[Federal Register Volume 60, Number 172 (Wednesday, September 6, 1995)]
[Rules and Regulations]
[Pages 46334-46463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21716]
[[Page 46333]]
_______________________________________________________________________
Part II
Department of the Treasury
_______________________________________________________________________
Customs Service
_______________________________________________________________________
19 CFR Parts 10, 12, 24, et al.
North American Free Trade Agreement (NAFTA): Implementation of Interim
Amendments; Final Rule
Regulatory Standards For Implementation of the North American Free
Trade Agreement; Notice
Federal Register / Vol. 60, No. 172 / Wednesday, September 6, 1995 /
Rules and Regulations
[[Page 46334]]
DEPARTMENT OF THE TREASURY
Customs Service
19 CFR Parts 10, 12, 24, 123, 134, 162, 174, 177, 178, 181 and 191
[T.D. 95-68]
RIN 1515-AB33
North American Free Trade Agreement
AGENCY: U.S. Customs Service, Department of the Treasury.
ACTION: Final rule.
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SUMMARY: This document adopts as a final rule, with some changes,
interim amendments to the Customs Regulations which were published in
the Federal Register on December 30, 1993, as T.D. 94-1 to implement
the preferential tariff treatment and other Customs-related provisions
of the North American Free Trade Agreement entered into by the United
States, Canada and Mexico.
EFFECTIVE DATE: October 1, 1995.
FOR FURTHER INFORMATION CONTACT: Operational Aspects: Joyce Metzger,
Office of Field Operations (202-927-0792).
Audit Aspects: William Inch, Office of Strategic Trade (202-927-
1100).
Legal Aspects: Myles Harmon, Office of Regulations and Rulings
(202-482-7000).
SUPPLEMENTARY INFORMATION:
Background
On December 17, 1992, the United States, Canada and Mexico (the
``Parties'') entered into an agreement, the North American Free Trade
Agreement (NAFTA). The stated objectives of the NAFTA are to: Eliminate
barriers to trade in, and facilitate the cross-border movement of,
goods and services between the territories of the Parties; promote
conditions of fair competition in the free trade area; increase
substantially investment opportunities in the territories of the
Parties; provide adequate and effective protection and enforcement of
intellectual property rights in each Party's territory; create
effective procedures for the implementation and application of the
NAFTA, for its joint administration and for the resolution of disputes;
and establish a framework for further trilateral, regional and
multilateral cooperation to expand and enhance the benefits of the
NAFTA.
The provisions of the NAFTA were adopted by the United States with
the enactment of the North American Free Trade Agreement Implementation
Act (the ``Act''), Pub. L. 103-182, 107 Stat. 2057.
The principal role of the U.S. Customs Service is to administer the
provisions of the NAFTA and the Act which relate to the importation of
goods into the United States from Canada and Mexico. Those Customs-
related NAFTA provisions which require implementation through
regulation include certain tariff and non-tariff provisions within
Chapter Three (National Treatment and Market Access for Goods) and the
provisions of Chapter Four (Rules of Origin) and Chapter Five (Customs
Procedures).
The tariff-related provisions within NAFTA Chapter Three which
require regulatory action by Customs are Article 303 (Restriction on
Drawback and Duty Deferral Programs), Article 305 (Temporary Admission
of Goods), Article 306 (Duty-Free Entry of Certain Commercial Samples
and Printed Advertising Materials) and Article 307 (Goods Re-Entered
after Repair or Alteration). The non-tariff provisions of Chapter Three
requiring Customs regulatory action are Article 310 (Customs User
Fees), Article 311 (Country of Origin Marking) and Annex 300-B (Textile
and Apparel Goods).
Chapter Four of the NAFTA sets forth the rules for determining
whether an imported good qualifies as an originating good of the United
States, Canada or Mexico (NAFTA country) and, as such, is therefore
eligible for preferential tariff (duty-free or reduced duty) treatment
as provided for under Article 302(2) and Annex 302.2 of the NAFTA.
Under Article 401 within that Chapter, originating goods may be grouped
in two broad categories: (1) Goods which are wholly obtained or
produced entirely in one or more NAFTA countries; and (2) goods which
are produced entirely in one or more NAFTA countries exclusively from
materials that originate in those countries, or goods which are
produced entirely in those countries and which satisfy the specific
rules of origin in NAFTA Annex 401 (change in tariff classification
requirement and/or regional value-content requirement). Article 402
sets forth the methods for calculating the regional value content of a
good and the rules for determining the value of materials used in the
production of a good. Article 403 sets forth special rules for
calculating the regional value content in the case of automotive goods.
Article 404 provides for accumulation of production by two or more
producers. Article 405 provides a de minimis criterion. The remaining
Articles within Chapter Four consist of additional sub-rules,
applicable to the originating good concept, involving fungible
materials, packaging materials, packing materials, transshipment, and
non-qualifying operations.
Chapter Five sets forth the procedural and other customs
requirements which apply under the NAFTA, in particular with regard to
claims for preferential tariff treatment. Articles 501-506 of this
Chapter provide for use of a Certificate of Origin for purposes of
certifying that an exported good qualifies as an originating good under
the Chapter Four origin rules, set forth the rights and obligations of
importers regarding imported goods and of exporters and producers
regarding exported goods, and set forth the rights and obligations of
the customs administration of the importing country when conducting a
verification of the origin of a good and when denying a claim for
preferential tariff treatment. Article 507 sets forth confidentiality
principles regarding business information collected pursuant to Chapter
Five. Article 508 requires each Party to maintain penalties for
violations of its laws and regulations relating to Chapter Five.
Article 509 sets forth the obligations for the issuance and application
of advance rulings by the customs administration of the importing
country regarding whether a good meets the country of origin marking
requirements of Article 311 or the origin rules of Chapter Four or
other NAFTA requirements that apply to certain goods at the time of
importation. Article 510 extends to exporters and producers of goods
substantially the same rights of review and appeal accorded to
importers regarding advance rulings or marking determinations of origin
or country of origin determinations for purposes of preferential tariff
treatment. Article 511 requires the Parties to establish, and implement
through their respective laws or regulations, Uniform Regulations
regarding the interpretation, application and administration of Chapter
Four, Chapter Five and any other matter as agreed by the Parties.
Finally, Articles 512 and 513 set forth procedures for cooperation
between the Parties regarding the implementation and administration of
the customs-related aspects of the NAFTA.
Pursuant to Article 511 of the NAFTA, representatives of the
Parties engaged in a series of trilateral discussions for the purpose
of formulating uniform regulatory texts or principles in respect of
Chapters Four and Five and in respect of certain provisions within
Chapter Three. As regards Chapter Three, agreement was reached on
certain principles to be applied for purposes of implementing
[[Page 46335]]
the drawback provisions of Article 303. With regard to the remaining
Chapter Three provisions, including the country of origin marking
provisions of Article 311 and its companion Annex 311 (which provide
for the establishment of ``Marking Rules'' for purposes of determining
whether a good constitutes, and thus may be marked as, a good of a
Party and which set forth disciplines on the methods and procedures for
the country of origin marking of goods), those provisions were to be
implemented by each Party independently and as appropriate within each
Party's statutory and regulatory structure; the U.S. Marking Rules,
contained in Part 102 of the Customs Regulations, were adopted on an
interim basis in T.D. 94-4 which was published in the Federal Register
on January 3, 1994 (59 FR 110). As concerns Chapter Four, the Parties
agreed, by an exchange of letters dated December 30, 1993, to implement
substantively verbatim texts of interim regulations covering all of the
provisions of that Chapter. Finally, in recognition of the different
existing customs legal and procedural requirements in the three
countries, in the case of Chapter Five and some provisions of Chapter
Three the Parties agreed, by an exchange of letters dated December 30,
1993, to use a standards approach whereby agreement was reached on
certain minimum principles to be reflected in each Party's regulations,
with each Party being left free to implement those principles, and any
other requirements not inconsistent therewith, in accordance with the
needs of the Party's particular statutory and regulatory framework. The
trilaterally-agreed standards are set forth in a document entitled
``Uniform Regulations for the Interpretation, Application, and
Administration of Chapters Three (National Treatment and Market Access
for Goods) and Five (Customs Procedures) of the North American Free
Trade Agreement''; the text of that standards document is reproduced
for the information of the public in a general notice also appearing in
this issue of the Federal Register.
On December 30, 1993, Customs published T.D. 94-1 in the Federal
Register (58 FR 69460) setting forth interim amendments to the Customs
Regulations to implement the preferential tariff treatment and other
Customs-related provisions of the NAFTA in accordance with the
implementation principles agreed to by the Parties as discussed above.
In order to provide transparency and facilitate their use, the majority
of the NAFTA implementing regulations set forth in T.D. 94-1 were
included within one new Part 181. However, in those cases in which
NAFTA implementation was more appropriate in the context of an existing
regulatory provision, the NAFTA regulatory text was incorporated in an
existing Part within the Customs Regulations. T.D. 94-1 also set forth
a number of cross-references and other consequential changes to
existing regulatory provisions to clarify the relationship between
those existing provisions and the NAFTA implementing regulations.
Although the interim regulatory amendments were promulgated pursuant to
the foreign affairs function exception to the general notice, public
comment, and delayed effective date requirements of 5 U.S.C. 553 and
took effect on January 1, 1994, in order to coincide with the entry
into force of the NAFTA, T.D. 94-1 nevertheless provided for the
submission of public comments thereon which would be considered before
adoption of the interim regulations as a final rule, and the prescribed
public comment period closed on March 30, 1994. In addition, two
correction documents pertaining to T.D. 94-1 were published in the
Federal Register, one on February 24, 1994 (59 FR 8852) and the other
on March 31, 1994 (59 FR 15047).
Discussion of Comments
A total of 15 commenters responded to the solicitation of comments
on the interim regulations set forth in T.D. 94-1. The comments
submitted, and the Customs responses thereto, are set forth below.
Part 12, Sec. 12.132 (Textile and Apparel Goods Under the NAFTA)
Comment: One commenter noted that whereas paragraph (b) of this
section provides only for preparation of the country of origin
declaration by the manufacturer or producer of the textile or apparel
goods, in the case of non-NAFTA goods the declaration may also be
prepared by the exporter or importer under Sec. 12.130(f). Since the
NAFTA provision imposes a more strict requirement, this commenter
suggested that the NAFTA text be aligned on Sec. 12.130(f) so as to
provide for preparation by the manufacturer, producer, exporter or
importer.
Customs response: The U.S. importer should not be allowed to
prepare the declaration in this context because the importer often
lacks sufficient knowledge of the actual production and origin of the
goods. However, when the importer cannot obtain a declaration from the
manufacturer or producer, Customs would be willing to accept a
declaration prepared by the exporter, and paragraph (b) (redesignated
in this document as paragraph (a)(2) as explained below) has been
modified accordingly.
Part 134, Sec. 134.22 (General Rules for Marking of Containers or
Holders)
Comment: One commenter expressed approval of the approach taken in
new Sec. 134.22(d) regarding the country of origin marking of usual
containers, in particular with reference to paragraph (d)(2) which, in
the case of a good of a NAFTA country, removes from consideration the
additional issue of whether a particular container is capable of reuse
in determining whether a container must be marked. Notwithstanding the
fact that this NAFTA rule was specifically intended to implement Annex
311(7) of the NAFTA, this commenter stated that this approach should
not be limited to NAFTA goods but rather should be applied universally.
In support of this suggestion the commenter argued that: (1) The
standards applicable to usual containers are regulatory rather than
specifically required by the marking statute (19 U.S.C. 1304) and thus
can be changed; (2) the NAFTA does not require that its provisions be
limited to NAFTA trade; and (3) no public policy purpose is served by
having different usual container marking rules because they create
confusion for importers and may mislead the consumer regarding the
origin of the product packaged in the container when it has a different
marking than that of the container.
Customs response: The definition of ``usual container'' provided in
Sec. 134.22(d)(1) applies to all containers, whether they are goods of
a non-NAFTA country or goods of a NAFTA country. However, different
regulatory requirements are provided in Part 134 of the Customs
Regulations for determining whether a usual container is excepted from
country of origin marking.
Section 304(b) of the Tariff Act of 1930, as amended (19 U.S.C.
1304(b)), states in part that:
. . . Usual containers in use as such at the time of importation
shall in no case be required to be marked to show the country of
their own origin.
Thus, although a container may not be a good of a NAFTA country, if it
is a ``usual container'' as defined in Sec. 134.22(d)(1) of the Customs
Regulations it may be excepted from marking pursuant to 19 U.S.C.
1304(b) provided that the conditions of that statutory provision are
satisfied, as
[[Page 46336]]
Customs has ruled in HQ 735548 dated February 14, 1995.
The Part 134 regulations relating to marking of containers from
non-NAFTA countries (Secs. 134.23 and 134.24) generally draw a
distinction between reusable and disposable containers in determining
whether they must be marked to indicate their own country of origin. If
the containers are determined to be reusable, they are treated as
separate articles of commerce and are required to be individually
marked with their country of origin. However, if the containers are
determined to be disposable, they are not treated as separate articles
of commerce and are excepted from country of origin marking.
However, for containers which are determined to be ``goods of a
NAFTA country'', the distinction between reusable and disposable is not
applicable in determining the marking requirements for the containers.
The country of origin marking requirements for containers which are
``goods of a NAFTA country'' are based primarily on whether the
container is considered to be a ``usual container''. If it is
determined to be a ``usual container'', as defined in Sec. 134.22(d)(1)
of the regulations, the container is not required to be marked with its
own origin. The fact that a container is capable of repeated use does
not preclude it from being considered a ``usual container''.
Section 134.22(d) was included in the interim regulations solely to
implement Annex 311(7) of the NAFTA, which applies to containers which
are goods of NAFTA countries. Customs does not believe that the NAFTA
implementing regulations are the proper vehicle for effecting a change
in the marking requirements for containers which are goods of non-NAFTA
countries. Such a change (applying to imports from non-NAFTA countries
the Sec. 134.22(d)(2) NAFTA ``usual container'' marking exception)
should be the subject of a separate notice of proposed rulemaking to
amend Secs. 134.23 and 134.24, so as to give affected parties an
opportunity to submit any comments they may have.
Part 181, Subpart B (Export Requirements)
Section 181.11
Comment: With regard to the preparation and use of Certificates of
Origin in general, one commenter noted that the instructions for field
6 (Harmonized System tariff classification number) specify use of the
8-digit number of the country into which the good is imported if the
good is subject to a specific rule of origin that requires eight
digits. This commenter suggested that this creates an unnecessary
burden on exporters because it requires them to cross-reference and
cross-document the seventh and eighth digits of tariff numbers for each
NAFTA country and may mean in some cases that three separate
Certificates would have to be prepared for one part number. Since the
tariff numbers in field 6 simply identify the rule of origin that the
exporter used to certify the goods and because the seventh and eighth
digits in all three countries identify the same goods and the same rule
of origin, this commenter suggested the following alternative
solutions: (1) The three governments could publish a single conversion
list of the tariff numbers for each country for distribution to customs
officials and the public; or (2) the exporter could be allowed to
indicate with a ``U'', ``C'' or ``M'' prefix the country of the tariff
number used in field 6.
Customs response: Customs does not agree with the proposal of
allowing classification to be reported at the 6-digit level. Many of
the specific rules of origin were written at the 7th and 8th digit
level to capture a desired processing condition. Where this is the
case, a NAFTA claimant must indicate that the processing it performed
accomplished the required tariff shift. Reporting a classification
number at a lesser level would not satisfy this requirement.
The proposal for publishing a list of all of the rules together
with references to the 8-digit item numbers may have some merit. It
should be noted that the tariff items in these rules are reflected
either in the rules themselves or in the Appendix to Annex 401 of the
NAFTA. Currently, the NAFTA Parties are exploring within the trilateral
working groups created under the NAFTA the most appropriate means to
keep the trading public aware of the changes to the rules, including
those that involve changes at the 8-digit level. The commenter's
suggestion will be kept in mind in that context.
Finally, Customs is of the opinion that the suggestion of utilizing
a letter prefix to a 6-digit classification number to designate which
country's tariff schedule is being applied would not be workable. An
enterprise wishing to take advantage of NAFTA in any one of the NAFTA
countries must classify according to the actual tariff schedule of the
importing country at the 7th or 8th digit level as shown in that tariff
in any case in which the specific origin rule requires a change at that
level.
Comment: One commenter raised two issues regarding paragraph (d)
which provides that if a U.S. exporter or producer has reason to
believe that a Certificate of Origin completed and signed by him
contains incorrect information affecting its validity or accuracy, he
shall within 30 calendar days so notify in writing all persons to whom
the Certificate was given. First, this commenter suggested a problem
with the ``within 30 calendar days'' language in that significant
controversy could arise in trying to pin down exactly on which day the
exporter or producer had the requisite ``reason to believe''. Second,
the commenter expressed some confusion as to whether a Certificate
could be deemed to be incorrect if the information provided thereon was
accurate when the Certificate was signed, and in this regard the
commenter questioned whether the notice had to be provided in the
following circumstances: (1) Whenever there is a change in the product,
even if a recipient of the Certificate no longer receives the product;
and (2) where the exporter or producer is uncertain as to which of its
products the recipient intends to apply the Certificate. Stating that
the duty to ascertain inaccuracies and search for all Certificate
recipients is unrealistic and fraught with pitfalls for well-
intentioned exporters or producers, this commenter suggested that
paragraph (d) be redrafted to more specifically define the obligations
of Certificate creators.
Customs response: The comment with regard to the commencement of
the 30-day period appears to have merit. Accordingly, paragraph (d) of
Sec. 181.11, as set forth below, has been modified by inserting the
phrase ``after the date of discovery of the error'' immediately after
the phrase ``30 calendar days''. This additional language would
encompass the discovery of an error by any involved party: the
exporter, producer or verifying customs administration. The condition
that no formal investigation be begun should be unaffected by the
addition of this phrase. For purposes of consistency and based on the
same considerations, a similar modification has been made to the text
of Sec. 181.21(b) regarding the correction of a declaration.
With regard to the issue of the specific circumstances in which
notice of an incorrect Certificate of Origin must be provided, Customs
would first point out that where information believed by the preparer
of the Certificate to be accurate is found to be incorrect by a
verifying customs administration, such information constitutes
incorrect information which might affect the granting of preferential
tariff treatment. Accordingly, all recipients of the
[[Page 46337]]
Certificate must be notified of the incorrect information so that a
NAFTA claim is not made based on erroneous information.
Where there is a change to a product and the recipient of the
Certificate covering that product no longer receives the product, it is
the position of Customs that if the product change affects the
eligibility of the product retroactively and if the recipient based its
claim of NAFTA treatment for that product on an incorrect Certificate,
the recipient must be sent a corrected Certificate so that it might
correct its entry. Prospective shipments of the product should be
covered by a new Certificate given to current importers of the product.
Finally, as regards a case in which the exporter or producer is
uncertain as to the specific products to which the recipient intends to
apply the Certificate, it is the position of Customs that an exporter
or producer must assume that each recipient of its Certificate intends
to utilize it for all products listed thereon and thus must be notified
of any incorrect information appearing on the Certificate.
Section 181.12
A commenter stated that this section imposes overly broad and
burdensome recordkeeping requirements on U.S. exporters and producers
whose goods qualify as originating goods under an origin criterion that
does not involve a regional value-content requirement. Since in such a
case data as to cost, value and payment are irrelevant in qualifying as
an originating good, this commenter states that Sec. 181.12 should be
written so as to require only that recordkeeping which is necessary to
demonstrate the correctness of the basis upon which originating status
is claimed.
Customs response: The recordkeeping requirements contained in
paragraph (a) of this section, including the specific types of records
to be maintained, reflect the provisions of Article 505 of the
Agreement which was implemented by an amendment to 19 U.S.C. 1508
effected by section 205 of the Act. Moreover, this comment fails to
recognize a basic problem that could arise from use of the suggested
minimalist approach: a customs administration may have no choice but to
deny a claim for preferential tariff treatment if the claimed basis for
originating status is not valid and no records have been maintained to
support an applicable alternative basis involving a regional value-
content requirement.
Part 181, Subpart C (Import Requirements)
Section 181.21
Comment: With regard to the requirement under paragraph (a) that
the claim for preferential tariff treatment be based on a Certificate
of Origin in the possession of the importer, one commenter stated that
the regulatory provision is unclear as to whether possession of a copy
of the Certificate would satisfy this requirement. This commenter
stated that permitting use of copies of a Certificate is necessary
where there are multiple importer customers, where goods are exported
to two NAFTA countries, and where a supplier provides a Certificate to
a central location of a producer which has subsidiaries operating in
more than one NAFTA country.
Customs response: Customs believes that this commenter makes a
valid point. Accordingly, paragraph (a) of Sec. 181.21, as set forth
below, has been modified to provide for possession of a copy of a
Certificate of Origin.
Comment: With regard to the written declaration under paragraph (a)
and the written correction of a declaration under paragraph (b), a
commenter suggested that additional provision should be made for
effecting both actions by electronic means in order to reflect the
Customs Modernization provisions of the Act.
Customs response: Although the suggestion has some merit in
principle, Customs believes that it would be premature at this time to
revise these paragraphs to provide for electronic means for complying
with their provisions. As Customs implements the Customs Modernization
provisions of the Act, it will identify which regulatory activities may
be performed electronically and will amend the regulations accordingly.
At that time, these NAFTA provisions will be reviewed and, if
necessary, brought into line with whatever changes are made elsewhere
in the Customs Regulations with respect to the electronic filing of
entry information.
Comment: One commenter stated that paragraph (b) should require
that Customs send to the importer's surety a copy of the importer's
corrected declaration because, if the importer fails to pay the
required duties, the surety will not be aware of this circumstance
until the entry is liquidated and demand is made upon the surety.
Customs response: Customs does not now notify sureties during the
entry process, and that policy should continue to be applied in the
context mentioned by this commenter.
It should also be noted that the failure to deposit estimated
duties when due is a bond breach, and Customs may make an immediate
demand in the event of a breach. There is no basis for a different
procedure when the bond principal breaches that provision at the time
of entry or when the bond principal breaches that provision at the time
of filing a corrected declaration.
Section 181.22
Comment: For purposes of submitting a Certificate of Origin to
Customs under paragraph (b), one commenter stated that, by referring to
a Certificate ``signed by the exporter or producer'', the regulation
appears to permit the exporter to simply provide the producer's
Certificate to the importer. This commenter suggested that, if this is
so and if the producer were allowed to execute a single Certificate and
provide copies thereof to its customer exporters who then could provide
copies to their customer importers, the following benefits could be
realized: (1) A producer Certificate would not have to be re-executed
by exporters; (2) a possessor of a Certificate would always know who
the producer of the goods was; and (3) administrative effort would be
reduced by requiring creation of only a single Certificate.
Customs response: While the commenter's suggestion has some logic
and merit under the regulatory text as written, Article 501(3) of the
Agreement (and Sec. 181.11(b) in a U.S. export context) are quite clear
that an importer's claim for preferential NAFTA tariff treatment can
only be based on a Certificate of Origin prepared by the exporter of
the good. Moreover, any Certificate completed by a producer is done
voluntarily whereas that prepared by the exporter is a requirement for
claiming NAFTA treatment. In order to remove any ambiguity and ensure
consistency with the terms of the Agreement, paragraph (b)(2) of
Sec. 181.22, as set forth below, has been modified by removing the two
references to ``or producer''.
Comment: One commenter stated that this section should be modified
to require that Customs provide notification to the importer's surety
whenever the importer fails to comply with a request for submission of
a Certificate of Origin. This would enable a surety to minimize its
risk in cases involving a series of related importations which result
in denial of preferential tariff treatment and issuance of a claim for
increased duty under the surety's bond.
Customs response: The comment response under Sec. 181.21 above
regarding
[[Page 46338]]
notice to a surety applies equally to this comment. Moreover, the
principal may pay the duty so that no bond breach would occur. In any
event, the requested change would inject Customs into the contractual
relationship between the surety and its bond principal. The submission
of document copies is a matter that is best resolved between the
principal and its surety.
Part 181, Subpart D (Post-Importation Duty Refund Claims)
Section 181.31
Comment: One commenter stated that this section should be amended
to expressly permit sureties to submit post-importation NAFTA claims so
that sureties may protect their interests, for example in a case where
the importer is out of business and the surety has a liability on the
transaction. This commenter argued that this would be a logical and
much needed extension of surety rights under the administrative
process, noting in this regard that sureties presently can file
protests, petitions for relief from liquidated damage claims and
petitions under 19 U.S.C. 1520(c).
Customs response: Both Article 502(3) of the Agreement and the U.S.
implementing statute specifically provide for the filing of a post-
importation claim by the importer. While 19 U.S.C. 1514(c) expressly
provides for the filing of a protest by a surety in its own right, no
corresponding surety right is reflected in 19 U.S.C. 1520(d) which was
added by section 206 of the Act. Of course, a surety or any other party
acting as a duly authorized agent may file a post-importation claim on
behalf of its importer principal.
Section 181.32
Comment: One commenter complained of the post-importation refund
claim documentary requirements in paragraphs (b)(3)-(5) of this
section, pointing out that the written statements specified therein
constitute added and burdensome requirements that are not applied
either in the case of a NAFTA claim made at the time of entry or in the
case of any other post-importation claim procedure under Part 173 or
174 of the Customs Regulations. This commenter therefore suggested
removal of these requirements.
Customs response: The written statement requirements for post-
importation claims are designed to prevent an overpayment of a duty
refund such as drawback. Customs notes that there are parallel NAFTA
requirements for drawback and duty deferral program participants under
Part 181 (see Secs. 181.47 (b) and (c) and Sec. 181.53(a)(3)).
Accordingly, Customs believes that these requirements must be retained.
Section 181.33
Comment: Two commenters referred to paragraph (d)(3) which provides
that where the entry covering the good has been liquidated, whether or
not the liquidation has become final, a post-importation refund claim
may be denied without reliquidating the entry. One of these commenters
stated that this section and Part 174 of the Customs Regulations should
include the right to file a protest within 90 days of the denial of the
claim whether or not the liquidation has become final. The other
commenter stated that the regulations do not, but should, provide for
an administrative appeal process in the case of a denial issued more
than 90 days after liquidation of the entry.
Customs response: Customs agrees that a claimant has a right to
file a protest based on a denial of a NAFTA post-importation claim,
including in cases in which the claim is denied more than 90 days after
liquidation of the entry and without reliquidation of the entry, and
Customs also agrees that the regulations should explicitly reflect this
right. Accordingly, Sec. 174.12(e)(2), which specifies when the 90-day
time period for filing a protest begins in the case of a protest
against a decision not involving a liquidation or reliquidation, has
been modified as set forth below by the inclusion of a specific
reference to a claim filed under 19 U.S.C. 1520(d).
Customs notes that in the case of a denial of a post-importation
claim on the merits (that is, where the denial is based on a negative
origin determination rather than on procedural grounds), a person who
signed a Certificate of Origin relating to the good at issue has a
right to file a protest against the denial (see 19 U.S.C. 1514(c)(2)(E)
and interim Sec. 174.12(a)(5) as republished below). In order to
reflect current Customs practice, Secs. 181.33 (d)(2) and (d)(3), as
set forth below, have been modified to provide that the notice of
denial of the claim in such cases shall include a statement regarding
the right to file a protest against the denial under Part 174 of the
regulations.
Part 181, Subpart E (Restrictions on Drawback And Duty-Deferral
Programs)
Section 181.41
Comment: Two commenters stated that this section implies that the
effective dates of 1996 and 2001 apply only where preferential tariff
treatment under NAFTA is claimed. This is not correct and therefore it
should be made clear that these effective dates apply to all
merchandise whether or not NAFTA preferential treatment is involved.
Customs response: Customs agrees that the subpart covers all
exports to Canada or Mexico, whether a claim for preferential tariff
treatment is made or not. Accordingly, the second sentence of
Sec. 181.41, as set forth below, has been modified by inserting a
period after ``January 1, 2001'' and removing the rest of the sentence.
Section 181.44(a)
Comment: A commenter pointed out that it is too difficult for the
drawback claimant to ``discover'' the duty paid on the merchandise when
it is imported into the United States and when it is imported into
Canada and Mexico. As an alternative, this commenter suggested that a
NAFTA control number be placed on the commercial invoice when a
drawback claim is expected to be filed. Each U.S. exporter could use
its tax identification number (from the Certificate of Origin) followed
by a date code and a sequential number. This control number should
become part of the import records associated with NAFTA claims in
Canada or Mexico.
This commenter went on to state that whenever this sequential NAFTA
drawback control number appears, Canadian or Mexican Customs should
enter the amount of duty from the import entry, together with the
control number, into a database which could be downloaded into the U.S.
Customs computer system. The data could then be accessed by U.S.
Customs through ABI to determine duties paid upon importation into
Canada or Mexico. Upon liquidation of the import transaction in Canada
or Mexico, the computer record would be updated. The drawback claimant
should be allowed to waive the right to claim a refund of the amount
equal to the additional duties that would be owed to Canadian or
Mexican Customs. This would set the date of entry when duties have been
paid in Canada or Mexico for drawback purposes. The commenter suggested
that without a link between the three Customs administrations, drawback
claims will be delayed.
Customs response: This commenter recognizes that the Agreement and
the statute require the amount of duty paid in Canada or Mexico to be
reported. The commenter's proposal to require a drawback control number
to be placed on the commercial invoice and for the Customs Services of
the three countries to monitor that number would be extremely
burdensome. In addition,
[[Page 46339]]
Customs is aware that many U.S. importers have alleged an inability to
obtain the foreign invoice. Such inability can only result from a
failure of the commercial participants to address the issues in a
timely manner. Drawback claims require that the commercial participants
resolve these information issues in the terms of the sale before the
export so that the required information on the completed transaction
can be presented to Customs to establish any drawback eligibility.
Paragraph (c) of Sec. 181.47 lists the required evidence.
Comment: A commenter stated that any claim based on estimates (that
is, the NAFTA duty rate multiplied by the invoice value) would not take
into account duty exemptions that may be available to Canadian and
Mexican importers and that may not be apparent on the face of the
commercial documents (for example, articles assembled abroad and
returned). If there are no such exemptions and value can be determined
on the face of the commercial documents, then the claimant should be
allowed to base the duty amount on the appropriate NAFTA duty rate in
Canada or Mexico multiplied by the FOB value.
Customs response: Drawback claimants cannot base their claims on
estimates; rather, each claim must be based on the liquidated amount of
duty paid on the import entry for goods entered into Canada or Mexico.
Section 181.44(b)
Comment: Two commenters stated that this section is unclear as to
the calculation of drawback when two or more components are used in the
process of manufacture. One of these commenters raised the question of
whether the comparison of duty paid must be between the duty paid on
each component part and the duty paid on the finished article exported
to Canada or Mexico or between the total duty paid on all component
parts and the duty paid on the finished article exported to Canada or
Mexico. This commenter provided the following example:
Two parts, X and Z, are imported duty-paid into the United
States at $2.00 and $4.00, respectively. Assume article Y is
manufactured and exported to Canada or Mexico and duty of $5.00 is
due. Does the lesser of the two duties apply to X and Z individually
(resulting in $6.00 in drawback) or collectively (resulting in $5.00
in drawback)?
Customs response: With respect to the duty comparisons, the
comparison should be made on an individual basis regardless of whether
two components are used to make one export article or one component,
such as a chemical, is split into two export articles. Section 181.44,
as set forth below, has been modified by redesignating paragraphs (b)-
(e) as (c)-(f) and adding a new paragraph (b) which sets forth the
relative value calculation and individual comparison principle and
includes the following example:
Upon importation of Chemical X into the United States, Company A
entered Chemical X and paid $2.00 in duties. Company A processed
Chemical X into Products Y and Z, each having the same relative
value; that is, $1.00 in duty is attributable to Product Y and $1.00
in duty is attributable to Product Z. Company A exported Product Y
to Canada and Canada assessed a free rate of duty. Company A
exported Product Z to Mexico and Mexico assessed the equivalent of
US$2.00 in duty. There is no entitlement to drawback on the export
of Product Y to Canada because zero is the lesser amount when
compared to the $1.00 in duty attributable to Product Y as a result
of the separation of Chemical X into Products Y and Z. There would
be entitlement to drawback on the export to Mexico, consisting of
the $1.00 duty attributable to Product Z, because that amount is the
lesser amount when comparing the duty paid to the United States and
the US$ equivalent duty paid to Mexico.
Section 181.44(c)
Comment: Three commenters expressed concern about the statement in
Sec. 181.44(c) (redesignated in this document as Sec. 181.44(d) as
discussed above) that ``same kind and quality'' is synonymous with
``identical or similar good''. They stated that this terminology should
not restrict or eliminate rulings and court cases related to same kind
and quality. Another commenter stated that making the term ``same kind
and quality'' synonymous with the terms ``identical'' or ``similar''
seems to eliminate substitution drawback since identical or similar
goods are defined in part as ``goods that were produced in the same
country as that good''. If this is true, then the example in this
section is incorrect because it allows for the substitution of foreign
and domestic goods. On a related subject, a commenter raised the point
that the statement that the two terms are synonymous leaves the door
open for narrowing the scope of the ``same kind and quality'' provision
to that of ``identical or similar.'' This commenter was of the view
that it should be stated that all rulings, court cases or other
determinations pertaining to same kind and quality will be the guiding
force in understanding the meaning of ``identical and similar good.''
Customs response: Although it is true that the term ``same kind and
quality'' is considered to have the same meaning as the term
``identical or similar'', Customs does not intend to require that the
substituted merchandise come from the same country to qualify for
manufacturing drawback under the NAFTA. Section 181.44(d), as set forth
below, has been modified to clarify these points.
Section 181.45
Comment: With regard to the reference in this section to ``same
condition'' instead of ``unused merchandise'', three commenters
questioned whether a third unique type of drawback is contemplated by
this regulation, that is, same condition drawback for NAFTA countries
and unused drawback or manufacturing drawback for all other countries.
Otherwise, they stated that the terminology used in the NAFTA and in 19
U.S.C. 1313(j), as amended by section 632 of the Act, must be
harmonized. Also on this subject, another commenter stated that, for
consistency, the term ``same condition drawback'' should be replaced
with ``unused merchandise drawback.''
Customs response: The Agreement was signed by the United States on
December 17, 1992. The United States could not, without reopening
negotiations with the two other Governments, incorporate changes made
to its national laws subsequent to December 17, 1992, in its obligation
to implement the Agreement. Consequently, with respect to trade between
the three NAFTA parties there will be unavoidable inconsistencies when
compared with trade between the United States and countries outside the
Agreement. It is simply impossible to eliminate all differences between
the provisions of sections 203 and 632 of the Act by regulation. In
trade between NAFTA countries the provisions of section 203 of the Act
control. Subpart E can do no more than to implement section 203 of the
Act.
Section 181.45(b)
Comment: Two commenters stated that the second sentence of the
example should be amended to simply read ``X immediately exports the
desk to Z in Mexico'' because, whether or not duties are owed in
Mexico, the mere fact of exportation will allow X to obtain a refund of
99% of the $25.00 in duty paid upon importation of the desk into the
United States. These commenters went on to state that the fact that Z
pays duty of $10.00 in Mexico is moot: 19 U.S.C. 1313(j)(1) contains no
limitation based upon payment of duties in the NAFTA country of import.
Thus, including the $10.00 Mexican duty in
[[Page 46340]]
the example rather than a ``whether or not'' phrase regarding payment
of duty in Mexico, will be confusing to industry and to Customs
personnel. Since the amount of duty is only germane in calculating the
``lesser of two duties'' under a manufacturing scenario, these
commenters stated that the suggested modifications of the example would
more accurately reflect the law.
Customs response: The sentence which precedes the example, together
with the example, illustrates precisely the point made by the comment.
Comment: A commenter stated that the term ``commercially
interchangeable'' should be substituted for ``completely fungible'' in
subparagraph (2) of this section.
Customs response: In order to avail oneself of full drawback under
direct identification, the Agreement and implementing legislation
permit identification of the exported good as the imported good by
means of a recordkeeping system only if the goods are fungible and
commingled. Section 181.45(b)(2)(i), as set forth below, has been
modified as explained below in the response to the comments submitted
regarding Schedule X of the Appendix to Part 181, and the modified text
does not include the superfluous word ``completely'' before
``fungible''.
Section 181.45(c)
Comment: One commenter stated that the statement ``X exports it
within 90 days'' in the example under this section should be changed to
refer to ``within 3 years''.
Customs response: The period for exportation is clearly stated in
Sec. 181.45(c). An example cannot impose a further qualification on
either the statute or implementing regulation. So long as the period is
less than 3 years the example correctly illustrates the provision.
Section 181.46(b)
Comment: Two commenters stated that the existing exporter's summary
procedure and waiver of prior notice provisions and the new provisions
for ``unused merchandise drawback'' eliminate the need to inspect the
goods prior to export because it would be too difficult for Customs to
determine ``unused'' status by visual inspection. These two commenters,
after stating that the Office of Trade Operations has indicated that
the required 5 days of prior notice may be shortened to 48 hours,
suggested that any change to this time period in Part 191 of the
Customs Regulations should be reflected in the corresponding provision
in Part 181. In addition, one of these commenters pointed out that
there never existed a requirement for filing at the port of
exportation.
Customs response: Although the exporter's summary procedure and
waiver of prior notice provisions are not specifically provided for in
the NAFTA, they are not new to the Drawback Program. Therefore, the
existence of these two privileges would not be a basis for eliminating
the physical inspection of the goods. With respect to shortening the
prior notice period from 5 days to 48 hours, this principle already has
been considered by Customs in connection with a pending proposed
revision of Part 191 of the Customs Regulations. Section 181.46(b), as
set forth below, has been modified to specify a prior notice period of
2 working days rather than 5 days.
Comment: One commenter pointed out that the statement in this
section that ``[g]enerally, for same condition drawback, the claim
would be filed with the Customs port where the examination would take
place'' is not practical and not required by law.
Customs response: Because there are currently no requirements that
claimants file same condition claims at the port where the examination
will take place, Customs agrees that this statement should be replaced
by the following: ``To facilitate expedited processing of claims,
claimants should file same condition drawback claims in the port where
the examination would take place''. Section 181.46(b) as set forth
below has been modified accordingly.
Comment: A commenter requested that the text of this section be
replaced by the appropriate sections from Part 191 of the regulations.
The commenter did not explain the basis for this comment.
Customs response: Customs believes that the new language set forth
in the preceding response will at least in part address this comment.
Section 181.47(a)
Comment: Two commenters stated that this section places an undue
burden on the claimant because it requires the claimant to monitor the
enforcement of the Canadian or Mexican Customs regulations. These
commenters also argued that the section is also unfair in that it
requires the claimant to have access to duty payment information to
which it is not privileged, when sometimes the claimant does not even
know who the ultimate importer is in Canada or Mexico.
Customs response: The Agreement provides that the amount of the
duties paid in the destination NAFTA country must be presented by the
person seeking a refund of that duty from the exporting NAFTA country.
In order to obtain the refund, the claimant must obtain the cooperation
of its customer in Canada or Mexico.
Section 181.47(b)(1)
Comment: Two commenters complained that the Canadian or Mexican
Customs entry and the document referred to as the ``certification'',
which are required to be submitted under this section, are too
difficult for the U.S. exporter to obtain. Two other commenters stated
that requiring both documents is redundant and contradictory to the
paperless entry concept. Another commenter suggested that the entry
documents should not be required but rather should be used only if
available and that certification should only be provided in the event
of an audit.
Customs response: The provision reflects a basic and necessary
component of a proper NAFTA drawback claim and is not redundant since
alternative methods may be used to establish that amount as set forth
in paragraph (c) of Sec. 181.47. As regards the alleged burden imposed
by this provision, and as noted elsewhere, a drawback claimant will
need the cooperation of its Mexican or Canadian customer in order to
benefit under the agreement.
Section 181.47(b)(2)(i)
Comment: Two commenters believed that the documents required in
Part 191 of the regulations satisfy the NAFTA requirements. They stated
that commercial invoices, proof of payment of duties and import
documents relating to an exportation to a foreign country have never
been required with drawback claims under Part 191 and should only be
required in the event of an audit. These two commenters also stated
that these documents would not be required at the time of filing the
claim under the exporter's summary procedure.
Customs response: Paragraph (c) of Sec. 181.47 does not require
filing of the Canadian or Mexican Customs entry because, under
subparagraph (4), the drawback claimant may file an affidavit in lieu
of the Canadian or Mexican entry document provided that certain
specified information is also submitted. The requirement for these new
documents is a result of the new ``lesser of the two'' system which is
part of the NAFTA Agreement. The documents required in Part 191 of the
regulations would not enable either the claimant or Customs to have
knowledge of the
[[Page 46341]]
amount of duties paid upon importation into Canada or Mexico.
