s implementation by withholding appropriations for the various acts that the executive branch must take to put it into effect.

What You Can Do: Nothing at present.
 

C. Taxation

1. Federal Investment Tax Credit for Purchase of Equipment Used in Remanufacturing

History: Currently no special incentives exist in the Federal tax code to promote remanufacturing.

APRA Position: APRA supports enactment of an investment tax credit for the purchase of new equipment by remanufacturers to stimulate more remanufacturing.

Status: No legislation is pending which would provide any direct tax credit for remanufacturing activities.

The Commercial Motor Vehicle Advanced Safety Technology Tax Act of 2011 (H. R. 1706) was re-introduced this year. It would provide a 50% tax credit for the installation and use of certain qualified safety systems in buses and heavy duty vehicles weighing over 26,000 GVW. Qualifying systems include those that advise the driver when the vehicles brakes are out of adjustment or malfunctioning, warn the driver of objects either in front of, beside or to the rear with which the vehicle could collide and automatically reduce speed or apply the brakes when there is a high risk of instability or rollover. The credit would apply to any system installed prior to the end of 2016. No action has been taken on the bill.
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What You Can Do: Support the Commercial Motor Vechile Advanced Safety Technology Tax Act.
 

D. Environmental

1. Access to Required Information in Connection With On-Board-Diagnostic Systems

History: U.S. -– Light duty vehicles are required to be equipped with on-board-diagnostic (OBD) systems to detect any part failure or malfunction which could create an emissions problem. The same law requires that information in the OBD system or otherwise necessary to use it to diagnose, repair, monitor and service the vehicle be provided to those who service such vehicles.

California --- California mandates that all OBD information for light duty vehicles be made available on an accessible Internet web site. The rule also requires vehicle manufacturers to provide service technicians and parts manufacturers and rebuilders certain necessary information to ensure that repairs can be properly and economically performed and that aftermarket and rebuilt parts function properly with the OBD system. The regulation also requires that information necessary to repair an emissions-related part, as well as diagnostics and reprogramming tools, be provided to those who need them. Because of this regulation, much previously unavailable information is now available. However, information deemed by the manufacturer to be a trade secret may still be withheld, but procedures exist to challenge such a claim.

EPA issued its revised OBD information rule in 2003. It is very similar to the one issued by California. EPA’s rule applies to automobiles, light duty vehicles and heavy-duty trucks less than 14,000 lbs. GVW.

California also issued OBD information access rules for heavy-duty vehicles starting with model year 2007. That rule is similar to the one for automobiles; however, there are several significant differences. Prior to 2013 aftermarket entities will only have the right to purchase emissions-related diagnostic tools if they are made available to the manufacturer’s dealers or authorized service networks. Starting in 2013, the OEM’S will have to make available to the aftermarket all enhanced diagnostic, recalibration and reconfiguration tools available to their franchised dealers or authorized service networks. If the manufacturer requires that its dealers receive training before they can purchase the tool, it can require that aftermarket facilities undergo similar training before they can purchase the tool. In 2013, the OEMs will also have to provide generic tool manufacturers with the data stream and bi-directional control information used in the OEMs' proprietary tools so that the generic tools will be able to perform the same functions as the manufacturer’s tools; however, the manufacturers do not have to provide such information if it could be used to modify an approved California engine configuration. The information which has to be provided for heavy duty engines is also limited. Only information for parts which control emissions or are associated with the engine system need to be provided. Specifically excluded is information related to the transmission.

On February 24, 2009, EPA published its final OBD regulation for larger heavy-duty on-road vehicles. The rule is very similar to the California rule in that it limits the information to be provided to that dealing with the engine and related systems and places certain limitations, including training requirements, on the acquisition of OE diagnostic tools. Most of the rule takes effect for model year 2010 vehicles but some of the provisions regarding access to the manufacturers diagnostic and scan tools do not take effect until the 2013 model year.  

APRA Position:  All information necessary to allow a parts manufacturer or remanufacturer to design and produce a part which will be perceived by the OBD system as functioning properly must be provided by the vehicle manufacturer. In addition, information required to service the emissions-related parts of the vehicle must be timely and economically provided to aftermarket service facilities. Aftermarket diagnostic tools must be economically available to independents and have the same capabilities as those of the vehicle manufacturers. Aftermarket service personnel must also have the ability to have the vehicle’s computer reprogrammed if required to make the repair. These rules should apply to all vehicles, including heavy-duty on and off road vehicles.

Status: Nothing at present.