Section 181.47(b)(2)(ii)(G) provides an alternative means for a
drawback claimant under 19 U.S.C. 1313(j)(1) to show exportation.
Section 181.47(b)(2)(i)(A)
Comment: Four commenters stated that it is unclear why the tariff
classification number of the imported merchandise is needed when the
drawback is based upon the duty paid (regardless of the tariff number).
These commenters further stated that tariff numbers have never played a
significant role in drawback before.
Customs response: The tariff classification number will facilitate
processing drawback claims by Customs. The use of a number rather than
a textual description is better adapted to automated processing
procedures. In the near future, tariff numbers will be required for all
drawback claims, not just for NAFTA claims. These numbers are needed
for compiling profiles as part of the planned selectivity system for
drawback.
Because drawback claims under the Agreement require a comparison on
an individual basis, as noted by these same commenters, with respect to
Sec. 181.45, the line item information is needed in order to process a
claim under the Agreement.
Section 181.47(b)(2)(i)(B)
Comment: An objection was raised by three commenters regarding the
requirement of submission of the commercial invoice because many
importers do not have a hard copy of this document. These commenters
argued that submission of the commercial invoice is contrary to the
Customs modernization provisions of the Act and to the principles of
automation, and they further stated that the commercial invoice is
difficult to obtain because it contains proprietary information. Two of
these commenters also pointed out that Customs will not have sufficient
staff to review all of this documentation.
Customs response: Customs agrees that claimants should not be
required to submit Customs Form 7501 and copies of commercial invoices
with their claims unless they are requested by Customs. Accordingly,
Sec. 181.47(b)(2)(i)(B), as set forth below, has been modified to
specify only ``Customs Form 7501 or the import entry number''. It
should be noted, however, that claimants (and other parties who provide
information on which a claim is based) must continue to maintain
records to support the claim and make them available upon request. This
includes records of importation and invoice-level information.
Section 181.47(b)(2)(i)(C)
Comment: Three commenters objected to the inclusion of the Canadian
and Mexican entry numbers on the exporter's summary procedure because:
(1) These numbers are not available to the exporter; (2) the exporter's
summary procedure was not intended for this purpose; and (3) the courts
have ruled that when information such as this is impossible to obtain
the ``best evidence available'' must be accepted.
Customs response: These numbers are needed in order for the NAFTA
countries to implement a data exchange system which will be used to
verify the requested amount of drawback based on the ``lesser of the
two'' system. The NAFTA parties will provide each with a tape of entry
numbers and corresponding duty payments so that claimed amounts may be
verified on a spot-check basis. Entry numbers are needed for this
system to work.
Section 181.47(b)(2)(i)(D)
Comment: Three commenters stated that the NAFTA regulations should
require only ``evidence of exportation'', as is required in Part 191 of
the regulations, rather than the ``proof of exportation'' provided for
in this section and in other sections of these NAFTA regulations.
Customs response: Customs agrees that the term ``evidence'' should
be substituted for the term ``proof'' in each such context in order to
be consistent with Part 191 of the regulations, and the Subpart E
texts, as set forth below, have been appropriately modified throughout.
Section 181.47(b)(2)(i)(E)
Comment: Three commenters stated that waivers of rights to drawback
are already available in the form of certificates of delivery and
certificates of manufacture, and therefore any additional waiver
requirement is redundant.
Customs response: The certificate of delivery does not waive any
right to drawback particularly in light of the right to transfer
substitute merchandise. This certificate makes it absolutely clear to
the certifier that it may not claim any drawback with respect to the
merchandise covered by the waiver.
Comment: A commenter questioned the validity of the waiver of the
right to drawback by the importer in favor of the exporter when
Sec. 181.48(a) clearly states that the exporter is entitled to
drawback.
Customs response: A waiver is needed from the importer who
transfers any merchandise to a manufacturer and issues a certificate of
delivery. A manufacturer who transfers merchandise to an exporter and
issues a certificate of manufacture and delivery also needs to issue a
waiver.
Section 181.47(b)(2)(i)(F)
Comment: Three commenters stated that the requirement that the
drawback claimant provide a certification that he has not issued a
Certificate of Origin for the goods to another party, or that he will
notify Customs if he does so, is not valid because there is no NAFTA
provision that precludes drawback when NAFTA preference is taken. One
commenter stated that the separate certification or affidavit is not
needed because it is well known that double dipping is illegal.
Customs response: The requirement is necessary since it is far from
obvious that providing a Certificate of Origin which enables a Mexican
or Canadian importer to obtain a duty reduction or refund from Mexico
or Canada would be considered illegal double-dipping by a United States
drawback claimant since that claimant would not necessarily benefit
directly from the actions of its customers.
Comment: Another commenter took issue with the requirement for an
affidavit by a manufacturing claimant certifying that no other claim
has been filed on the goods. This commenter stated that once the
claimant receives either a certificate of delivery or a certificate of
manufacture and delivery, he can only certify that he has not made any
other claim on the goods. The manufacturing claimant will not know
whether the importer or any other party makes a claim on the goods.
Customs response: The commenter appears to compare the requirements
of Sec. 181.47(b)(2)(i)(F) and Sec. 181.51(b). The Customs
recordkeeping statute, 19 U.S.C. 1508, as amended by section 205 of the
Act, does not prohibit a drawback claimant from providing an affidavit
on the preparation of a Certificate of Origin with the drawback claim.
It does require a drawback claimant to report such facts within 30 days
of filing a drawback claim if that claimant has not already done so.
Informed compliance means that the Government is under an
obligation to inform persons who deal with it which acts are
proscribed. The regulation which requires a certification that the same
import entry for the same designation of goods has not been used in
more than one claim fulfills that obligation.
[[Page 46342]]
Section 181.47(b)(2)(ii)(A)
Comment: Two commenters stated that the requirement for the tariff
classification at entry is superfluous.
Customs response: As already pointed out, in the near future tariff
numbers will be required for all drawback claims, not just for NAFTA
claims. These numbers are needed for compiling profiles as part of the
planned selectivity system for drawback.
Section 181.47(b)(2)(ii)(B)
Comment: Four commenters stated that the requirement regarding
submission of commercial invoices is in conflict with the requirements
of the Customs modernization provisions of the Act and is a step
backwards in the automation process. These commenters further argued
that these documents are impossible to obtain when the claimant is not
the importer. One of these commenters suggested requiring a pro forma
invoice instead for same condition claims in order to resolve the
latter problem. Another of these commenters stated that the detail
required in this section may not be available due to automation and
paperless entries and that it should be changed to refer to Customs
Form 7501 and any appropriate documentation which identifies the
subject goods. Another commenter stated that the entry documents (such
as Customs Form 7501) may not be available because of confidentiality
considerations.
Customs response: Again, Customs agrees that claimants should not
be required to submit commercial invoices with their claims.
Accordingly, Sec. 181.47(b)(2)(ii)(B), as set forth below, has been
modified by removing the two references to commercial invoices, and
Sec. 181.47(b)(2)(iii)(B), as set forth below, has been similarly
modified for purposes of consistency. However, Customs would again
point out that claimants (and other parties who provide information on
which a claim is based) must possess and maintain records to support
the claim and make them available upon request. This includes records
of importation and invoice-level information.
Section 181.47(b)(2)(ii)(G)
Comment: Two commenters stated that this section should begin with
the words ``If exporter summary procedures are not in force''. In
addition, two commenters stated that the words ``* * * and signed in
ink'' should be deleted because obtaining an original ink signature on
a nonnegotiable copy of a document is an unnecessary burden. Finally,
one commenter stated that this section does not take into account
claimants using procedures under Sec. 191.51 of the regulations and
that it should be amended to reflect that fact.
Customs response: Customs agrees that where the exporter's summary
procedure is approved for the claimant, the requirement in
Sec. 181.47(b)(2)(ii)(G) is not applicable; accordingly, this section
as set forth below has been modified by adding at the beginning of the
first sentence the words ``If a claimant is not approved for the
exporter's summary procedure,''. In addition, while the evidence of
export document must be signed, Customs agrees that the signature need
not be in ink; accordingly, the section as set forth below has been
modified by removing the words ``and signed in ink'' from the first
sentence. Finally, Customs agrees that this section should reflect that
evidence of exportation may also be established in accordance with the
provisions of Sec. 191.51; accordingly, Sec. 181.47(b)(2)(ii)(G), as
set forth below, has been modified by adding at the end of the first
sentence the words ``, or any other evidence of exportation provided
for in Sec. 191.51 of this chapter''.
Section 181.47(b)(2)(ii)(H)
Comment: Three commenters stated that providing a waiver from the
importer is redundant since a certificate of delivery already serves
the same purpose. One of these commenters suggested that if Customs
must have it, it should be provided for directly on the certificate of
delivery.
Customs response: A certificate of delivery does not in itself
constitute a waiver of the right to claim drawback. Thus, an explicit
waiver is necessary.
Customs agrees in principle that the waiver could be incorporated
into the certificate of delivery form. However, until that form is
revised to include the waiver, a separate waiver is needed.
Section 181.47(b)(2)(ii)(I)
Comment: One commenter recommended that the affidavit be
incorporated onto the ``J'' side of Customs Form 7539, but with
reference to ``designated goods'' changed to ``identified goods''.
Another commenter stated that the affidavit is unnecessary but that if
Customs must have it, it should be included on the drawback entry form
instead.
Customs response: So long as the affidavit is included with the
drawback entry, the legal requirement will be satisfied.
Section 181.47(b)(2)(iii)(B)
Comment: One commenter objected to the requirement of submission of
the commercial invoice because it will not be available in hard copy.
This commenter stated that a pro forma invoice would solve this
problem.
Customs response: Customs took the position in promulgating 19 CFR
191.142(b)(6) that drawback under 19 U.S.C. 1313(c) is payable to an
exporter claimant who is the importer of record or the actual owner
named in the import entry. There is nothing in section 203 or 632 of
the Act which would require a change to that position. As such, it is
unclear why the person who ordered the merchandise and who determined
that the merchandise did not meet the order specifications would not
have the original invoice issued by the foreign supplier.
Section 181.47(b)(2)(iii)(C)
Comment: It was pointed out by a commenter that import documents
for foreign countries are not available to the U.S. seller and that it
is virtually impossible for the U.S. seller to obtain proof of payment
and final duty determination notices.
Customs response: The commenter has misread the section.
Subparagraph (C) states the evidence needed to show that the
specifications were not met.
Section 181.47(c)
Comment: Two commenters stated that the phrase ``for purposes of
evidence of duties paid'' is confusing in that Sec. 181.47(a) also
refers to ``evidence of exportation''. They also suggested that Customs
may want to consider a single definition for ``evidence of
exportation'' as has always been done under Part 191 of the regulations
and introduce specific requirements only for 19 U.S.C. 1313 (a) or (b)
drawback for ``evidence of duties paid'' since this information is
germane only to manufacturing drawback when calculating the ``lesser of
the two duties''.
Customs response: It would be quite difficult for Customs to draft
an affidavit for the parties. The language needed to demonstrate that
the claimant's goods were received by its Mexican or Canadian customer
and the amount of duty paid to Canada or Mexico by that customer would
depend on that customer's statement.
There is a difference between the provision on exportation in
Sec. 181.47(b)(2)(ii)(G) (which has specific reference to 19 U.S.C.
1313(j)(1)) and the provision in Sec. 181.47(c). Because in the former
case there is full drawback available without a comparison between the
duty that was paid in the United States and the duty paid in Canada or
Mexico, the provisions necessarily
[[Page 46343]]
differ. The provisions of Sec. 181.47(c) also apply in a NAFTA context
to other duty reduction programs such as temporary importations under
bond, bonded warehouses, and foreign trade zones (see
Sec. 181.53(a)(3)).
Section 181.48
Comment: With regard to paragraphs (b) and (c), two commenters
pointed out that the wording is confusing and not consistent with
``mainline'' drawback in that, under Part 191 of the regulations and
under the Customs modernization provisions of the Act, it is always the
exporter of record who is entitled to drawback. One of these commenters
suggested the following alternative language: ``The exporter of record
is entitled to the drawback unless the exporter directs in writing that
another entity receive the drawback refund.''
Customs response: The provision in Sec. 181.48(b) follows the
position set forth in 19 CFR 191.142(b)(6). Section 181.48(c) is
consistent with current law regarding the identity of the claimant for
same condition drawback. The Customs modernization provisions of the
Act followed this interpretation with respect to the identity of the
claimant for unused merchandise drawback.
Section 181.49
Comment: One commenter stated that this section does not specify
which records are required to be kept by the exporter, importer,
manufacturer or producer. This commenter argued that Customs
recordkeeping requirements are strictly limited to those records which
are referenced in the statute and that this is consistent with
Congressional intent under H.R. 3450. This commenter also suggested
that Customs review the commentary in the House Report with regard to
section 632 of the Act and that Customs also compare Sec. 181.49 to
Sec. 181.53(g).
Customs response: The types of records are set forth in
Sec. 181.47(b); this section simply sets the retention period. Since
payment occurs in most instances under the accelerated payment program
before liquidation takes place, the period starts and ends earlier. In
any event, Sec. 181.49 follows the existing policy set forth in 19 CFR
191.5. Customs notes that 19 U.S.C. 1313(t), which was added by section
632 of the Act, makes the general recordkeeping requirements set forth
in 19 U.S.C. 1508(c) applicable in the context of drawback certificates
and provides that the retention period starts on the date the
certificate is issued in the case of a person who issues a certificate
relating to another person's drawback claim. Accordingly, Sec. 181.49,
as set forth below, has been modified by adding at the end the
following sentence: ``However, any person who issues a drawback
certificate that enables another person to make or perfect a drawback
claim shall keep records in support of that certificate commencing on
the date that the certificate is issued and shall retain those records
for three years following the date of payment of the claim.''
Section 181.50(a)
Comment: A commenter raised the issue that whereas the regulations
require that the amount of duties paid to Canada or Mexico be
``established'' as a prerequisite to the completion of the claim, they
do not provide instructions as to how these duty amounts will be
established and they do not prescribe a time frame in which the duty
amounts will be settled for the purpose of finalizing the claim.
Customs response: This section describes generally the process by
which Customs will determine the amount of drawback to be paid. A
directive for the guidance of Customs officers will address the
internal Customs procedures that will implement the process in detail.
With regard to the time frame issue, see the discussion of
Sec. 181.50(b) below.
Section 181.50(b)
Comment: Two commenters stated that requiring liquidation of
entries made in Mexico and Canada before a drawback claim is liquidated
eliminates most drawback claims from the Customs modernization act
bypass system. In a related comment, another commenter stated that this
section is in conflict with the Customs modernization provisions of the
Act in a bypass (selectivity) system context because the liquidation of
all designated import entries is no longer required for drawback
liquidation. This commenter argued that requiring that there be prior
liquidation of the import entry in Canada or Mexico undermines the
process and conflicts with the requirement for fair and reasonable
procedures as described in the legislative history accompanying the
Customs modernization provisions of the Act.
Customs response: Customs will not be able to determine the
``lesser of'' the two duties unless the final amount of duties paid
upon entry to Canada or Mexico is available. See also the response to
the next comment.
Comment: A commenter stated that a time limit for liquidations is
needed and that the current indefinite time period is in conflict with
the intent expressed by Congress in the new drawback provisions
contained in section 632 of the Act. In this regard this commenter
referred to the accompanying House Report in which it was stated that
``the Committee expects that Customs should issue drawback regulations
which take into consideration the various time limitations for
recordkeeping, filing claims, amendments and clarifications and for
auditing and liquidating drawback claims.''
Customs response: There is no requirement under the law that
provides for a specific time period for liquidation of drawback claims,
and practical considerations (including differences in the entry laws
of the three NAFTA Parties) militate against imposing a strict time
limit for liquidation of a drawback claim.
On a related subject, the United States and Canada have agreed that
each import transaction involving goods subject to a NAFTA drawback
claim in the exporting country should be monitored for a period of 3
years so that appropriate information may be provided to the exporting
country for purposes of applying the ``lesser of'' rule; this 3-year
period was chosen because it represents in most cases the time during
which all factors affecting ultimate finalization of the import entry
(including changes to the entry made by the importer after importation)
would be set. Accordingly, Sec. 181.50(b) as set forth below has been
modified to provide that a drawback claim shall not be liquidated for a
period of 3 years after the date of entry of the goods in Canada or
Mexico.
Comment: A commenter made the following suggestion with respect to
the policy that liquidation of the drawback claim not occur until the
liquidation of the Canadian or Mexican customs entry has become final:
In order to avoid a long waiting period, a waiver of the right to
challenge the amount of estimated Canadian or Mexican duties should be
established. Under this procedure, the claimant would agree to waive
the right to claim any additional duties owed to Canadian or Mexican
Customs.
Customs response: The commenter alleges that liquidation of a
drawback claim can be done more quickly if the right to challenge the
amount of duties assessed by Canada or Mexico is waived. However, a
U.S. drawback claimant, unless it is also the importer into Mexico or
Canada, has no right to waive the amount of duty paid by the Mexican or
Canadian importer. Also, a system involving payment of drawback claims
based upon the waiving of rights to challenge the Canadian or Mexican
duty amounts could result in the United
[[Page 46344]]
States issuing an overpayment to the drawback claimant each time the
import entry was liquidated for a lower amount of duties. The change to
Sec. 181.50(b) discussed in the response to the preceding comment
represents Customs view regarding the proper time period during which
liquidation of a drawback claim should not take place.
Section 181.50(c)
Comment: With respect to the requirement that a person who receives
a drawback refund through accelerated payment must repay the duties if
a NAFTA claim is adversely affected thereafter, a commenter stated that
this should be amended to state that repayment is not required until
the adverse decision has been made final by the courts and/or by
operation of law.
Customs response: The suggestion that a claimant who receives an
accelerated payment before liquidation need not repay it until the
adverse action which makes that accelerated payment erroneous would be
acceptable if the bond required the recipient to repay the principal
sum with interest running from the date that Customs made the
accelerated payment and until repaid. Since that process could take
years, the bond amounts would have to be increased accordingly to
protect the revenue. Accordingly, Customs concludes that the obligation
to repay arises whenever an administrative action occurs which affects
the NAFTA drawback claim.
Section 181.51(a)
Comment: Three commenters noted that certifying that an entry was
not designated and paid on a prior drawback claim is unnecessary
because a claimant that knowingly does this is guilty of fraud, and the
Compliance Program and the civil penalties should offer sufficient
protection against fraudulent claims.
Customs response: Customs believes that the regulation serves a
useful purpose in reminding the claimant to exercise care to make
certain that double claims are not made.
Section 181.51(b)
Comment: A commenter stated that the requirement for the claimant
to state that no Certificate of Origin has been provided for the goods
should be changed to a statement that no other ``NAFTA'' Certificate of
Origin has been provided for the goods. This is because sometimes
exporters may use Certificates of Origin for other purposes (for
example, for enforcement of trade sanctions).
Customs response: The first sentence under Sec. 181.51(b) refers to
a Certificate of Origin ``provided for under Sec. 181.11(a)'', and the
second sentence refers to ``any such'' Certificate of Origin; as such
the Certificate of Origin cannot be mistaken for any other certificate
of origin that may apply to other laws. Therefore, use of ``NAFTA'' as
suggested would be redundant and thus inappropriate.
Comment: A commenter referred specifically to the requirement that
the claimant provide notice of whether another person has prepared a
NAFTA Certificate of Origin for those goods. This commenter stated that
this is in conflict with the new regulation that the claimant provide
an affidavit that no Certificate of Origin has been provided for those
goods.
Customs response: Section 181.47(b)(2)(i)(F) requires a claimant to
affirm that no NAFTA Certificate of Origin was provided ``except as
stated on the drawback claim''. Section 181.51(b) supplements that
provision and makes it clear that a claimant who provides a NAFTA
Certificate of Origin must report that fact to Customs.
Comment: A commenter stated that new subsection (t) of 19 U.S.C.
1313 provides that ``any person who issues a certificate which would
enable another person to claim drawback shall be subject to the
recordkeeping provisions of this chapter, with the retention period
beginning on the date that such certificate is issued'' and that the
interim regulations are deficient in that they do not implement the
language of this statutory provision. This commenter stated that
subsection (t) would be helpful because it would establish a retention
period beginning on the date the certificate was issued, instead of the
date of payment.
Customs response: The NAFTA Certificate of Origin record retention
period is set forth in Sec. 181.12. See 19 U.S.C. 1508(c). The NAFTA
Certificate of Origin is not a certificate that would enable another
person to claim drawback. The certificates covered by 19 U.S.C. 1313(t)
are the certificate of delivery and the certificate of manufacture and
delivery.
Comment: A commenter stated that should this regulation remain as
is, the 30-day window for filing the Certificate of Origin after filing
the claim will create another administrative nightmare for Customs
because all of the affidavits regarding Certificates issued (which may
come in at various times after submission of the drawback entry) will
have to be matched with previously filed drawback entries. This
commenter stated that some adjustment should be made in the regulatory
text to meet this problem.
Customs response: This comment is unclear because there is no ``30-
day window for filing the Certificate of Origin.'' There are, however,
two 30-day windows established in this section which involve notifying
Customs of the existence of a Certificate of Origin for goods on which
drawback has been paid. These two notification periods are necessary
because if a drawback claimant prepares a Certificate of Origin for its
Canadian or Mexican customer, it could result in a reduction of duty
paid to Canada or Mexico on the goods for which the claimant is basing
its drawback claim. Therefore, it must be reported to Customs so that
Customs will be able to track and adjust that drawback claim. A
drawback claimant who makes a drawback claim and then provides a
Certificate of Origin to its customer jeopardizes its drawback claim.
Section 181.52
Comment: Two commenters stated that this provision creates
contingent liabilities on every claim filed that could go on for a
significant amount of time and that, therefore, the time frames allowed
under NAFTA Article 502(3) for duty refunds in Canada and Mexico should
be clearly indicated. These two commenters also stated that Customs
will not be able to comply with this requirement without automation, or
without recording the Canadian or Mexican entry number at the time the
drawback claim is filed. In this regard, they referred to language
pertaining to Title VI of H.R. 3450 which states that monitoring of
drawback information can only be carried out effectively through
exchange of electronic information.
Customs response: The commenters are correct. The very nature of
the Agreement creates that contingent liability because of the
differences in national laws and the right of an importer to make a
post-entry NAFTA claim that is expressly provided in the Agreement. The
alternative that was considered by the three Governments was to
prohibit all refunds on goods moving from one NAFTA party to another
NAFTA party. Permitting limited refunds necessarily increases
uncertainty.
Section 181.53
General comments: The following general comments were made with
regard to the operation of this section:
1. A commenter requested that the effective dates of this section
be stated at the beginning of the section.
[[Page 46345]]
2. One commenter stated that the regulations should address the
importation of goods from NAFTA countries covered by U.S. duty deferral
programs, even though there will be some duties which could be deferred
under these programs until all of the staged duty reductions and
eliminations under NAFTA have been completed. This commenter also
asked, if a claim for preferential tariff treatment is filed upon
importation, whether an importer may file a warehouse entry or
application for admission to a foreign trade zone and, if the claim is
valid, whether it will be honored upon warehouse withdrawal or foreign
trade zone entry for consumption.
3. A commenter asked whether the ``lesser of the two'' method will
apply when zero payment of duties is an issue.
4. A commenter stated that this section does not address
originating goods which are entered into a bonded warehouse,
manipulated to the point where they are deemed produced in the bonded
warehouse, and subsequently withdrawn for consumption in the United
States.
5. Three commenters stated that the 60-day allowance for obtaining
proof of exportation and duty payment in Canada or Mexico should be
extended to a longer period, and one of these commenters suggested a
120-day period.
Customs response: The effective dates are already stated at the
beginning of Subpart E.
The comment dealing with imports from NAFTA countries is beyond the
scope of Subpart E.
Zero payment of duty into Canada or Mexico will be considered in
making the comparison. If no duty is paid into Canada or Mexico, there
will be no duty refund or deferral. Under the agreement, Canada and
Mexico are required to provide reciprocal treatment of goods sent to
the United States.
The treatment of originating goods entered into a warehouse and
withdrawn for consumption is beyond the scope of Subpart E.
The 60-day time period was set by Article 303(5) of the Agreement.
Knowing of the time frame, there is no reason why the beneficiary of
the refund cannot structure its transfer to ensure that it can comply
with the time period.
Section 181.53(a)(1)
Comment: One commenter took issue with the definition of ``duty
deferral'' provided in this section, stating that Class 2 and 3 customs
bonded warehouses are excluded from this list, whereas their
counterparts, ``warehousing/distribution foreign-trade zones'' are not
excluded. This commenter stated that the initial sentence in
Sec. 181.53(e) provides a better definition of ``a good that is
manufactured or otherwise changed in condition in a foreign-trade zone
* * *''
Customs response: The comment seems to state that a class 2/8
warehouse or a class 3/8 warehouse is excluded from coverage of
Sec. 181.53. Such warehouses are included under Sec. 181.53(b).
Section 181.53(a)(2)
Comment: A commenter suggested adding to this section the following
phrase: ``except for a good eligible for full drawback as provided for
by section 181.45 of this Subpart''. In this regard, this commenter
stated that NAFTA Article 303(6) provides for several import
transactions that are unaffected by any limitations on drawback refunds
or duty-deferral programs. This commenter also stated that Sec. 181.45
captures these Article 303(6) transactions for drawback refund
purposes. This commenter also stated that the regulations should
clearly state that a good departing a foreign-trade zone for export to
Mexico or Canada under circumstances included in Article 303(6) and/or
Sec. 181.45 shall not be subject to treatment ``* * * as if it had been
entered or withdrawn for domestic consumption, and thus subject to
duty.''
Customs response: Customs agrees that goods entitled to full
drawback under Sec. 181.45 should be excluded from this provision.
Accordingly, Sec. 181.53(a)(2), as set forth below, has been modified
by the addition of the following sentence: ``However, the provisions of
this paragraph shall not apply to goods covered by Sec. 181.45.''
Comment: A commenter questioned the meaning of the phrase
``treatment as withdrawn for consumption.'' This commenter stated that,
from an operations standpoint in the case of merchandise shipments from
foreign trade zones, a ``pro-forma'' Customs Form 3461 and/or Customs
Form 7501 must be prepared. Since there is no legal provision for a
pro-forma version of these two forms, this commenter stated that the
exact methodology of how to do this should be provided in the
regulations.
Customs response: With respect to the meaning of ``treatment as
withdrawn for consumption'' the provision informs the person who
withdraws that it will be liable for duties on a good withdrawn for
exportation to Canada or Mexico unless it is exempted by the Agreement
or statute. As regards documentation requirements, Customs agrees that
the regulations should incorporate specific provisions setting forth
the procedural (including documentary) requirements that would apply
for purposes of Sec. 181.53. However, Customs believes that it would be
preferable to deal with this matter in a separate Federal Register
document rather than include such provisions in this final rule
document. Accordingly, Customs intends to publish in the near future a
separate document amending Sec. 181.53 to address these procedural
issues with a view to having appropriate regulations in place on
January 1, 1996, when the Subpart E provisions go into effect.
Section 181.53(a)(3)
Comment: A commenter posed several questions about the process of
``waiver or reduction'' as provided for in this section. Will a pro
forma Customs entry be prepared and held or will it be filed in some
manner with Customs? How will the structure of the paperwork be
organized? Because merchandise that is the subject of the pro forma
entry will also be the subject of a Customs Form 7512 and Customs Form
7525, how will the Census reporting structure be organized?
Customs response: The section sets the legal requirement for
Customs to waive or reduce the duties paid or owed on goods sent to
Canada or Mexico. As indicated in the response to the preceding
comment, the documentary and other procedural aspects of Sec. 181.53
will be addressed in a separate document.
Section 181.53(e)
General comments: The following general comments were made with
regard to the operation of this section:
1. One commenter stated that, by requiring actual payment of duties
to Mexico or Canada, these regulations defeat the purpose for which
this 60-day hiatus was created for foreign trade zones. This purpose
was to address the paperwork and procedural burden the proposed ``NAFTA
Drawback'' would impose on Customs and on companies that use foreign
trade zones and export to Canada and/or Mexico. This commenter saw the
burden as follows:
Step One--Merchandise shipped from a zone to Mexico and/or Canada with
an appropriate tariff payment to U.S. Customs.
Step Two--Merchandise arrives in Mexico or Canada with appropriate
tariff payments made.
Step Three--The U.S. exporter files for NAFTA Drawback with the
evidence of payment(s) made in Canada or Mexico.
This commenter went on to state that, originally, the 60-day hiatus
was
[[Page 46346]]
expected to provide an opportunity to combine steps one and three but
that, by requiring payments to be made, this section forces a return
back to the three-step procedure. As it is, the potential for this
situation already exists when a Mexican or Canadian importer decides to
use a deferral program that extends his payment of duties owed beyond
the 60-day schedule imposed on the U.S. exporter. The regulations and
H.R. 3450 provide adequate anti-fraud provisions to protect against the
opportunity for any abuses that the suggested modifications might
otherwise provide. Moreover, Sec. 181.52 provides for the adjustment of
drawback payments pursuant to a NAFTA preference claim made subsequent
to the payment of a NAFTA drawback refund. This commenter therefore
suggested that in similar fashion such a protection could become part
of the Sec. 181.53(e) procedures so that evidence of duty paid could be
based on the duty owed (but not yet paid) in Mexico or Canada.
2. The same commenter requested that the phrase ``as calculated
under paragraph (e)(1) or (e)(2)'' in the introductory paragraph of
this section be replaced by the phrase ``as calculated consistent with
the provisions of 19 CFR 146 Section 146.65''.
3. Another commenter stated that this section does not take into
account that the Customs modernization provisions of the Act allow for
periodic entry procedures for goods transferred from foreign trade
zones to be expanded to a monthly timeframe instead of submission of
entry-by-entry paperwork.
4. Two commenters stated that the examples provided in this section
are convoluted and should be replaced. One commenter suggested that the
examples should set forth the following facts: The imported products
HTSUS classification; the rate of duty in the United States and in
Mexico or Canada; dutiable value; and total value. Moreover, it was
suggested that there should also be an example illustrating NAFTA
treatment for a good departing a foreign trade zone for Mexico or
Canada that combines both privileged and non-privileged foreign
components and/or materials.
5. A commenter pointed out that there is no provision for mixed
status merchandise (privileged and nonprivileged). This commenter also
stated that there is no provision for zone restricted status
merchandise. Since no production can occur in zone restricted status,
if storage distribution were not included in the special actions under
Sec. 181.53, new special provisions for this status would not be
necessary but should be mentioned.
6. Two commenters stated that the provision under section
202(a)(2)(A) of H.R. 3450 should be included in this section or it will
be misinterpreted. These commenters believed that it should be
interpreted only to mean that a foreign trade zone cannot be used to
create a NAFTA originating good qualifying for NAFTA duty reduction. On
a related subject, another commenter stated that this section does not
address goods which are processed but not produced in a foreign trade
zone (processed with non-originating materials). This commenter asked
whether privileged foreign status would be permitted to ``lock in''
NAFTA preferential tariff treatment.
7. A commenter requested further clarification of the valuation
methodology included in this section. This commenter further believed
that weight should not be a factor other than when it is a factor for
HTSUS purposes and therefore suggested using the language ``in its
condition and HTSUS quantity.''
8. A commenter asked what the date of exportation is for NAFTA
purposes.
9. A commenter requested that a definition of ``assessed'' be
provided.
10. A commenter believed that the requirement for proof of
exportation in this section is an unnecessary paperwork burden and
suggested that a summary procedure similar to the one used in drawback
should be established.
Customs response: The requirement for the collection of duties is
set forth in Article 303(5)(a) of the Agreement.
The inclusion of paragraphs (e)(1) and (2) facilitate having the
zone withdrawal NAFTA requirements in one part.
Whether a good is removed under the current weekly entry procedure
or some other periodic entry procedure will not change the concepts set
forth in the provision.
Creating complex examples will tend to obscure the principles
sought to be illustrated: That is, which duty amounts are to be
compared? The use of oil is appropriate since the principle is
illustrated when privileged foreign status is claimed. There is no need
for a separate example of merchandise consisting of nonprivileged and
privileged status merchandise since the principles set in both examples
would apply to such merchandise.
Export to Canada or Mexico of zone restricted status merchandise
will not require an entry for consumption. It will require the goods so
exported to be treated as a withdrawal for consumption for the sole
purpose of computing whether there should be a reduction or waiver of
duty.
The comment on section 202(a)(2) of the Act is beyond the scope of
Subpart E. It deals with goods that are entered for consumption from a
zone.
With respect to the use of weight as part of the valuation
methodology, Customs does not concur with the suggested change because
the provisions of this section follow the provisions of the Foreign
Trade Zones Act (see 19 U.S.C. 81c(a)).
In the case of a shipment from the United States to Canada or
Mexico, the date of exportation would be the date on which the goods
leave the United States with evidence that the person sending those
goods to Canada or Mexico intends to join them to the commerce of
Canada or Mexico (see 19 CFR 101.1(k)).
The common meaning of the term ``assessed'' applies. As such, there
is no need to provide for a separate definition that repeats the common
meaning.
With respect to the proof of export burden under NAFTA, the comment
fails to recognize that unlike drawback for shipments to non-NAFTA
countries, the basis for entitlement to a refund, waiver or reduction
in duty there depends entirely on the article and the amount of duty
paid to Canada or Mexico. Also, the comment confuses the distinction
between one drawback claim which may involve many exportations of
merchandise on which duty was previously paid and specific withdrawals
on which potential duty liability starts when that merchandise is
withdrawn from a zone.
Section 181.53(e)(1)
Comment: A commenter stated that there are imported goods in
foreign trade zones destined for Canada and/or Mexico under zone
restricted status (19 CFR 146.44). This commenter stated that a general
exemption from 19 CFR 146.63(b) should be provided for these goods
because, for these goods to be entered or withdrawn for domestic
consumption from an FTZ, Sec. 146.63(b) provides that merchandise in
zone restricted status may be entered for consumption only when the
Foreign Trade Zone Board has ruled that the merchandise can be entered
for consumption. To require rulings on such a routine matter will
impose an unnecessary procedural burden on the Foreign Trade Zone
Board, zone users and on Customs.
Customs response: The issue of goods in a zone restricted status
will be addressed in the separate document regarding Sec. 181.53
procedures to be published in the near future as mentioned above.
[[Page 46347]]
Section 181.53(e)(2)
Comment: A commenter took issue with the implication of this
section that payments may be refunded only up to the limits established
by Sec. 181.44. Specifically, this commenter stated that under these
regulations the exporter is required to make payments to U.S. Customs
that might otherwise be unnecessary or larger in amount than is legally
required for reasons of failure to meet the 60-day deadline. There
should be an explicit provision that provides for the refund of these
unnecessary or excessive payments in whole or in part when the evidence
required by Sec. 181.53 becomes available.
Customs response: There is no allowance for a time extension or a
reconsideration of the initial determination in the NAFTA legislation.
As regards available remedies for any ``unnecessary or excessive''
payments referred to by this commenter, this issue will be addressed in
the separate Sec. 181.53 document to be published as mentioned above.
Comment: A commenter stated that the 60-day period should be
defined on a business month basis, not on a daily basis.
Customs response: As previously stated, the 60-day period was set
by the three Governments in the Agreement. The purpose of the 60-day
requirement was to enable the refund claimant to provide the Canadian
or Mexican entry information so that the appropriate duty comparison
could be made.
Comment: A commenter pointed out that separately defining duty
calculations when treating exports from foreign trade zones as domestic
entries provides for many questions and potentially disparate
procedures. To diminish the likelihood for both these questions and
procedures, this commenter suggested that this section be amended to
reflect current FTZ regulations that cover entries for consumption.
Customs response: These procedural issues will be addressed in the
separate Sec. 181.53 document to be published as mentioned above.
Comment: A commenter alleged that there is a conflict in this
section in that the section states that duty is assessed on privileged
foreign status goods at the time of admission to the zone but in the
example refers to duty assessed one month after admission.
Customs response: The commenter is correct. Accordingly,
Sec. 181.53(e)(2), as set forth below, has been modified by replacing
the words ``at the time of its admission to'' with the words ``at the
time privileged status is granted in''.
Section 181.53(g)
Comment: A commenter stated that the recordkeeping period is
unclear, and therefore this commenter assumed that the normal
recordkeeping periods apply to drawback claims and to import entries.
Two other commenters stated that the 3-year period for record retention
should be stated to avoid confusion.
Customs response: Under 19 U.S.C. 1508(c) and the regulations
thereunder, the periods for record retention vary according to the type
of transaction involved. With respect to warehouse withdrawals, foreign
trade zone entries, and temporary importation bond transactions, the
period is five years from the date of entry. With respect to drawback,
the period is three years from the payment of drawback to the claimant.
Section 181.53(i)
Comment: A commenter stated that if this section relates to waiver
or reduction of duty under duty deferral programs, it is inappropriate
to state that ``* * * Customs shall reliquidate the NAFTA drawback
claim'' because that issue already is addressed in Sec. 181.52.
Customs response: The reference in this section is necessary
because, while Sec. 181.52 is limited to traditional drawback,
Sec. 181.53 includes all of the other contexts which are included in
the term ``NAFTA drawback'' as defined in Sec. 181.1(o) of the
regulations.
Section 181.54
Comment: A commenter stated that the open-ended time period for
U.S. Customs to verify Canadian and Mexican documentation creates
indefinite contingent liabilities. This commenter suggested that a
definite time period should be clearly indicated.
Customs response: Because the national laws differ and because the
Agreement expressly provides for post-entry claims to be filed up to
one year after entry, it is impossible to fix one time limit that will
cover all situations.
Appendix to Part 181
Additional comments were submitted regarding the relationship
between the Subpart E provisions and the provisions of Schedule X of
the Appendix to Part 181. Those comments are addressed below in
connection with the discussion of the Appendix comments.
Part 181, Subpart G (Origin Verifications and Determinations)
Section 181.72
Comment: In order to enable sureties to better protect their
interests, one commenter stated that the regulations should be modified
to require Customs to provide notice to the surety: (1) When Customs
commences an origin verification under paragraph (a) involving the bond
principal's goods; (2) when Customs makes an inquiry of the importer
under paragraph (c); and (3) whenever the foreign producer or exporter
or the U.S. importer fails to cooperate during an origin verification.
Customs response: Requiring such notices to sureties would impose
an unnecessary burden on Customs. Accordingly, this is a matter more
appropriate for the surety and its principal to resolve in the context
of their contractual relationship.
Section 181.75
Comment: One commenter stated that the regulations should be
modified to require Customs to provide notice to a surety when a
negative origin determination is issued to the surety's bond principal
under paragraph (b).
Customs response: A negative determination of origin does not
necessarily result in a bond breach. Consequently, no useful purpose
under these regulations would be served by obligating Customs to
provide such notice to the surety. This is a matter that is best left
to the private parties to resolve as a part of their contractual
relationship.
Part 181, Appendix (Rules of Origin Regulations)
Section 2
Comment: The following comments were submitted on the definitions
and interpretation set forth in section 2:
1. With regard to the definition of ``direct labor costs'', one
commenter noted that many companies include direct labor fringe
benefits as part of their burden, not as part of their direct labor
costs. Thus, it would be more correct to indicate that the defined term
``may'' include fringe benefits in costs that are associated with
employees who are directly involved in the production of a good.
2. In the definition of ``light-duty vehicle'', a commenter stated
that the second reference to ``8702.10.60'' should read ``8702.90.60''.
3. One commenter noted that the definitions and interpretation of
``similar goods'' and ``similar materials'' are important parts in
determining
[[Page 46348]]
eligibility for averaging costs over time where goods are produced in
the same facility. Given this purpose, this commenter argued that these
definitions and interpretation are unduly restrictive because goods and
materials should qualify as ``similar'' for purposes of averaging if
they simply serve identical functions. For example, if both automatic
and manual transmissions are otherwise eligible for averaging, the fact
that these two transmissions may not meet the ``similar characteristics
and component materials'' definitional standard should not disqualify
them from averaging. To accomplish this result this commenter suggested
(1) that the two definitions should be revised to encompass goods and
materials that ``although not alike in all respects, serve the same
function'' and (2) that the interpretation should be eliminated because
it suggests that only identical goods or materials qualify as
``similar''.
Customs response: With regard to the first comment, the commenter
is correct that some companies may include direct labor ``fringe
benefits'' as part of their overhead. However, for purposes of
allocating direct labor, the United States, Canada and Mexico agreed
that the cost of fringe benefits for direct labor must be included in
the ``direct labor costs''. Salaries and fringe benefits for other than
direct labor employees may be included as overhead and would be
allocated according to the methods for overhead in Schedule VII.
Customs agrees that the second reference to ``8702.10.60'' should
read ``8702.90.60'' in the definition for ``light-duty vehicle'', and
the definition, as set forth below, has been modified accordingly.
Customs disagrees with the statement that goods should be
considered ``similar'' if they merely serve identical functions.
Averaging in section 6(15) for regional value content purposes is
allowed so that a producer would not have to segregate the value of its
materials and its production costs when there is very little difference
in the materials and the production costs that would be allocated to
goods for which NAFTA preference is to be claimed and to goods which
are to be consumed in a domestic or non-NAFTA market. The use of the
term ``similar'' provides the necessary balance between the intended
benefit and the need for assurance that the averaged costs will have a
real relationship to the goods. For example, although an electric motor
and a gasoline motor may serve the same function in a model toy,
averaged costs for non-originating materials and for net costs for
these two motors would not provide a meaningful measure of the regional
value content for each type of motor. When this issue was discussed
trilaterally, it was agreed that the current reference to ``similar''
should not be changed.
Section 4
Comment: With regard to section 4(4) which sets forth exceptions to
the change in tariff classification requirement for originating goods,
one commenter stated that subparagraph (b)(iii) should be removed
because it imposes a further qualification that is not reflected in the
NAFTA provisions as set forth in General Note 12(b)(iv)(B), HTSUS.
Specifically, whereas the NAFTA text simply refers to a case where the
undivided tariff headings or the tariff subheadings for the goods
``provide for and specifically describe both the goods themselves and
their parts'', the Appendix text at issue adds a further requirement
that the non-originating materials and the good ``are not both
classified as parts of goods under the heading or subheading'' under
consideration. This commenter suggested that this limiting Appendix
text is not required by either the language or the purpose of the NAFTA
provision and that the ``specifically describe'' language of the NAFTA
text could reasonably apply where the tariff provision is a ``parts''
provision because the minimum regional value content requirement would
still apply.
Customs response: Customs disagrees. Note 22 to the NAFTA clearly
states that the phrase ``specifically describes'' in Article 401(d) was
intended to exclude situations in which both the good and the non-
originating material are classifiable as ``parts'' in the heading or
subheading under consideration.
Section 6
Comment: The following comments were submitted on the regional
value content provisions of section 6:
1. With regard to subsection (14) which concerns non-allowable
interest costs, one commenter agreed that the ``700 basis points''
standard (above which interest would not be countable toward total
cost) was appropriately high. However, this commenter stated that, by
referring to the yield on debt obligations of comparable maturities
issued by the federal government of ``the country in which the producer
is located'', this provision could result in disparate treatment of
similarly situated companies located in different NAFTA countries. In
order to avoid the possibility that two companies with similar interest
costs on a debt of the same denomination may face different interest
caps because their production occurs in different NAFTA countries, this
commenter stated that subsection (14) should be modified to reflect
linkage of the interest rate on a debt to the interest rate on
government debt obligations of the country that issues the debt, so
that the amount of allowable interest costs would depend on the
denomination of the debt rather than the location of the company.
2. One commenter pointed out that in subsection (18) the reference
to the period chosen in ``subsection (14)(a)'' should properly refer to
``subsection 15(a)''.
3. With regard to the examples contained in subsection (20), a
commenter stated that Example 9 would be more clear if it explained
that the tooling expensed on the books of Producer A is considered as
non-originating because the material that the tooling produced is non-
originating.
Customs response: With regard to the first comment, Customs agrees
that disparate treatment may arise because the interest caps in the
NAFTA countries may be different. However, in order to provide
certainty and stability in this area, the United States, Canada and
Mexico agreed to apply the interest cap of the NAFTA country in which
the producer is located.
Customs agrees that the reference to ``subsection (14)(a)'' should
properly read ``subsection (15)(a)'' in subsection (18) which, as set
forth below, has been modified accordingly.
Although Customs agrees that Example 9 in section 6(20) could be
more illustrative by addressing the treatment of the cost of tooling as
a ``non-originating cost'' because it is included in the cost of the
non-originating material produced by the tooling, Customs also notes
that this example was merely intended to illustrate how the cost must
be captured and that it cannot be counted twice. This commenter's
suggestion, however, has been incorporated as a new Example 8 which has
been added to section 7(18) (renumbered from 7(17)) as set forth below.
Section 7
Comment: With regard to section 7(17), one commenter pointed out
that in the first paragraph of Example 4 the reference to ``Material
A'' should read ``Material X''.
Customs response: This typographical error was corrected in a
document published in the Federal Register on March 31, 1994 (59 FR
15047).
Section 9
Comment: With regard to Example 6 under section 9(10), one
commenter
[[Page 46349]]
noted that although the example states that the producer designates the
short block as an intermediate material, the example does not explain
why this designation is made or what its effect might be on the origin
of the part or the traced value in the vehicle.
Customs response: The purpose of Example 6 in section 9(10) is to
illustrate section 9(9)(a) which provides that the designation of a
self-produced material as an intermediate material is only effective
with regard to the calculation of the net cost of the light-duty
automotive good and, therefore, does not permit the producer to ignore
the value of the traced materials for purposes of the calculation of
the value of non-originating materials in the light duty automotive
good. Customs agrees that, in this case, it may be clearer to state
that the intermediate material qualifies as an originating material.
Accordingly, Example 6, as set forth below, has been modified as
follows: (1) By adding a sentence immediately after the second sentence
in the first paragraph to read ``The intermediate material qualifies as
an originating material''; and (2) by changing the last clause in the
first sentence of the second paragraph to read ``even though the
intermediate material is an originating material.''
Section 10
Comment: One commenter alleged that the language of section 10, and
in particular the language of sections 10(1) and 10(2), is contrary to
the wording of Article 403(2) of the NAFTA in that the Appendix
language appears to require only tracing of the value of non-
originating listed materials of the producer of the engine and
transmission (the components), with two different results depending on
the factual circumstances: (1) If the producer of the components is
also the producer of the vehicle, then the tracing must be made through
to the vehicle; or (2) if the producer of the components and vehicle
are different, then the tracing stops at the production of the
components. In other words, where the producer of the vehicle is not
the producer of the component, that vehicle producer simply applies the
normal rules of NAFTA Annex 401 to his product because he by definition
does not ``use'' any material listed in NAFTA Annex 403(2) within the
meaning of Article 403(2)(a) (it is the component producer who uses the
listed material, that is, to produce the component, while the vehicle
producer uses that component to produce the vehicle): thus, the
component, not being a listed material, becomes the ``other material''
referred to in Article 403(2)(b) and is either originating or non-
originating as far as calculation of the regional value content of the
vehicle is concerned. This commenter, apparently concerned by the
appearance of a narrower tracing rule under the Appendix text, stated
that section 10 should be revised to reflect the correct, broader rule
under the NAFTA text, that is, that the value of non-originating listed
materials must be traced to the original-equipment engine and
transmission and through them to the vehicle for purposes of
calculating the regional value content of the vehicle.
In the event that the revision suggested above is not done, this
commenter made the following additional recommendations regarding
section 10:
1. As regards subsection (4) concerning the option of using the
light-duty tracing rules for heavy-duty components, three suggestions
were made. First, the materials covered by the subsection should be
expanded to include listed materials and subcomponents. Second, if
light-duty and heavy-duty vehicles are produced in the same plant, the
producer should have the option of using the light-duty rules for
calculating regional value content. Third, paragraph (b) should be
removed because even if a producer knows the final use of the
component, he should still have the option of using the light-duty
rules.
2. As regards subsection (9)(c) which provides that section 10 does
not apply to a subcomponent for purposes of calculating its regional
value content before it is incorporated into a heavy-duty automotive
good, this commenter questioned the authority for this subsection and
stated that, if there is no authority for it, then Situation 1 of
Example 6 under subsection (10) is incorrect. Furthermore, this
commenter suggested that if there is authority for subsection (9)(c),
then there is a basis for setting up separate manufacturing companies
to convert non-originating cost to originating for determining the
regional value content of a subcomponent that crosses a border, because
the tracing requirement is eliminated.
Customs response: Customs disagrees with the commenter's conclusion
that the text of section 10 does not reflect Article 403(2) of the
NAFTA which requires that the value of a listed non-originating
material be ``traced'' through to any heavy-duty automotive good in
which it is used. The rules in section 10(1) are cumulative. If a
producer of a heavy-duty automotive good ``uses'' a listed non-
originating material, then paragraph (a), (b) or (c) would apply,
depending, of course, on the specific facts. If a producer uses an
automotive component assembly, automotive component or subcomponent,
then paragraph (d) or (e) would apply, resulting in the ``tracing'' of
either the values of all non-originating materials that were
incorporated into that material acquired and used by the producer or
the entire value of that material acquired and used by the producer.
The structure of section 10(1) eliminates any doubt that, regardless of
the stage in which a listed non-originating material is used, the value
of that listed material must always be included in the value of non-
originating materials when calculating the regional value content of
any heavy-duty automotive good into which the listed material is
subsequently incorporated.
Customs disagrees with this commenter's proposals for redrafting
section 10(4) because the regulation reflects the relevant NAFTA
provisions and the intent of the Parties. First, Article 403(2), which
provides the rule for determining the value of non-originating
materials in heavy-duty automotive goods, does not apply to listed
materials or to subcomponents. Second, Article 403 is very clear in
that it provides a specific rule for light-duty vehicles and a specific
rule for heavy-duty vehicles. Third, with the exception of the
situation in which averaging is permitted under Article 403(4) (see
section 12 of the Appendix), Article 403(2) does not provide for the
alternative use of the light-duty tracing rule for heavy-duty
automotive components. In view of the fact that it may be impossible to
identify interchangeable heavy-duty components and light-duty
components that are produced in the same plant, the United States,
Canada and Mexico agreed that the regulations should specifically
address this situation.
With regard to the comment on section 10(9)(c) that there is no
authority to exclude subcomponents from the regional value content
calculation in section 10, Customs simply notes that the special rule
set out in Article 403(2) of the NAFTA is for vehicles and components.
Furthermore, the use of a listed non-originating material in the
production of a subcomponent does not defeat the ``tracing''
requirement applicable to heavy-duty automotive goods. The regulations
set out in section 10(1) make it clear that the value of a listed non-
originating material will always be traced through to any heavy-duty
automotive good into which it is incorporated. For example, section
[[Page 46350]]
10(1)(d) requires the ``tracing'' of a listed non-originating material
even if it was used in the production of an originating subcomponent.
Section 13
Comment: The following comments were submitted on the special
regional value-content requirements contained in section 13:
1. Two commenters referred to subsection (4) which concerns the
averaging period for calculation of regional value content for vehicles
of a new plant or a refit plant.
One of these commenters noted that paragraph (a)(i) would allow a
producer to use launch and start-up cost for a period up to 23 months
as originating content in computing the regional value content. This
commenter suggested that the cost incurred from the first prototype
date to the end of the fiscal year in which the first prototype was
produced should be used for the regional value content calculation for
the vehicles produced in the first fiscal year.
The second commenter concluded that subsection (4) allows a motor
vehicle producer to elect one of the following three periods over which
regional value content is calculated by averaging: (1) Paragraph (a)(i)
allows averaging from the date of the production of a prototype through
the end of the first fiscal year that begins after that date, thus
allowing the producer to roll the first partial year into the first
full fiscal year for averaging purposes; (2) paragraph (a)(ii) allows
averaging over any fiscal year that begins after production of a
prototype and ends before the end of the special regional value content
period (the 5-year or 2-year period specified in section 13(2)); and
(3) paragraph (a)(iii) allows averaging over part of a fiscal year up
to the last day of that 5-year or 2-year special regional value content
period. However, this commenter stated that the exact time periods
covered by these three alternative averaging periods are not clear in
the Appendix text as written. In addition, this commenter suggested
that the end of an averaging period involving a special regional value
content period should coincide with the end of the producer's fiscal
year because significant accounting problems will arise if the
averaging period cuts off before the fiscal year end. Thus, for
example, a 5-year period under section 13(2) would allow averaging for
full five fiscal years plus that portion of a year beginning with the
date of production of the first qualifying prototype.
2. One commenter noted that subsection (5)(h) requires that the
document in which the election to average is made must be filed at
least 10 days before the first day of the producer's fiscal year, or
such other shorter period that the concerned customs administration may
accept. This commenter recommended that this provision be amended to
specify ``10 days before the shipment of the first vehicle intended for
sale''.
Customs response: Customs agrees that section 13(4)(a)(i) would
permit a producer to average over a period of up to 23 months. In the
interest of aligning the averaging period with the period for which the
special RVC is effective for production from a new plant or a refit
plant, it was considered to be more practical to combine the initial
``stub'' period with the first full fiscal year. Paragraphs (a)(ii) and
(a)(iii) provide for the subsequent full fiscal years and for the final
stub period, if any.
Concerning the second comment on section 13(4)(a), Customs first
notes that the commenter has referred to subparagraphs (i), (ii) and
(iii) as ``alternative averaging periods''. This is not correct. One,
two or all three of these subparagraphs could apply in any given
situation, depending on the length of the special RVC period and the
relationship of the first year of that period to the beginning of the
producer's fiscal year.
In response to the remainder of this commenter's remarks, Customs
notes that under Article 403(6), the ``years'' in the periods for which
a special RVC applies to vehicles of a new plant or vehicles of a refit
plant are not necessarily coterminous with the fiscal year of a
producer. Under Article 403(6) the ``year'' in the special RVC period
begins when the first prototype motor vehicle is produced in the new or
refit plant. Under Article 403(3), the ``year'' in the averaging period
for the RVC calculation is the fiscal year of a producer. It was the
intent of the drafters of the regulations to align the averaging period
with the special RVC period in order to allow a producer to obtain the
maximum benefit from the statutory 5-year or 2-year special RVC period.
Customs has no authority to extend or reduce these NAFTA periods which
are also reflected in section 202(c)(6) of the Act.
As regards the comment on section 13(5), Customs does not disagree
entirely with the idea behind the commenter's proposal. Inasmuch as the
first averaging period would not include the full fiscal year (if the
first prototype of a motor vehicle is produced in a plant on a date
after the beginning of the producer's fiscal year), it would appear
reasonable to allow the producer to file at least 10 days before the
beginning of the period which will constitute the first period in which
the producer must average. However, the United States, Canada and
Mexico agreed that the election should be filed at the same time that
other elections to average under section 11 must be filed. The
requirement does not impose an unnecessary hardship on a producer
because the producer will have the requisite knowledge as to when such
prototypes will be produced.
Section 15
Comment: One commenter made the following observations regarding
section 15 which concerns the inability of a supplier, exporter or
producer to provide sufficient information during a verification of the
origin of a good:
1. Whereas section 15 sets forth alternative means to verify the
origin or value of a material used in the production of a good when the
person from whom the producer obtained the material is unable to
provide sufficient verifying information, when a producer supplies
verifying information the relevant customs administration should accept
it. Moreover, the customs administration should have the obligation to
explain in writing any refusal to accept the offered information
supporting the origin of the material.
2. While section 15 properly provides that the customs
administration shall take into consideration whether the customs
administration of the importing country issued an advance ruling under
Article 509 of the NAFTA which concluded that the material is an
originating material, a provision should be added to authorize a
``retroactive ruling'' that a material is an originating material (for
U.S. purposes, this could be done as a request for internal advice as
provided for in Part 177 of the Customs Regulations). A producer often
learns of a supplier's financial weakness in advance of problems that
would make it impossible to obtain the information necessary to verify
the origin of a material, and a ``retroactive ruling'' provision would
allow the producer to obtain a ruling that would cover prior periods.
The procedure for obtaining such a ruling should be consistent with the
advance ruling provisions, except that the supplier of the material
should provide exact historical data, including exporter's certificates
of origin, rather than projected costs. Addition of a retroactive
ruling provision would also reduce the need to rely on the other
section 15
[[Page 46351]]
alternative means to verify the origin of a material.
Customs response: With regard to the first comment, Customs notes
that subsection (1) of section 15 provides for factors to be considered
by a customs administration where, during a verification of a good, a
producer of a material is unable to supply sufficient verifying
information for reasons beyond that person's control. The regulation
thus contemplates the situation in which a verification requires
information from the producer of the material, perhaps, for example, in
the form of that person's books or records. It is unclear what the
commenter's reference is to accepting the information offered. Of
course, nothing in section 15 precludes the customs administration from
considering information from the producer of the good or from any other
source; rather, the section enumerates certain sources of information
which may provide relevant information. Normally, of course, the
verification process proceeds by seeking information from the producer
of that good and, if necessary, from the producer of a material. If the
customs administration is satisfied with respect to the origin of a
material by virtue of information provided by the producer of the good,
then presumably the situation identified in section 15 will not occur.
The NAFTA countries did not perceive the need to provide for an
obligation to accept proffered information or to explain any
unwillingness to do so. Customs does not believe that any amendment in
this regard is necessary or appropriate.
As regards the second comment, the commenter accurately observes
that section 15(1)(a) provides that, among the factors to be
considered, is whether an advance ruling under Article 509 of the NAFTA
has been issued with respect to the material. The commenter appears to
be seeking a separate procedure through which the producer of the good
could obtain a decision with respect to the origin of a material which
would presumably affect the origin determination with respect to the
good. Such a procedure is intrinsic to the verification process. Thus,
if the outcome of the verification depends on the origin of the
material, it would be expected that the producer of the good would
provide such information in its possession to demonstrate where the
material originated. The customs adminstration would then apply the
conclusion to the goods subject to the verification. Accordingly, it
does not appear that there is any need for the regulations to be
amended in order to meet the concern identified by the commenter.
Schedule III
Comment: One commenter stated that the valuation provisions of the
interim regulations should be reviewed and revised to more accurately
reflect the terms of General Note 12(c), HTSUS, which specifically
refers to the legal standards set forth in section 402 of the Tariff
Act of 1930, as amended (19 U.S.C. 1401a). This commenter cited the
following specific examples in this regard:
1. Under section 3 of Schedule III, subsection (4) provides for the
acceptance of transaction value between related parties when the
producer demonstrates ``that the transaction value of the good in that
sale closely approximates a test value referred to in subsection (5).''
However, the ``test value'' referred to in subsection (5) is limited to
``the transaction value of identical goods or similar goods sold at or
about the same time as the good being valued is sold to an unrelated
buyer who is located in the territory of the NAFTA country in which the
buyer is located.'' This commenter stated that this is much more
limited than the comparable statutory provision (19 U.S.C.
1401a(b)(2)(B)) that applies under General Note 12(c), HTSUS, which
includes other ``test values'' that can be used to demonstrate the
acceptability of the transaction value between related parties.
2. Also under section 3 of Schedule III, subsection (8) appears to
require that the ``test value'' has been ``previously accepted by the
customs administration''. This commenter stated that this requirement
is not contained in the U.S. valuation statute referred to in General
Note 12(c), HTSUS.
Customs response: Schedules II, III and VIII of the Appendix to
Part 181 of the interim NAFTA regulations were based on the Agreement
on Implementation of Article VII of the General Agreement on Tariffs
and Trade (the ``Customs Valuation Code,'' or ``Code''), rather than on
the U.S. valuation statute (19 U.S.C. 1401a), or the valuation statutes
of Canada or Mexico. Since the Code is a neutral document common to all
three NAFTA parties, it was therefore decided that the Code should form
the basis of that part of the regulations that is concerned with how to
determine regional value content under the transaction value method.
In regard to the specific points raised by the commenter, the test
value referred to in Schedule III, section 3(5), is based on the
transaction value of identical or similar goods since the purpose of
the test value is to establish whether a transaction value between a
related producer and seller, determined in accordance with Schedule II,
is acceptable. Since transaction value is the only method of
determining the value of a good under Schedule II, there is no
justification for any alternative bases of determining test values as
there is under the Code. Just as test values under the Code must be
based on a value previously accepted by a customs administration, so
too NAFTA requires that a test value shall have been previously
accepted.
Schedule VII
Comment: The following comments were submitted in regard to the
reasonable allocation of costs provisions contained in Schedule VII:
1. Two commenters referred specifically to sections 3(1)-(3) which
concern methods used for internal management purposes by a producer of
a good to reasonably allocate to that good direct material costs,
direct labor costs or overhead.
One of these commenters noted that although the text in each case
sets forth the criterion of ``benefit, cause or ability to bear'' for
purposes of determining the reasonableness of the method used, the
elements of this criterion are neither defined anywhere in the Appendix
nor further explained in the examples under Schedule VII. This
commenter suggested that: (1) This criterion should be eliminated, on
the theory that a cost allocation method used for a (true) internal
management purpose (that is, as stated in section 7 of Schedule VII,
not solely for the purpose of qualifying a good as an originating good)
should satisfy the reasonableness requirement; or (2) at the least, a
definition or explanation of ``benefit, cause or ability to bear''
should be included in the final Appendix texts.
The second commenter expressed similar views and stated that the
following interpretation of section 3 should be expressly affirmed in
the final Appendix text: (1) That section 3 requires a customs
administration to accept an allocation method that is used by the
producer of a good for an internal management purpose, unless the
allocation method is determined to be manifestly unreasonable; and (2)
that a customs administration bears a heavy burden to disqualify any
allocation method based on lack of relation to the criterion of
benefit, cause or ability to bear because an allocation method that is
used for internal management purposes is presumptively reasonable since
a company is unlikely to rely on an allocation method for internal
[[Page 46352]]
decision-making if it does not meet the benefit, cause or ability to
bear criterion. Consistent with this interpretation, this commenter
further suggested that section 3 should be revised to reflect a pure
internal use test because the ``reasonableness'' requirement, based on
the benefit, cause or ability to bear criterion, does not add
meaningfully to the rule, injects an unnecessary degree of subjectivity
into the cost allocation approval process, and is adequately provided
for by the terms of section 7 of Schedule VII. Finally, this commenter
recommended that, at a minimum, the following definitions be added to
the Appendix to clarify the meaning of the ``benefit, cause or ability
to bear'' criterion:
Benefit or benefits received: This criterion identifies the
beneficiaries of the outputs of the cost pool and allocates the costs
in proportion to the benefits received.
Cause or cause and effect: This criterion identifies the outputs of the
cost pool (any grouping of individual costs) and allocates the costs in
proportion to the services provided.
Ability to bear: This criterion advocates allocating costs in
proportion to the cost objective's ability to bear.
2. With regard to section 6, one commenter stated that paragraph
(d) should be eliminated so as to permit allocation of a gain or loss
from the sale of a capital asset consistent with Generally Accepted
Accounting Principles (GAAP) because, under GAAP, a gain or loss from
the disposal of an asset constitutes a legitimate element of the total
cost of the asset. Thus, a gain or loss on depreciation does not
represent an extraordinary cost, and any write-off on sale or disposal
of an asset should be reflected in total cost.
3. One commenter argued that section 7 should be eliminated for
several reasons. First, section 7 is ambiguous when taken in context
with section 4, which applies when an allocation method does not
satisfy section 3 and which requires use of an allocation method that
is reasonable based on the criterion of benefit, cause or ability to
bear. The ambiguity exists because, if an internally used allocation
method is deemed not to satisfy the reasonableness requirement in
section 3 by virtue of the restriction in section 7, section 4 requires
the producer of a good to use an alternative allocation method that
does meet the benefit, cause or ability to bear reasonableness
criterion. Given the rejection of the internally used allocation method
under section 3, the only solution under section 4 is to use an
allocation method that is solely for the purpose of qualifying a good
as an originating good. This is precisely what section 7 is designed to
prevent. Second, section 7 is unnecessary because, so long as an
allocation method meets the reasonableness test under the benefit,
cause or ability to bear criterion, the purpose of the allocation
method is irrelevant. Finally, section 7 is redundant given the non-
qualifying operations provision in section 17 of the Appendix as
regards any production or pricing practice the object of which is to
circumvent the Appendix. This commenter also suggested that if section
7 is to be retained, it should, at a minimum, provide specific and
objective criteria for determining whether a cost allocation method is
used solely to qualify a good as an originating good.
Customs response: Customs disagrees with the commenters'
suggestions that the criteria of ``benefit, cause or ability to bear''
are not necessary in section 3, or, in the alternative, that the terms
should be defined. The terms are recognized principles used in the cost
accounting industry. They are broad principles that provide a measure
by which Customs can determine the reasonableness of a cost allocation
method for an internal management purpose. Customs does not dispute the
fact that most producers, for one or more internal management purposes,
are likely to rely on allocation methods that satisfy one of these
criteria. The regulation, however, is intended to capture all
situations and, therefore, must necessarily identify criteria against
which the regulatory requirement is to be measured.
Concerning the comment on section 6(d), Customs agrees with the
commenter's analysis of the treatment, for cost accounting purposes, of
the gain or loss from the sale of a capital asset. However, in this
case the Parties agreed that, for purposes of a ``reasonable''
allocation of costs in the calculation of total cost, such gains or
losses are not reasonably allocated to a good.
The commenter's remarks concerning section 7 are understandable
because the criteria of ``benefit, cause or ability to bear'' are used
in both sections 3 and 4 to determine whether a cost allocation is
reasonable. Nevertheless, Customs does not agree that section 7 should
be eliminated. The structure of Schedule VII requires that, under
section 3, an allocation method for an internal management purpose is
to be used if it is a reasonable allocation. However, section 7 states
that any allocation method for an internal management purpose will, on
its face, not be accepted as ``reasonable'' if it is solely for the
purpose of qualifying a good as an originating good. If costs are not
reasonably allocated under section 3, then the producer is required to
comply with section 4. Section 4 provides for the use of a method set
out in the addenda to Schedule VII and/or any method based on one of
the criteria of benefit, cause or ability to bear.
Schedule VIII
Comment: With regard to Schedule VIII (value of materials), one
commenter raised an issue concerning section 3 which operates as an
exception to the general rule that the transaction value of a material
is unacceptable if, among other things, the producer and the seller are
related persons and the relationship between them influenced the price
actually paid or payable for the material. Referring specifically to
the first sentence of subsection (7) which states that ``[s]ubsection
(4) provides an opportunity for the seller or the producer to
demonstrate that the transaction value closely approximates a test
value previously accepted by the customs administration of the NAFTA
country in which the producer is located, and is therefore acceptable
under subsection (1)'', the commenter suggested the following
interpretation thereof: the customs administration of the NAFTA country
into which a good is imported is required to accept (and thus may not
audit) the transaction value of a material used in the production of
the good if the customs administration of the country into which the
material was imported (and where the material was incorporated into the
exported good) approved that transaction value during a valuation audit
performed on the material when it was imported. This commenter stated
that because section 3 is ambiguous, the provision should be clarified
to reflect this interpretation. In addition, this commenter recommended
that section 3 be modified to expressly state that the customs
administration attempting to verify the value of a good that
incorporates a material must accept any pre-approval or advance ruling
concerning the value of the material by the customs administration of
the country into which the material was first imported.
Customs response: For the purposes of Schedule VIII, unless
otherwise stated, the term ``customs administration'' is defined as
``the customs administration of the NAFTA country into whose territory
the good, in the production of which the material being valued is used,
is imported.'' Section 3 sets forth the basis for
[[Page 46353]]
determining whether the transaction value of a material determined
under section 2(1) is acceptable. One basis under section 3 for
validating a transaction value of a material is for a seller or
producer to demonstrate to a customs administration (that is, a customs
administration as defined above) that the transaction value determined
in accordance with section 2(1) closely approximates a test value
previously accepted by the customs administration of the NAFTA country
in which the producer is located. Accordingly, the regulations permit
the customs administration of one NAFTA country to accept the
transaction value of a material if it closely approximates a test value
determined by the customs administration of another NAFTA country.
However, this must be demonstrated to the satisfaction of the customs
administration (as defined for purposes of Schedule VIII), and there is
no requirement that a customs administration must accept any test value
put forward by a particular seller or producer.
Schedule X
Comment: The following comments were submitted regarding Schedule
X, principally in the context of the drawback and duty-deferral program
provisions of Subpart E of Part 181:
1. With respect to the commingling of fungible goods and the
inventory methods that are allowable to determine the origin of
materials, one commenter stated that Schedule X excludes identification
procedures (inventory methods) that have been allowed in drawback such
as ``lower to higher'', ``higher to lower'' and blanket identification.
This commenter also stated that FIFO is administratively unworkable and
economically unfeasible for most companies, in part because the
association of entry numbers with imported part numbers which is needed
under FIFO is too detailed. On this same subject, two commenters stated
that Schedule X is unworkable and not consistent with the intent of
Congress which, as stated in Ways and Means Report 103-361, was ``* * *
to provide sufficient flexibility in the inventory accounting methods
for such goods to make them administratively workable for industry.''
Another commenter stated that the words ``completely fungible'' should
be changed to ``commercially interchangeable'' because of the
redefinition of the term ``fungible'' in the Customs modernization
provisions of the Act.
2. Three commenters raised the issue of commingled fungible goods
that are 100 percent imported, two of them stating that, in such a
case, entries for goods (within the appropriate time period) may be
designated under the inventory averaging procedure and that this is
supported by the legislative history relating to the Customs
modernization provisions of the Act. These commenters also stated that,
in such circumstances, the ``high-to-low'' method or any other Customs
approved accounting method may be used.
3. Another commenter stated that the Appendix should not be used
for the purposes of determining inventory methods because the Appendix
is generally for rules of origin purposes. This commenter also stated
that the inventory methods used to support a same condition drawback
claim should be set forth separately because Article 303 of the NAFTA
is not subject to the uniform regulations requirement of Chapter 5 of
the NAFTA.
4. Two commenters pointed out that Customs should give some thought
to companies that must keep extremely detailed records such as those
dealing in footwear, eye wear, finished clothing and other articles
that are produced in a wide variety of styles, sizes and colors. This
commenter stated that the requirements of Schedule X are so onerous
that companies that produce or distribute these types of articles will
not be able to export to Canada and Mexico for lack of ability to
comply with these requirements. This commenter also suggested that
Customs should address the area of former 19 U.S.C. 1313(j)(2)
substitution drawback claimants in a NAFTA context. In this regard, the
commenter stated that, assuming such claimants meet the requirements
for drawback under 19 U.S.C. 1313(j)(1), Customs should recognize that
they do not need to resubmit any applications for purposes of obtaining
drawback under 19 U.S.C. 1313(j)(1) in a NAFTA context but rather would
simply file the claims in accordance with the applicable regulations.
This commenter, after stating that Customs officials from the Office of
Trade Operations have indicated that the Schedule X inventory
procedures will be applied to all 19 U.S.C. 1313(j)(1) drawback claims,
expressed the view that Schedule X should apply only in the context of
Part 181.
5. A commenter pointed out that Secs. 191.141(e) and 191.22, taken
together, also provide for storage and identification methods and
provide more options for approved accounting methods than Schedule X
does. For example, these sections allow use of ``high-to-low'', but
Schedule X does not. This commenter therefore suggested that the
provisions of Sec. 191.22 should be used instead of Schedule X.
6. Two commenters stated that the inventory methods authorized for
foreign trade zone procedures (Sec. 146.23) should be included in
Schedule X in order to avoid the need for multiple inventory systems as
the price for using both trade programs. These commenters cited, as an
example that these two provisions are not in agreement (at least with
respect to terminology), the fact that Schedule X calls for a specific
identification method whereas Sec. 146.23 requires a unique
identification number. If these two requirements are the same, these
commenters suggested that the regulatory text should state that this is
the case.
7. Another commenter asked whether LIFO and average methods are
acceptable for drawback and, if so, whether they can be used on exports
to non-NAFTA countries. If not, this commenter asked whether claimants
must switch to FIFO or maintain different accounting methods for the
same goods.
Customs response: These comments principally address an allegedly
impractical and unworkable application of the inventory management
methods of Schedule X as required under Sec. 181.45(b)(2)(i). In sum,
the commenters argue that the Customs-approved methods in
Secs. 191.121(e) and 191.22 (drawback) and in Sec. 146.23 (foreign
trade zones) of the Customs Regulations should be allowed in place of
the methods set forth in Schedule X.
Customs disagrees with these comments to the extent that they
propose an expansion of the allowable methods for determining which
commingled goods are eligible for full drawback under Sec. 181.45(b).
Schedule X was promulgated under NAFTA Article 511 and applies, by
operation of NAFTA Article 303(6)(b), to imported goods which have been
commingled with fungible goods and which are exported to Canada or
Mexico in the same condition as when imported into the United States.
Nevertheless, the number of comments submitted on this point
suggests that the text of Sec. 181.45(b)(2)(i) could be improved.
Accordingly, Sec. 181.45(b)(2)(i), as set forth below, has been
modified to more clearly reflect the intended effect of Article
303(6)(b), that is, as a narrow exception to the broad operation of
Article 303 which restricts drawback to the amount determined under the
``lesser of'' rule. Beginning in 1996 (for exports to Canada) and in
2001 (for exports to Mexico), same condition substitution drawback will
be prohibited altogether. The only
[[Page 46354]]
exceptions are for the goods described in Article 303(6). Thus, ``same
condition'' drawback for imported goods commingled with fungible goods
is allowed, but only to the extent that the identity of the imported
goods is determined by use of one of the approved inventory management
methods set forth in Schedule X.
Additional Changes to the Regulations
In addition to the changes to the interim regulatory texts
discussed above, this document modifies the interim texts to set forth
changes that are necessary (1) to reflect subsequent trilateral
discussion and agreement regarding regulatory standards pursuant to
Article 511 of the NAFTA or (2) based on an independent review of the
interim texts within Customs. These changes are discussed below.
Changes Pursuant to Trilateral Discussions
Subsequent to the publication of the interim regulations in T.D.
94-1, and in keeping with the principle of ongoing cooperation in the
implementation and administration of the NAFTA as provided for in
Section F of Chapter Five of the NAFTA, representatives of the United
States, Canada and Mexico held further meetings which resulted in
agreement regarding (1) use of the definition of ``conspicuous'' as set
forth in Annex 311 of the NAFTA, (2) the adoption of an additional
standard covering denial of preferential tariff treatment based on a
failure to provide certain documentation in transshipment cases, (3)
the adoption of additional standards for origin verifications, (4) the
adoption of additional standards to be applied with regard to requests
for advance rulings under Article 509 of the NAFTA, and (5) the
modification of the substantively verbatim texts implementing the rules
of origin provisions of Chapter Four of the NAFTA. The agreed changes,
as reflected in the final regulatory texts set forth in this document,
are summarized below.
Definition of ``Conspicuous''
During the trilateral discussions it was pointed out that the
interim amendments to Part 134 did not set forth the definition of
``conspicuous'' contained in the country of origin marking provisions
of Annex 311 of the NAFTA. Accordingly, Sec. 134.1 has been modified,
as set forth below, by the addition of that definition as a new
paragraph (k). Customs believes that this definition is appropriate for
both NAFTA and non-NAFTA contexts since the NAFTA definition reflects
existing Customs practice and regulatory standards (see, for example,
the last sentence of Sec. 134.41(b)).
Failure to Provide Documents in Transshipment Cases
The new standard regarding shipping documents provides that
preferential tariff treatment may be denied to an originating good if
the good is shipped through or transshipped in a non-NAFTA country and
the importer does not provide, upon request, copies of the customs
control documents showing that the good remained under customs control
while in that non-NAFTA country. Section 181.23, as set forth below,
has been modified by the addition of a new paragraph (b) to reflect
this new standard, and Sec. 181.31 (regarding post-importation claims)
and Sec. 181.71 (regarding origin verifications), as set forth below,
have been appropriately modified as a consequence of the adoption of
this new standard.
Origin Verifications
The Parties agreed to a new standard for origin verifications that
permits verification of the applicable rate of duty applied to an
originating good in accordance with NAFTA Annex 302.2 and determination
of whether a good is a qualifying good for purposes of NAFTA Annex
703.2. Accordingly, Sec. 181.72 as set forth below has been modified by
the addition of a new paragraph (a)(2) to reflect this standard.
In addition, the new standard for origin verifications provides
that a questionnaire may be completed, at the option of the exporter or
producer, either in the language of the importing country or in the
language of the country in which the exporter or producer is located.
Paragraph (a)(3)(ii) (paragraph (a)(2)(ii) in the interim texts) of
Sec. 181.72, as set forth below, has been modified accordingly.
Requests for Advance Rulings
The new trilaterally-agreed standards regarding advance ruling
requests concern the information required to be submitted with the
request and therefore only affect Sec. 181.93 of the interim
regulations. The substantive changes reflected in Sec. 181.93, as set
forth below, are as follows:
1. In paragraph (b)(1), which concerns general information to be
included in the request, the following requirements have been added:
identification of the specific subject matter of the request; inclusion
of a statement regarding the accuracy and completeness of the
information submitted; inclusion of the name and address of the
exporter and producer of the good where the importer is the requesting
party; inclusion of the name and address of the producer and importer
of the good where the exporter is the requesting party; inclusion of
the name and address of the exporter and importer of the good where the
producer is the requesting party; submission of copies of advance
rulings or other rulings issued to the requesting party by Customs
regarding the tariff classification of the good, if relevant to the
issue in the advance ruling request; and, if no ruling on tariff
classification was issued to the requesting party, sufficient
information to enable Customs to classify the good if relevant to the
issue in the advance ruling request.
2. Paragraph (b)(2)(ii), which concerns tariff change rulings, has
been changed by designating the interim text as subparagraph (A) in
order to facilitate the addition of a new subparagraph (B) setting
forth information that must be in an advance ruling request which
involves an origin issue requiring an assessment of whether materials
undergo an applicable change in tariff classification.
3. In paragraph (b)(2)(iii), which concerns rulings on regional
value content, the following changes have been made: in the first
sentence, the words ``or under both methods'' have been added to
reflect the fact that satisfaction of a regional value content
requirement may involve use of both the transaction value method and
the net cost method as well as the fact that a ruling on both issues
may be sought; the second sentence, which sets forth the information to
be submitted for purposes of the transaction value method, has been
changed by inserting specific references to relevant provisions of the
Appendix to Part 181, by adding a requirement for information
sufficient to calculate the value of each material for which the origin
is unknown and that is used in the production of the good, by adding a
requirement for specific information regarding each material that is
claimed to be an originating material and is used in the production of
the good, and by adding a requirement specifying information to be
submitted where the advance ruling request involves an issue as to
whether the transaction value is acceptable with respect to the good;
the third sentence, which sets forth the information to be submitted
for purposes of the net cost method, has been changed by inserting
specific references to relevant provisions of the Appendix to Part 181,
by adding references to lists of all ``product, period and other''
costs and of all ``excluded''
[[Page 46355]]
costs, by limiting the required materials value information to non-
originating materials or materials for which the origin is unknown and
that are used in the production of the good, and by requiring a
statement regarding the period over which the net cost calculation is
to be made; and a new sentence has been added at the end to limit the
information required to be submitted where the advance ruling request
concerns only the calculation of an element of a regional value content
formula.
4. A new paragraph (b)(2)(iv), with the heading ``NAFTA rulings on
producer materials'', has been added to specify information that must
be submitted where the advance ruling request either involves an issue
with respect to an intermediate material or is submitted by a Canadian
or Mexican producer of a material and concerns only the origin of such
material.
5. Paragraph (b)(5), which requires the submission of information
regarding prior or current transactions, has been reconfigured to
facilitate the addition of references to information regarding the
following: judicial or quasi-judicial review in Canada or Mexico; a
verification of origin performed in the United States, Canada or
Mexico; an administrative appeal in the United States, Canada or
Mexico; a request for an advance ruling in the United States, Canada or
Mexico; and the status or disposition of any current or prior judicial
or quasi-judicial review, verification of origin, administrative
appeal, or advance ruling request.
Chapter Four Rules of Origin
With regard to the substantively verbatim regulatory texts covering
the rules of origin provisions of Chapter Four of the NAFTA, which were
set forth in the interim regulations in the Appendix to Part 181, the
trilaterally-agreed changes thereto concern clarifications of ambiguous
provisions, corrections in grammar or punctuation and, in certain
cases, textual additions to remedy instances in which the original
trilateral text was incomplete or the intent of the Parties was not
adequately expressed. These changes, which are incorporated in the text
of the Appendix to Part 181 as set forth below, are as follows:
Calculation of Total Cost
Calculation of total cost is required for purposes of the de
minimis rule in section 5, the net cost method in section 6 and the
valuation of intermediate materials in sections 7 and 10. However,
references in the original trilateral texts to the calculation of total
cost were incomplete in sections 5, 7 and 10. Therefore, in order to
make it clear as to what costs are included in the ``total cost'' as
that term is used in the trilateral texts, new subsection (6) has been
added to section 2, new sections 5(10), 7(7) and 10(9)(f) have been
added, and consequential changes have been made to the following
provisions in sections 5, 6 and 7: sections 5(9) (a) and (b) (sections
5(8) (a) and (b) in the interim texts); section 6(12); and sections
7(6)(a) and (b).