What You Can Do: Advise APRA if you encounter problems getting OBD information or if your products are being rejected by OBD equipped vehicles.
 

2. Performance Warranties

History: Historically, environmental groups and some regulators have tried to enact laws to require that the vehicle manufacturers provide long-term warranties on the emissions-related parts of their vehicles. These warranties have always been opposed by the automotive aftermarket because they force the return of the cars to franchised dealerships for repairs (both for emissions and non-emissions related parts). Currently the warranty provisions are:

• U.S. --- Catalytic converter, ECU, OBD device – 8 years/80,000 miles - All other emissions related parts – 2 years/24,000 miles
• California --- Repairs to parts costing over $540 (as of FY 2011) – 7 years/ 70,000 miles – All other emissions related parts – 3 years/50,000 miles

California also adopted provisions requiring an 8-year/100,000 mile warranty on emissions-related parts costing over $540.00 (as of FY 2011) in certain situations and a 15 year/150,000 mile warranty on all emissions related parts in certain situations as part of a rule requiring automakers to meet a new durability standard. APRA opposed this rule but was unsuccessful in stopping its implementation.

APRA Position: Opposes increasing the length of any warranty.

Status: U.S. – There is no current activity at the Federal level.

What You Can Do: Nothing at present.


3. Vehicle Scrappage (Clunker Laws)

History: California and other states have proposed vehicle scrappage as one program to help them comply with their clean air attainment goals. However, outside of California, only Illinois, Oregon and Texas have established vehicle scrappage programs. Only California has established guidelines for a vehicle scrappage program for heavy-duty vehicles.

APRA Position: Vehicle scrappage, especially programs aimed solely at older vehicles regardless of their emissions, does not provide clean air benefits, is often at least as expensive as cleaning up smokestacks and discriminates against lower income motorists and those who live around polluters who do not clean up their own pollution. Any scrappage program should allow recycling and reuse of all parts of the scrapped vehicle. Emissions related parts should be rebuilt before being reused to assure proper functioning.

Status: As a result of the current economic problems and the automobile manufacturer’s bailout, Congress passed a vehicle scrappage program in the summer of 2009 as an economic stimulant and to promote the purchase of new cars. The “Cash for Clunkers” program was initially hailed as a great success by automobile manufacturers, dealers, consumers and legislators. As a result of the program over 690,000 older vehicles were replaced by new ones. However, sales quickly returned to pre-Clunker levels or worse and many economists now view the program as merely pushing normal fall trade-ins and sales into August and not really stimulating new sales.

The environmental benefits were also questionable. The average mileage of the vehicles traded in was 15.8 MPH and the average of the new vehicles was 24.9 MPH. However, the program was uneconomical. Carbon credits trade in Europe for around $20 a ton, thus setting the standard at which it is cheaper to buy a carbon credit than clean up an emissions source. It was estimated that it cost $207 to remove each ton of carbon emissions through the Clunker program ten times the cost of a carbon credit. In addition it was estimated that the program will cost aftermarket service facilities over $2 billion in lost sales and service from the vehicles that were retired.

There is currently no sentiment in the Congress for another clunker program.

What You Can Do:  All members should write their Congressmen opposing any further “Cash for Clunkers” program. Members in California, Texas, Oregon and Illinois should write their state legislators or the state EPA opposing scrappage programs. Members in other states must alert APRA headquarters if they hear of any proposal to implement scrappage in their state.


4. Promotion of State Inspection and Maintenance (I/M) Programs

History: Periodic inspection of vehicles in clean air nonattainment areas has been required at the state level. Vehicles failing these inspections are required to be reinspected and either to demonstrate compliance at reinspection or an expenditure of a prescribed amount by their owner on emissions-related repairs. Starting in 2002, states started to include inspection of OBD systems in their I/M programs for newer vehicles, and EPA has agreed that inspection of OBD systems may now replace tailpipe inspections. Inspection of heavy-duty vehicles has lagged behind automobiles, but at least sixteen states test the opacity of the smoke from these vehicles and require repairs if it is too dirty.

APRA Position:  APRA supports a national vehicle emissions inspection program as the best, least expensive and most efficient way of assuring that excess emissions from in-use vehicles are detected and corrected. Doing so will help attain clean air and global warming goals. It also supports safety inspection programs. Both emissions and safety inspections will help motorists to obtain better vehicle performance and may detect problems before they get worse.