Effect of Choice to Average
Throughout the trilateral texts there are references to
``averaging'' for purposes of determining the net cost of goods, the
value of materials or the value of traced materials. Whenever a
producer makes the choice to average, the period over which that
producer averages cannot be changed, and the duration of the choice to
average must extend to the end of the fiscal year of that producer.
Although these requirements were implicit in the original trilateral
texts, it became apparent that it was necessary to state them
explicitly. Therefore, new subsections (7) through (10) have been added
to section 2, and the following changes have been made to the related
provisions in sections 6 and 12 and in Schedule X: revision of section
6(15)(a)(ii); addition of new sections 6(18) and 6(19) and
redesignation of interim sections 6(18) and 6(19) as 6(20) and 6(21);
in sections 12(5) (a) and (b), addition of the words ``that is evenly
divisible into the number of months of the producer's fiscal year
remaining at the beginning of that period''; addition of new sections
12(6) through 12(9) and redesignation of interim sections 12(6) and
12(7) as 12(10) and 12(11); and revision of sections 3 and 12 of
Schedule X.
Averaging For De Minimis and Accumulation
The original trilateral texts failed to provide specifically for
the use of averaging in determining the value of the non-originating
materials in subsections (1) and (5) of section 5 (de minimis), and in
determining the net cost and value of non-originating materials in
subsection (2) of section 14 (accumulation). To provide guidance on the
use of averaging in situations involving de minimis or accumulation,
new subsections (11) and (12) have been added to section 5 and new
subsection (3) has been added to section 14. Consequential amendments,
such as redesignation of subsections and internal references, have also
been made.
Section 4
Section 7(10) provides for the situation in which a self-produced
material may be designated as an intermediate material if it is used in
the production of a good that is subject to a regional value content
requirement. It was not clear under the original trilateral texts that
a self-produced material, used in a good which is not subject to a
regional value content requirement, could be considered as a material
for purposes of the NAFTA rules of origin. Accordingly, a new
subsection (8) has been added to section 4 in order to make it clear
that a self-produced material may be considered as a material used in
the production of a good even if the good is not subject to a regional
value content requirement. Such a self-produced material must have
either originating or non-originating status under the NAFTA rules of
origin, and that status will influence the application of a particular
NAFTA rule of origin to the good produced from that material. In
addition, a new subsection (9) has been added to section 4 setting
forth an example to illustrate such a situation.
Section 6
Article 403 of the NAFTA specifically provides a producer with the
option to use an averaging method for calculating the net cost for
automotive goods, and sections 11, 12 and 13 of the trilateral
regulations implement the specific provisions of Article 403 for
automotive goods. The NAFTA does not specifically provide for averaging
with respect to any other goods. However, because it was recognized
that in many situations non-automotive producers will have to use
standard or projected costs to calculate the net cost and the value of
non-originating materials in their goods, an averaging method was
included in section 6(15) of the trilateral texts in order to permit,
in a commercially practicable manner, averaging of the values required
under the net cost method for non-automotive goods. The introductory
text of section 6(15) as set forth in this document has been amended to
more clearly state the intent of the Parties, that is, that the
regional value content calculation for certain automotive goods may not
be calculated by the ``averaging'' permitted under section 6(15).
Although this exclusion of automotive goods from the application of
section 6(15) appears to be a limitation, this is not the case. The
category of goods for which averaging may be chosen under section 6(15)
is restricted to goods which are ``identical or similar'' as defined in
section 2,
[[Page 46356]]
whereas the various categories of automotive goods for which averaging
may be chosen under section 11, 12 or 13 are not so restricted. Thus,
this amendment will provide greater textual clarity but will have
minimal adverse effect on producers of automotive goods for which
averaging may be chosen under section 11, 12 or 13.
Section 7
Under Article 402(9) of the NAFTA, the value of materials is either
the transaction value (as defined in Article 415) or, if there is no
transaction value or the transaction value is unacceptable, the value
determined in accordance with the Articles 2 through 7 of the Customs
Valuation Code. Section 7(1) and Schedule VIII of the trilateral
regulations implement the NAFTA with respect to the valuation of
materials. Section 7(1) states that, if the producer of the good is the
importer of a material, the value of that material for NAFTA purposes
is the customs value. However, ``transaction value'' or other value
used as the basis for the customs value may not, in fact, reflect the
transaction value ``of the producer'' or other applicable value as
defined in the NAFTA. Section 7(2) as set forth in this document has
been revised to make it clear that if the customs value for the
materials referred to in section 7(1) was not determined in a manner
consistent with Schedule VIII, then the customs value may not be used
as the value of the material: in such a case the value of the material
must be determined according to Schedule VIII. In addition, in order to
illustrate this principle, a new Example 1 has been added in section
7(20) (section 7(17) in the interim texts) and interim Examples 1
through 6 have been renumbered as Examples 2 through 7. For the same
reasons, similar references to the use of ``customs value'' as the
value of a material have been clarified by revising sections 9(3) and
10(3) and section 1(2) of Schedule VIII.
Paragraph (b) of section 7(12) in the original trilateral texts
(renumbered in this document as section 7(13)) could have been
incorrectly interpreted as requiring that self-produced packaging
materials or containers be valued under subparagraphs (i) or (ii).
Under such an interpretation, the value of a self-produced material
would always have to be treated as a non-originating value if the self-
produced material were a non-originating material. However, under the
NAFTA a producer is not required to treat a self-produced material as a
material or to designate a self-produced material as an intermediate
material. Therefore, this unnecessary and potentially confusing
paragraph (b) has been removed. This change does not affect a
producer's option to designate self-produced packaging materials as
intermediate materials if it is in the producer's interest to do so,
and this point has been clarified by the addition of a new section
7(14). Similarly, a new section 7(19) has been added to cover
accessories, spare parts and tools that are self-produced.
Consequential amendments have also been made by renumbering the
subsections which follow these new provisions.
A new Example 8 has also been added to section 7(20) (section 7(17)
in the interim texts) in order to illustrate the effects of section
7(1) and section 7(11) (section 7(10) in the interim texts) on a
situation in which a producer of a good provides an indirect material,
which is also an assist in this example, to a material producer for use
in the production of a material that is subsequently used in the
production of the good. If the indirect material is provided free of
charge and the cost of the indirect material is not recorded on the
books of that material producer, section 7(11) provides that the value
of the indirect material is not included in the regional value content
calculation under the net cost method for the material when determining
whether or not the material is originating. However, if, as in this
example, the indirect material is also an assist and the material that
is made with benefit of the indirect material is subsequently used in
the production of a good by the producer who supplied the indirect
material, section 7(1) provides that the value of the indirect material
(assist) is included in the value of that material (whether or not
originating) when calculating the regional value content of the good.
Section 9
If a traced material has been incorporated into an originating
material that is then acquired by the producer of a light duty
automotive good, the value of that traced material may be determined by
one of the methods set out in section 9(2)(e) or 9(2)(f) of the
trilateral regulations. Paragraph (e) requires information on the
actual value of a traced material. Paragraph (f) provides an
alternative which will always result in a value that represents the
maximum value of a traced material allowable in the originating
acquired material.
In order to provide the supplier of an acquired material with an
option to pass forward a value that is closer to the actual value of
the traced material, but which does not require revealing the actual
value as required in paragraph (e), it was determined that a third
option should be allowed. Accordingly, a new paragraph (f) has been
added to provide that the value of the traced material may be an amount
that is based on the actual regional value content (RVC) of the
acquired material (rather than the regional value content requirement,
or RVCR), the amount being represented by the formula VM x (1 - RVC).
As a consequence of the addition of this new paragraph (f), interim
paragraphs (f) through (h) have been redesignated as (g) through (i),
the internal cross-references in these paragraphs have been revised to
reflect these changes, and, in section 9(10), Example 9 has been
amended and Examples 12 and 13 have been added in order to reflect the
new option for determining the value of a traced material which has
been incorporated into an originating material acquired by a producer
of a light duty automotive good.
Section 10
A new section 10(1)(d)(ii) has been added to provide, as in the
case of new section 9(2)(f), for a third alternative method to
determine the value of a listed non-originating material incorporated
into an originating material that is acquired for use in the production
of a heavy duty automotive good. Necessary consequential changes have
also been made involving renumbering interim subparagraphs (ii) and
(iii) as (iii) and (iv), changing the affected internal cross-
references in the texts, and making changes in Examples 1, 2 and 4
under section 10(10) to reflect the new method.
A new text of Example 10 replaces the interim text in section
10(10) in order to illustrate the application of section 10(8) which
allows the use of averaging under the principles of section 12(3) in
order to determine the value of a non-originating material for purposes
of the statement required in section 10(1)(b)(ii), section 10(1)(d)(i)
or section 10(1)(e)(i). The value of a non-originating material, in
such a case, would not be the value of the acquired material which is a
listed non-originating material; it would be the value of the non-
originating material incorporated into the listed non-originating
material by the producer of that listed material.
Section 11
A new subsection (11) has been added to section 11 setting forth an
Example to illustrate the options available under section 11(9)(b) in
the event that a producer of a motor vehicle chooses to
[[Page 46357]]
average only those motor vehicles to be exported to the territory of
only one NAFTA country or to the territories of more than one NAFTA
country.
Section 12
Section 12(1) has been amended in order to remove an ambiguous
reference to the averaging of the regional value content for automotive
component assemblies, automotive components, sub-components or listed
materials and thereby avoid any misunderstanding with respect to the
goods that may be averaged together if produced in the same plant.
Specifically, the words ``any or all automotive component assemblies,
automotive components, sub-components or listed materials'' have been
replaced by the words ``an automotive component assembly, an automotive
component, a subcomponent or a listed material''. The text as amended
more closely follows the language of NAFTA Article 403(4) (which refers
to ``a component'' or ``a listed material'' of Annex 403.2) and thus
makes it clear, for example, that engines and transmissions may not be
grouped together for purposes of averaging regional value content.
Section 16
Section 16(1) has been revised in order to provide a clearer
interpretation with respect to the nature of operations that, when
performed on an originating good during transshipment through a non-
NAFTA country, do not cause the good to lose its status as an
originating good. The revised text in subsection (1)(a) further makes
it clear that, except for goods covered by section 16(3), a good is
considered not to be an originating good if it is removed from customs
control when outside the territories of the NAFTA countries.
Schedule VII
The definition of ``discontinued operations'' in section 1 has been
revised in both scope and meaning in order to link the term, when used
with respect to a producer's operations that are located in a NAFTA
country, to the meaning set out in that NAFTA country's Generally
Accepted Accounting Principles. This maintains the consistent treatment
given in the NAFTA to issues related to allocation of costs.
For similar reasons, the reference in section 6(c) to ``cumulative
effect of accounting changes'' has been amended to reflect that such
changes are those reported in accordance with a specific requirement of
the applicable Generally Accepted Accounting Principles.
Schedule VIII
The texts of sections 10(1)(c) and 10(3) have been revised in order
to resolve an ambiguity with respect to which word is modified by the
phrase ``in the country in which the material is produced''. These
changes reflect the understanding that the determination of the amount
added for profit and general expenses depends on whether the material
is imported by the producer or acquired from another person in the
territory in which the producer is located. In both cases the amount
added should be based on sales of materials of the same class or kind
as that being valued. However, in regard to the former, the
determination should be based on sales of such materials by producers
located in the country in which the imported material was produced,
whereas in the latter, the determination should be based on sales by
producers located in the same country as the producer of the material
being valued.
Schedule X
During the trilateral discussions, it was noted that the first
table in Addendum A as set forth in the interim Appendix was incomplete
in that the trilaterally-agreed table included a third column ``Total
Value'' under the heading ``Materials inventory sales (Receipts of
material A)''. Accordingly, the first table in Addendum A has been
corrected to reflect the trilateral text.
Technical Amendments
Many additional amendments reflected in the texts set forth in this
document concern simply technical changes relating to matters such as
punctuation, cross references, typographical format and consequential
renumbering of provisions. These changes are not intended to have any
effect on the substance or content of the texts.
Section 181.131
In light of certain of the trilaterally-agreed changes to the
Appendix texts as discussed above, the Parties also agreed that it
would be necessary to have a rule covering the transition from the
interim Appendix texts to the new Appendix texts in the case of
producers for whom an averaging period started prior to, and would
extend beyond, the agreed October 1, 1995, effective date of the new
Appendix texts. Accordingly, Sec. 181.131 as set forth below has been
modified by designating the interim text as paragraph (a) and by adding
new paragraphs (b) and (c) to reflect the agreed-upon transitional
rules.
Other Changes
Based on further internal review of the interim regulatory texts,
Customs has determined that the following additional changes thereto
should be made.
Section 10.8(a)
The interim regulatory amendments in T.D. 94-1 included the
addition of a new paragraph (a) to Sec. 10.8 of the Customs Regulations
(19 CFR 10.8) to clarify that the provisions of that section do not
apply in the case of goods returned to the United States after
exportation for repairs or alterations in Canada or Mexico, for which
separate provisions were set forth in interim Sec. 181.64.
Subsequently, on May 17, 1994, Customs published in the Federal
Register (59 FR 25563) as T.D. 94-47 a final rule document which
included a complete revision of Sec. 10.8. However, the text of this
revised Sec. 10.8 did not carry forward the substance of the interim
NAFTA amendment. Accordingly, this document amends the introductory
text of Sec. 10.8(a) as published in T.D. 94-47 to incorporate the
substance of that NAFTA provision.
Section 12.132
The interim regulatory amendments in T.D. 94-1 included the
addition of a new Sec. 12.132 to clarify the use of country of origin
declarations, which were provided for in Sec. 12.130(f) of the Customs
Regulations (19 CFR 12.130(f)), in the case of textile and apparel
goods which are subject to the provisions of Annex 300-B of the NAFTA.
Subsequently, on June 20, 1994, Customs published in the Federal
Register (59 FR 31519) as T.D. 94-52 an interim rule document which
amended interim Sec. 12.132 by adding thereto a new paragraph (b)
requiring submission of a Certificate of Eligibility in connection with
a claim for NAFTA preferential tariff treatment involving non-
originating textile and apparel goods subject to the tariff preference
level provisions of Appendix 6.B. to Annex 300-B of the NAFTA. In order
to ensure that this document accurately reflects current regulatory
requirements, the text of Sec. 12.132 is republished below to
incorporate the interim amendment effected by T.D. 94-52. Customs
intends to publish a separate final rule document in the near future
which will specifically address T.D. 94-52, including any public
comments submitted in response thereto.
Section 181.22(a)
Interim Sec. 181.22(a) provided that the importer must maintain
documentation relating to an imported good for five
[[Page 46358]]
years after the date of ``importation'' of the good. In order to
reflect the requirements of U.S. law (19 U.S.C. 1508(c), as amended by
section 614 of the Act), Sec. 181.22(a) as set forth below has been
modified to refer to five years after the date of ``entry'' of the
good.
Section 181.22(b)(2)
In addition to the removal of the references to a ``producer'' as
discussed above, Sec. 181.22(b)(2), as set forth below, has been
modified to refer to signature of the Certificate of Origin by the
exporter's authorized agent ``having knowledge of the relevant facts''.
Customs believes that this change is appropriate to ensure that the
signature has substantive relevance that goes beyond that of a mere
agency relationship.
Section 181.22(d)
The following changes have been made to Sec. 181.22(d) which
specifies circumstances in which a Certificate of Origin is not
required:
1. For editorial and citation purposes, the text as set forth below
has been rearranged and divided into paragraph (d)(1) (which sets forth
the general rules for when a Certificate is not required) and paragraph
(d)(2) (which covers the exception regarding a series of importations).
2. The introductory text of newly designated paragraph (d)(1) has
been modified as set forth below by replacing the words ``a Certificate
of Origin shall not be required for'' with the words ``an importer
shall not be required to have a Certificate of Origin in his
possession''. Customs believes that this change is necessary to clarify
the intent which relates to the basic requirement for possession of a
Certificate when a claim for preferential tariff treatment is made (see
the last sentence of Sec. 181.21(a)) rather than to the requirement for
submission of the Certificate to Customs when requested under
Sec. 181.21(b).
3. In order to provide for proper notification and related
procedural safeguards in a case where a Certificate is required because
the importation is determined to be part of a series of importations
that may reasonably be considered to have been undertaken or arranged
for the purpose of avoiding a certification requirement, the text of
newly designated paragraph (d)(2), as set forth below, has been
modified (1) to require written notice to the importer that possession
of a Certificate covering the importation at issue is required, (2) to
allow the importer 30 calendar days to obtain a valid Certificate, and
(3) to specify the consequence of a failure to timely obtain the
Certificate (denial of the claim for preferential tariff treatment).
Section 181.41
In Sec. 181.41, which prescribes the applicability of the Subpart E
``NAFTA drawback'' (as defined in Sec. 181.1(o)) provisions, the first
sentence has been changed as set forth below by the addition of a
reference to ``any good that is a `good subject to NAFTA drawback'
within the meaning of 19 U.S.C. 3333'' in order to (1) incorporate by
reference the terms of NAFTA Article 303(6) as implemented in U.S. law
and (2) clarify that those NAFTA Article 303 and U.S. statutory
standards are applicable under Subpart E both for drawback purposes and
for purposes of the Sec. 181.53 duty-deferral provisions. In addition,
for similar clarification purposes, the first sentence of
Sec. 181.53(a)(2) as set forth below has been changed to refer to a
```good subject to NAFTA drawback' within the meaning of 19 U.S.C.
3333''.
Section 181.44
In Sec. 181.44, which specifies the circumstances in which drawback
is calculated under the NAFTA ``lesser of the two'' rule, a new
paragraph (g) has been added as set forth below to cover goods that are
``unused'' within the meaning of 19 U.S.C. 1313(j)(1) but have changed
in condition after importation into the United States so as not to be
eligible for full drawback under Sec. 181.45(b).
Section 181.47
In order to facilitate Customs processing of NAFTA drawback claims,
the following changes have been made to the text of interim Sec. 181.47
which concerns the completion of claims for drawback under Subpart E:
(1) In paragraph (a), language has been added at the end of the second
sentence to provide that claims under Subpart E must be filed
separately from non-NAFTA claims filed under Part 191; and (2) a
sentence has been added at the end of paragraph (b)(1) to provide for
inclusion of the word ``NAFTA'' at the top of each drawback entry form
filed under Subpart E.
Section 181.50
In Sec. 181.50, which concerns payment and liquidation of drawback
claims, paragraph (b) as set forth below has been modified (1) to refer
to when a drawback claim is to be liquidated (rather than when it
becomes ``final'') and (2) by the addition of a sentence at the end to
refer to adjustments of drawback claims under 19 U.S.C.
1508(b)(2)(B)(iii).
Section 181.62
With regard to interim Sec. 181.62 which concerns duty-free
treatment of commercial samples of negligible value imported from
Canada or Mexico, Customs notes that paragraphs (b)(3) and (c) thereof,
which specifically addressed textile samples, did not devolve from a
specific statutory provision whereas the remainder of the section did
reflect the terms of an underlying U.S. statutory provision (subheading
9811.00.60, HTSUS). Since implementation of the commercial sample
provision in Article 306 of the NAFTA is a function of what is
permissible or required under applicable U.S. law (in this case,
subheading 9811.00.60, HTSUS), Sec. 181.62 as set forth below has been
modified by the removal of paragraphs (b)(3) and (c).
Section 181.63
Interim Sec. 181.63, which concerned duty-free treatment of printed
advertising materials imported from Canada or Mexico, reflected both
the terms of Article 306 of the NAFTA and the definition of ``printed
advertising materials'' in Article 318 of the NAFTA; thus, the
regulatory text referred generically to ``goods classified in Chapter
49, HTSUS'', which chapter covers some goods for which duty-free
treatment is not provided. Since U.S. duty treatment of goods covered
by NAFTA Article 306 is controlled by the terms of the HTSUS, Customs
has determined that Sec. 181.63 serves no effective purpose and
therefore should be removed and reserved until such time as appropriate
changes are made to the HTSUS to reflect the terms of NAFTA Article
306.
Section 181.64(c)(1)(ii)
With regard to interim Sec. 181.64 which concerns goods returned
after repair or alteration in Canada or Mexico, Customs notes that
paragraph (c)(1)(ii) thereof provides for a declaration by the owner,
importer, consignee, or agent stating that, among other things, ``the
goods were not previously imported in bond or admitted into a foreign
trade zone or imported in similar status''. This statement was included
in the declaration to address the exception for ``goods subject to
NAFTA drawback'' in U.S. Note 1 to Subchapter II of Chapter 98, HTSUS.
That note, which applies to the whole subchapter and thus pertains,
inter alia, to all articles returned after repair or alteration abroad
(including those goods repaired or altered in Canada or Mexico and
covered by Sec. 181.64), sets forth four circumstances
[[Page 46359]]
in which articles may not be classified and thus receive the duty
treatment prescribed in the subchapter (under subheading 9802.00.40 or
9802.00.50 in the case of repaired or altered goods). The note, which
prior to the NAFTA did not contain the ``NAFTA drawback'' exception
language, was intended to ensure that goods imported into the United
States in certain circumstances in which duty is not paid or is later
refunded (for example, duty-free under a temporary importation bond or
with subsequent drawback of duties upon exportation), and which are
subsequently exported (for example, for repair or alteration) and then
returned, do not re-enter the commerce of the United States and again
escape full duty assessment by virtue of their classification in a
reduced-duty provision under Subchapter II. The exception in the note
for ``goods subject to NAFTA drawback'' was added in connection with
the adoption of the NAFTA in consideration of the fact that the NAFTA
drawback and duty-deferral provisions (see Subpart E of Part 181 below)
render the note unnecessary in a NAFTA context because assessment of
duty is required prior to exportation to Canada or Mexico under the
NAFTA drawback provisions (see the definition of ``NAFTA drawback'' in
Sec. 181.1(o) below).
On further review, Customs believes that the language in the
declaration quoted above does not adequately address the basic issue
under U.S. Note 1 to Subchapter II of Chapter 98, HTSUS, that is,
whether the imported goods were subject to NAFTA drawback. In other
words, if the goods were subject to NAFTA drawback, then none of the
restrictions in the note would apply and the note would not be a bar to
classification of the repaired or altered goods in the subchapter. On
the other hand, if the goods were not subject to NAFTA drawback and one
of the restrictions in the note applied to the goods, then the note
would operate as a bar to classification of the repaired or altered
goods in the subchapter. Accordingly, the declaration in
Sec. 181.64(c)(1)(ii), as set forth below, has been modified in this
regard to more accurately reflect the minimum information that Customs
must have to ensure compliance with the applicable statutory standard.
Section 181.72(a)(2)(i)
In order to provide necessary flexibility to Customs and at the
same time reflect the method most often employed by Customs,
Sec. 181.72(a)(2)(i), which concerns origin verification letters, has
been modified as set forth below to provide that the verification
letter ``may be on Customs Form 28 or other appropriate format''.
Section 181.72(d)(2)(ii)
In Sec. 181.72(d)(2)(ii) which concerns the consequences of a
failure on the part of the exporter or producer of a good to respond to
a follow-up verification letter or questionnaire, the introductory text
has been modified as set forth below to provide that Customs may
``consider the good to be non-originating and consequently may'' deny
preferential tariff treatment on the good. Customs believes that the
reference to non-originating status in this context is necessary if the
follow-up letter or questionnaire is to include the ``written
determination'' (that is, a determination as to whether the good is an
originating good) referred to in paragraphs (d)(1)(i) and
(d)(2)(ii)(A).
Section 181.73(a)
Section 181.73(a), which requires written notification prior to
conducting a verification visit in Canada or Mexico, has been modified
as set forth below by removing from the first sentence the words ``,
including a follow-up to an earlier visit,''. On further review,
Customs has determined that this requirement is neither reflected in
the text of the Agreement nor otherwise necessary since the procedural
safeguards afforded by the notification requirement are covered by the
notification given prior to the initial visit. Moreover, requiring
written notification (and, thus, written consent under Sec. 181.74)
prior to each follow-up visit would impose an unreasonable
administrative burden on Customs and could compromise the overall
effectiveness of the verification visit process.
Section 181.75(a)(2)
Section 181.75(a)(2) requires that a written origin determination
include a statement setting forth the findings of fact made in
connection with the origin verification and upon which the origin
determination is based. An exception has been added to this section as
set forth below to cover the case of a negative origin determination
where specific findings of fact cannot be made because of a failure to
respond to a follow-up verification letter or questionnaire. Customs
believes that this change is necessary because, under modified
Sec. 181.72(d)(2)(ii) as discussed above, the negative origin
determination may result merely from a failure on the part of the
exporter or producer of the good to respond to the follow-up letter or
questionnaire.
Section 181.75(b)(2)(iv)
Section 181.75(b)(2)(iv) as set forth below has been modified by
the addition of language at the end to cover cases where an exporter or
producer would protest the negative origin determination itself rather
than the liquidation of an entry (for example, where the importer's
NAFTA claim was made in a protest rather than as part of the entry
process).
Section 181.76(a)
Section 181.76(a) has been modified as set forth below to provide
that an origin determination ``may be applied'' (rather than ``shall be
effective'') upon issuance of the determination, and the provisions
regarding the negative origin determination exception to this general
rule have been set forth as a new paragraph (b). Customs believes that
these editorial changes are necessary to align on terminology used
elsewhere in Sec. 181.76 and to reflect the fact that a Customs
decision regarding a rate of duty takes effect only when actually
applied to a transaction (that is, in connection with the liquidation
of an entry).
Section 181.76(c)
In Sec. 181.76(c) (Sec. 181.76(b) in the interim texts), which
concerns the application of origin determinations where there is a
pattern of conduct by an exporter or producer involving false or
unsupported representations on Certificates of Origin that a good
qualifies as an originating good, the first sentence as set forth below
has been modified (1) to state that Customs may ``deny subsequent
claims for'' (rather than ``withhold'') preferential tariff treatment
and (2) by adding at the end the words ``, provided that advance
written notice of the intent to deny such claims is given to the
importer.'' The first change is intended both to conform the text to
the legal responsibility of Customs in connection with the entry and
liquidation process and to reflect the intent of the underlying NAFTA
provision which is prospective in nature. The second change is simply
intended to ensure that the importer will receive appropriate notice of
the intended action by Customs. In addition, as a consequence of the
replacement of the word ``withhold'' in Sec. 181.76(c), Sec. 181.71 as
set forth below has been modified by removing the words ``or withhold''
before the words ``preferential tariff treatment''.
Section 181.76(e)
In Sec. 181.76(e) (Sec. 181.76(d) in the interim texts), which
limits the application of negative origin
[[Page 46360]]
determinations to prior importations in certain specified
circumstances, the first sentence as set forth below has been modified
by adding at the end the words ``and on which that person did in fact
rely.'' Customs believes that this change is necessary because the
underlying NAFTA provision is founded on the principle of equitable
relief based on detrimental reliance, and there can be no occasion for
equitable relief if no reliance, and thus no detriment, has occurred.
Section 181.76(f)
Section 181.76(f) (Sec. 181.76(e) in the interim texts) has been
modified as set forth below (1) by replacing ``denies'' with ``proposes
to deny'', (2) by replacing ``effective date of the denial'' with
``application of the determination'', and (3) and by adding after ``90
calendar days'' the words ``from the date of issuance of the
determination''. Customs believes that these changes are appropriate
for purposes of precision as regards the procedures discussed in the
section.
Section 181.81
Interim Sec. 181.81 concerned the applicability of penalties to
NAFTA transactions and consisted of a general statement (paragraph (a))
and a specific provision regarding false certifications by U.S.
exporters or producers (paragraph (b)). On further review of this
section, Customs believes that interim paragraph (b) is redundant and
thus unnecessary because its purpose is already achieved by the general
interim paragraph (a) statement. Accordingly, Sec. 181.81 as set forth
below has been modified to reflect only the text contained in interim
paragraph (a).
Section 181.100(b)(3)
Section 181.100(b)(3) concerns the effective date for a
modification or revocation of an advance ruling and provides for a
delayed effective date of up to 90 days in some circumstances. In a
case where the delay is requested by the party to whom the ruling
letter was issued, the text, as set forth below, has been modified to
refer to reliance ``in good faith'' rather than to reliance that is
``reasonable''. This change aligns the text on the standard set forth
in Article 509(8) of the NAFTA.
Conclusion
Accordingly, based on the comments received and the analysis of
those comments as set forth above, and based on the additional
considerations discussed above, Customs believes that the interim
regulations published in T.D. 94-1 should be adopted as a final rule
with certain changes thereto as discussed above and as set forth below.
Although this document sets forth the majority of the interim
regulatory amendments adopted herein as a final rule and thus both
republishes portions of the interim texts without change and amends
other portions of the interim texts to incorporate the changes
discussed above, it does not republish those unchanged interim
amendments, involving the following provisions, which were set forth in
T.D. 94-1 within an amendatory instruction rather than in full
regulatory text format: Secs. 10.36a, 10.66, 10.67, 134.1, 134.22,
134.23, 134.24, 134.32, 134.35, 134.43, 134.44, 174.12, 174.29, 177.0,
and 177.1. This document also includes an appropriate update of the
list of information collection approvals contained in Sec. 178.2 of the
Customs Regulations (19 CFR 178.2).
Inapplicability of Public Notice and Comment Procedures and Delayed
Effective Date Requirements
Pursuant to the provisions of 5 U.S.C. 553(a), public notice and
comment procedures are inapplicable to these final regulations because
they are within the foreign affairs function of the United States. In
addition, for the above reason and because the Parties have agreed to
promulgate final NAFTA implementing regulations with effect from
October 1, 1995, it is determined that good cause exists under the
provisions of 5 U.S.C. 553(d)(3) for dispensing with a 30-day delayed
effective date.
Executive Order 12866
Because this document involves a foreign affairs function of the
United States and implements an international agreement, it is not
subject to the provisions of E.O. 12866.
Regulatory Flexibility Act
Based on the supplementary information set forth above and because
these regulations implement obligations of international agreements and
statutory requirements relating thereto, pursuant to the provisions of
the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) it is certified
that the regulations will not have a significant economic impact on a
substantial number of small entities. Accordingly, the regulations are
not subject to the regulatory analysis or other requirements of 5
U.S.C. 603 and 604.
Paperwork Reduction Act
The collection of information requirements contained in these final
regulations have been reviewed and approved by the Office of Management
and Budget in accordance with the Paperwork Reduction Act of 1980 (44
U.S.C. 3507) under control number 1515-0205. The estimated average
annual burden associated with this collection is 6.31 hours per
respondent or recordkeeper. Comments concerning the accuracy of this
burden estimate and suggestions for reducing this burden should be
directed to the U.S. Customs Service, Paperwork Management Branch, Room
6316, 1301 Constitution Avenue, NW., Washington, DC 20229, or the
Office of Management and Budget, Attention: Desk Officer for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, DC 20503.
Drafting Information
The principal author of this document was Francis W. Foote, Office
of Regulations and Rulings, U.S. Customs Service. However, personnel
from other offices participated in its development.
List of Subjects
19 CFR Part 10
Alterations, Bonds, Customs duties and inspection, Exports,
Imports, Preference programs, Repairs, Reporting and recordkeeping
requirements, Trade agreements.
19 CFR Part 12
Canada, Customs duties and inspection, Marking, Mexico, Reporting
and recordkeeping requirements, Textiles and textile products, Trade
agreements.
19 CFR Part 24
Accounting, Canada, Customs duties and inspection, Financial and
accounting procedures, Reporting and recordkeeping requirements, Trade
agreements, User fees.
19 CFR Part 123
Canada, Customs duties and inspection, Imports, Mexico, Reporting
and recordkeeping requirements, Trade agreements.
19 CFR Part 134
Canada, Country of origin, Customs duties and inspection, Labeling,
Marking, Mexico, Packaging and containers, Trade agreements.
19 CFR Part 162
Administrative practice and procedure, Customs duties and
inspection, Reporting and recordkeeping requirements, Trade agreements.
[[Page 46361]]
19 CFR Part 174
Administrative practice and procedure, Customs duties and
inspection, Reporting and recordkeeping requirements, Trade agreements.
19 CFR Part 177
Administrative practice and procedure, Courts, Judicial
proceedings, Rulings, Trade agreements.
19 CFR Part 178
Administrative practice and procedure, Exports, Imports, Reporting
and recordkeeping requirements.
19 CFR Part 181
Administrative practice and procedure, Canada, Customs duties and
inspection, Exports, Imports, Mexico, Reporting and recordkeeping
requirements, Trade agreements (North American Free-Trade Agreement).
19 CFR Part 191
Canada, Commerce, Customs duties and inspection, Drawback, Mexico,
Reporting and recordkeeping requirements, Trade agreements.
Amendments to the Regulations
Accordingly, the interim rule amending Parts 10, 12, 24, 123, 134,
162, 174, 177, 178 and 191 (19 CFR Parts 10, 12, 24, 123, 134, 162,
174, 177, 178 and 191) and adding Part 181, Customs Regulations (19 CFR
Part 181), which was published at 58 FR 69460-69565 on December 30,
1993, and which was corrected at 59 FR 8852 on February 24, 1994, and
at 59 FR 15047 on March 31, 1994, and the interim rule amending Part
12, Customs Regulations (19 CFR Part 12), which was published at 59 FR
31519-31521 on June 20, 1994, are adopted as a final rule with certain
changes set forth below. The final texts, except for those amendments
published in T.D. 94-1 which were set forth within an amendatory
instruction rather than in full regulatory text format, are either
republished below without change or are set forth below with the
amendments discussed above under SUPPLEMENTARY INFORMATION.
PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE,
ETC.
1. The general authority citation for part 10 is revised to read as
follows:
Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized
Tariff Schedule of the United States), 1321, 1481, 1484, 1498, 1508,
1623, 1624, 3314;
* * * * *
2. Section 10.8 is amended by revising the introductory text of
paragraph (a) to read as follows:
Sec. 10.8 Articles exported for repairs or alterations.
(a) Except as otherwise provided for in this section and except in
the case of goods covered by Sec. 181.64 of this chapter, the following
documents shall be filed in connection with the entry of articles which
are returned after having been exported for repairs or alterations and
which are claimed to be subject to duty only on the value of the
repairs or alterations performed abroad under subheading 9802.00.40 or
9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS):
* * * * *
3. The last sentence of Sec. 10.31(f) is republished to read as
follows:
Sec. 10.31 Entry; bond.
* * * * *
(f) * * * In addition, notwithstanding any other provision of this
paragraph, in the case of professional equipment necessary for carrying
out the business activity, trade or profession of a business person,
equipment for the press or for sound or television broadcasting,
cinematographic equipment, articles imported for sports purposes and
articles intended for display or demonstration, if brought into the
United States by a resident of Canada or Mexico and entered under
Chapter 98, Subchapter XIII, HTSUS, no bond or other security shall be
required if the entered article is a good originating in Canada or
Mexico within the meaning of General Note 12, HTSUS.
* * * * *
PART 12--SPECIAL CLASSES OF MERCHANDISE
1. The authority citation for part 12 continues to read in part as
follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20,
Harmonized Tariff Schedule of the United States (HTSUS)), 1624;
* * * * *
2. Section 12.132 is republished to read as follows:
Sec. 12.132 Textile and apparel goods under the North American Free
Trade Agreement.
(a) Country of origin declaration. The provisions of Sec. 12.130(f)
of this part regarding submission of a country of origin declaration
shall apply to all textile and apparel goods which are subject to the
provisions of Annex 300-B of the North American Free Trade Agreement
(NAFTA). Although a separate country of origin declaration shall not be
required for such goods for NAFTA purposes, the following additional
requirements shall apply for purposes of this section:
(1) All commercial importations of textile and apparel goods shall
be accompanied by the appropriate declaration;
(2) A declaration by each U.S., Canadian, and/or Mexican
manufacturer or producer of the goods, or by the exporter of the goods
if a declaration cannot be obtained from the manufacturer or producer,
and, if there are multiple manufacturers or producers, a separate
declaration by each manufacturer, producer or exporter, shall be
furnished by the importer. Packaging operations shall not be considered
manufacture or production for purposes of this paragraph; and
(3) If the district director is unable to determine the country of
origin of the goods because the information contained in a declaration
is incomplete, the shipment to which that declaration pertains shall
not be entitled to preferential tariff treatment or any other benefit
under the NAFTA for which it would otherwise be eligible.
(b) Certificate of Eligibility. In connection with a claim for
NAFTA preferential tariff treatment involving non-originating textile
and apparel goods subject to the tariff preference level provisions of
Appendix 6.B. to Annex 300-B of the NAFTA and Additional U.S. Notes 3
through 6 to Section XI, Harmonized Tariff Schedule of the United
States, the importer shall submit to Customs a Certificate of
Eligibility covering the goods. The Certificate of Eligibility shall be
properly completed and signed by an authorized official of the Canadian
or Mexican government and shall be presented to Customs at the time the
claim for preferential tariff treatment is filed under Sec. 181.21 of
this chapter. Failure to timely submit the required Certificate of
Eligibility will result in a denial of the claim.
PART 24--CUSTOMS FINANCIAL AND ACCOUNTING PROCEDURE
1. The general authority citation for Part 24 is revised to read as
follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 58a-58c, 66, 1202 (General
Note 20, Harmonized Tariff Schedule of the United States), 1624; 31
U.S.C. 9701.
* * * * *
2. In Sec. 24.22, paragraph (g)(1), the introductory text of
paragraph (g)(2)(i)(A), and paragraph (g)(2)(iv) are republished to
read as follows:
[[Page 46362]]
Sec. 24.22 Fees for certain services.
* * * * *
(g) Fee for arrival of passengers aboard commercial vessels and
commercial aircraft.
(1) Fee. Except as provided in paragraph (g)(2) of this section:
(i) For the period from January 1, 1994 through September 30, 1997,
a fee of $6.50 shall be collected and remitted to Customs for services
provided in connection with the arrival of each passenger aboard a
commercial vessel or commercial aircraft from outside the customs
territory of the United States; and
(ii) Commencing on October 1, 1997, a fee of $5 shall be collected
and remitted to Customs for services provided in connection with the
arrival of each passenger aboard a commercial vessel or commercial
aircraft from a place outside the United States.
(2) * * *
(i)(A) Except during the period from January 1, 1994 through
September 30, 1997, persons whose journey:
* * * * *
(iv) Except during the period from January 1, 1994 through
September 30, 1997, persons departing from and returning to the United
States without having touched a foreign port or place;
* * * * *
3. Section 24.23(c)(3) is republished to read as follows:
Sec. 24.23 Fees for processing merchandise.
* * * * *
(c) * * *
(3) The ad valorem, surcharge, and specific fees provided for under
paragraphs (b)(1) and (b)(2)(i) of this section shall not apply either
to goods originating in Canada within the meaning of General Note 9,
HTSUS, or to goods originating in Canada within the meaning of General
Note 12, HTSUS, where such goods qualify to be marked as goods of
Canada pursuant to Annex 311 of the North American Free Trade Agreement
and without regard to whether the goods are marked. Where originating
goods as described in the preceding sentence are entered or released
with other goods that are not originating goods, the ad valorem,
surcharge, and specific fees shall apply only to those goods which are
not originating goods.
* * * * *
PART 123--CUSTOMS RELATIONS WITH CANADA AND MEXICO
1. The authority citation for part 123 continues to read in part as
follows:
Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized
Tariff Schedule of the United States (HTSUS)), 1431, 1433, 1624.
* * * * *
2. The last sentence of Sec. 123.0 is republished to read as
follows:
Sec. 123.0 Scope.
* * * Regulations pertaining to the treatment of goods from Canada
or Mexico under the North American Free Trade Agreement are contained
in part 181 of this chapter.
PART 134--COUNTRY OF ORIGIN MARKING
1. The authority citation for part 134 is revised to read as
follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20,
Harmonized Tariff Schedule of the United States), 1304, 1624.
2. The last sentence of Sec. 134.0 is republished to read as
follows:
Sec. 134.0 Scope.
* * * Provisions regarding the review and appeal rights of
exporters and producers resulting from adverse North American Free
Trade Agreement marking decisions are contained in subpart J of part
181 of this chapter.
3. In Sec. 134.1, the last sentence of paragraph (d)(2) and
paragraphs (g), (h), (i) and (j) are republished, and a new paragraph
(k) is added, to read as follows:
Sec. 134.1 Definitions.
* * * * *
(d) * * *
(2) * * * With respect to a good of a NAFTA country, if the
manufacturing process does not result in one of the changes prescribed
in the NAFTA Marking Rules as effecting a change in the article's
country of origin, the consumer who purchases the article after
processing will be regarded as the ultimate purchaser.
* * * * *
(g) Good of a NAFTA country. A ``good of a NAFTA country'' is an
article for which the country of origin is Canada, Mexico or the United
States as determined under the NAFTA Marking Rules.
(h) NAFTA. ``NAFTA'' means the North American Free Trade Agreement
entered into by the United States, Canada and Mexico on December 17,
1992.
(i) NAFTA country. ``NAFTA country'' means the territory of the
United States, Canada or Mexico, as defined in Annex 201.1 of the
NAFTA.
(j) NAFTA Marking Rules. The ``NAFTA Marking Rules'' are the rules
promulgated for purposes of determining whether a good is a good of a
NAFTA country.
(k) Conspicuous. ``Conspicuous'' means capable of being easily seen
with normal handling of the article or container.
4. Section 134.22(d) is republished to read as follows:
Sec. 134.22 General rules for marking of containers or holders.
* * * * *
(d) Usual containers--(1) ``Usual container'' defined. For purposes
of this subpart, a usual container means the container in which a good
will ordinarily reach its ultimate purchaser. Containers which are not
included in the price of the goods with which they are sold, or which
impart the essential character to the whole, or which have significant
uses, or lasting value independent of the contents, will generally not
be regarded as usual containers. However, the fact that a container is
sturdy and capable of repeated use with its contents does not preclude
it from being considered a usual container so long as it is the type of
container in which its contents are ordinarily sold. A usual container
may be any type of container, including one which is specially shaped
or fitted to contain a specific good or set of goods such as a camera
case or an eyeglass case, or packing, storage and transportation
materials.
(2) A good of a NAFTA country which is a usual container. A good of
a NAFTA country which is a usual container, whether or not disposable
and whether or not imported empty or filled, is not required to be
marked with its own country of origin. If imported empty, the importer
must be able to provide satisfactory evidence to Customs at the time of
importation that it will be used only as a usual container (that it is
to be filled with goods after importation and that such container is of
a type in which these goods ordinarily reach the ultimate purchaser).
* * * * *
5. In Sec. 134.32, paragraphs (p) and (q) are republished to read
as follows:
Sec. 134.32 General exceptions to marking requirements.
* * * * *
(p) Goods of a NAFTA country which are original works of art; and
(q) Goods of a NAFTA country which are provided for in subheading
6904.10 or heading 8541 or 8542 of the Harmonized Tariff Schedule of
the United States (HTSUS) (19 U.S.C. 1202).
* * * * *
6. Section 134.35(b) is republished to read as follows:
[[Page 46363]]
Sec. 134.35 Articles substantially changed by manufacture.
* * * * *
(b) Goods of a NAFTA country. A good of a NAFTA country which is to
be processed in the United States in a manner that would result in the
good becoming a good of the United States under the NAFTA Marking Rules
is excepted from marking. Unless the good is processed by the importer
or on its behalf, the outermost container of the good shall be marked
in accord with this part.
7. Section 134.45(a) is republished to read as follows:
Sec. 134.45 Approved markings of country name.
(a) Language. (1) Except as otherwise provided in paragraph (a)(2)
of this section, the markings required by this part shall include the
full English name of the country of origin, unless another marking to
indicate the English name of the country of origin is specifically
authorized by the Commissioner of Customs. Notice of acceptable
markings other than the full English name of the country of origin
shall be published in the Federal Register and the Customs Bulletin.
(2) A good of a NAFTA country may be marked with the name of the
country of origin in English, French or Spanish.
* * * * *
PART 162--RECORDKEEPING, INSPECTION, SEARCH, AND SEIZURE
1. The authority citation for part 162 continues to read in part as
follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1624.
* * * * *
2. The last sentence of Sec. 162.0 is republished to read as
follows:
Sec. 162.0 Scope.
* * * Additional provisions concerning records maintenance and
examination applicable to U.S. importers, exporters and producers under
the North American Free Trade Agreement are contained in part 181 of
this chapter.
PART 174--PROTESTS
1. The authority citation for Part 174 continues to read as
follows:
Authority: 19 U.S.C. 66, 1514, 1515, 1624.
2. The last sentence of Sec. 174.0 is republished to read as
follows:
Sec. 174.0 Scope.
* * * Provisions applicable to Canadian and Mexican exporters and
producers regarding administrative review and appeal of adverse marking
decisions under the North American Free Trade Agreement are contained
in part 181 of this chapter.
3. Section 174.12(a)(5) is republished to read as follows:
Sec. 174.12 Filing of protests.
(a) * * *
(5) With respect to a determination of origin under subpart G of
part 181 of this chapter, any exporter or producer of the merchandise
subject to that determination, if the exporter or producer completed
and signed a Certificate of Origin covering the merchandise as provided
for in Sec. 181.11(a) of this chapter; or
* * * * *
4. Section 174.12(e)(2) is revised to read as follows:
Sec. 174.12 Filing of protests.
* * * * *
(e) * * *
(2) The date of the decision, involving neither a liquidation nor
reliquidation, as to which the protest is made (e.g., the date of an
exaction, the date of written notice excluding merchandise from entry
or delivery under any provision of the Customs laws, the date of a
refusal to reliquidate under section 520(c)(1) of the Tariff Act of
1930, as amended, or the date of written notice of a denial of a claim
filed under section 520(d) of the Tariff Act of 1930, as amended); or
* * * * * 15. Section 174.15 is republished to read as follows:
Sec. 174.15 Consolidation of protests filed by different parties.
(a) General. Subject to paragraph (b) of this section, separate
protests relating to one category of merchandise covered by an entry
shall be considered as a single protest whether filed as a single
protest or filed as separate protests relating to the same category by
one or more parties in interest or an authorized agent.
(b) NAFTA transactions. The following rules shall apply to a
consolidation of multiple protests concerning a determination of origin
under subpart G of part 181 of this chapter if one of the protests is
filed by or on behalf of an exporter or producer described in
Sec. 174.12(a)(5) of this part:
(1) If consolidation under paragraph (a) of this section is
pursuant to specific written requests for consolidation received from
all interested parties who filed protests under this part, those
interested parties shall be deemed to have waived their rights to
confidentiality as regards business information within the meaning of
Sec. 181.121 of this chapter. In such cases, a separate notice of the
decision will be issued to each interested party under this part but
without regard to whether the notice reflects confidential business
information obtained from one but not all of those interested parties.
(2) If consolidation under paragraph (a) of this section is done by
the district director in the absence of specific written requests for
consolidation from all interested parties who filed protests under this
part, no waiver of confidentiality by those interested parties shall be
deemed to have taken place. In such cases, a separate notice of the
decision will be issued to each interested party and each such notice
shall adhere to the principle of confidentiality set forth in
Sec. 181.121 of this chapter.
PART 178--APPROVAL OF INFORMATION COLLECTION REQUIREMENTS
1. The authority citation for part 178 is revised to read as
follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 1624; 44 U.S.C. 3501 et seq.
2. Section 178.2 is amended by adding new listings to the table in
numerical order to read as follows:
Sec. 178.2 Listing of OMB control numbers.
[[Page 46364]]
------------------------------------------------------------------------
OMB control
19 CFR section Description No.
------------------------------------------------------------------------
* * * * *
Sec. 12.132.............. Country of origin declaration 1515-0205
covering textile and apparel
goods under the North American
Free Trade Agreement.
* * * * *
Sec. 181.11.............. Certificate of Origin for 1515-0205
purposes of the North American
Free Trade Agreement.
Secs. 181.22 and 181.32.. Claim for preferential tariff 1515-0205
treatment under the North
American Free Trade Agreement.
Secs. 181.47 and 181.53.. Claim for refund, waiver or 1515-0205
reduction of duty under the
drawback and duty deferral
provisions of the North
American Free Trade Agreement.
Sec. 181.64.............. Claim for duty-free or reduced- 1515-0205
duty treatment on repaired or
altered goods under the North
American Free Trade Agreement.
Sec. 181.72.............. Submission of information in 1515-0205
connection with origin
verifications under the North
American Free Trade Agreement.
Sec. 181.82.............. Statement accompanying 1515-0205
corrected declaration or
notification of incorrect
certification under the North
American Free Trade Agreement.
Secs. 181.93-181.96 and Submission of information in 1515-0205
181.102. connection with requests for
issuance or review of advance
rulings under the North
American Free Trade Agreement.
Secs. 181.113, 181.115 Submission of information in 1515-0205
and 181.116. connection with the review and
appeal of adverse marking
decisions under the North
American Free Trade Agreement.
Sec. 181.131............. Claim for preferential tariff 1515-0205
treatment under the North
American Free Trade Agreement.
* * * * *
------------------------------------------------------------------------
1. Part 181 is revised to read as follows:
PART 181--NORTH AMERICAN FREE TRADE AGREEMENT
Sec.
181.0 Scope.
Subpart A--General Provisions
181.1 Definitions.
Subpart B--Export Requirements
181.11 Certificate of Origin.
181.12 Maintenance and availability of records.
181.13 Failure to comply with requirements.
Subpart C--Import Requirements
181.21 Filing of claim for preferential tariff treatment upon
importation.
181.22 Maintenance of records and submission of Certificate by
importer.
181.23 Effect of noncompliance; failure to provide documentation
regarding transshipment.
Subpart D--Post-Importation Duty Refund Claims
181.31 Right to make post-importation claim and refund duties.
181.32 Filing procedures.
181.33 Customs processing procedures.
Subpart E--Restrictions on Drawback and Duty-Deferral Programs
181.41 Applicability.
181.42 Duties and fees not subject to drawback.
181.43 Eligible goods subject to drawback.
181.44 Calculation of drawback.
181.45 Goods eligible for full drawback.
181.46 Time and place for filing drawback claim.
181.47 Completion of claim for drawback.
181.48 Person entitled to receive drawback.
181.49 Retention of records.
181.50 Liquidation and payment of drawback claims.
181.51 Prevention of improper payment of claims.
181.52 Subsequent claims for preferential tariff treatment.
181.53 Waiver or reduction of duty under duty-deferral programs.
181.54 Verification of claim for drawback, waiver or reduction of
duties.
Subpart F--Commercial Samples and Goods Returned After Repair or
Alteration
181.61 Applicability.
181.62 Commercial samples of negligible value.
181.63 [Reserved]
181.64 Goods re-entered after repair or alteration in Canada or
Mexico.
Subpart G--Origin Verifications and Determinations
181.71 Denial of preferential tariff treatment dependent on origin
verification and determination.
181.72 Verification scope and method.
181.73 Notification of verification visit.
181.74 Verification visit procedures.
181.75 Issuance of origin determination.
181.76 Application of origin determinations.
Subpart H--Penalties
181.81 Applicability to NAFTA transactions.
181.82 Exceptions to application of penalties.
Subpart I--Advance Ruling Procedures
181.91 Applicability.
181.92 Definitions and general NAFTA advance ruling practice.
181.93 Submission of advance ruling requests.
181.94 Nonconforming requests for advance rulings.
181.95 Oral discussion of issues.
181.96 Change in status of transaction.
181.97 Withdrawal of NAFTA advance ruling requests.
181.98 Situations in which no NAFTA advance ruling may be issued.
181.99 Issuance of NAFTA advance rulings or other advice.
181.100 Effect of NAFTA advance ruling letters; modification and
revocation.
181.101 Publication of decisions.
181.102 Administrative and judicial review of advance rulings.
Subpart J--Review and Appeal of Adverse Marking Decisions
181.111 Applicability.
181.112 Definitions.
181.113 Request for Basis of Adverse Marking Decision.
181.114 Customs response to request.
181.115 Intervention in importer's protest.
181.116 Petition regarding adverse marking decision.
Subpart K--Confidentiality of Business Information
181.121 Maintenance of confidentiality.
181.122 Disclosure to government authorities.
Subpart L--Rules of Origin
181.131 Rules of origin.
Appendix to Part 181--Rules of Origin Regulations
Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized
Tariff Schedule of the United States), 1624, 3314.
Sec. 181.0 Scope.
This part implements the duty preference and related Customs
[[Page 46365]]
provisions applicable to imported goods under the North American Free
Trade Agreement (the NAFTA) entered into on December 17, 1992, and
under the North American Free Trade Agreement Implementation Act (107
Stat. 2057) (the Act). Except as otherwise specified in this part, the
procedures and other requirements set forth in this part are in
addition to the Customs procedures and requirements of general
application contained elsewhere in this chapter. Additional provisions
implementing certain aspects of the NAFTA and the Act are contained in
parts 10, 12, 24, 134 and 174 of this chapter.
Subpart A--General Provisions
Sec. 181.1 Definitions.
As used in this part, the following terms shall have the meanings
indicated unless either the context in which they are used requires a
different meaning or a different definition is prescribed for a
particular subpart, section or other portion of this part:
(a) Canada. Canada, when used in a geographical rather than
governmental context, means the territory of Canada as defined in Annex
201.1 of the NAFTA.
(b) Commercial importation. Commercial importation means the
importation of a good into the United States, Canada or Mexico for the
purpose of sale, or any commercial, industrial or other like use.
(c) Customs administration. Customs administration means the
competent authority that is responsible under the law of the United
States, Canada or Mexico for the administration of its customs laws and
regulations.
(d) Customs duty. Customs duty means any customs or import duty and
a charge of any kind imposed in connection with the importation of a
good, including any form of surtax or surcharge in connection with such
importation, other than any:
(1) Charge equivalent to an internal tax imposed consistently with
Article III:2 of the General Agreement on Tariffs and Trade, or any
equivalent provision of a successor agreement to which the United
States, Canada and Mexico are party, in respect of like, directly
competitive or substitutable goods of the United States, Canada or
Mexico, or in respect of goods from which the imported good has been
manufactured or produced in whole or in part;
(2) Antidumping or countervailing duty that is applied pursuant to
the domestic law of the United States, Canada or Mexico and that is not
applied inconsistently with Chapter Nineteen of the NAFTA;
(3) Fee or other charge in connection with importation commensurate
with the cost of services rendered;
(4) Premium offered or collected on an imported good arising out of
any tendering system in respect of the administration of quantitative
import restrictions, tariff rate quotas or tariff preference levels;
and
(5) Fee applied pursuant to section 22 of the U.S. Agricultural
Adjustment Act, subject to the provisions of Chapter Seven of the
NAFTA.
(e) Determination of origin. Determination of origin means a
determination as to whether a good qualifies as a good originating in
the United States, Canada and/or Mexico under the rules set forth in
General Note 12, HTSUS, and in the appendix to this part.
(f) Exporter. Exporter means an exporter located, and required
under this part to maintain records regarding exportations of a good,
in the United States, Canada or Mexico.
(g) Generally Accepted Accounting Principles. Generally Accepted
Accounting Principles means the recognized consensus or substantial
authoritative support in the United States, Canada or Mexico with
respect to the recording of revenues, expenses, costs, assets and
liabilities, the disclosure of information and the preparation of
financial statements. Generally Accepted Accounting Principles under
this definition may encompass broad guidelines of general application
as well as detailed standards, practices and procedures.
(h) HTSUS. HTSUS means the Harmonized Tariff Schedule of the United
States.
(i) Importer. Importer means an importer located, and required
under this part to maintain records regarding importations of a good,
in the United States, Canada or Mexico.
(j) Intermediate material. Intermediate material means an
``intermediate material'' as defined in the appendix to this part.
(k) Marking Rules. Marking Rules means the ``NAFTA Marking Rules''
as defined in Sec. 134.1(j) of this chapter.
(l) Measure. Measure means any law, regulation, procedure,
requirement or practice.
(m) Mexico. Mexico, when used in a geographical rather than
governmental context, means the territory of Mexico as defined in Annex
201.1 of the NAFTA.
(n) NAFTA. NAFTA means the North American Free Trade Agreement
approved by the Congress under section 101(a) of the North American
Free Trade Agreement Implementation Act (107 Stat. 2057).
(o) NAFTA drawback. NAFTA drawback means any drawback, waiver or
reduction of U.S. customs duty provided for in subpart E of this part.
(p) Net cost of a good. Net cost of a good means the ``net cost of
a good'' as defined in the appendix to this part.
(q) Originating. Originating, when used with regard to a good or a
material, means a good or material which qualifies as originating in
the United States, Canada and/or Mexico under the rules set forth in
General Note 12, HTSUS, and in the appendix to this part.
(r) Person. Person means a natural person or an enterprise.
(s) Preferential tariff treatment. Preferential tariff treatment
means the duty rate applicable to an originating good or to a good to
which Appendix 6.B. to Annex 300-B of the NAFTA applies.
(t) Producer. Producer means a producer as defined in the appendix
to this part.
(u) Production. Production means production as defined in the
appendix to this part.
(v) Transaction value. Transaction value means transaction value
as defined in the appendix to this part.
(w) United States. United States, when used in a geographical
rather than governmental context, means the territory of the United
States as defined in Annex 201.1 of the NAFTA.
(x) Used. Used means used as defined in the appendix to this part.
(y) Value. Value means the value of a good or material for
purposes of calculating customs duties or for purposes of applying the
provisions of the appendix to this part.
Subpart B--Export Requirements
Sec. 181.11 Certificate of Origin.
(a) General. A Certificate of Origin shall be employed to certify
that a good being exported either from the United States into Canada or
Mexico or from Canada or Mexico into the United States qualifies as an
originating good for purposes of preferential tariff treatment under
the NAFTA.
(b) Preparation of Certificate in the United States. An exporter
in the United States who completes and signs a Certificate of Origin
for the purpose set forth in paragraph (a) of this section shall use
Customs Form 434 or such other medium or format as approved by the
Canadian or Mexican customs administration for that purpose. Where the
U.S. exporter is not the producer of the good, that exporter may
complete and sign a Certificate on the basis of:
[[Page 46366]]
(1) Its knowledge of whether the good qualifies as an originating
good;
(2) Its reasonable reliance on the producer's written
representation that the good qualifies as an originating good; or
(3) A completed and signed Certificate for the good voluntarily
provided to the exporter by the producer.
(c) Submission of Certificate to Customs. An exporter in the
United States, and a producer in the United States who has voluntarily
provided a copy of a Certificate of Origin to that exporter pursuant to
paragraph (b)(3) of this section, shall provide a copy of the
Certificate to Customs upon request.
(d) Notification of errors in Certificate. An exporter or producer
in the United States who has completed and signed a Certificate of
Origin, and who has reason to believe that the Certificate contains
information that is not correct, shall within 30 calendar days after
the date of discovery of the error notify in writing all persons to
whom the Certificate was given by the exporter or producer of any
change that could affect the accuracy or validity of the Certificate.
Sec. 181.12 Maintenance and availability of records.
(a) Maintenance of records--(1) General. An exporter or producer
in the United States who completes and signs a Certificate of Origin
shall maintain in the United States, for five years after the date on
which the Certificate was signed, all records relating to the origin of
a good for which preferential tariff treatment may be claimed in Canada
or Mexico, including records associated with:
(i) The purchase of, cost of, value of, and payment for, the good
that is exported from the United States;
(ii) The purchase of, cost of, value of, and payment for, all
materials, including indirect materials, used in the production of the
good that is exported from the United States; and
(iii) The production of the good in the form in which the good is
exported from the United States.
(2) Method of maintenance. The records referred to in paragraph
(a) of this section shall be maintained in accordance with the
Generally Accepted Accounting Principles applied in the United States
and may be maintained in hard-copy form, on microfilm or microfiche or
in automated record storage devices (for example, magnetic discs and
tapes) if associated computer programs are available to facilitate
retrieval of the data in a usable form.
(b) Availability of records--(1) To Customs. For purposes of
determining compliance with the provisions of this part, the records
required to be maintained under this section shall be made available
for examination and inspection by the port director or other
appropriate Customs officer in the same manner as provided in
Sec. 162.1d of this chapter in the case of U.S. importer records.
(2) To the Canadian or Mexican customs administration. If a U.S.
exporter or producer receives notification of, and consents to, an
origin verification visit by the Canadian or Mexican customs
administration under Article 506 of the NAFTA (see Sec. 181.74(e) of
this part), such consent shall constitute agreement by the U.S.
exporter or producer to make available to an officer of that customs
administration all records required to be maintained under this section
and to provide facilities for the inspection thereof. If, during the
course of an origin verification of a U.S. producer, the Canadian or
Mexican customs administration finds that the U.S. producer has failed
to maintain its records in accordance with the Generally Accepted
Accounting Principles applied in the United States, that customs
administration will so inform the U.S. producer in writing and will
give the U.S. producer 60 calendar days to conform the records to those
Principles. If a U.S. exporter or producer fails to maintain records or
make records available to the Canadian or Mexican customs
administration in accordance with the provisions of this section, or if
a U.S. producer fails to conform its records to Generally Accepted
Accounting Principles as provided in this paragraph, the Canadian or
Mexican customs administration may deny preferential tariff treatment
to the good that is the subject of the verification visit.
Sec. 181.13 Failure to comply with requirements.
The port director may apply such measures as the circumstances may
warrant where an exporter or a producer in the United States fails to
comply with any requirement of this part.
Subpart C--Import Requirements
Sec. 181.21 Filing of claim for preferential tariff treatment upon
importation.
(a) Declaration. In connection with a claim for preferential
tariff treatment for a good under the NAFTA, the U.S. importer shall
make a written declaration that the good qualifies for such treatment.
The written declaration may be made by including on the entry summary,
or equivalent documentation, the symbol ``CA'' for a good of Canada, or
the symbol ``MX'' for a good of Mexico, as a prefix to the subheading
of the HTSUS under which each qualifying good is classified. Except as
otherwise provided in Sec. 181.22 of this part and except in the case
of a good to which Appendix 6.B. to Annex 300-B of the NAFTA applies
(see, however, Sec. 12.132 of this chapter), the declaration shall be
based on a complete and properly executed original Certificate of
Origin, or copy thereof, which is in the possession of the importer and
which covers the good being imported.
(b) Corrected declaration. If, after making the declaration
required under paragraph (a) of this section or under Sec. 181.32(b)(2)
of this part, the U.S. importer has reason to believe that a
Certificate of Origin on which a declaration was based contains
information that is not correct, the importer shall within 30 calendar
days after the date of discovery of the error make a corrected
declaration and pay any duties that may be due. A corrected declaration
shall be effected by submission of a letter or other written statement
to the Customs office where the original declaration was filed.
Sec. 181.22 Maintenance of records and submission of Certificate by
importer.
(a) Maintenance of records. Each importer claiming preferential
tariff treatment for a good imported into the United States shall
maintain in the United States, for five years after the date of entry
of the good, all documentation relating to the importation of the good.
Such documentation shall include a copy of the Certificate of Origin
and any other relevant records as specified in Sec. 162.1a(a) of this
chapter.
(b) Submission of Certificate. An importer who claims preferential
tariff treatment on a good under Sec. 181.21 of this part shall
provide, at the request of the port director, a copy of each
Certificate of Origin pertaining to the good which is in the possession
of the importer. A Certificate of Origin submitted to Customs under
this paragraph or under Sec. 181.32(b)(3) of this part:
(1) Shall be on Customs Form 434, including privately-printed
copies thereof, or on such other form as approved by the Canadian or
Mexican customs administration, or, as an alternative to Customs Form
434 or such other approved form, in an approved computerized format or
such other medium or format as is approved by the Office of Field
Operations, U.S. Customs Service, Washington, DC 20229. An alternative
format must contain the
[[Page 46367]]
same information and certification set forth on Customs Form 434;
(2) Shall be signed by the exporter or by the exporter's
authorized agent having knowledge of the relevant facts;
(3) Shall be completed either in the English language or in the
language of the country from which the good is exported. If the
Certificate is completed in a language other than English, the importer
shall also provide to the port director, upon request, a written
English translation thereof;
(4) Shall be accepted by Customs for four years after the date on
which the Certificate was signed by the exporter or producer; and
(5) May be applicable to:
(i) A single importation of a good into the United States,
including a single shipment that results in the filing of one or more
entries and a series of shipments that results in the filing of one
entry; or
(ii) Multiple importations of identical goods into the United
States that occur within a specified period, not exceeding 12 months,
set out therein by the exporter or producer.
(c) Acceptance of Certificate. A Certificate of Origin shall be
accepted by the port director as valid for the purpose set forth in
Sec. 181.11(a) of this part, provided that the Certificate is
completed, signed and dated in accordance with the requirements of
paragraph (b) of this section. If the port director determines that a
Certificate is illegible or defective or has not been completed in
accordance with paragraph (b) of this section, the importer shall be
given a period of not less than five working days to submit a corrected
Certificate. Acceptance of a Certificate will result in the granting of
preferential tariff treatment to the imported good unless, in
connection with an origin verification initiated under subpart G of
this part or based on a pattern of conduct within the meaning of
Sec. 181.76(c) of this part, the port director determines that the
imported good does not qualify as an originating good or should not be
accorded such treatment for any other reason as specifically provided
for elsewhere in this part. A Certificate shall not be accepted in
connection with subsequent importations during a period referred to in
paragraph (b)(5)(ii) of this section if, based on an origin
verification under subpart G of this part, the port director determined
that a previously imported identical good covered by the Certificate
did not qualify as an originating good.
(d) Certificate not required--(1) General. Except as otherwise
provided in paragraph (d)(2) of this section, an importer shall not be
required to have a Certificate of Origin in his possession for:
(i) An importation of a good for which the port director has in
writing waived the requirement for a Certificate of Origin because the
port director is otherwise satisfied that the good qualifies for
preferential tariff treatment under the NAFTA;
(ii) A non-commercial importation of a good; or
(iii) A commercial importation of a good whose value does not
exceed US$2,500, provided that, unless waived by the port director, the
producer, exporter, importer or authorized agent includes on, or
attaches to, the invoice or other document accompanying the shipment
the following signed statement:
I hereby certify that the good covered by this shipment
qualifies as an originating good for purposes of preferential tariff
treatment under the NAFTA.
Check One:
( ) Producer
( ) Exporter
( ) Importer
( ) Agent
----------------------------------------------------------------------
Name
----------------------------------------------------------------------
Title
----------------------------------------------------------------------
Address
----------------------------------------------------------------------
Signature and Date
(2) Exception. If the port director determines that an importation
described in paragraph (d)(1) of this section forms part of a series of
importations that may reasonably be considered to have been undertaken
or arranged for the purpose of avoiding a certification requirement set
forth in this part, the port director shall notify the importer in
writing that for that importation the importer must have in his
possession a valid Certificate of Origin to support the claim for
preferential tariff treatment. The importer shall have 30 calendar days
from the date of the written notice to obtain a valid Certificate, and
a failure to timely obtain the Certificate will result in denial of the
claim for preferential tariff treatment. For purposes of paragraph
(d)(2) of this section, a ``series of importations'' means two or more
entries covering goods arriving on the same day from the same exporter
and consigned to the same person.
Sec. 181.23 Effect of noncompliance; failure to provide documentation
regarding transshipment.
(a) Effect of noncompliance. If the importer fails to comply with
any requirement under this part, including submission of a Certificate
of Origin under Sec. 181.22(b) or submission of a corrected Certificate
under Sec. 181.22(c), the port director may deny preferential tariff
treatment to the imported good.
(b) Failure to provide documentation regarding transshipment. Where
the requirements for preferential tariff treatment set forth elsewhere
in this part are met, the port director nevertheless may deny
preferential tariff treatment to an originating good if the good is
shipped through or transshipped in a country other than the United
States, Canada or Mexico and the importer of the good does not provide,
at the request of the port director, copies of the customs control
documents that indicate to the satisfaction of the port director that
the good remained under customs control while in such other country.
Subpart D--Post-Importation Duty Refund Claims
Sec. 181.31 Right to make post-importation claim and refund duties.
Notwithstanding any other available remedy, including the right to
amend an entry so long as liquidation of the entry has not become
final, where a good would have qualified as an originating good when it
was imported into the United States but no claim for preferential
tariff treatment on that originating good was made at that time under
Sec. 181.21(a) of this part, the importer of that good may file a claim
for a refund of any excess duties at any time within one year after the
date of importation of the good in accordance with the procedures set
forth in Sec. 181.32 of this part. Subject to the provisions of
Sec. 181.23 of this part, Customs may refund any excess duties by
liquidation or reliquidation of the entry covering the good in
accordance with Sec. 181.33(c) of this part.
Sec. 181.32 Filing procedures.
(a) Place of filing. A post-importation claim for a refund under
Sec. 181.31 of this part shall be filed with the director of the port
at which the entry covering the good was filed.
(b) Contents of claim. A post-importation claim for a refund shall
be filed by presentation of the following:
(1) A written declaration stating that the good qualified as an
originating good at the time of importation and setting forth the
number and date of the entry covering the good;
(2) Subject to Sec. 181.22(d) of this part, a copy of each
Certificate of Origin (see Sec. 181.11 of this part) pertaining to the
good;
[[Page 46368]]
(3) A written statement indicating whether or not the importer of
the good provided a copy of the entry summary or equivalent
documentation to any other person. If such documentation was so
provided, the statement shall identify each recipient by name, Customs
identification number and address and shall specify the date on which
the documentation was provided;
(4) A written statement indicating whether or not the importer of
the good is aware of any claim for refund, waiver or reduction of
duties relating to the good within the meaning of Article 303 of the
NAFTA (see subpart E of this part). If the importer is aware of any
such claim, the statement shall identify each claim by number and date
and shall identify the person who made the claim by name, Customs
identification number and address; and
(5) A written statement indicating whether or not any person has
filed a protest or a petition or request for reliquidation relating to
the good under any provision of law, and if any such protest or
petition or request for reliquidation has been filed, the statement
shall identify the protest, petition or request by number and date.
Sec. 181.33 Customs processing procedures.
(a) Status determination. After receipt of a post-importation claim
under Sec. 181.32 of this part, the port director shall determine
whether the entry covering the good has been liquidated and, if
liquidation has taken place, whether the liquidation has become final.
(b) Pending protest, petition or request for reliquidation or
judicial review. If the port director determines that any protest or
any petition or request for reliquidation relating to the good has not
been finally decided, the port director shall suspend action on the
claim filed under this subpart until the decision on the protest,
petition or request becomes final. If a summons involving the tariff
classification or dutiability of the good is filed in the Court of
International Trade, the port director shall suspend action on the
claim filed under this subpart until judicial review has been
completed.
(c) Allowance of claim.--(1) Unliquidated entry. If the port
director determines that a claim for a refund filed under this subpart
should be allowed and the entry covering the good has not been
liquidated, the port director shall take into account the claim for
refund under this subpart in connection with the liquidation of the
entry.
(2) Liquidated entry. If the port director determines that a claim
for a refund filed under this subpart should be allowed and the entry
covering the good has been liquidated, whether or not the liquidation
has become final, the entry must be reliquidated in order to effect a
refund of duties pursuant to this subpart. If the entry is otherwise to
be reliquidated based on administrative review of a protest or petition
for reliquidation or as a result of judicial review, the port director
shall reliquidate the entry taking into account the claim for refund
under this subpart.
(3) Information to be provided to Canada or Mexico. If any
information is provided to Customs pursuant to Sec. 181.32(b) (4) or
(5) of this part, that information, together with notice of the
allowance of the claim and the amount of duty refunded pursuant to this
subpart, shall be provided by the port director to the customs
administration of the country from which the good was exported.
(d) Denial of claim--(1) General. The port director may deny a
claim for a refund filed under this subpart if the claim was not filed
timely, if the importer has not complied with the requirements of this
subpart, if the Certificate of Origin submitted under Sec. 181.32(b)(3)
of this part cannot be accepted as valid (see Sec. 181.22(c) of this
part), or if, following initiation of an origin verification under
Sec. 181.72(a) of this part, the port director determines either that
the imported good did not qualify as an originating good at the time of
importation or that a basis exists upon which preferential tariff
treatment may be denied under Sec. 181.72(d), Sec. 181.74(c) or
Sec. 181.76(c) of this part.
(2) Unliquidated entry. If the port director determines that a
claim for a refund filed under this subpart should be denied and the
entry covering the good has not been liquidated, the port director
shall deny the claim in connection with the liquidation of the entry,
and written notice of the denial and the reason therefor shall be given
to the importer and, in the case of a denial on the merits, to any
person who completed and signed a Certificate of Origin relating to the
good. Each notice of denial given to a person who completed and signed
a Certificate of Origin shall also include a statement regarding the
right to file a protest against the denial under part 174 of this
chapter.
(3) Liquidated entry. If the port director determines that a claim
for a refund filed under this subpart should be denied and the entry
covering the good has been liquidated, whether or not the liquidation
has become final, the claim may be denied without reliquidation of the
entry. If the entry is otherwise to be reliquidated based on
administrative review of a protest or petition for reliquidation or as
a result of judicial review, such reliquidation may include denial of
the claim filed under this subpart. In either case, the port director
shall give written notice of the denial and the reason therefor to the
importer and, in the case of a denial on the merits, to any person who
completed and signed a Certificate of Origin relating to the good. Each
notice of denial given to a person who completed and signed a
Certificate of Origin shall also include a statement regarding the
right to file a protest against the denial under part 174 of this
chapter.
Subpart E--Restrictions on Drawback and Duty-Deferral Programs
Sec. 181.41 Applicability.
This subpart sets forth the provisions regarding drawback claims
and duty-deferral programs under Article 303 of the NAFTA and applies
to any good that is a ``good subject to NAFTA drawback'' within the
meaning of 19 U.S.C. 3333. Except in the case of Sec. 181.42(d), the
provisions of this subpart apply to goods which are imported into the
United States and then subsequently exported from the United States to
Canada on or after January 1, 1996, or to Mexico on or after January 1,
2001. The requirements and procedures set forth in this subpart for
NAFTA drawback are in addition to the general definitions, requirements
and procedures for all drawback claims set forth in part 191 of this
chapter, unless otherwise specifically provided in this subpart. Also,
the requirements and procedures set forth in this subpart for NAFTA
duty-deferral programs are in addition to the requirements and
procedures for manipulation, manufacturing and smelting and refining
warehouses contained in part 19 and part 144 of this chapter, for
foreign trade zones under part 146 of this chapter, and for temporary
importations under bond contained in part 10 of this chapter.
Sec. 181.42 Duties and fees not subject to drawback.
The following duties or fees which may be applicable to a good
entered for consumption in the Customs territory of the United States
are not subject to drawback under this subpart:
(a) Antidumping and countervailing duties;
(b) A premium offered or collected on a good with respect to
quantitative import restrictions, tariff rate quotas or tariff
preference levels;
[[Page 46369]]
(c) Fees applied under section 22 of the U.S. Agricultural
Adjustment Act; and
(d) Customs duties paid or owed under unused merchandise
substitution drawback. There shall be no payment of such drawback under
19 U.S.C. 1313(j)(2) on goods exported to Canada or Mexico on or after
January 1, 1994.
Sec. 181.43 Eligible goods subject to drawback.
Except as otherwise provided in this subpart, drawback is
authorized for an imported good that is entered for consumption and is:
(a) Subsequently exported to Canada or Mexico (see 19 U.S.C.
1313(j)(1));
(b) Used as a material in the production of another good that is
subsequently exported to Canada or Mexico (see 19 U.S.C. 1313(a)); or
(c) Substituted by a good of the same kind and quality as defined
in Sec. 181.44(c) of this subpart and used as a material in the
production of another good that is subsequently exported to Canada or
Mexico (see 19 U.S.C. 1313(b)).
Sec. 181.44 Calculation of drawback.
(a) General. Except in the case of goods specified in Sec. 181.45
of this part, drawback of the duties previously paid upon importation
of a good into the United States may be granted by the United States,
upon presentation of a NAFTA drawback claim under this subpart, on the
lower amount of:
(1) The total duties paid or owed on the good in the United States;
or
(2) The total amount of duties paid on the exported good upon
subsequent importation into Canada or Mexico.
(b) Individual relative value and duty comparison principle. For
purposes of this section, relative value shall be determined, and the
comparison between the duties referred to in paragraph (a)(1) of this
section and the duties referred to in paragraph (a)(2) of this section
shall be made, separately with reference to each individual exported
good, including where two components or materials are used to produce
one exported good or one component or material is divided among
multiple exported goods.
Example. Upon importation of Chemical X into the United States,
Company A entered Chemical X and paid $2.00 in duties. Company A
processed Chemical X into Products Y and Z, each having the same
relative value; that is, $1.00 in duty is attributable to Product Y
and $1.00 in duty is attributable to Product Z. Company A exported
Product Y to Canada and Canada assessed a free rate of duty. Company
A exported Product Z to Mexico and Mexico assessed the equivalent of
US$2.00 in duty. There is no entitlement to drawback on the export
of Product Y to Canada because zero is the lesser amount when
compared to the $1.00 in duty attributable to Product Y as a result
of the separation of Chemical X into Products Y and Z. There would
be entitlement to drawback on the export to Mexico, consisting of
the $1.00 duty attributable to Product Z, because that amount is the
lesser amount when comparing the duty paid to the United States and
the US$ equivalent duty paid to Mexico.
(c) Direct identification manufacturing drawback under 19 U.S.C.
1313(a). Upon presentation of the NAFTA drawback claim under 19 U.S.C.
1313(a), in which the amount of drawback payable is based on the lesser
amount of the customs duties paid on the good either to the United
States or to Canada or Mexico, the amount of drawback refunded shall
not exceed 99 percent of the duty paid on such imported merchandise
into the United States.
Example 1. Upon the importation of Product X to the United
States from Japan, Company A paid $2.00 in duties. Company A
manufactured the imported Product X into Product Y, and subsequently
exported it to Mexico. Mexico assessed the equivalent of US$11.00 in
duties upon importation of Product Y. Upon presenting a drawback
claim in the United States, in accordance with 19 U.S.C. 1313(a),
Company A would be entitled to a refund of 99 percent of the $2.00,
or $1.98. The $2.00 paid by Company A (less 1 percent) on the
importation of Product X into the United States is a lesser amount
of duties than the total amount of customs duties paid to Mexico
(the equivalent of US$11.00) on Product Y.
Example 2. Upon the importation of Product X into the United
States from Hong Kong, Company A entered Product X and paid $5.00 in
duties. Company A manufactured Product X into Product Y, sold it to
Company B in Mexico and subsequently exported it to Mexico. Company
A reserved its right to drawback. Upon Product Y's importation,
Company B was assessed a free rate of duty. Company A's claim for
drawback will be denied because Company A is entitled to zero
drawback for the reason that, as between the duty paid in the United
States and the duty paid in Mexico, the duty in Mexico was zero.
(d) Substitution manufacturing drawback under 19 U.S.C. 1313(b).
Upon presentation of a NAFTA drawback claim under 19 U.S.C. 1313(b), on
which the amount of drawback payable is based on the lesser amount of
the customs duties paid on the good either to the United States or to
Canada or Mexico, the amount of drawback is the same as that which
would have been allowed had the substituted merchandise used in
manufacture been itself imported. For purposes of drawback under this
subpart, the term ``same kind and quality'' used in Sec. 1313(b) (see
Sec. 191.2(m) of this chapter) shall have the same meaning as the term
``identical or similar good'' used in Article 303 of the NAFTA except
that there shall be no requirement that the good be manufactured in the
same country.
Example 1. Upon importation of Product X from Japan to the
United States, Company A paid $5.00 in duties. Company A substituted
a same kind and quality domestic Product X for the Japanese Product
X in its production of Product Y under its 19 U.S.C. 1313(b)
drawback contract. Company A sold Product Y to Company B which
subsequently exported it to Canada. On the importation of Product Y
by Company B, Company B paid the equivalent of US$2.00 in duties
assessed by Revenue Canada and waived its right to drawback to
Company A. Company A is entitled to obtain drawback under 19 U.S.C.
1313(b) in the United States in the amount of $1.98 (or 99 percent
of the US$2.00 equivalent Company B paid in duty to Canada) since
that $2.00 was the lesser of the total amount of customs duties paid
on the product to either Canada or the United States.
Example 2. Same facts as above example, but Company B paid the
equivalent of US$5.00 to Revenue Canada. Company A is entitled to
obtain $4.95 in drawback (a refund of 99 percent of $5.00 paid to
the United States). Since the same amount of duty was assessed by
each country, drawback is allowable because the drawback paid does
not exceed the lesser amount paid.
(e) Meats cured with imported salt. Meats, whether packed or
smoked, which have been cured with imported salt may be eligible for
drawback in aggregate amounts of not less than $100 in duties paid on
the imported salt upon exportation of the meats to Canada or Mexico
(see 19 U.S.C. 1313(f)).
Example. Company Z produced Virginia smoked ham on its
Smithfield, Virginia farm, using 4,000 pounds of imported salt in
curing the meat. The salt was imported from an HTSUS Column 2
country, with a duty of $200. Upon exportation of the hams to
Mexico, Company Z pays the equivalent of US$250.00 in duties to
Mexico. Company Z is entitled to drawback of the full 100 percent of
the $200.00 in duties it paid on the importation of the salt into
the United States because that $200.00 is a lesser amount than the
total amount of customs duties paid to Mexico on the exported meat.