Status: Currently both EPA and the states oppose expansion of automobile emissions testing programs, except for inspection of OBD systems. Both EPA and the states support greater smoke testing of heavy-duty vehicles. California has stated that it will use OBD systems to identify heavy-duty vehicles which violate Clean Air standards.

What You Can Do: Nothing at present.


5. End-of-Life Legislation for Vehicles

History: The European Community has end-of-life regulations which require that a minimum of 85% of a vehicle must be recovered for reuse. The regulations impose this recovery obligation on the vehicle manufacturer not the consumer.

APRA Position: Any end-of-life legislation must allow for the full availability of cores, should not discriminate against independents and should not promote the early retirement of vehicles.

Status: Nothing is pending in the US. APRA is monitoring.

What You Can Do: Nothing at present.

E. Government Procurement

1. Removal of Impediments to Federal, State and Local Government Procurement of Remanufactured Products

History: Government contracting officers were often precluded from buying remanufactured parts because the applicable procurement guidelines did not include them or they did not meet specifications. Other times the contracting officer himself may have a prejudice against using them. Because of APRA, GSA modified its procurement regulations to allow use of remanufactured parts in most situations. After lobbying by APRA, in 2004 EPA issued amendments to its recovered material standards for government procurement to allow Federal agencies to give preference to remanufactured parts when procuring motor vehicle parts.

APRA Position: Remanufactured parts should be given preference in government procurement because of the environmental benefits of remanufacturing. There should be no impediments to their procurement.

Status: Nothing at present.

What You Can Do: Advise APRA if you learn of any restrictions placed on procurement of rebuilt goods by any governmental body.

F. Intellectual Property Issues

1. Removal of Trademarks from Remanufactured Items

History: In the United States, remanufacturers do not have to remove or cover up the original manufacturer’s trademark when selling a remanufactured part as long as the fact that the part was remanufactured and the name of the remanufacturer are clearly identified on the part. This rule was established by the Champion Spark Plug case in the Supreme Court and confirmed in the Federal Trade Commission rebuilt parts guides. In 2006, Europe adopted the US position when the German Supreme Court decided that a company did not have to remove the original logo from a part it was remanufacturing as long as the part was clearly marked with the remanufacturing company’s logo. However, in many other areas of the world the local laws could be construed to require removal of the trademark.

APRA Position: The American rule on this issue should be adopted worldwide.

Status: APRA is monitoring.

What You Can Do: Advise APRA if you should hear of any attempts to have a remanufacturer remove the original manufacturer’s trademark prior to sale of the remanufactured part.

2.  Right to Repair, i.e., Remanufacture

History: Controversy over whether remanufacturing is legally permissible repair or improper reconstruction of patented products was resolved in the Dana case in favor of repair, even if the remanufacturing is done on a production basis. This decision allows remanufacturing to continue outside of the control of the OE. But it may not apply where the manufacturer also obtains a patent on a component needed to remanufacture the part.

APRA Position: Support the Dana case and extend its applicability.

Status: Nothing at present.

What You Can Do: Report to APRA any situation where a manufacturer uses patents to prevent remanufacturing of its products.


3. Intellectual Property Restraints on Information Necessary To Rebuild

History: Control of most parts by the vehicle’s computer and/or individual computer chips will give the vehicle manufacturer more opportunities to prevent independent manufacture or remanufacture of the part. For example, the vehicle manufacturer could claim certain information in the computer as proprietary and not subject to disclosure even though the information may be essential for determining how the part must operate in the system. This has happened with emissions-related information under Clean Air Act.

APRA Position: All information necessary for remanufacturing parts so that they function properly within any computer systems on the vehicle should be made available to remanufacturers.

Status: Congressman Edolphus Towns of New York once again introduced the Motor Vehicle Owners Right to Repair Act of 2009 (H.R. 1449). The bill would require the vehicle manufacturer to provide all necessary service information to the vehicle owner and to service providers. It does not specifically require the manufacturers to provide the “information necessary to access and integrate replacement equipment into the motor vehicle”. The bill also allows both the FTC and the state attorneys general to file suit to prevent violation of the law. The bill has 14 co-sponsors. No action has been taken on the bill.

What You Can Do:  You can send a message to your representative showing support for the bill by going to www.careauto.org and clicking on your home state.

4.  Design Patents

History: In the early 1990’s attempts were made to change the U.S. design patent law to allow such patents to be issued more readily to protect the design of car body parts and internal parts. This effort was defeated. In Europe, after much debate, the European Parliament adopted a new design patent directive which does not place restrictions on the internal parts of the vehicle.