(f) Jet aircraft engines. A foreign-built jet aircraft engine that
has been overhauled, repaired, rebuilt, or reconditioned in the United
States with the use of imported merchandise, including parts, may be
eligible for drawback of duties paid on the imported merchandise in
aggregate amounts of not less than $100 upon exportation of the engine
to Canada or Mexico (19 U.S.C. 1313(h)).
[[Page 46370]]
Example. A Swedish-made jet aircraft engine is repaired in the
United States using imported parts from Korea on which $160.00 in
duties have been paid by Company W. The engine is subsequently
exported to Canada by Company W and Company W pays the equivalent of
US$260.00 in duties to Canada. Upon showing the country in which the
engine was manufactured and a description of the processing
performed thereon in the United States on Customs Form 7575-A,
appropriately modified, Company W is entitled to the full refund of
the duties paid to the United States since that $160.00 was a lesser
amount than the duties paid on the engine to Canada.
(g) Unused goods under 19 U.S.C. 1313(j)(1) that have changed in
condition. An imported good that is unused in the United States under
19 U.S.C. 1313(j)(1) and that is shipped to Canada or Mexico not in the
same condition within the meaning of Sec. 181.45(b)(1) may be eligible
for drawback under this section, except when the shipment to Canada or
Mexico does not constitute an exportation under 19 U.S.C. 1313(j)(4).
Example. Upon importation of Product X from Spain to the United
States, the U.S. importer pays $10.00 in duties. While in the
original package in the importer's warehouse, Product X becomes
damaged. A Canadian purchaser buys Product X and imports it into
Canada and pays the equivalent of US$5.00 in duties assessed by
Revenue Canada. The Canadian purchaser who exported Product X from
the United States to Canada and who otherwise qualifies for drawback
is entitled to drawback under 19 U.S.C. 1313(j)(1) in the amount of
$4.95 (99 percent of the US$5.00 equivalent in duties paid to
Canada). Eligibility for full drawback of the $10.00 in U.S. duties
under Sec. 181.45(b) would be precluded because Product X, although
unused, was not exported to Canada in the same condition as when
imported into the United States within the meaning of
Sec. 181.45(b)(1).
Sec. 181.45 Goods eligible for full drawback.
(a) Goods originating in Canada or Mexico. A Canadian or Mexican
originating good that is dutiable and is imported into the United
States is eligible for drawback without regard to the limitation on
drawback set forth in Sec. 181.44 of this part if that originating good
is:
(1) Subsequently exported to Canada or Mexico;
(2) Used as a material in the production of another good that is
subsequently exported to Canada or Mexico; or
(3) Substituted by a good of the same kind and quality and used as
a material in the production of another good that is subsequently
exported to Canada or Mexico.
Example. Company A imports a dutiable (3 percent rate) Canadian
originating good. During Company A's manufacturing process, Company
A substitutes a German good of the same kind and quality (on which
duty was paid at a 2.5 percent rate) in the production of another
good that is subsequently exported to Canada. Company A may
designate the dutiable Canadian entry and claim full drawback (99
percent) on the 3 percent duty paid under 19 U.S.C. 1313(b). (Note:
NAFTA originating goods will continue to receive full drawback as
they cross NAFTA borders for successive stages of production until
NAFTA tariffs are fully phased out.)
(b) Claims under 19 U.S.C 1313(j)(1) for goods in same condition. A
good imported into the United States and subsequently exported to
Canada or Mexico in the same condition is eligible for drawback under
19 U.S.C. 1313(j)(1) without regard to the limitation on drawback set
forth in Sec. 181.44 of this part.
Example. X imports a desk into the United States from England
and pays $25.00 in duty. X immediately exports the desk to Z in
Mexico and Z pays the equivalent of US$10.00 in Mexican duties. X
can obtain a refund of 99 percent of the $25.00 paid upon
importation of the desk into the United States.
(1) Same condition defined. For purposes of this subpart, a
reference to a good in the ``same condition'' includes a good that has
been subjected to any of the following operations provided that no such
operation materially alters the characteristics of the good:
(i) Mere dilution with water or another substance;
(ii) Cleaning, including removal of rust, grease, paint or other
coatings;
(iii) Application of preservative, including lubricants, protective
encapsulation, or preservation paint;
(iv) Trimming, filing, slitting or cutting;
(v) Putting up in measured doses, or packing, repacking, packaging
or repackaging; or
(vi) Testing, marking, labelling, sorting or grading.
(2) Commingling of fungible goods--(i) General. Commingling of
fungible goods in inventory, such as parts, is permissible (see
Sec. 191.141(e) of this chapter), provided that the entries for
designation for same condition drawback are identified on the basis of
an approved inventory method set forth in the appendix to this part.
(ii) Exception. Agricultural goods imported from Mexico may not be
commingled with fungible agricultural goods in the United States for
purposes of same condition drawback under this subpart.
(c) Goods not conforming to sample or specifications or shipped
without consent of consignee under 19 U.S.C. 1313(c). An imported good
exported to Canada or Mexico by reason of failure of the good to
conform to sample or specification or by reason of shipment of the good
without the consent of the consignee is eligible for drawback under 19
U.S.C. 1313(c) without regard to the limitation on drawback set forth
in Sec. 181.44 of this part. Such a good must be returned to Customs
custody for exportation under Customs supervision within three years
after the release from Customs custody.
Example. X orders, after seeing a sample in the ABC Company's
catalog, a certain quantity of 2-by-4 lumber from ABC Company
located in Honduras. ABC Company, having run out of the specific
lumber, ships instead a different kind of lumber. X rejects the
lumber because it did not conform to the sample and is asked to send
it to a customer of ABC in Canada. X exports it within 90 days of
its release from Customs custody. X may recover 99 percent of the
$500 duties it paid to U.S. Customs upon the exportation of the
lumber, or $495.00.
(d) Certain goods exported to Canada. Goods identified in Annex
303.6 of the NAFTA and in sections 203(a) (7) and (8) of the North
American Free Trade Agreement Implementation Act, if exported to
Canada, are eligible for drawback without regard to the limitation on
drawback set forth in Sec. 181.44 of this part.
Sec. 181.46 Time and place for filing drawback claim.
(a) Time of filing. A drawback claim under this subpart shall be
filed or applied for, as applicable, within 3 years after the date of
exportation of the goods on which drawback is claimed. No extension
will be granted unless it is established that a Customs officer was
responsible for the untimely filing. Drawback shall be allowed only if
the completed good is exported within 5 years after importation of the
merchandise identified or designated to support the claim. A good
subject to a claim for same condition drawback must be exported before
the close of the 3-year period beginning on the date of importation of
the good into the United States.
(b) Place of filing. A drawback claim must be filed at the port(s)
where the manufacturing drawback contract is on file, whether a general
rate or specific rate, but exportation need not occur from that port.
To facilitate expedited processing of claims, claimants should file
same condition drawback claims in the port where the examination would
take place (see Sec. 191.141(b)(3) (ii) and (iii) of this chapter).
Customs must be notified at least 2 working days in advance of the
intended date of
[[Page 46371]]
exportation in order to have the opportunity to examine the goods.
Sec. 181.47 Completion of claim for drawback.
(a) General. A claim for drawback shall be granted, upon the
submission of appropriate documentation to substantiate compliance with
the drawback laws and regulations of the United States, evidence of
exportation to Canada or Mexico, and satisfactory evidence of the
payment of duties to Canada or Mexico. Unless otherwise provided in
this subpart, the documentation, filing procedures, time and place
requirements and other applicable procedures required to determine
whether a good qualifies for drawback shall be in accordance with the
provisions of part 191 of this chapter; however, a drawback claim
subject to the provisions of this subpart shall be filed separately
from any part 191 drawback claim (that is, a claim that involves goods
exported to countries other than Canada or Mexico). Claims
inappropriately filed or otherwise not completed within the 3-year
period specified in Sec. 181.46 of this part shall be considered
abandoned.
(b) Complete drawback claim--(1) General. A complete drawback claim
under this subpart shall consist of the filing of the appropriate
completed drawback entry form, evidence of exportation (a copy of the
Canadian or Mexican customs entry showing the amount of duty paid to
Canada or Mexico) and its supporting documents, certificate(s) of
delivery, when necessary, or certificate(s) of manufacture and
delivery, and a certification from the Canadian or Mexican importer as
to the amount of duties paid. Each drawback entry form filed under this
subpart shall be conspicuously marked at the top with the word
``NAFTA''.
(2) Specific claims. The following documentation, for the drawback
claims specified below, must be submitted to Customs in order for a
drawback claim to be processed under this subpart. Missing
documentation or incorrect or incomplete information on required
customs forms or supporting documentation will result in an incomplete
drawback claim.
(i) Manufacturing drawback claim. The following shall be submitted
in connection with a claim for direct identification manufacturing
drawback or substitution manufacturing drawback:
(A) A completed Customs Form 331, to establish the manufacture of
goods made with imported merchandise and, if applicable, the identity
of substituted domestic, duty-paid or duty-free merchandise, and
including the tariff classification number of the imported merchandise;
(B) Customs Form 7501 or the import entry number;
(C) Exporter's summary procedure, if applicable. For purposes of
this subpart, the exporter's summary procedure must include the
Canadian or Mexican customs entry number and the amount of duty paid to
Canada or Mexico;
(D) Evidence of exportation and satisfactory evidence of the
payment of duties in Canada or Mexico, as provided in paragraph (c) of
this section;
(E) Waiver of right to drawback. If the person exporting to Canada
or Mexico was not the importer or the manufacturer, written waivers
executed by the importer or manufacturer and by any intervening person
to whom the good was transferred shall be submitted in order for the
claim to be considered complete; and
(F) An affidavit of the party claiming drawback stating that no
other drawback claim has been made on the designated goods, that such
party has not provided an exporter's Certificate of Origin pertaining
to the exported goods to another party except as stated on the drawback
claim, and that the party agrees to notify Customs if he subsequently
provides such an exporter's Certificate of Origin to any person.
(ii) Same condition drawback claim under 19 U.S.C. 1313(j)(1). The
following shall be submitted in connection with a drawback claim
covering a good in the same condition:
(A) A completed Customs Form 7539J. In addition, the tariff
classification number of the imported goods shall be recorded on the
form;
(B) Customs Form 7501. The form must show the entry number, date of
entry, port of importation, date of importation, importing carrier, and
importer of record or ultimate consignee name and Customs or taxpayer
identification number. Explicit line item information shall be clearly
noted on the Customs Form 7501 so that the subject goods are easily
discernible;
(C) Customs Form 7505, if applicable, to trace the movement of the
imported goods after importation;
(D) The certificate of delivery portion of Customs Form 331, if
applicable, for purposes of tracing the transfer of ownership of the
imported goods from the importer to the claimant. This is required if
the drawback claimant is not the original importer of the merchandise
which is the subject of a same condition claim;
(E) Customs Form 7512, if applicable. This is required for
merchandise which is examined at one port but exported through border
points outside of that port. Such goods must travel in bond from the
location where they were examined to the point of the border crossing
(exportation). If examination is waived, in-bond transportation is not
required;
(F) Notification of intent to export or waiver of prior notice;
(G) Evidence of exportation. If a claimant is not approved for the
exporter's summary procedure, either a certified Customs Form 7511 or
an uncertified Customs Form 7511 supported by documentary evidence of
exportation to Canada or Mexico such as a bill of lading, air waybill,
freight waybill, export ocean bill of lading, Canadian customs
manifest, cargo manifest, or certified copies thereof, issued by the
exporting carrier, or any other evidence of exportation provided for in
Sec. 191.51 of this chapter. Supporting documentary evidence shall
establish fully the time and fact of exportation, the identity of the
exporter, and the identity and location of the ultimate consignee of
the exported goods;
(H) Waiver of right to drawback. If the party exporting to Canada
or Mexico was not the importer, a written waiver from the importer and
from each intermediate person to whom the goods were transferred shall
be required in order for the claim to be considered complete; and
(I) An affidavit of the party claiming drawback stating that no
other drawback claim has been made on the designated goods.
(iii) Nonconforming or improperly shipped goods drawback claim. The
following shall be submitted in the case of goods not conforming to
sample or specifications or shipped without the consent of the
consignee and subject to a drawback claim under 19 U.S.C. 1313(c):
(A) Customs Form 7539C, completed and submitted at the time the
goods are returned to Customs custody;
(B) Customs Form 7501 to establish the fact of importation, the
receipt of the imported goods and the identity of the party to whom
drawback is payable (see Sec. 181.48(c) of this part);
(C) Documentary evidence to support the claim that the goods did
not conform to sample or specifications or were shipped without the
consent of the consignee. In the case of nonconforming goods, such
documentation may include a copy of a purchase order and any related
documents such as a specification sheet, catalogue or
[[Page 46372]]
advertising brochure from the supplier, the basis for which the order
was placed, and copy of a letter or telex or credit memo from the
supplier indicating acceptance of the returned merchandise. This
documentation is necessary to establish that the goods are, in fact,
being returned to the party from which they were procured or that they
are being sent to the supplier's other customer directly;
(D) Customs Form 7512, if applicable; and
(E) Evidence of exportation, as provided in paragraph (b)(2)(ii)(G)
of this section.
(iv) Meats cured with imported salt. The provisions of paragraph
(b)(2)(i) of this section relating to direct identification
manufacturing drawback shall apply to claims for drawback on meats
cured with imported salt filed under this subpart insofar as applicable
to and not inconsistent with the provisions of this subpart, and the
forms referred to in that paragraph shall be modified to show that the
claim is being made for refund of duties paid on salt used in curing
meats.
(v) Jet aircraft engines. The provisions of paragraph (b)(2)(i) of
this section relating to direct identification manufacturing drawback
shall apply to claims for drawback on foreign-built jet aircraft
engines repaired or reconditioned in the United States filed under this
subpart insofar as applicable to and not inconsistent with the
provisions of this subpart and the provisions of subpart L of part 191
of this chapter.
(c) Evidence of exportation and of duties paid in Canada or Mexico.
For purposes of this subpart, evidence of exportation and satisfactory
evidence of payment of duties in Canada or Mexico shall consist of one
of the following types of documentation, provided that, for purposes of
evidence of duties paid, such documentation includes the import entry
number, the date of importation, the tariff classification number, the
rate of duty and the amount of duties paid:
(1) In the case of Canada, the Canadian entry document, referred
to as the Canada Customs Invoice or B-3, presented with either the K-84
Statement or the Detailed Coding Statement. A Canadian customs document
that is not accompanied by a valid receipt is not adequate evidence of
exportation and payment of duty in Canada;
(2) In the case of Mexico, the Mexican entry document (the
``pedimento'');
(3) The final customs duty determination of Canada or Mexico, or a
copy thereof, respecting the relevant entry; or
(4) An affidavit, from the person claiming drawback, which is
based on information received from the importer of the good in Canada
or Mexico.
Sec. 181.48 Person entitled to receive drawback.
(a) Manufacturing drawback. The person named as exporter on the
notice of exportation or on the bill of lading, air waybill, freight
waybill, Canadian or Mexican customs manifest, cargo manifest, or
certified copies of these documents, shall be considered the exporter
and entitled to manufacturing drawback, unless the manufacturer or
producer shall reserve the right to claim drawback. The manufacturer or
producer who reserves this right may claim drawback, and he shall
receive payment upon production of satisfactory evidence that the
reservation was made with the knowledge and consent of the exporter.
Drawback also may be granted to the agent of the manufacturer,
producer, or exporter, or to the person the manufacturer, producer,
exporter, or agent directs in writing to receive the drawback of
duties.
(b) Nonconforming or improperly shipped goods drawback. Only the
importer of record or the actual owner of the merchandise or its agent
may claim drawback under 19 U.S.C. 1313(c).
(c) Same condition drawback. The importer of record on the
consumption entry is entitled to claim same condition drawback under 19
U.S.C. 1313(j)(1) unless he has in writing waived his right to claim
drawback.
Sec. 181.49 Retention of records.
All records required to be kept by the exporter, importer,
manufacturer or producer under this subpart with respect to
manufacturing drawback claims, and all records kept by others which
complement the records of the importer, exporter, manufacturer or
producer (see Sec. 191.5 of this chapter) shall be retained for at
least three years after payment of such claims. However, any person who
issues a drawback certificate that enables another person to make or
perfect a drawback claim shall keep records in support of that
certificate commencing on the date that the certificate is issued and
shall retain those records for three years following the date of
payment of the claim.
Sec. 181.50 Liquidation and payment of drawback claims.
(a) General. When the drawback claim has been fully completed by
the filing of all required documents, and exportation of the articles
has been established and the amount of duties paid to Canada or Mexico
has been established, the entry will be liquidated to determine the
proper amount of drawback due either in accordance with the limitation
on drawback set forth in Sec. 181.44 of this part or in accordance with
the regular drawback calculation. The liquidation procedures of subpart
G of part 191 of this chapter shall control for purposes of this
subpart.
(b) Time for liquidation. A drawback claim shall not be liquidated
until either a written waiver of the right to protest under 19 U.S.C.
1514 is filed with Customs or the liquidation of the import entry has
become final under U.S. law. In addition, except in the case of goods
covered by Sec. 181.45 of this part, a drawback claim shall not be
liquidated for a period of 3 years after the date of entry of the goods
in Canada or Mexico. A drawback claim may be adjusted pursuant to 19
U.S.C. 1508(b)(2)(B)(iii) even after liquidation of the U.S. import
entry has become final.
(c) Accelerated payment. Accelerated drawback payment procedures
shall apply as set forth in Sec. 191.72 of this chapter. However, a
person who receives drawback of duties under this procedure shall repay
the duties paid if a NAFTA drawback claim is adversely affected
thereafter by administrative or court action.
Sec. 181.51 Prevention of improper payment of claims.
(a) Double payment of claim. The drawback claimant shall certify
to Customs that he has not earlier received payment on the same import
entry for the same designation of goods. If, notwithstanding such a
certification, such an earlier payment was in fact made to the
claimant, the claimant shall repay any amount paid on the second claim.
(b) Preparation of Certificate of Origin. The drawback claimant
shall, within 30 calendar days after the filing of the drawback claim
under this subpart, submit to Customs a written statement as to whether
he has prepared, or has knowledge that another person has prepared, a
Certificate of Origin provided for under Sec. 181.11(a) of this part
and pertaining to the goods which are covered by the claim. If,
following such 30-day period, the claimant prepares, or otherwise
learns of the existence of, any such Certificate of Origin, the
claimant shall, within 30 calendar days thereafter, disclose that fact
to Customs.
[[Page 46373]]
Sec. 181.52 Subsequent claims for preferential tariff treatment.
If a claim for a refund of duties is allowed by the Canadian or
Mexican customs administration under Article 502(3) of the NAFTA (post-
importation claim) or under any other circumstance after drawback has
been granted under this subpart, the appropriate Customs officer shall
reliquidate the drawback claim and obtain a refund of the amount paid
in drawback in excess of the amount permitted to be paid under
Sec. 181.44 of this part.
Sec. 181.53 Waiver or reduction of duty under duty-deferral programs.
(a) General--(1) Duty-deferral program defined. For purposes of
this section, a ``duty-deferral program'' means a measure which
postpones duty payment upon arrival of a good in the United States,
including a measure governing manipulation warehouses, manufacturing
warehouses, smelting and refining warehouses, foreign trade zones, or
temporary importations under bond under Chapter 98, HTSUS, until
withdrawn or removed for exportation to Canada or Mexico.
(2) Treatment as entered or withdrawn for domestic consumption.
Where a ``good subject to NAFTA drawback'' within the meaning of 19
U.S.C. 3333 is imported into the United States pursuant to a duty-
deferral program and is subsequently exported to Canada or Mexico or is
used as a material in the production of another good that is
subsequently exported to Canada or Mexico, the exported good shall be
treated, for purposes of this section, as if it had been entered or
withdrawn for domestic consumption and thus subject to duty. However,
the provisions of this paragraph shall not apply to goods covered by
Sec. 181.45.
(3) Adjustment to duties paid. Customs shall waive or reduce the
duties paid or owed under paragraph (a)(2) of this section by the
person who exports the good to Canada or Mexico in accordance with
paragraphs (b) through (f) of this section, provided that evidence of
exportation and satisfactory evidence of duties paid in Canada or
Mexico (see Sec. 181.47(c) of this part) are submitted within 60
calendar days of the date of exportation.
(b) Manipulation in warehouse. Where a good subject to NAFTA
drawback under this subpart is withdrawn from a bonded warehouse (19
U.S.C. 1562) after manipulation for exportation to Canada or Mexico,
duty shall be assessed on the good in its condition and quantity, and
at its weight, at the time of such withdrawal from the warehouse and
with such additions to, or deductions from, the final appraised value
as may be necessary by reason of its change in condition. Such duty
shall be paid no later than 60 calendar days after the date of
exportation except that, upon presentation of evidence of exportation
and satisfactory evidence of the amount of any customs duties paid to
Canada or Mexico on the exported good, the duty shall be waived or
reduced in an amount that does not exceed the lesser of either the
total amount of duty payable on the good under this section or the
total amount of customs duties paid to Canada or Mexico.
Example. Company B imports toys in bulk and makes a warehouse
entry into a Class 8 warehouse, whereupon Company B repackages the
toys for retail sale. Upon withdrawal of the goods from the
warehouse, $200 in U.S. duty is assessed. Company B exports this
merchandise to Mexico and pays the equivalent of US$300 in duties.
Thirty days after exportation from the United States, Company B
submits to Customs evidence of exportation and a copy of the Mexican
consumption entry (``pedimento'') as evidence of the payment of the
US$300 equivalent to Mexico. Customs will waive the collection of
the $200 assessment since $200 is a lesser amount than the total
amount of duties paid to Mexico.
(c) Bonded manufacturing warehouse. Where a good is manufactured
in a bonded warehouse (19 U.S.C. 1311) with imported materials and is
then withdrawn for exportation to Canada or Mexico, duty shall be
assessed on the materials in their condition and quantity, and at their
weight, at the time of their importation into the United States. Such
duty shall be paid no later than 60 calendar days after the date of
exportation except that, upon presentation of evidence of exportation
and satisfactory evidence of the amount of any customs duties paid to
Canada or Mexico on the exported good, the duty shall be waived or
reduced in an amount that does not exceed the lesser of either the
total amount of duty payable on the materials under this section or the
total amount of customs duties paid to Canada or Mexico.
Example. Company N imports tea into the United States and makes
a Class 6 warehouse entry. Company N manufactures sweetened ice tea
mix by combining the imported tea with refined cane sugar and other
flavorings and packaging it in retail size canisters. Upon
withdrawal of the ice tea mix from the warehouse for immediate
exportation to Canada, U.S. duty is assessed on the basis of the
unmanufactured tea in the amount of $900. Company N, however, does
not pay the duties at this time. Canada assesses the equivalent of
US$800 on the exported ice tea mix. Company N submits to Customs
both evidence of exportation to Canada and a Canadian K-84 Statement
showing payment of the US$800 equivalent in duties to Canada.
Company N will only be required to pay $100 in U.S. duties out of
the original $900 bill.
(d) Bonded smelting or refining warehouse. For any qualifying
imported metal-bearing materials (19 U.S.C. 1312), duty shall be
assessed on the imported materials and the charges against the bond
canceled no later than 60 calendar days after the date of exportation
of the treated materials to Canada or Mexico either from the bonded
smelting or refining warehouse or from such other customs bonded
warehouse after the transfer of the same quantity of material from a
bonded smelting or refining warehouse. However, upon presentation of
evidence of exportation and satisfactory evidence of the amount of any
customs duties paid to Canada or Mexico on the exported treated
materials, the duty on the imported materials shall be waived or
reduced in an amount that does not exceed the lesser of either the
total amount of duty payable on the imported materials under this
section or the total amount of customs duties paid to Canada or Mexico.
Example. Company Z imports 47 million pounds of electrolytic
zinc which is entered into a bonded smelting and refining warehouse
(Class 7) for processing. Thereafter, Company Z withdraws the
merchandise and pays $90,000 in U.S. duty on the dutiable quantity
of metal contained in the imported metal-bearing materials and
Customs cancels the bond charges. Two weeks later, Company Z secures
a buyer, Company B, in Canada and exports the merchandise. Upon
importation of the processed zinc into Canada, the equivalent of
US$50,000 in duties are assessed against Company B. Company Z would
like to claim a NAFTA refund under this section. Company Z must
secure from Company B the necessary Canadian documentation to show
exportation and to show that the US$50,000 equivalent in duties was
paid to Revenue Canada in order for Company Z to obtain a refund of
that amount from Customs.
(e) Foreign trade zone. For a good that is manufactured or
otherwise changed in condition in a foreign trade zone (19 U.S.C.
81c(a)) and then exported from the zone to Canada or Mexico, the duty
assessed, as calculated under paragraph (e)(1) or (e)(2) of this
section, shall be paid no later than 60 calendar days after the date of
exportation of the good to Canada or Mexico except that, upon
presentation of evidence of exportation and satisfactory evidence of
the amount of any customs duties paid to Canada or Mexico on the
exported good, the duty shall be waived or reduced in an amount that
does not exceed the lesser of either the total amount of duty payable
on the good under this section
[[Page 46374]]
or the total amount of customs duties paid to Canada or Mexico.
(1) Nonprivileged foreign status. In the case of a nonprivileged
foreign status good, duty is assessed on the good in its condition and
quantity, and at its weight, at the time of its exportation from the
zone to Canada or Mexico.
Example. CMG imports $1,000,000 worth of auto parts from Korea
and admits them into Foreign-Trade Subzone number 00, claiming
nonprivileged foreign status. (If the auto parts had been regularly
entered they would have been dutiable at 4 percent, or $40,000.) CMG
manufactures subcompact automobiles. Automobiles are dutiable at 2.5
percent ($25,000) if entered for consumption in the United States.
CMG withdraws the automobiles from the zone and sells them to XYZ
who ships them to Mexico. XYZ enters the automobiles in Mexico, pays
the equivalent of US$20,000 in duty, and does not claim NAFTA
preferential tariff treatment. Before the expiration of 60 calendar
days from exportation, CMG submits the required documentation
showing exportation and payment of duty in Mexico and pays $5,000 in
duty to Customs representing the difference between the $25,000
which would have been paid if the automobiles had been entered for
consumption from the zone and the US$20,000 equivalent paid to
Mexico by XYZ.
(2) Privileged foreign status. In the case of a privileged foreign
status good, duty is assessed on the good in its condition and
quantity, and at its weight, at the time privileged status is granted
in the zone.
Example. O&G, Inc. admits Kuwaiti crude petroleum into its zone
and requests, one month later, privileged foreign status on the
crude before refining the crude into motor gasoline and kerosene.
Upon entry of the refined goods from the zone by O&G, Inc., U.S.
duty is assessed on the imported crude petroleum in the amount of
$700 rather than on the refined goods (which would have been
assessed $1,200). O&G, Inc. then ships the refined goods to Canada.
D&O is the consignee in Canada and pays the Canadian customs duty
assessment of the equivalent of US$1,500 on the goods. D&O claims
NAFTA preferential tariff treatment in Canada. O&G, Inc. potentially
is entitled to a duty remission of the full $700 assessed in the
United States. However, if D&O's NAFTA claim is approved and results
in a refund of duty by Canada, O&G, Inc.'s actual duty remission or
refund will be reduced by that amount of refund received by D&O in
excess of $800.
(f) Temporary importation under bond. Where a good, regardless of
its origin, was imported temporarily free of duty for repair,
alteration or processing (subheading 9813.00.05, HTSUS) and is
subsequently exported to Canada or Mexico, duty shall be assessed on
the good on the basis of its condition at the time of its importation
into the United States. Such duty shall be paid no later than 60
calendar days after the date of exportation except that, upon
presentation of evidence of exportation and satisfactory evidence of
the amount of any customs duties paid to Canada or Mexico on the
exported good, the duty shall be waived or reduced in an amount that
does not exceed the lesser of the total amount of duty payable on the
good under this section or the total amount of customs duties paid to
Canada or Mexico.
Example. Company A imports glassware under subheading
9813.00.05, HTSUS. The glassware is from France and would be
dutiable under a regular consumption entry at $6,000. Company A
alters the glassware by etching hotel logos on the glassware. Two
weeks later, Company A sells the glassware to Company B, a Mexican
company, and ships the glassware to Mexico. Company B enters the
glassware and is assessed duties in an amount equivalent to US$6,200
and claims NAFTA preferential tariff treatment. Company B provides a
copy of the Mexican landing certificate to Company A showing that
the US$6,200 equivalent in duties was assessed but not yet paid to
Mexico, and Customs sends a bill to Company A for the $6,000 in U.S.
duty which Company A pays. If Mexico ultimately denies Company B's
NAFTA claim and the Mexican duty payment becomes final, Company A,
upon submission to Customs of evidence of the finality of the
collection of the US$6,200 equivalent by Mexico, is entitled to a
refund of the full $6,000 in U.S. duty.
(g) Recordkeeping requirements. If a person intends to claim a
waiver or reduction of duty on goods under this section, that person
shall maintain records concerning the value of all involved goods or
materials at the time of their importation into the United States and
concerning the value of the goods at the time of their exportation to
Canada or Mexico. Failure to maintain adequate records will result in
denial of the claim for waiver or reduction of duty.
(h) Failure to timely provide evidence of duties paid or owed to
Canada or Mexico. If the person who exports the goods to Canada or
Mexico fails to provide satisfactory evidence of duties paid or owed to
Canada or Mexico within the 60-day period specified in this section,
that person will be liable for payment of the full duties assessed
under this section and without any waiver or reduction thereof.
(i) Subsequent claims for preferential tariff treatment. If a claim
for a refund of duties is allowed by the Canadian or Mexican customs
administration under Article 502(3) of the NAFTA or under any other
circumstance after duties have been waived or reduced under this
section, Customs shall reliquidate the NAFTA drawback claim and obtain
a refund of the amount waived or reduced in excess of the amount
permitted to be waived or reduced under this section.
Sec. 181.54 Verification of claim for drawback, waiver or reduction of
duties.
The allowance of a claim for drawback, waiver or reduction of
duties submitted under this subpart shall be subject to such
verification, including verification with the Canadian or Mexican
customs administration of any documentation obtained in Canada or
Mexico and submitted in connection with the claim, as Customs may deem
necessary.
Subpart F--Commercial Samples and Goods Returned After Repair or
Alteration
Sec. 181.61 Applicability.
This subpart sets forth the rules which apply for purposes of duty-
free entry of commercial samples of negligible value as provided for in
Article 306 of the NAFTA and for purposes of the re-entry of goods
after repair or alteration in Canada or Mexico as provided for in
Article 307 of the NAFTA.
Sec. 181.62 Commercial samples of negligible value.
(a) General. Commercial samples of negligible value imported from
Canada or Mexico may qualify for duty-free entry under subheading
9811.00.60, HTSUS. For purposes of this section, ``commercial samples
of negligible value'' means commercial samples which have a value,
individually or in the aggregate as shipped, of not more than US$1, or
the equivalent amount in the currency of Canada or Mexico, or which are
so marked, torn, perforated, or otherwise treated that they are
unsuitable for sale or for use except as commercial samples.
(b) Qualification for duty-free entry. Commercial samples of
negligible value imported from Canada or Mexico will qualify for duty-
free entry under subheading 9811.00.60, HTSUS, only if:
(1) The samples are imported solely for the purpose of soliciting
orders for foreign goods; and
(2) If valued over US$1, the samples are properly marked, torn,
perforated or otherwise treated prior to arrival in the United States
so that they are unsuitable for sale or for use except as commercial
samples.
Sec. 181.63 [Reserved]
Sec. 181.64 Goods re-entered after repair or alteration in Canada or
Mexico.
(a) General. This section sets forth the rules which apply for
purposes of
[[Page 46375]]
obtaining duty-free or reduced-duty treatment on goods returned after
repair or alteration in Canada or Mexico as provided for in subheadings
9802.00.40 and 9802.00.50, HTSUS. Goods returned after having been
repaired or altered in Mexico, whether or not pursuant to a warranty,
and goods returned after having been repaired or altered in Canada
pursuant to a warranty, are eligible for duty-free treatment, provided
that the requirements of this section are met. Goods returned after
having been repaired or altered in Canada other than pursuant to a
warranty are subject to duty upon the value of the repairs or
alterations using the applicable duty rate under the United States-
Canada Free-Trade Agreement (see Sec. 10.301 of this chapter), provided
that the requirements of this section are met. For purposes of this
section, ``repairs or alterations'' means restoration, addition,
renovation, redyeing, cleaning, resterilizing, or other treatment which
does not destroy the essential characteristics of, or create a new or
commercially different good from, the good exported from the United
States.
Example. Glass mugs produced in the United States are exported
to Canada for etching and tempering operations, after which they are
returned to the United States for sale. The foreign operations
exceed the scope of an alteration because they are manufacturing
processes which create commercially different products with distinct
new characteristics.
(b) Goods not eligible for duty-free or reduced-duty treatment
after repair or alteration. The duty-free or reduced-duty treatment
referred to in paragraph (a) of this section shall not apply to goods
which, in their condition as exported from the United States to Canada
or Mexico, are incomplete for their intended use and for which the
processing operation performed in Canada or Mexico constitutes an
operation that is performed as a matter of course in the preparation or
manufacture of finished goods.
Example. Unflanged metal wheel rims are exported to Canada for a
flanging operation to strengthen them so as to conform to U.S. Army
specifications for wheel rims; although the goods when exported from
the United States are dedicated for use in the making of wheel rims,
they cannot be used for that purpose until flanged. The flanging
operation does not constitute a repair or alteration because that
operation is necessary for the completion of the wheel rims.
(c) Documentation--(1) Declarations required. Except as otherwise
provided in this section, the following declarations shall be filed in
connection with the entry of goods which are returned from Canada or
Mexico after having been exported for repairs or alterations and which
are claimed to be duty free or subject to duty only on the value of the
repairs or alterations performed abroad:
(i) A declaration from the person who performed such repairs or
alterations, in substantially the following form:
I/We, ____________, declare that the goods herein specified are
the goods which, in the condition in which they were exported from
the United States, were received by me (us) on ____________,
19________, from ____________ (name and address of owner or exporter
in the United States); that they were received by me (us) for the
sole purpose of being repaired or altered; that only the repairs or
alterations described below were performed by me (us); that such
repairs or alterations were (were not) performed pursuant to a
warranty; that the full cost or (when no charge is made) value of
such repairs or alterations is correctly stated below; and that no
substitution whatever has been made to replace any of the goods
originally received by me (us) from the owner or exporter thereof
mentioned above.
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Full cost or (when no charge
Description of goods and of is made) value of repairs or Total value of goods after
Marks and numbers repairs or alterations alterations (see Subchapter repairs or alterations
II, Chapter 98, HTSUS)
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(ii) A declaration by the owner, importer, consignee, or agent
having knowledge of the pertinent facts in substantially the following
form:
I, ________________, declare that the (above) (attached)
declaration by the person who performed the repairs or alterations
abroad is true and correct to the best of my knowledge and belief;
that the goods ________ were ________ were not (check one) subject
to NAFTA drawback; that such goods were exported from the United
States for repairs or alterations from ________ (port) on ________,
19____; and that the goods entered in their repaired or altered
condition are the same goods that were exported on the above date
and that are identified in the (above) (attached) declaration.
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(2) Additional documentation. The port director may require such
additional documentation as is deemed necessary to prove actual
exportation of the goods from the United States for repairs or
alterations, such as a foreign customs entry, a foreign customs
invoice, a foreign landing certificate, bill of lading, or airway bill.
(3) Waiver of declarations. If the port director concerned is
satisfied, because of the nature of the goods or production of other
evidence, that the goods are imported under circumstances meeting the
requirements of this section, he may waive submission of the
declarations provided for in paragraph (c)(1) of this section.
(4) Deposit of estimated duties. For goods returned after having
been repaired or altered in Canada other than pursuant to a warranty,
the port director shall require a deposit of estimated duties based
upon the full cost or value of the repairs or alterations. The cost or
value of the repairs or alterations performed in Canada other than
pursuant to a warranty, which is to be set forth in the invoice and
entry papers as the basis for the assessment of duty for such goods,
shall be limited to the cost or value of the repairs or alterations
actually performed in Canada, which shall include all domestic and
foreign articles furnished for the repairs or alterations but shall not
include any of the expenses incurred in the United States whether by
way of engineering costs, preparation of plans or specifications,
furnishing of tools or equipment for doing the repairs or alterations
in Canada, or otherwise.
[[Page 46376]]
Subpart G--Origin Verifications and Determinations
Sec. 181.71 Denial of preferential tariff treatment dependent on
origin verification and determination.
Except where a Certificate of Origin either is not submitted when
requested under Sec. 181.22(b) of this part or is not acceptable and a
corrected Certificate is not submitted or accepted as provided in
Sec. 181.22(c) of this part and except as otherwise provided in
Sec. 181.23 of this part and except in the case of a pattern of conduct
provided for in Sec. 181.76(c) of this part, Customs shall deny
preferential tariff treatment on an imported good, or shall deny a
post-importation claim for a refund filed under subpart D of this part,
only after initiation of an origin verification under Sec. 181.72(a) of
this part which results in a determination that the imported good does
not qualify as an originating good or should not be accorded such
treatment for any other reason as specifically provided for elsewhere
in this part.
Sec. 181.72 Verification scope and method.
(a) General. Subject to paragraph (e) of this section, Customs may
initiate a verification in order to determine whether a good imported
into the United States qualifies as an originating good for purposes of
preferential tariff treatment under the NAFTA as stated on the
Certificate of Origin pertaining to the good. Such a verification:
(1) May also involve a verification of the origin of a material
that is used in the production of a good that is the subject of a
verification under this section;
(2) May include verification of the applicable rate of duty applied
to an originating good in accordance with Annex 302.2 of the NAFTA and
may include a determination of whether a good is a qualifying good for
purposes of Annex 703.2 of the NAFTA; and
(3) Shall be conducted only by means of one or more of the
following:
(i) A verification letter which requests information from a
Canadian or Mexican exporter or producer, including a Canadian or
Mexican producer of a material, and which identifies the good or
material that is the subject of the verification. The verification
letter may be on Customs Form 28 or other appropriate format and may be
sent:
(A) By certified or registered mail, or by any other method that
produces a confirmation of receipt by the exporter or producer; or
(B) By any other method, regardless of whether it produces proof of
receipt by the exporter or producer;
(ii) A written questionnaire sent to an exporter or a producer,
including a producer of a material, in Canada or Mexico. The
questionnaire:
(A) May be sent by certified or registered mail, or by any other
method that produces a confirmation of receipt by the exporter or
producer; or
(B) May be sent by any other method, regardless of whether it
produces proof of receipt by the exporter or producer; and
(C) May be completed by the Canadian or Mexican exporter or
producer either in the English language or in the language of the
country in which that exporter or producer is located;
(iii) Visits to the premises of an exporter or a producer,
including a producer of a material, in Canada or Mexico to review the
types of records referred to in Sec. 181.12 of this part and observe
the facilities used in the production of the good or material; and
(iv) Any other method which results in information from a Canadian
or Mexican exporter or producer, including a Canadian or Mexican
producer of a material, that is relevant to the origin determination.
The information so obtained may form a basis for a negative
determination regarding a good (see Sec. 181.75(b) of this part) only
if the information is in writing and is signed by the exporter or
producer.
(b) Applicable accounting principles. Any verification of a
regional value-content requirement undertaken pursuant to paragraph (a)
of this section shall be conducted in accordance with the Generally
Accepted Accounting Principles applied in the country from which the
good was exported to the United States.
(c) Inquiries to importer not precluded. Nothing in paragraph (a)
of this section shall preclude Customs from directing inquiries or
requests to a U.S. importer for documents or other information
regarding the imported good. If such an inquiry or request involves
requesting the importer to obtain and provide written information from
the exporter or producer of the good or from the producer of a material
that is used in the production of the good, such information shall be
requested by the importer and provided to the importer by the exporter
or producer only on a voluntary basis, and a failure or refusal on the
part of the importer to obtain and provide such information shall not
be considered a failure of the exporter or producer to provide the
information and shall not constitute a ground for denying preferential
tariff treatment on the good.
(d) Failure to respond to letter or questionnaire.--(1) Nonresponse
to initial letter or questionnaire. If the exporter or producer,
including a producer of a material, fails to respond to a verification
letter or questionnaire sent under paragraph (a)(2)(i) or (a)(2)(ii) of
this section within 30 calendar days from the date on which the letter
or questionnaire was sent, or such longer period as may be specified in
the letter or questionnaire, Customs shall send a follow-up
verification letter or questionnaire to that exporter or producer. The
follow-up letter or questionnaire:
(i) Except where the verification letter or questionnaire only
involved the origin of a material used in the production of a good and
was sent to the producer of the material, may include the written
determination referred to in Sec. 181.75 of this part, provided that
the information specified in paragraph (b) of that section is also
included; and
(ii) Shall be sent:
(A) By certified or registered mail, or by any other method that
produces a confirmation of receipt by the exporter or producer, if so
requested by the customs administration of Canada or Mexico from which
the good was exported; or
(B) By any method, if no request under paragraph (d)(1)(ii)(A) of
this section has been made by the Canadian or Mexican customs
administration.
(2) Nonresponse to follow-up letter or questionnaire--(i) Producer
of a material. If a producer of a material fails to respond to a
follow-up verification letter or questionnaire sent under paragraph
(d)(1) of this section, Customs may consider the material to be non-
originating for purposes of determining whether the good to which that
material relates is an originating good.
(ii) Exporter or producer of a good. If the exporter or producer of
a good fails to respond to a follow-up verification letter or
questionnaire sent under paragraph (d)(1) of this section, Customs may
consider the good to be non-originating and consequently may deny
preferential tariff treatment on the good as follows:
(A) If the follow-up letter or questionnaire included a written
determination as provided for in paragraph (d)(1)(i) of this section
and the exporter or producer fails to respond to the follow-up letter
or questionnaire within 30 calendar days or such longer period as
specified therein:
(1) From the date on which the follow-up letter or questionnaire
and
[[Page 46377]]
written determination were received by the exporter or producer, if
sent pursuant to paragraph (d)(1)(ii)(A) of this section; or
(2) From the date on which the follow-up letter or questionnaire
and written determination were either received by the exporter or
producer or sent by Customs, if sent in accordance with paragraph
(d)(1)(ii)(B) of this section; or
(B) Provided that the procedures set forth in Secs. 181.75 and
181.76 of this part are followed, if the follow-up letter or
questionnaire does not include a written determination as provided for
in paragraph (d)(1)(i) of this section and the exporter or producer
fails to respond to the follow-up letter or questionnaire within 30
calendar days or such longer period as specified in the letter or
questionnaire:
(1) From the date on which the follow-up letter or questionnaire
was received by the exporter or producer, if sent pursuant to paragraph
(d)(1)(ii)(A) of this section; or
(2) From the date on which the follow-up letter or questionnaire
was either received by the exporter or producer or sent by Customs, if
sent in accordance with paragraph (d)(1)(ii)(B) of this section.
(e) Calculation of regional value content under net cost method--
(1) General. Where a Canadian or Mexican producer of a good elects to
calculate the regional value content of a good under the net cost
method as set forth in General Note 12, HTSUS, and in the appendix to
this part, Customs may not, during the time period over which that net
cost is calculated, conduct a verification under Sec. 181.72(a) of this
part with respect to the regional value content of that good.
(2) Cost submission for motor vehicles. Where, pursuant to General
Note 12, HTSUS, and the appendix to this part, a Canadian or Mexican
producer of a light duty vehicle or heavy duty vehicle, as defined in
the appendix to this part, elects to average its regional value content
calculation over its fiscal year, Customs may request, in writing, that
the producer provide a cost submission reflecting the actual costs
incurred in the production of the category of motor vehicles for which
the election was made. Such a written request shall constitute a
verification letter under paragraph (a)(2)(i) of this section, and the
requested cost submission shall be submitted to Customs within 180
calendar days after the close of the producer's fiscal year or within
60 days from the date on which the request was made, whichever is
later.
Sec. 181.73 Notification of verification visit.
(a) Written notification required. Prior to conducting a
verification visit in Canada or Mexico pursuant to
Sec. 181.72(a)(2)(iii) of this part, Customs shall give written
notification of the intention to conduct the visit. Such notification
shall be delivered:
(1) By certified or registered mail, or by any other method that
produces a confirmation of receipt, to the address of the Canadian or
Mexican exporter or producer whose premises are to be visited;
(2) To the customs administration of the country in which the visit
is to occur; and
(3) If requested by the country in which the visit is to occur, to
the embassy of that country located in the United States.
(b) Contents of notification. The notification referred to in
paragraph (a) of this section shall include:
(1) The identity of the Customs office and officer issuing the
notification;
(2) The name of the Canadian or Mexican exporter or producer of the
good, or producer of the material, whose premises are to be visited;
(3) The date and place of the proposed verification visit;
(4) The object and scope of the proposed verification visit,
including specific reference to the good or material that is the
subject of the verification;
(5) The names and titles of the Customs officers performing the
proposed verification visit;
(6) The legal authority for the proposed verification visit; and
(7) A request that the Canadian or Mexican exporter or producer of
the good, or producer of the material, provide its written consent for
the proposed verification visit.
Sec. 181.74 Verification visit procedures.
(a) Written consent required. Prior to conducting a verification
visit in Canada or Mexico pursuant to Sec. 181.72(a)(2)(iii) of this
part, Customs shall obtain the written consent of the Canadian or
Mexican exporter or producer of the good or producer of the material
whose premises are to be visited.
(b) Written consent procedures. The written consent provided for in
paragraph (a) of this section shall be delivered by certified or
registered mail, or by any other method that generates a reliable
receipt, to the Customs officer who gave the notification provided for
in Sec. 181.73 of this part.
(c) Failure to provide written consent or to cooperate or to
maintain records. Except as otherwise provided in paragraph (d) of this
section, where a Canadian or Mexican exporter or producer of a good, or
a Canadian or Mexican producer of a material, has not given its written
consent to a proposed verification visit within 30 calendar days of
receipt of notification pursuant to Sec. 181.73 of this part, Customs
may deny preferential tariff treatment to that good, or for purposes of
determining whether a good is an originating good may consider as non-
originating that material, that would have been the subject of the
visit, provided that, as regards the good, notice of intent to deny
such treatment is given to that exporter or producer of the good and to
the U.S. importer thereof prior to taking such action. A failure on the
part of the Canadian or Mexican exporter or producer of a good, or on
the part of the Canadian or Mexican producer of a material, to maintain
records or provide access to such records or otherwise cooperate during
the verification visit shall mean that the verification visit never
took place and may be treated by Customs in the same manner as a
failure to give written consent to a verification visit. However, in
the case of a Canadian or Mexican producer of a good who is found
during a verification visit to have not maintained records in
accordance with the Generally Accepted Accounting Principles applied in
the producer's country, Customs may deny preferential tariff treatment
on the good based solely on a failure to so maintain those records only
if the producer does not conform the records to those Principles within
60 calendar days after Customs informs the producer in writing of that
failure.
(d) Postponement of visit in Canada or Mexico. Following receipt of
the notification provided for in Sec. 181.73 of this part, the Canadian
or Mexican customs administration may, within 15 calendar days of
receipt of the notification, postpone the proposed verification visit
for a period not exceeding 60 calendar days from the date of such
receipt by providing written notice of the postponement to the Customs
officer who issued the notification of the verification visit, unless a
longer period is requested and agreed to by Customs. Such a
postponement shall not constitute a failure to provide written consent
within the meaning of paragraph (c) of this section and shall not
otherwise by itself constitute a valid basis upon which Customs may:
(1) Consider a material that is used in the production of a good to
be a non-originating material; or
(2) Deny preferential tariff treatment to a good.
[[Page 46378]]
(e) Verification visits within the United States--(1) Notification
and consent procedure. When the Canadian or Mexican customs
administration intends to conduct a verification visit in the United
States, notification of such intent will be given, and consent will be
required, as provided for under Article 506 of the NAFTA. For purposes
of the required notification to Customs, such notification shall be
sent to Project North Star Coordination Center, P.O. Box 400, Buffalo,
New York 14225-0400.
(2) Postponement of visit. Following receipt of notification from
the Canadian or Mexican customs administration of its intention to
conduct a verification visit in the United States, Customs may, within
15 calendar days of receipt of the notification, postpone the proposed
verification visit for a period not exceeding 60 calendar days from the
date of such receipt by providing written notice of the postponement to
the Canadian or Mexican customs administration.
(3) Designation of observers. A U.S. exporter or producer,
including a producer of a material, whose good or material is the
subject of a verification visit by the Canadian or Mexican customs
administration shall be allowed to designate two observers to be
present during the visit, subject to the following conditions:
(i) The U.S. exporter or producer shall not be required to
designate observers;
(ii) There shall be no restriction on the class of persons that may
be designated as observers by the U.S. exporter or producer;
(iii) The observers to be present are designated in the written
consent to the proposed visit or subsequent thereto;
(iv) The observers do not participate in the verification visit in
a manner other than as passive observers;
(v) The presence of observers shall in no way affect the right to
have legal counsel or other advisors present during the visit;
(vi) There shall be no obligation on the part of the United States
government or on the part of the Canadian or Mexican government to
designate observers from its staff, even when the U.S. exporter or
producer fails to, or specifically declines to, designate observers;
and
(vii) The failure of the U.S. exporter or producer to designate
observers shall not result in the postponement of the visit.
Sec. 181.75 Issuance of origin determination.
(a) General. Except in the case of a pattern of conduct within the
meaning of Sec. 181.76(c) of this part, following receipt and analysis
of the results of an origin verification initiated under Sec. 181.72(a)
of this part in regard to a good imported into the United States and
prior to denying preferential tariff treatment on the import
transaction which gave rise to the origin verification, Customs shall
provide the exporter or producer whose good is the subject of the
verification with a written determination of whether the good qualifies
as an originating good. Subject to paragraph (b) of this section, the
written origin determination shall be sent within 60 calendar days
after conclusion of the origin verification process, unless
circumstances require additional time, and shall set forth:
(1) A description of the good that was the subject of the
verification together with the identifying numbers and dates of the
export and import documents pertaining to the good;
(2) Subject to the provisions of Sec. 181.131 of this part and
except in the case of a negative origin determination where specific
findings of fact cannot be made because of a failure to respond to a
follow-up verification letter or questionnaire sent under Sec. 181.72
of this part, a statement setting forth the findings of fact made in
connection with the verification and upon which the determination is
based; and
(3) With specific reference to the rules applicable to originating
goods as set forth in General Note 12, HTSUS, and in the appendix to
this part, the legal basis for the determination.
(b) Negative origin determinations. If Customs determines, as a
result of an origin verification initiated under Sec. 181.72(a) of this
part, that the good which is the subject of the verification does not
qualify as an originating good, the written determination required
under paragraph (a) of this section:
(1) Shall be sent by certified or registered mail, or by any other
method that produces a confirmation of receipt by the exporter or
producer, if so requested by the customs administration of Canada or
Mexico from which the good was exported; and
(2) Shall, in addition to the information specified in paragraph
(a) of this section, set forth the following:
(i) A notice of intent to deny preferential tariff treatment on the
good which is the subject of the determination;
(ii) The specific date after which preferential tariff treatment
will be denied, as established in accordance with Sec. 181.76(a)(1) of
this part;
(iii) The period, established in accordance with Sec. 181.76(a)(1)
of this part, during which the exporter or producer of the good may
provide written comments or additional information regarding the
determination; and
(iv) A statement advising the exporter or producer of the right to
file a protest under 19 U.S.C. 1514 and part 174 of this chapter:
(A) Within 90 days after notice of liquidation is provided pursuant
to part 159 of this chapter; or
(B) In cases where the negative origin determination does not
result in a liquidation, within 90 days after the date of issuance of
the written determination.
Sec. 181.76 Application of origin determinations.
(a) General. Except as otherwise provided in this section, an
origin determination may be applied upon issuance of the determination
under Sec. 181.75 of this part.
(b) Negative origin determinations. In the case of a negative
origin determination issued under Sec. 181.75(b) of this part:
(1) The date on which preferential tariff treatment may be denied
shall be no earlier than 30 calendar days from the date on which:
(i) Receipt of the written determination by the exporter or
producer is confirmed, if a request under Sec. 181.75(b)(1) of this
part has been made; or
(ii) The written determination is sent by Customs, if no request
under Sec. 181.75(b)(1) of this part has been made; and
(2) Before denying preferential tariff treatment, Customs shall
take into account any comments or additional information provided by
the exporter or producer during the period established in accordance
with paragraph (b)(1) of this section.
(c) Cases involving a pattern of conduct. Where multiple origin
verifications initiated under Sec. 181.72(a) of this part indicate a
pattern of conduct by an exporter or producer involving false or
unsupported representations on Certificates of Origin that a good
imported into the United States qualifies as an originating good,
Customs may deny subsequent claims for preferential tariff treatment on
identical goods exported or produced by such person until that person
establishes compliance with the rules applicable to originating goods
as set forth in General Note 12, HTSUS, and in this part, provided that
advance written notice of the intent to deny such claims is given to
the importer. For purposes of this paragraph, a ``pattern of conduct''
means repeated instances of
[[Page 46379]]
false or unsupported representations by an exporter or producer as
established by Customs on the basis of not fewer than two origin
verifications of two or more importations of the good that result in
the issuance of not fewer than two written determinations issued to
that exporter or producer pursuant to Sec. 181.75 of this part which
conclude, as a finding of fact, that Certificates of Origin completed
and signed by that exporter or producer with respect to identical goods
contain false or unsupported representations.
(d) Differing determinations. Where Customs determines, either as a
result of an origin verification initiated under Sec. 181.72(a) of this
part or under any other circumstance, that a certain good imported into
the United States does not qualify as an originating good based on a
tariff classification or a value applied in the United States to one or
more materials used in the production of the good, including a material
used in the production of another material that is used in the
production of the good, which differs from the tariff classification or
value applied to the materials by the country from which the good was
exported, the Customs determination shall not become effective until
Customs provides written notification thereof both to the U.S. importer
of the good and to the person who completed and signed the Certificate
of Origin upon which the claim for preferential tariff treatment for
the good was based.
(e) Applicability of a determination to prior importations. Customs
shall not apply a determination made under paragraph (c) of this
section to an importation made before the effective date of the
determination if, prior to notification of the determination, the
customs administration of the country from which the good was exported
either issued an advance ruling under Article 509 of the NAFTA or any
other ruling on the tariff classification or on the value of such
materials, or gave consistent treatment to the entry of the materials
under the tariff classification or value at issue, on which a person is
entitled to rely and on which that person did in fact rely. For
purposes of this paragraph, the person who received notification of the
determination shall demonstrate to the satisfaction of Customs, in
writing within 30 calendar days of receipt of the notification, that
the conditions set forth herein have been met. For purposes of this
paragraph:
(1) A ``ruling'' on which a person is entitled to rely in the case
of Canada must be issued pursuant to section 43.1(1) of the Customs Act
(Advance Rulings) or in accordance with Departmental Memorandum 11-11-1
(National Customs Rulings) and in the case of Mexico must be issued
pursuant to Article 34 of the Codigo Fiscal de la Federacion and
pursuant to Article 30 of the Ley Aduanera or the applicable provision
of Mexican law related to advance rulings under Article 509 of the
NAFTA; and
(2) ``Consistent treatment'' means the established application by
the Canadian or Mexican customs administration that can be
substantiated by the continued acceptance by the customs administration
of the tariff classification or value of identical materials on
importations of the materials into Canada or Mexico by the same
importer over a period of not less than two years immediately prior to
the date of signature of the Certificate of Origin for the good that is
the subject of the determination referred to in paragraph (d) of this
section, provided that with regard to those importations:
(i) The tariff classification or value of the materials was not the
subject of a verification, review or appeal by that customs
administration on the date of the determination under paragraph (d) of
this section; and
(ii) The materials had not been accorded a different tariff
classification or value by one or more district, regional or local
offices of that customs administration on the date of the determination
under paragraph (d) of this section.
(f) Detrimental reliance. If Customs proposes to deny preferential
tariff treatment to a good pursuant to a determination made under
paragraph (d) of this section, Customs shall postpone the application
of the determination for a period not exceeding 90 calendar days from
the date of issuance of the determination where the U.S. importer of
the good, or the person who completed and signed the Certificate of
Origin upon which the claim for preferential tariff treatment for the
good was based, demonstrates to the satisfaction of Customs that it has
relied in good faith to its detriment on the tariff classification or
value applied to such materials by the customs administration of the
country from which the good was exported.
Subpart H--Penalties
Sec. 181.81 Applicability to NAFTA transactions.
Except as otherwise provided in Sec. 181.82 of this part, all
criminal, civil or administrative penalties which may be imposed on
U.S. importers, exporters and producers for violations of the Customs
and related laws and regulations shall also apply to U.S. importers,
exporters and producers for violations of the laws and regulations
relating to the NAFTA.
Sec. 181.82 Exceptions to application of penalties.
(a) General. A U.S. importer who makes a corrected declaration
under Sec. 181.21(b) of this part shall not be subject to civil or
administrative penalties for having made an incorrect declaration,
provided that the corrected declaration was voluntarily made. In
addition, civil or administrative penalties provided for under the U.S.
Customs laws and regulations shall not be imposed on an exporter or
producer in the United States who voluntarily provides written
notification pursuant to Sec. 181.11(d) of this part with respect to
the making of an incorrect certification.
(b) ``Voluntarily'' defined--(1) General. For purposes of paragraph
(a) of this section, the making of a corrected declaration or the
providing of written notification of an incorrect certification will be
deemed to have been done voluntarily if:
(i) Done before the commencement of a formal investigation;
(ii) Done before any of the events specified in Sec. 162.74(g) of
this chapter have occurred;
(iii) Done within 30 calendar days after either the U.S. importer
with respect to a declaration that an imported good qualified as an
originating good, or the U.S. exporter or producer with respect to a
certification pertaining to a good exported to Canada or Mexico, had
reason to believe that the declaration or certification was not
correct;
(iv) Accompanied by a written statement setting forth the
information specified in paragraph (b)(3) of this section; and
(v) In the case of a corrected declaration, accompanied or followed
by a tender of any actual loss of duties in accordance with paragraph
(b)(5) of this section.
(2) Cases involving fraud. Notwithstanding paragraph (b)(1) of this
section, a person who acted by means of fraud in making an incorrect
declaration or certification may not make a voluntary correction
thereof. For purposes of this paragraph (b)(2), the term ``fraud''
shall have the meaning set forth in paragraph (B)(3) of appendix B to
part 171 of this chapter.
(3) Written statement. For purposes of paragraph (a) of this
section, each corrected declaration or notification of an incorrect
certification shall be
[[Page 46380]]
accompanied by a written statement which:
(i) Identifies the class or kind of good to which the incorrect
declaration or certification relates;
(ii) Identifies each import or export transaction affected by the
incorrect declaration or certification with reference to each port of
importation or exportation and the approximate date of each importation
or exportation. A U.S. producer who provides written notification that
certain information in a Certificate of Origin is incorrect and who is
unable to identify the specific export transactions under this
paragraph shall provide as much information concerning those
transactions as the producer, by the exercise of good faith and due
diligence, is able to obtain;
(iii) Specifies the nature of the incorrect statements or omissions
regarding the declaration or certification; and
(iv) Sets forth, to the best of the person's knowledge, the true
and accurate information or data which should have been covered by or
provided in the declaration or certification, and states that the
person will provide any additional information or data which is unknown
at the time of making the corrected declaration or certification within
30 calendar days or within any extension of that 30-day period as
Customs may permit in order for the person to obtain the information or
data.
(4) Substantial compliance. For purposes of this section, a person
shall be deemed to have voluntarily corrected a declaration or
certification even though that person provides corrected information in
a manner which does not conform to the requirements of the written
statement specified in paragraph (b)(3) of this section, provided that:
(i) Customs is satisfied that the information was provided before
the commencement of a formal investigation; and
(ii) The information provided includes, orally or in writing,
substantially the same information as that specified in paragraph
(b)(3) of this section.
(5) Tender of actual loss of duties. A U.S. importer who makes a
corrected declaration shall tender any actual loss of duties at the
time of making the corrected declaration, or within 30 calendar days
thereafter, or within any extension of that 30-day period as Customs
may allow in order for the importer to obtain the information or data
necessary to calculate the duties owed.
(6) Applicability of prior disclosure provisions. Where a person
fails to meet the requirements of this section because the correction
of the declaration or the written notification of an incorrect
certification is not considered to be done voluntarily as provided in
this section, that person may nevertheless qualify for prior disclosure
treatment under 19 U.S.C. 1592(c)(4) and the regulations issued
thereunder.
Subpart I--Advance Ruling Procedures
Sec. 181.91 Applicability.
This subpart sets forth the rules which govern the issuance and
application of advance rulings under Article 509 of the NAFTA and the
procedures which apply for purposes of review of advance rulings under
Article 510 of the NAFTA. Importers in the United States and exporters
and producers located in Canada or Mexico may request and obtain an
advance ruling on a NAFTA transaction only in accordance with the
provisions of this subpart whenever the requested ruling involves a
subject matter specified in Sec. 181.92(b)(6) of this part.
Accordingly, the provisions of this subpart shall apply in lieu of the
administrative ruling provisions contained in subpart A of part 177 of
this chapter except where the request for a ruling involves a subject
matter not specified in Sec. 181.92(b)(6).
Sec. 181.92 Definitions and general NAFTA advance ruling practice.
(a) Definitions. For purposes of this subpart:
(1) An advance ruling is a written statement issued by the
Headquarters Office or the National Commodity Specialist Division or by
such other office as designated by the Commissioner of Customs that
interprets and applies the provisions of NAFTA to a specific set of
facts involving any subject matter specified in Sec. 181.92(b)(6) of
this part. An ``advance ruling letter'' is an advance ruling issued in
response to a written request and set forth in a letter addressed to
the person making the request or his designee. A ``published advance
ruling'' is an advance ruling which has been published in full text in
the Customs Bulletin.
(2) An authorized agent is a person expressly authorized by a
principal to act on his or her behalf. An advance ruling requested by
an attorney or other person acting as an agent must include a statement
describing the authority under which the request is made. With the
exception of attorneys whose authority to represent is known, any
person appearing before Customs as an agent in connection with an
advance ruling request may be required to present evidence of his or
her authority to represent the principal. The foregoing requirements
will not apply to an individual representing his or her full-time
employer or to a bona-fide officer, director or other qualified
representative of a corporation, association, or organized group.
(3) The term Headquarters Office, means the Office of Regulations
and Rulings at Headquarters, United States Customs Service, Washington,
DC.
(4) An information letter is a written statement issued by the
Headquarters Office or the National Commodity Specialist Division or by
such other office as designated by the Commissioner of Customs that
does no more than call attention to a well-established interpretation
of principles under the NAFTA, without applying it to a specific set of
facts. If Customs believes that general information may be of some
benefit to the person making the request, an information letter may be
issued in response to a request for an advance ruling when:
(i) The request suggests that general information, rather than an
advance ruling, is actually being sought;
(ii) The request is incomplete or otherwise fails to meet the
requirements set forth in this subpart; or
(iii) The requested advance ruling cannot be issued for any other
reason.
(5) A NAFTA transaction is an act or activity to which the NAFTA
provisions apply. A ``prospective'' NAFTA transaction is one that is
merely contemplated or is currently being undertaken but has not
resulted in any arrival or in the filing of any entry or entry summary
or other document or in any other act so as to bring the transaction,
or any part of it, under the jurisdiction of any Customs office. A
``current'' NAFTA transaction is one which is presently under
consideration by a field office of Customs. A ``completed'' NAFTA
transaction is one which has been acted upon by a Customs field office
and with respect to which that office has issued a determination which
is final in nature, but is (or was) subject to appeal, petition,
protest or other review as provided in the applicable Customs laws and
regulations. An ``ongoing'' NAFTA transaction is a series of identical,
recurring transactions, consisting of current and completed
transactions where future transactions are contemplated.
(6) The term National Commodity Specialist Division means the
National Commodity Specialist Division, United States Customs Service,
New York, New York.
[[Page 46381]]
(b) General advance ruling practice. An advance ruling may be
requested under the provisions of this subpart with respect to
prospective NAFTA transactions. An advance ruling will be based on the
facts and circumstances presented by the requester.
(1) Prospective NAFTA transactions. It is in the interest of the
sound administration of the NAFTA that persons engaging in any
transaction affected by NAFTA fully understand the consequences of that
transaction prior to its consummation. For this reason, Customs will
give full and careful consideration to written requests from importers
in the United States and exporters or producers in Canada or Mexico for
advance rulings or information setting forth, with respect to a
specifically described transaction, a definitive interpretation of
applicable law or other appropriate information.
(2) Current or ongoing NAFTA transactions. A question arising in
connection with a NAFTA transaction already before a Customs field
office by reason of arrival, entry or otherwise will be resolved by
that office in accordance with the principles and precedents previously
announced by the Headquarters Office. If such a question cannot be
resolved on the basis of clearly established rules set forth in the
NAFTA or the regulations thereunder, or in applicable Treasury
Decisions, rulings, opinions, or court decisions published in the
Customs Bulletin, that field office may, if it believes it appropriate,
forward the question to the Headquarters Office for consideration.
(3) Completed NAFTA transactions. A question arising in connection
with an entry of merchandise which has been liquidated, or in
connection with any other completed NAFTA transaction, may not be the
subject of an advance ruling request under this subpart.
(4) Oral advice. Customs will not issue an advance ruling in
response to an oral request. Oral opinions or advice of Customs
personnel are not binding on Customs. However, oral inquiries may be
made to Customs offices regarding existing advance rulings, the scope
of such advance rulings, the types of transactions with respect to
which Customs will issue advance rulings, the scope of the advance
rulings which may be issued, or the procedures to be followed in
submitting advance ruling requests, as prescribed in this subpart.
(5) Who may request an advance ruling. An advance ruling may be
requested by any of the following persons (individuals, corporations,
partnerships, associations, or other entities or groups) having a
direct and demonstrable interest in the question or questions presented
in the advance ruling request, or by the authorized agent of any such
person:
(i) An importer in the United States;
(ii) An exporter or a producer of a good in Canada or Mexico; or
(iii) A Canadian or Mexican producer of a material that is used in
the production of a good imported into the United States, but only with
regard to that material and only in regard to a matter described in
paragraphs (b)(6)(i) through (v) and (vii) of this section.
(6) Subject matter of advance rulings. Customs shall issue advance
rulings under this subpart concerning the following:
(i) Whether materials imported from a country other than the United
States, Canada or Mexico and used in the production of a good undergo
an applicable change in tariff classification set forth in General Note
12, HTSUS, as a result of production occurring entirely in the United
States, Canada and/or Mexico;
(ii) Whether a good satisfies a regional value-content requirement
under the transaction value method or under the net cost method as
provided for in General Note 12, HTSUS, and in this part;
(iii) For purposes of determining whether a good satisfies a
regional value-content requirement under General Note 12, HTSUS, and
under this part, the appropriate basis or method for value to be
applied by an exporter or a producer in Canada or Mexico, in accordance
with the principles set forth in the appendix to this part, for
calculating the transaction value of the good or of the materials used
in the production of the good;
(iv) For purposes of determining whether a good satisfies a
regional value-content requirement under General Note 12, HTSUS, and
under this part, the appropriate basis or method for reasonably
allocating costs, in accordance with the allocation methods set forth
in the appendix to this part, for calculating the net cost of the good
or the value of an intermediate material;
(v) Whether a good qualifies as an originating good under General
Note 12, HTSUS, and under the appendix to this part;
(vi) Whether a good that re-enters the United States after having
been exported from the United States to Canada or Mexico for repair or
alteration qualifies for duty-free treatment in accordance with
Sec. 181.64 of this part;
(vii) Whether the proposed or actual marking of a good satisfies
country of origin marking requirements under part 134 of this chapter
and under the Marking Rules set forth in part 102 of this chapter;
(viii) Whether an originating good qualifies as a good of Canada
or Mexico under Annex 300-B, Annex 302.2 and Chapter Seven of the
NAFTA; and
(ix) Whether a good is a qualifying good under Chapter Seven of
the NAFTA.
Sec. 181.93 Submission of advance ruling requests.
(a) Form. A request for an advance ruling should be written in the
English language and in the form of a letter. For any subject matter
specified in Sec. 181.92(b)(6) (i), (v), (vi), (vii), (viii) or (ix) of
this part, the request may be directed either to the Commissioner of
Customs, Attention: Office of Regulations and Rulings, Washington, DC
20229, or to the National Commodity Specialist Division, United States
Customs Service, 6 World Trade Center, New York, NY 10048. For any
subject matter specified in Sec. 181.92(b)(6)(ii), (iii) or (iv) of
this part, the request must be directed to the Commissioner of Customs,
Attention: Office of Regulations and Rulings, Washington, DC 20229.
(b) Content--(1) General. Each request for an advance ruling must
identify the specific subject matter under Sec. 181.92(b)(6) of this
part to which the request relates, must contain a complete statement of
all relevant facts relating to the NAFTA transaction and must state
that the information presented is accurate and complete. The following
facts must be included: the names, addresses, and other identifying
information of all interested parties (if known); the name of the port
or place at which any good involved in the transaction will be imported
or which will otherwise have jurisdiction with respect to the act or
activity described in the transaction; and a description of the
transaction itself, appropriate in detail to the subject matter of the
requested advance ruling. Where the request for an advance ruling is
submitted by or on behalf of the importer of the good involved in the
transaction, the request must include the name and address of the
exporter and, if known, producer of the good. Where the request for an
advance ruling is submitted by or on behalf of the exporter of the good
involved in the transaction, the request must include the name and
address of the producer and importer of the good, if known. Where the
request for an advance ruling is submitted by or on behalf of the
producer of the good involved in the transaction, the request must
include the name and address of the exporter
[[Page 46382]]
and importer of the good, if known. In addition, where relevant to the
issue that is the subject of the request for an advance ruling, and
regardless of the specific nature of the advance ruling requested, the
request must include:
(i) A copy of any advance ruling or other ruling with respect to
the tariff classification of the good that has been issued by Customs
to the person submitting the request; or
(ii) Sufficient information to enable Customs to classify the good
where no advance ruling or other ruling with respect to the tariff
classification of the good has been issued by Customs to the person
submitting the request. Such information includes a full description of
the good, including, where relevant, the composition of the good, a
description of the process by which the good is manufactured, a
description of the packaging in which the good is contained, the
anticipated use of the good and its commercial, common or technical
designation, and product literature, drawings, photographs or
schematics.
(2) Description of transaction--(i) General. The prospective
Customs transaction to which the advance ruling request relates must be
described in sufficient detail to permit proper application of the
relevant NAFTA provisions.
(ii) Tariff change rulings--(A) General. If the transaction
involves the importation of a good or material for which a ruling is
requested as to whether a change in tariff classification has occurred,
the request should set forth: The principal or chief use of the good or
material in the United States and the commercial, common, or technical
designation of the good or material; if the good or material is
composed of two or more substances, the relative quantity (by both
weight and by volume) and value of each substance; any applicable
special invoicing requirements set forth in part 141 of this chapter
(if known); and any other information which may assist in determining
the appropriate tariff classification of the good or material. The
advance ruling request should also note, whenever germane, the purchase
price of the good or material, and its approximate selling price in the
United States. Each individual request for an advance ruling must be
limited to five merchandise items, all of which must be of the same
class or kind. Only NAFTA tariff change rulings will be issued under
this subpart. Tariff classification rulings which do not involve the
application of the NAFTA shall be issued under part 177 of this
chapter.
(B) Issues involving a change in tariff classification of a
material. Where the request for the advance ruling involves the
application of a rule of origin that requires an assessment of whether
materials used in the production of an imported good undergo an
applicable change in tariff classification, the request must list each
material used in the production of the good and must:
(1) Identify each material which is claimed to be an originating
material and provide a complete description of each such material,
including the basis for the claim as to originating status;
(2) Identify each material which is a non-originating material, or
for which the origin is unknown, and provide a complete description of
each such material, including its tariff classification if known; and
(3) Describe all processing operations employed in the production
of the good, the location of each operation and the sequence in which
the operations occur.
(iii) NAFTA rulings on regional value content. NAFTA advance
ruling requests, if involving the issue of whether a good satisfies a
regional value content requirement under the transaction value method
or under the net cost method, or under both methods, as provided for in
General Note 12, HTSUS, and in the appendix to this part, must specify
each method under which eligibility is sought. Where the transaction
value method is specified, the advance ruling request must include:
information sufficient to calculate the transaction value of the good
in accordance with schedule II of the appendix to this part with
respect to the transaction of the producer of the good, adjusted to an
F.O.B. basis; information sufficient to calculate the value of each
non-originating material, or material the origin of which is unknown,
that is used by the producer in the production of the good in
accordance with the provisions of section 7 and, where applicable,
section 6(10) of the appendix to this part; a complete description of
each material that is claimed to be an originating material and that is
used in the production of the good, including the basis for the claim
as to originating status; information sufficient to permit an
examination of the factors enumerated in schedule III or VIII of the
appendix to this part where the advance ruling request involves an
issue of whether, with respect to the good or material under the
applicable schedule, the transaction value is acceptable; and
information sufficient for any other circumstance to make any
determination relevant to the application of the regional value content
requirement to the good. Where the net cost method is specified, the
advance ruling request must include: a list of all product, period and
other costs relevant to determining the total cost of the good as
defined in the appendix to this part; a list of all excluded costs to
be subtracted from the total cost of the good as provided in the
appendix to this part; information sufficient to calculate the value of
each non-originating material, or material the origin of which is
unknown, that is used in the production of the good, in accordance with
section 7 of the appendix to this part; the basis for any allocation of
costs in accordance with schedule VII of the appendix to this part; the
period over which the net cost calculation is to be made; and any other
information relevant to determining the appropriate value of any cost
under this part. Where the advance ruling request concerns only the
calculation of an element of a regional value content formula, and with
regard to the information specified in paragraphs (b)(1) through (b)(5)
of this section, the request need only contain the following: the
information in paragraph (b)(1), other than the information specified
in paragraph (b)(1)(i) or (b)(1)(ii); the information in paragraph
(b)(5); and any information in this paragraph (b)(2)(iii) which is
relevant to the issue that is the subject of the request.
(iv) NAFTA rulings on producer materials. Where the advance ruling
request involves an issue with respect to an intermediate material
under Article 402(10) of the NAFTA (see section 7(4) of the appendix to
this part), the request must contain sufficient information to
determine the origin and value of the material in accordance with
Article 402(11) of the NAFTA (see section 7(6) of the appendix to this
part). Where the advance ruling request is submitted by a Canadian or
Mexican producer of a material under Sec. 181.92(b)(5)(iii) of this
part and concerns only the origin of such material, and with regard to
the information specified in paragraphs (b)(1) through (b)(5) of this
section, the request need only include the following: the information
in paragraph (b)(1), including any information specified in paragraph
(b)(1)(i) or (b)(1)(ii) which is relevant to the issue that is the
subject of the request; any information in paragraph (b)(2)(ii)(B)
which is relevant to the issue that is the subject of the request; a
sample as provided for in paragraph (b)(3) if relevant to the issue
that is the subject of the request; and the information in paragraph
(b)(5).
(3) Samples. Each request for an advance ruling should be
accompanied by photographs, drawings, or other
[[Page 46383]]
pictorial representations of the good and, whenever possible, by a
sample of the good unless a precise description of the good is not
essential to the advance ruling requested. Any good consisting of
materials in chemical or physical combination for which a laboratory
analysis has been prepared by or for the manufacturer should include a
copy of that analysis, flow charts, CAS number, and related
information. A sample submitted in connection with a request for an
advance ruling becomes a part of the Customs file in the matter and
will be retained until the advance ruling is issued or the advance
ruling request is otherwise disposed of. A sample should only be
submitted with the understanding that all or a part of it may be
damaged or consumed in the course of examination, testing, analysis, or
other actions undertaken in connection with the advance ruling request.
(4) Related documents. If the question or questions presented in
the advance ruling request directly relate to matters set forth in any
invoice, contract, agreement, or other document, a copy of the document
must be submitted with the request. (Original documents should not be
submitted inasmuch as any documents or exhibits furnished with the
advance ruling request become a part of the Customs file in the matter
and cannot be returned.) The relevant facts reflected in any documents
submitted, and an explanation of their bearing on the question or
questions presented, must be expressly set forth in the advance ruling
request.
(5) Prior or current transactions.--(i) General. Each request for
an advance ruling must state:
(A) Whether, to the knowledge of the person submitting the request,
the same transaction or issue, or one identical to it, has ever been
considered, or is currently being considered by any Customs office;
(B) Whether, to the knowledge of the person submitting the request,
the issue involved has ever been, or is currently, the subject of:
(1) Review by the United States Court of International Trade, the
United States Court of Appeals for the Federal Circuit, or any court of
appeal therefrom, or review by a judicial or quasi-judicial body in
Canada or Mexico;
(2) A verification of origin performed in the United States, Canada
or Mexico;
(3) An administrative appeal in the United States, Canada or
Mexico; or
(4) A request for an advance ruling under this subpart, or a
request for an advance ruling in Canada or Mexico under an appropriate
authority referred to in Sec. 181.76(d)(1) of this part;
(C) The status or disposition of any matter on which an affirmative
statement is made under paragraph (b)(5)(i)(B) of this section; and
(D) Whether the transaction described in the advance ruling request
is but one of a series of similar and related transactions.
(ii) Change in status of transaction. If a prospective transaction
which is the subject of an advance ruling request becomes a current
transaction, the person who submitted the request shall so notify the
office processing the request.
(6) Statement of position. If the request for an advance ruling
asks that a particular determination or conclusion be reached in the
advance ruling letter, a statement must be included in the request
setting forth the basis for that determination or conclusion, together
with a citation of all relevant supporting authority.
(7) Privileged or confidential information. Information which is
claimed to constitute trade secrets or privileged or confidential
commercial or financial information regarding the business transactions
of private parties the disclosure of which would cause substantial harm
to the competitive position of the person making the request (or of
another interested party) must be identified clearly, and the reasons
such information should not be disclosed, including, where applicable,
the reasons the disclosure of the information would prejudice the
competitive position of the person making the request (or of another
interested party), must be set forth. An advance ruling will not be
issued until all trade secret, privilege or confidentiality issues are
resolved (see Sec. 181.99(a)(3) of this part).
(c) Signing; instruction as to reply. The request for an advance
ruling must be signed by a person authorized to make the request, as
described in Sec. 181.92(b)(5) of this part. An advance ruling
requested by a principal or authorized agent may direct that the
advance ruling letter be addressed to the other.
(d) Requests for immediate consideration. Customs will normally
process requests for advance rulings in the order they are received and
as expeditiously as possible, as specified in Sec. 181.99 of this part.
However, a request that a particular matter be given consideration
ahead of its regular order, if made in writing at the time the request
is submitted, or subsequent thereto, and showing a clear need for such
treatment, will be given consideration as the particular circumstances
warrant and permit. Requests for special consideration made by telegram
or electronic transmission will be treated in the same manner as
requests made by letter, but advance rulings will not be issued by
telegram or electronic transmission. A telegram or electronic
transmission must be followed up with a signed original within 14
calendar days of the submission of the telegram or electronic
transmission. In no event can any assurance be given that a particular
request for an advance ruling will be acted upon by the time requested.
Sec. 181.94 Nonconforming requests for advance rulings.
A person submitting a request for an advance ruling that does not
comply with all of the provisions of this subpart will be so notified
in writing, and the requirements that have not been met will be pointed
out. Such person will be given a period of 30 calendar days from the
date of the notice (or such longer period as the notice may provide) to
supply any additional information that is requested or otherwise
conform the advance ruling request to the requirements referred to in
the notice. The Customs file with respect to advance ruling requests
which are not brought into compliance with the provisions of this
subpart within the period of time allowed will be administratively
closed and the request removed from active consideration. A request for
an advance ruling that is removed from active consideration by reason
of failure to comply with the provisions of this subpart may be treated
as withdrawn. A failure to comply with the provisions of this subpart
will result in the rejection of the advance ruling request with the
notice specifying the deficiencies.
Sec. 181.95 Oral discussion of issues.
(a) General. A person submitting a request for an advance ruling
and desiring an opportunity to orally discuss the issue or issues
involved should indicate that desire in writing at the time the advance
ruling request is filed. Such a discussion will only be scheduled when,
in the opinion of the Customs personnel by whom the advance ruling
request is under consideration, a conference will be helpful in
deciding the issue or issues involved or when a determination or
conclusion contrary to that advocated in the advance ruling request is
contemplated. Conferences are scheduled for the purpose of affording
the parties an opportunity to freely and openly discuss the matters set
forth in the advance ruling request. Accordingly, the parties will not
be bound by any
[[Page 46384]]
argument or position advocated or agreed to, expressly or by
implication, during the conference unless either party subsequently
agrees to be so bound in writing. The conference will not conclude with
the issuance of an advance ruling letter.