APRA Position: Design patents should not be allowed on internal vehicle parts.

Status: The Access to Repair Parts Act was introduced in two companion bills in Congress in 2009 (HR 3059 introduced by Congresswoman Zoe Lofgren of California and S 1368 introduced by Senator Sheldon Whitehouse of Rhode Island. These bills would have allowed component parts of an article on which there is a design patent to be sold or imported in the US for the sole purpose of repair of that article without infringing the design patent. No action has been taken on either bill and no similar bill has been introduced this year.

What You Can Do: Let APRA know if you hear of any attempts to promote changes in the design patent law.


5. Trade Marking of Part Numbers

History: Historically, the US Patent and Trademark Office will not allow a company to trademark its part numbers because those numbers generally provide information on the use, grade or quality or the part and not its origin or ownership.

APRA Position: The US government should not allow any parts numbers to be trademarked.

Status: If trademark protection is granted for part numbers, it should have more of an impact on the manufacturers of new replacement parts than on remanufacturers because the Champion Spark Plug case would allow remanufacturers to use the part number on remanufactured parts which are largely the reused product of the original manufacturer. However, such claims could cause problems for remanufacturers. Therefore, we will continue to monitor those cases and the issue in general.

What You Can Do: Advise APRA if you hear of any manufacturer who is claiming a trademark on its part numbers.

G. Antitrust and Competition

Nothing at present.

H. Trade Issues

1. Labelling of Foreign Remanufactured Parts

History: Many parts remanufactured outside the United States are not properly labelled as “remanufactured” nor identify the remanufacturer as required by the FTC Guides and/or do not bear a country of origin label.

APRA Position: All imported parts must be properly labelled as “remanufactured” or “rebuilt” and include the name of the remanufacturer or rebuilder. All foreign parts must bear a proper country of origin label in compliance with U.S. Customs regulations.

Status: APRA will bring instances of improper labelling to the attention of Customs officials.

What You Can Do:  Advise APRA if you become aware of the improper labelling of foreign rebuilt parts.

2. Customs Duties on Cores and Remanufactured Parts

History: U.S. authorities are imposing custom duties on cores and remanufactured parts which were originally manufactured outside NAFTA but used in one of the NAFTA countries. Canada exempts such cores from custom duties.

The US Customs Service has agreed that warranty and customer cores brought into the US can be valued at "book value" (probably core supplier price) rather than core charge for purposes of US Customs duties.

APRA Position:  Cores and/or remanufactured parts which were originally manufactured outside of a customs area (i.e., NAFTA, areas with custom agreements under U.S. law) should be exempt from custom duties. Remanufactured parts should be treated as produced in the country where they are remanufactured not where they were originally manufactured. Cores should be treated as “used” materials not subject to duty.

Status: The US amended its customs regulations under the North American Free Trade Agreement (NAFTA) to allow cores which were recovered in disassembly processes in any NAFTA country from vehicles which had originally been manufactured outside NAFTA to be NAFTA originating materials and therefore not subject to customs duty. This regulation also provides similar exempt status to parts rebuilt using such cores.

On March 28, 2008 the Canadian Border Services Agency issued Customs Notice 08-014 and similarly agreed that disassembly of used products constitutes “production” under NAFTA. Therefore, parts taken by disassembly of a used product in a NAFTA country will be considered to be originating in that NAFTA country for customs and tariff purposes. However, the Agency specifically found that disassembly of a new product does not qualify as “production” for NAFTA purposes and therefore parts disassembled from new products will not be deemed to have originated in the NAFTA country in which the disassembly occurred.

What You Can Do:  Nothing at present.


3. Removal of Foreign Trade Barriers

History: Many countries protect their internal parts industries by imposing tariffs and erecting other barriers which curtail the importation of US remanufactured parts and cores.

APRA Position: Tariffs and other artificial trade barriers should not be used to exclude the importation of US cores and remanufactured parts and the playing field for international trade in motor vehicle parts should be level.

Status: Whenever it is made aware of a foreign trade barrier to remanufactured parts or cores, it will pursue actions to see if that barrier can be removed.

What You Can Do: Nothing at present.

I. Miscellaneous

1. Highway Funding

History: None.

APRA Position: US highways are essential to the commerce of the nation. It is vital to American business that each year, Congress appropriate sufficient funds to adequately maintain and improve those highways.

Status: Nothing at present.

What You Can Do: Continue to support funding for highway projects when meeting with your state and federal legislators.