(b) Time, place and number of conferences. If a request for a
conference is granted, the person making the request will be notified
of the time and place of the conference. No more than one conference
with respect to the matters set forth in an advance ruling request will
be scheduled, unless, in the opinion of the Customs personnel by whom
the advance ruling request is under consideration, additional
conferences are necessary.
(c) Representation. A person whose request for a conference has
been granted may be accompanied at that conference by counsel or other
representatives, or may designate such persons to attend the conference
in his or her place.
(d) Additional information presented at conferences. It will be the
responsibility of the person submitting the request for an advance
ruling to provide for inclusion in the Customs file in the matter a
written record setting forth any and all additional information,
documents, and exhibits introduced during the conference to the extent
that person considers such material relevant to the consideration of
the advance ruling request. Such information, documents and exhibits
shall be given consideration only if received by Customs within 30
calendar days following the conference.
Sec. 181.96 Change in status of transaction.
Each person submitting a request for an advance ruling in
connection with a NAFTA transaction must immediately advise Customs in
writing of any change in the status of that transaction upon becoming
aware of the change. In particular, Customs must be advised when any
transaction described in the advance ruling request as prospective
becomes current and under the jurisdiction of a Customs field office.
In addition, any person engaged in a NAFTA transaction coming under the
jurisdiction of a Customs field office who has previously requested a
NAFTA advance ruling with respect to that transaction must advise the
field office of that fact.
Sec. 181.97 Withdrawal of NAFTA advance ruling requests.
Any request for an advance ruling may be withdrawn by the person
submitting it at any time before the issuance of an advance ruling
letter or any other final disposition of the request. All
correspondence, documents, and exhibits submitted in connection with
the request will be retained in the Customs file and will not be
returned. In addition, the Headquarters Office may forward, to Customs
field offices which have or may have jurisdiction over the transaction
to which the advance ruling request relates, its views in regard to the
transaction or the issues involved therein, as well as appropriate
information derived from materials in the Customs file.
Sec. 181.98 Situations in which no NAFTA advance ruling may be issued.
(a) General. No advance ruling letter will be issued in response to
a request therefor which fails to comply with the provisions of this
subpart. No advance ruling letter will be issued in regard to a
completed transaction.
(b) Pending matters. Where a request for an advance ruling involves
an issue that is under review in connection with an origin verification
under subpart G of this part or that is the subject of an
administrative review procedure provided for in subpart J of this part
or in part 174 of this chapter, Customs may decline to issue the
requested advance ruling. In addition, no NAFTA advance ruling letter
will be issued with respect to any issue which is pending before the
United States Court of International Trade, the United States Court of
Appeals for the Federal Circuit, or any court of appeal therefrom.
Litigation before any other court will not preclude the issuance of an
advance ruling letter, provided neither Customs nor any of its officers
or agents is named as a party to the action.
Sec. 181.99 Issuance of NAFTA advance rulings or other advice.
(a) NAFTA advance ruling letters--(1) General. Except as otherwise
provided in paragraph (a)(2) of this section, Customs will, within 120
calendar days of receipt of a request, including any required
information supplemental thereto, issue an advance ruling letter in the
English language setting forth the position of Customs and the reasons
therefor with respect to a specifically described Customs transaction
whenever a request for such an advance ruling is submitted in
accordance with the provisions of this subpart and it is in the sound
administration of the NAFTA provisions to do so. Otherwise, a request
for an advance ruling will be answered by an information letter or, in
those situations in which general information is likely to be of little
or no value, by a letter stating that no advance ruling can be issued.
In the course of evaluating the advance ruling request Customs may
solicit supplemental information from the person requesting the advance
ruling. The submission of supplemental information will extend the time
for response. The time for response will also be extended if it is
necessary to obtain information from other government agencies or in
the form of a laboratory analysis.
(2) Submission of NAFTA advance ruling letters to field offices.
Any importer engaging in a NAFTA transaction with respect to which an
advance ruling letter has been issued under this subpart either must
ensure that a copy of the advance ruling letter is attached to the
documents filed with the appropriate Customs office in connection with
that transaction or must otherwise indicate with the information filed
for that transaction that an advance ruling has been received. Any
person receiving an advance ruling stating Customs determination must
set forth such determination in the documents or information filed in
connection with any subsequent entry of that merchandise; failure to do
so may result in a rejection of the entry and the imposition of such
penalties as may be appropriate. An advance ruling received after the
filing of such documents or information must immediately be brought to
the attention of the appropriate Customs field office.
(3) Disclosure of NAFTA advance ruling letters. No part of the
advance ruling letter, including names, addresses, or information
relating to the business transactions of private parties, shall be
deemed to constitute privileged or confidential commercial or financial
information or trade secrets exempt from disclosure pursuant to the
Freedom of Information Act, as amended (5 U.S.C. 552), and part 103 of
this chapter, or shall be deemed to be subject to the confidentiality
principle set forth in Sec. 181.121 of this part, unless, as provided
in Sec. 181.93(b)(7) of this part, the information claimed to be exempt
from disclosure is clearly identified and a valid basis for
nondisclosure is set forth. Before the issuance of the advance ruling
letter, the person submitting the advance ruling request will be
notified of any decision adverse to his request for nondisclosure and
will, upon written request to Customs within 10 working days of the
date of notification, be permitted to withdraw the advance ruling
request. If in the opinion of Customs an impasse exists on the issue of
confidentiality and the person who submitted the advance ruling request
does not withdraw the request, Customs
[[Page 46385]]
will decline to issue the advance ruling. All advance ruling letters
issued by Customs will be available, upon written request, for
inspection and copying by any person (with any portions determined to
be exempt from disclosure deleted).
(4) Penalties for misrepresented or omitted material facts or for
noncompliance. If Customs determines that an issued advance ruling was
based on incorrect information, the person to whom the advance ruling
was issued may be subject to appropriate penalties unless that person
demonstrates that he used reasonable care and acted in good faith in
presenting the facts and circumstances on which the advance ruling was
based. In addition, Customs may apply such measures as the
circumstances may warrant in a case where a person to whom an advance
ruling was issued has failed to act in accordance with the terms and
conditions of the advance ruling.
(b) Other NAFTA advice and guidance. The Headquarters Office may on
its own initiative from time to time issue other external advice and
guidance with respect to issues or transactions arising under the NAFTA
which come to its attention. Such NAFTA advice and guidance, which
represent the official position of Customs and which are likely to be
of widespread interest and application, are published in the Customs
Bulletin, as described in Sec. 181.101 of this part. Nothing in this
subpart shall preclude Customs from issuing advice and guidance to its
field offices concerning the application of the NAFTA.
Sec. 181.100 Effect of NAFTA advance ruling letters; modification and
revocation.
(a) Effect of NAFTA advance ruling letters--(1) General. An advance
ruling letter issued by Customs under the provisions of this subpart
represents the official position of Customs with respect to the
particular transaction or issue described therein and is binding on all
Customs personnel in accordance with the provisions of this subpart
until modified or revoked. In the absence of a change of practice or
other modification or revocation which affects the principle of the
advance ruling set forth in the advance ruling letter, that principle
may be cited as authority in the disposition of transactions involving
the same circumstances. An advance ruling letter is generally effective
on the date it is issued or such later date as may be specified in the
advance ruling and, commencing on its effective date, may be applied to
entries for consumption and warehouse withdrawals for consumption which
are unliquidated, or to other transactions with respect to which
Customs has not taken final action on that date. See, however,
paragraph (b) of this section (ruling letters which modify previous
advance ruling letters) and Sec. 181.101 of this part (advance ruling
letters published in the Customs Bulletin).
(2) Application of NAFTA rulings to transactions--(i) General. Each
NAFTA ruling letter is issued on the assumption that all of the
information furnished in connection with the ruling request and
incorporated in the ruling letter, either directly, by reference, or by
implication, is accurate and complete in every material respect. The
application of an advance ruling letter by a Customs field office to
the transaction to which it is purported to relate is subject to the
verification of the facts incorporated in the advance ruling letter, a
comparison of the transaction described therein to the actual
transaction, and the satisfaction of any conditions on which the
advance ruling was based, and if the facts are materially different or
a condition has not been satisfied, the treatment specified in the
advance ruling will not be applied to the actual transaction. If, in
the opinion of any Customs field office by whom the transaction is
under consideration or review, the advance ruling letter should be
modified or revoked, the findings and recommendations of that office
will be forwarded to the Headquarters Office for consideration, prior
to any final disposition with respect to the transaction by that
office. If the transaction described in the NAFTA advance ruling letter
and the actual transaction are the same, and any and all conditions set
forth in the advance ruling letter have been satisfied, the advance
ruling will be applied to the transaction.
(ii) Tariff change rulings. Each advance ruling letter concerning
whether a change in tariff classification has occurred will be applied
only with respect to transactions involving either articles which are
identical to the sample submitted with the advance ruling request and
reflect the same processing or articles which conform to the
description set forth in the advance ruling letter.
(iii) Regional value content rulings. Each advance ruling letter
concerning the application of a regional value content requirement will
be applied only with respect to transactions involving the same
merchandise and identical facts.
(3) Reliance on NAFTA advance rulings by others. An advance ruling
letter is subject to modification or revocation without notice to any
person other than the person to whom the letter was addressed.
Accordingly, no other person may rely on the advance ruling letter or
assume that the principles of that advance ruling will be applied in
connection with any transaction other than the one described in the
letter. However, any person eligible to request an advance ruling under
Sec. 181.92(b)(5) of this part may request information as to whether a
previously-issued advance ruling letter has been modified or revoked by
writing the Commissioner of Customs, Attention: Office of Regulations
and Rulings, Washington, DC 20229, and either enclosing a copy of the
advance ruling letter or furnishing other information sufficient to
permit the advance ruling letter in question to be identified.
(b) Modification or revocation of NAFTA advance ruling letters--(1)
General. Any NAFTA advance ruling letter may be modified or revoked by
Customs Headquarters in any of the following circumstances or for any
of the following purposes, provided that written notice of the
modification or revocation is given to the person to whom the advance
ruling letter was addressed:
(i) If the ruling letter reflects or is based on an error:
(A) Of fact;
(B) In the tariff classification of a good or material that is the
subject of the ruling;
(C) In the application of a regional value-content requirement
under General Note 12, HTSUS, and under this part;
(D) In the application of the rules for determining whether a good
qualifies as a good of Canada or Mexico under Annex 300-B, Annex 302.2
or Chapter Seven of the NAFTA;
(E) In the application of the rules for determining whether a good
is a qualifying good under Chapter Seven of the NAFTA; or
(F) In the application of the rules for determining whether a good
qualifies for duty-free treatment under Sec. 181.64 of this part when
the good re-enters the United States after having been exported to
Canada or Mexico for repair or alteration;
(ii) If the ruling letter is not in accordance with an
interpretation agreed on by the United States, Canada and Mexico
regarding Chapter Three or Chapter Four of the NAFTA;
(iii) If there is a change in the material facts or circumstances
on which the ruling is based;
(iv) To conform to a modification of Chapter Three, Four, Five or
Seven of the NAFTA, or of the Marking Rules, or
[[Page 46386]]
of the regulations set forth in this part; or
(v) To conform to a judicial decision or change in domestic law.
(2) Application of modification or revocation of NAFTA advance
ruling letters. The modification or revocation of a NAFTA advance
ruling letter will not be applied to entries or warehouse withdrawals
for consumption which were made prior to the effective date of such
modification or revocation, except where the person to whom the advance
ruling was issued has not acted in accordance with its terms and
conditions.
(3) Effective dates. Generally, a NAFTA letter modifying or
revoking an earlier advance ruling will be effective on the date it is
issued. However, Customs may, upon request or on its own initiative,
delay the effective date of such a modification or revocation for a
period of up to 90 calendar days from the date of issuance. Such a
delay may be granted at the request of the party to whom the ruling
letter was issued, provided such party can demonstrate to the
satisfaction of Customs that it relied on the earlier advance ruling in
good faith and to its detriment. The evidence of such reliance must
cover the period from the date of the letter modifying or revoking the
advance ruling back to the date of that advance ruling and must list
all transactions claimed to be covered by the modified or revoked
advance ruling by entry number (or other Customs assigned number), the
quantity and value of merchandise covered by each such transaction
(where applicable), the ports of entry, and the dates of final action
by Customs. Such evidence must also include contracts, purchase orders,
or other materials tending to establish that future transactions were
arranged based on the earlier advance ruling. The request for delay
must specifically identify the prior ruling on which reliance is
claimed. All persons requesting a delay will be issued a separate
letter setting forth the period, if any, of the delay to be provided.
In appropriate circumstances, Customs may decide to make its decision,
with respect to a delay, applicable to all persons, irrespective of
demonstrated reliance; in this event, a notice announcing the delay
will be published in the Customs Bulletin and individual ruling letters
will not be issued.
Sec. 181.101 Publication of decisions.
Within 90 days after issuing any precedential decision relating to
any NAFTA transaction, Customs shall publish the decision in the
Customs Bulletin or otherwise make it available for public inspection.
Disclosure is governed by 31 CFR part 1, part 103 of this chapter, and
Sec. 181.99(a)(3) of this part.
Sec. 181.102 Administrative and judicial review of advance rulings.
(a) Administrative review--(1) Submission of request for review.
Any person who received an advance ruling issued under this subpart, or
an authorized agent of such person, may request administrative review,
at Customs Headquarters, of that advance ruling, including any
modification or revocation thereof, by letter addressed to the
Assistant Commissioner, Office of Regulations and Rulings, U.S. Customs
Service, Washington, DC 20229. Such request shall be filed within 30
calendar days after issuance of the advance ruling and shall set forth
the following information:
(i) The name and address of the person seeking review and the name
and address of his authorized agent if the request is signed by such an
agent;
(ii) The Customs identification number or employer identification
number in the case of a U.S. importer and authorized agent thereof, the
employer number or importer/exporter number assigned by Revenue Canada
in the case of a Canadian exporter or producer and authorized agent
thereof, and the federal taxpayer registry number (RFC) in the case of
a Mexican exporter or producer and authorized agent thereof;
(iii) The number and date of the advance ruling at issue;
(iv) The numbers and dates of any involved entries for consumption
or warehouse withdrawals for consumption;
(v) The nature of, and justification for, the objection to the
advance ruling set forth distinctly and specifically with respect to
each aspect of the advance ruling for which administrative review is
sought; and
(vi) Whether an oral discussion of the issues, as provided in
Sec. 181.95 of this part, is desired.
(2) Issuance of review decision. Customs will normally issue a
written decision within 120 days of receipt of the request for
administrative review submitted under this section. However, Customs
will, upon a reasonable showing of business necessity, issue a written
decision within 60 days of receipt of the request for administrative
review. For purposes of this paragraph, the date of receipt of the
request for administrative review shall be the date on which all
information necessary to process the request, including any information
provided after submission of the request in connection with a
conference, is filed with Customs.
(b) Judicial review. Any person whose claims with regard to a
request for administrative review of an advance ruling have been denied
in whole or in part under this section may seek judicial review by
filing a civil action in the United States Court of International Trade
in accordance with 28 U.S.C. 2632 within 180 days after the date of
mailing of notice of the denial.
Subpart J--Review and Appeal of Adverse Marking Decisions
Sec. 181.111 Applicability.
This subpart sets forth the circumstances and procedures under
which exporters and producers of merchandise imported into the United
States may obtain information about, and administrative and judicial
review of, an adverse marking decision, as provided for in Article 510
of the NAFTA. This subpart does not apply to the review of advance
rulings issued under Article 509 of the NAFTA (see subpart I of this
part) or to the review of determinations that a good is not an
originating good under General Note 12, HTSUS, and the appendix to this
part (see part 174 of this chapter).
Sec. 181.112 Definitions.
For purposes of this subpart, the following words and phrases have
the meanings indicated:
(a) Adverse marking decision means a decision made by the port
director which an exporter or producer of merchandise believes to be
contrary to the provisions of Annex 311 of the NAFTA and which may be
protested by the importer pursuant to Sec. 514, Tariff Act of 1930, as
amended (19 U.S.C. 1514), and part 174 of this chapter. Notification of
an adverse marking decision is given to an importer in the form of a
Customs Form 4647 (Notice to Mark and/or Notice to Redeliver) and/or by
assessing marking duties on improperly marked merchandise. Examples of
adverse marking decisions include determinations by the port director:
that an imported article is not a good of a NAFTA country, as
determined under the Marking Rules, and that it therefore cannot be
marked ``Canada'' or ``Mexico''; that a good of a NAFTA country is not
marked in a manner which is sufficiently permanent; and that a good of
a NAFTA country does not qualify for an exception from marking
specified in Annex 311 of the NAFTA. Adverse marking decisions do not
include: decisions issued in response to requests for advance rulings
under subpart I of
[[Page 46387]]
this part or for internal advice under part 177 of this chapter;
decisions on protests under part 174 of this chapter; and
determinations that an article does not qualify as an originating good
under General Note 12, HTSUS, and the appendix to this part.
(b) An exporter of merchandise is an exporter located in Canada or
Mexico who must maintain records in that country relating to the
transaction to which the adverse marking decision relates. The records
must be sufficient to enable Customs to evaluate the merits of the
exporter's claim(s) regarding the adverse marking decision.
(c) A producer of merchandise is a person who grows, mines,
harvests, fishes, traps, hunts, manufactures, processes or assembles
such merchandise in Canada or Mexico.
Sec. 181.113 Request for basis of adverse marking decision.
(a) Request; form and filing. The exporter or producer of the
merchandise which is the subject of an adverse marking decision may
request a statement concerning the basis for the decision by filing a
typewritten request, in English, with the port director who issued the
decision. The request should be on letterhead paper in the form of a
letter and clearly designated as a ``Request for Basis of Adverse
Marking Decision'' and shall be signed by the exporter, producer or his
authorized agent. The provisions of Sec. 174.3 of this chapter shall
apply for purposes of signature by a person other than the principal.
(b) Content. The Request for Basis of Adverse Marking Decision
letter shall set forth the following information:
(1) The name and address of the exporter or producer of the
merchandise and the name and address of any authorized agent filing the
request on behalf of such principal;
(2) A statement that the inquirer is the exporter or producer of
the merchandise that was the subject of the adverse marking decision;
(3) In the case of a Canadian exporter or producer, the employer
number assigned by Revenue Canada, Customs and Excise; in the case of a
Mexican exporter or producer, the Federal taxpayer registry number
(RFC); and the Customs identification number of an authorized agent
filing the request on behalf of such principal;
(4) The number and date of each entry involved in the request;
(5) A specific description of the merchandise which is the subject
of the adverse marking decision; and
(6) A complete statement of all relevant facts relating to the
adverse marking decision and the transaction to which it relates,
including the date of the decision.
Sec. 181.114 Customs response to request.
(a) Time for response. The port director will issue a written
response to the requestor within 30 days of receipt of a request
containing the information specified in Sec. 181.113 of this part. If
the request is incomplete, such that the transaction in question cannot
be identified, the port director will notify the requestor in writing
within 30 days of receipt of the request regarding what information is
needed.
(b) Content. The response by the port director shall include the
following:
(1) A statement concerning the basis for the adverse marking
decision;
(2) A copy of the relevant Customs Form 4647 (Notice to Mark and/or
Notice to Redeliver), if one was issued to the importer and is
available. If the basis for the adverse marking decision is indicated
on the Customs Form 4647, no statement under paragraph (b)(1) of this
section is required;
(3) A statement as to whether the importer has filed a protest
regarding the adverse marking decision and, if so, where the protest
was filed and the protest number; and
(4) A statement concerning the exporter's or producer's right to
either intervene in the importer's protest as provided in Sec. 181.115
of this part or file a petition as provided in Sec. 181.116 of this
part.
Sec. 181.115 Intervention in importer's protest.
(a) Conditional right to intervene. An exporter or producer of
merchandise does not have an independent right to protest an adverse
marking decision. However, if an importer protests the adverse marking
decision in accordance with section 514, Tariff Act of 1930, as amended
(19 U.S.C. 1514), and part 174 of this chapter, the exporter or
producer of the merchandise which is the subject of the adverse marking
decision may intervene in the importer's protest. Such intervention
shall not affect any time limits applicable to the protest or delay
action on the protest.
(b) Form and filing of intervention. In order to intervene in an
importer's protest, as provided for in paragraph (a) of this section,
the exporter or producer of the merchandise shall file, in triplicate,
a typewritten statement of intervention, in English, with the port
director with whom the protest was filed. The statement should be on
letterhead paper in the form of a letter and should be clearly
designated ``NAFTA Exporter or Producer Intervention in Protest''. The
statement shall be signed by the exporter, producer or his authorized
agent. The provisions of Sec. 174.3 of this chapter shall apply for
purposes of signature by a person other than the principal.
(c) Content. The NAFTA Exporter or Producer Intervention in Protest
letter shall include the following:
(1) The name and address of the exporter or producer of the
merchandise and the name and address of any authorized agent filing the
request on behalf of such principal;
(2) In the case of a Canadian exporter or producer, the employer
number assigned by Revenue Canada, Customs and Excise; in the case of a
Mexican exporter or producer, the Federal taxpayer registry number
(RFC); and the Customs identification number of an authorized agent
filing the request on behalf of such principal;
(3) The number and date of each entry involved in the adverse
marking decision;
(4) A specific description of the merchandise which is the subject
of the adverse marking decision;
(5) A complete statement of all relevant facts relating to the
adverse marking decision and the transaction to which it relates,
including the date of the decision;
(6) A detailed statement of position regarding why the exporter or
producer believes the adverse marking decision is contrary to the
provision of Annex 311 of the NAFTA;
(7) A statement as to whether a Request for Basis of Adverse
Marking Decision was filed under Sec. 181.113 of this part, and if so,
the date of such Request and of any Customs response thereto issued
under Sec. 181.114 of this part. Copies of the Request and the Customs
response shall be submitted, if available;
(8) The number assigned to the importer's protest;
(9) A statement that the intervenor is the exporter or producer of
the merchandise that was the subject of the adverse marking decision
being protested by the importer and, if the intervenor is the exporter,
a statement that it maintains sufficient records to enable Customs to
evaluate the merits of its claim(s) regarding the adverse marking
decision; and
(10) If the intervenor prefers that the principle of
confidentiality set forth in Sec. 181.121 of this part be applied to
the information submitted under this section, a statement to that
effect. If no such statement is included in the letter, the
intervention and information submitted in connection therewith shall be
subject to the same treatment as that
[[Page 46388]]
provided in the case of requests by all interested parties for
consolidation of protests as set forth in Sec. 174.15(b)(1) of this
chapter.
(d) Effect of Intervention. The rights of the intervenor under this
section are subordinate to the importer's protest rights. Accordingly,
intervention by an exporter or producer of merchandise will not affect
the procedures under part 174 of this chapter, and the importer's
elections concerning accelerated disposition and application for
further review of the protest will govern how the protest is handled
and how the intervention is considered. If the importer withdraws or
settles the protest, the exporter or producer has no right to continue
the intervention action.
(e) Action by port director. If final administrative action has
already been taken with respect to the importer's protest at the time
the intervention is filed, the port director shall so advise the
exporter or producer and, if the importer has filed a civil action in
the Court of International Trade as a result of a denial of the
protest, the port director shall advise the exporter or producer of
that filing and of the exporter's or producer's right to seek to
intervene in such judicial proceeding. If final administrative action
has not been taken on the protest, the port director shall forward the
intervention letter to the Customs office which has the importer's
protest under review for consideration in connection with the protest.
(f) Final disposition. The intervenor shall be notified in writing
of the final disposition of the protest. If the protest is denied in
whole or in part, the intervenor shall be furnished a copy of the
notice given to the importer under Sec. 174.29.
Sec. 181.116 Petition regarding adverse marking decision.
(a) Right to petition. If the importer does not protest an adverse
marking decision in accordance with section 514, Tariff Act of 1930, as
amended (19 U.S.C. 1514), and part 174 of this chapter, the exporter or
producer of the merchandise which was the subject of the adverse
marking decision may file a petition with Customs requesting
reconsideration of the decision. The petition may not be filed until
after the importer's time to protest the adverse marking decision has
expired (see Sec. 174.12(e) of this chapter for the time limits for
filing protests). If the importer filed a protest upon which final
administrative action has been taken, the exporter or producer may file
a petition under this section, provided that the exporter or producer
was not given notice of the pending protest pursuant to Sec. 181.114 of
this part. If the importer filed a protest on which final
administrative action has not been taken and notice of the pending
protest was not provided to the exporter or producer under Sec. 181.114
of this part, a petition filed under this section shall be treated by
the port director as an intervention under Sec. 181.115 of this part.
(b) Form and filing of petition. A petition under this section
shall be typewritten, in English, and shall be filed, in triplicate,
with the port director who issued the adverse marking decision. The
petition under this subpart should be on letterhead paper in the form
of a letter, clearly designated as a ``Petition for NAFTA Review of
Adverse Marking Decision'' and shall be signed by the exporter,
producer or his authorized agent. The provisions of Sec. 174.3 of this
chapter shall apply for purposes of signature by a person other than
the principal.
(c) Content. The Petition for NAFTA Review of Adverse Marking
Decision letter shall contain all the information specified
Sec. 181.115 of this part, except for the protest number. It shall also
include a statement that petitioner was not notified by Customs in
writing of a pending protest.
(d) Review of petition--(1) Review by port director. Within 60 days
of the date of receipt of the petition, the port director shall
determine if the petition is to be granted or denied, in whole or in
part. If, after reviewing the petition, the port director agrees with
all of the petitioner's claims and determines that the initial adverse
marking decision was not correct, a written notice granting the
petition shall be issued to the petitioner. A description of the
merchandise, a brief summary of the issue(s) and the port director's
findings shall be forwarded to the Director, Tariff Classification
Appeals Division, Customs Headquarters, for publication in the Customs
Bulletin. If, after reviewing the petition, the port director
determines that the initial adverse marking decision was correct in its
entirety, a written notice shall be issued to the petitioner advising
that the matter has been forwarded to the Director, Tariff
Classification Appeals Division, Customs Headquarters, for further
review and decision. All relevant background information, including
available samples, a description of the adverse marking decision and
the reasons for the decision, and the port director's recommendation
shall be furnished to Headquarters.
(2) Review by Headquarters. Within 120 days of the date the
petition and background information are received at Customs
Headquarters, the Director, Tariff Classification Appeals Division,
shall determine if the petition is to be granted or denied, in whole or
in part, and the petitioner shall be notified in writing of the
determination. If the petition is granted in whole or in part, a
description of the merchandise, a brief summary of the issue(s) and the
director's findings will be published in the Customs Bulletin.
(3) Effect of granting the petition. The decision on the petition,
if contrary to the initial adverse marking decision, will be
implemented with respect to merchandise entered or withdrawn from
warehouse for consumption after 30 days from the date on which the
notice of determination is published in the Customs Bulletin.
(e) Pending litigation. No decision on a petition will be issued
under this section with respect to any issue which is pending before
the United States Court of International Trade, the United States Court
of Appeals for the Federal Circuit, or any court of appeal therefrom.
Litigation before any other court will not preclude the issuance of a
decision on a petition under this section, provided neither Customs nor
any of its officers or agents is named as a party to the action.
(f) Judicial review of denial of petition.
Any person whose petition under this section has been denied, in
whole or in part, may contest the denial by filing a civil action in
the United States Court of International Trade within 30 days after the
date of mailing of the notice of denial.
Subpart K--Confidentiality of Business Information
Sec. 181.121 Maintenance of confidentiality.
The port director or other Customs officer who has possession of
confidential business information collected pursuant to this part
shall, in accordance with part 103 of this chapter, maintain its
confidentiality and protect it from any disclosure that could prejudice
the competitive position of the persons providing the information.
Sec. 181.122 Disclosure to government authorities.
Nothing in Sec. 181.121 of this part shall preclude the disclosure
of confidential business information to governmental authorities in the
United States responsible for the administration and enforcement of
determinations of origin and of customs and revenue matters.
[[Page 46389]]
Subpart L--Rules of Origin
Sec. 181.131 Rules of origin.
(a) The regulations effective October 1, 1995, implementing the
rules of origin provisions of General Note 12, HTSUS, and Chapter Four
of the NAFTA are contained in the appendix to this part.
(b) If the fiscal year of a producer of goods begins before October
1, 1995, the producer may choose to have the regulations implementing
the rules of origin provisions of General Note 12, HTSUS, and Chapter
Four of the NAFTA that were in effect prior to October 1, 1995 (see 19
CFR chapter I, 1994 edition, appendix to part 181) continue to apply in
regard to all goods produced by that producer for the remainder of that
fiscal year.
(c) If a motor vehicle producer's fiscal year that has been chosen
by a producer of goods pursuant to section 12(5) of the regulations
referred to in paragraph (b) of this section begins before October 1,
1995, the producer of the goods may choose to have those regulations
continue to apply in regard to the goods produced by that producer for
the remainder of that fiscal year, provided that:
(1) The producer of the goods has made an election under section
12(1) of those regulations or has provided a statement referred to in
section 9(6) or 10(8) of those regulations that states the value of
non-originating materials determined in accordance with section 12(3)
of those regulations; and
(2) The period chosen under section 12(5) of those regulations is
the fiscal year of the motor vehicle producer to whom those goods are
sold.
Appendix to Part 181--Rules of Origin Regulations
SECTION 1. CITATION
This Appendix may be cited as the NAFTA Rules of Origin Regulations.
PART I
SECTION 2. DEFINITIONS AND INTERPRETATION
Definitions
(1) For purposes of this Appendix,
``accessories, spare parts or tools that are delivered with a good and
form part of the good's standard accessories, spare parts or tools''
means goods that are delivered with a good, whether or not they are
physically affixed to that good, and that are used for the transport,
protection, maintenance or cleaning of the good, for instruction in the
assembly, repair or use of that good, or as replacements for consumable
or interchangeable parts of that good;
``adjusted to an F.O.B. basis'' means, with respect to a good, adjusted
by
(a) deducting
(i) the costs of transporting the good after it is shipped from the
point of direct shipment,
(ii) the costs of unloading, loading, handling and insurance that
are associated with that transportation, and
(iii) the cost of packing materials and containers,
where those costs are included in the transaction value of the good,
and
(b) adding
(i) the costs of transporting the good from the place of production
to the point of direct shipment,
(ii) the costs of loading, unloading, handling and insurance that
are associated with that transportation, and
(iii) the costs of loading the good for shipment at the point of
direct shipment,
where those costs are not included in the transaction value of the
good;
``Agreement'' means the North American Free Trade Agreement;
``applicable change in tariff classification'' means, with respect to a
non-originating material used in the production of a good, a change in
tariff classification specified in a rule set out in Schedule I for the
tariff provision under which the good is classified;
``automotive component'' means a good that is referred to in column I of
an item of Schedule V;
``automotive component assembly'' means a good, other than a heavy-duty
vehicle, that incorporates an automotive component;
``costs incurred in packing'' means, with respect to a good or material,
the value of the packing materials and containers in which the good or
material is packed for shipment and the labor costs incurred in packing
it for shipment, but does not include the costs of preparing and
packaging it for retail sale;
``customs value'' means
(a) in the case of Canada, value for duty as defined in the Customs
Act, except that for purposes of determining that value the reference
in section 55 of that Act to ``in accordance with the regulations
made under the Currency Act'' shall be read as a reference to ``in
accordance with subsection 3(1) of these Regulations'',
(b) in the case of Mexico, the valor en aduana as determined in
accordance with the Ley Aduanera, converted, in the event such value
is not expressed in Mexican currency, to Mexican currency at the rate
of exchange determined in accordance with subsection 3(1) of these
Regulations, and
(c) in the case of the United States, the value of imported
merchandise as determined by the Customs Service in accordance with
section 402 of the Tariff Act of 1930, as amended, converted, in the
event such value is not expressed in United States currency, to
United States currency at the rate of exchange determined in
accordance with subsection 3(1) of these Regulations.
``days'' means calendar days, and includes weekends and holidays;
``direct labor costs'' means costs, including fringe benefits, that are
associated with employees who are directly involved in the production
of a good;
``direct material costs'' means the value of materials, other than
indirect materials and packing materials and containers, that are used
in the production of a good;
``direct overhead'' means costs, other than direct material costs and
direct labor costs, that are directly associated with the production of
a good;
[[Page 46390]]
``enterprise'' means any entity constituted or organized under
applicable laws, whether or not for profit and whether privately owned
or governmentally owned, including any corporation, trust, partnership,
sole proprietorship, joint venture or other association;
``excluded costs'' means sales promotion, marketing and after-sales
service costs, royalties, shipping and packing costs and non-allowable
interest costs;
``fungible goods'' means goods that are interchangeable for commercial
purposes and the properties of which are essentially identical;
``fungible materials'' means materials that are interchangeable for
commercial purposes and the properties of which are essentially
identical;
``Harmonized System'' means the Harmonized Commodity Description and
Coding System, including its General Rules of Interpretation, Section
Notes and Chapter Notes, as set out in
(a) in the case of Canada, the Customs Tariff,
(b) in the case of Mexico, the Tarifa de la Ley del Impuesto General
de Importacion, and
(c) in the case of the United States, the Harmonized Tariff Schedule
of the United States;
``heavy-duty vehicle'' means a motor vehicle provided for in any of
heading 8701, tariff items 8702.10.30 and 8702.90.30 (vehicles for the
transport of 16 or more persons), subheadings 8704.10, 8704.22,
8704.23, 8704.32 and 8704.90 and heading 8705 and 8706;
``identical goods'' means, with respect to a good, goods that
(a) are the same in all respects as that good, including physical
characteristics, quality and reputation but excluding minor
differences in appearance,
(b) were produced in the same country as that good, and
(c) were produced
(i) by the producer of that good, or
(ii) by another producer, where no goods that satisfy the
requirements of paragraphs (a) and (b) were produced by the
producer of that good;
``identical materials'' means, with respect to a material, materials
that
(a) are the same as that material in all respects, including physical
characteristics, quality and reputation but excluding minor
differences in appearance,
(b) were produced in the same country as that material, and
(c) were produced
(i) by the producer of that material, or
(ii) by another producer, where no materials that satisfy the
requirements of paragraphs (a) and (b) were produced by the
producer of that material;
``incorporated'' means, with respect to the production of a good, a
material that is physically incorporated into that good, and includes a
material that is physically incorporated into another material before
that material or any subsequently produced material is used in the
production of the good;
``indirect material'' means a good used in the production, testing or
inspection of a good but not physically incorporated into the good, or
a good used in the maintenance of buildings or the operation of
equipment associated with the production of a good, and includes
(a) fuel and energy,
(b) tools, dies and molds,
(c) spare parts and materials used in the maintenance of equipment and
buildings,
(d) lubricants, greases, compounding materials and other materials
used in production or used to operate equipment and buildings,
(e) gloves, glasses, footwear, clothing, safety equipment and
supplies,
(f) equipment, devices and supplies used for testing or inspecting the
other goods,
(g) catalysts and solvents, and
(h) any other goods that are not incorporated into the good but the
use of which in the production of the good can reasonably be
demonstrated to be part of that production;
``interest costs'' means all costs paid or payable by a person to whom
credit is, or is to be advanced, for the advancement of credit or the
obligation to advance credit;
``intermediate material'' means a self-produced material that is used in
the production of a good and is designated as an intermediate material
under section 7(4) ;
``light-duty automotive good'' means a light-duty vehicle or a good of a
tariff provision listed in Schedule IV that is subject to a regional
value-content requirement and is for use as original equipment in the
production of a light-duty vehicle;
``light-duty vehicle'' means a motor vehicle provided for in any of
tariff items 8702.10.60 and 8702.90.60 (vehicles for the transport of
15 or fewer persons) and subheadings 8703.21 through 8703.90, 8704.21
and 8704.31;
``listed material'' means a good that is referred to in column II of an
item of Schedule V;
``location of the producer'' means,
(a) where the warehouse or other receiving station at which a producer
receives materials for use by the producer in the production of a
good is located within a radius of 75 km (46.60 miles) from the place
at which the producer produces the good, the location of that
warehouse or other receiving station, and
(b) in any other case, the place at which the producer produces the
good in which a material is to be used;
``material'' means a good that is used in the production of another
good, and includes a part or ingredient;
``motor vehicle assembler'' means a producer of motor vehicles and any
related person with whom, or joint venture in which, the producer
participates with respect to the production of motor vehicles;
``month'' means a calendar month;
``NAFTA country'' means a Party to the Agreement;
``national'' means a natural person who is a citizen or permanent
resident of a NAFTA country, and includes
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(a) with respect to Mexico, a national or citizen according to
Articles 30 and 34, respectively, of the Mexican Constitution, and
(b) with respect to the United States, a ``national of the United
States'' as defined in the Immigration and Nationality Act on the
date of entry into force of the Agreement;
``net cost method'' means the method of calculating the regional value
content of a good that is set out in section 6(3);
``non-allowable interest costs'' means interest costs incurred by a
producer on the producer's debt obligations that are more than 700
basis points above the yield on debt obligations of comparable
maturities issued by the federal government of the country in which the
producer is located;
``non-originating good'' means a good that does not qualify as
originating under this Appendix;
``non-originating material'' means a material that does not qualify as
originating under this Appendix;
``original equipment'' means a material that is incorporated into a
motor vehicle before the first transfer of title or consignment of the
motor vehicle to a person who is not a motor vehicle assembler, and
that is
(a) a good of a tariff provision listed in Schedule IV, or
(b) an automotive component assembly, automotive component, sub-
component or listed material;
``originating good'' means a good that qualifies as originating under
this Appendix;
``originating material'' means a material that qualifies as originating
under this Appendix;
``other costs,'' with respect to total cost, means all costs that are
not product costs or period costs;
``packaging materials and containers'' means materials and containers in
which a good is packaged for retail sale;
``packing materials and containers'' means materials and containers that
are used to protect a good during transportation, but does not include
packaging materials and containers;
``payments'' means, with respect to royalties and sales promotion,
marketing and after-sales service costs, the costs expensed on the
books of a producer, whether or not an actual payment is made;
``period costs'' means costs, other than product costs, that are
expensed in the period in which they are incurred;
``person'' means a natural person or an enterprise;
``person of a NAFTA country'' means a national, or an enterprise
constituted or organized under the laws of a NAFTA country;
``point of direct shipment'' means the location from which a producer of
a good normally ships that good to the buyer of the good;
``producer'' means a person who grows, mines, harvests, fishes, traps,
hunts, manufactures, processes or assembles a good;
``product costs'' means costs that are associated with the production of
a good, and includes the value of materials, direct labor costs and
direct overhead;
``production'' means growing, mining, harvesting, fishing, trapping,
hunting, manufacturing, processing or assembling a good;
``related person'' means a person related to another person on the basis
that
(a) they are officers or directors of one another's businesses,
(b) they are legally recognized partners in business,
(c) they are employer and employee,
(d) any person directly or indirectly owns, controls or holds 25
percent or more of the outstanding voting stock or shares of each of
them,
(e) one of them directly or indirectly controls the other,
(f) both of them are directly or indirectly controlled by a third
person, or
(g) they are members of the same family (members of the same family
are natural or adopted children, brothers, sisters, parents,
grandparents, or spouses);
``reusable scrap or by-product'' means waste and spoilage that is
generated by the producer of a good and that is used in the production
of a good or sold by that producer;
``right to use,'' for purposes of the definition of royalties, includes
the right to sell or distribute a good;
``royalties'' means payments of any kind, including payments under
technical assistance agreements or similar agreements, made as
consideration for the use of, or right to use, any copyright, literary,
artistic, or scientific work, patent, trademark, design, model, plan,
secret formula or process, excluding those payments under technical
assistance agreements or similar agreements that can be related to
specific services such as
(a) personnel training, without regard to where performed, and
(b) if performed in the territory of one or more of the NAFTA
countries, engineering, tooling, die-setting, software design and
similar computer services, or other services;
``sales promotion, marketing and after-sales service costs'' means the
following costs related to sales promotion, marketing and after-sales
service:
(a) sales and marketing promotion; media advertising; advertising and
market research; promotional and demonstration materials; exhibits;
sales conferences, trade shows and conventions; banners; marketing
displays; free samples; sales, marketing and after-sales service
literature (product brochures, catalogs, technical literature, price
lists, service manuals, sales aid information); establishment and
protection of logos and trademarks; sponsorships; wholesale and
retail restocking charges; entertainment;
(b) sales and marketing incentives; consumer, retailer or wholesaler
rebates; merchandise incentives;
(c) salaries and wages, sales commissions, bonuses, benefits (for
example, medical, insurance, pension), traveling and living expenses,
membership and professional fees, for sales promotion, marketing and
after-sales service personnel;
(d) recruiting and training of sales promotion, marketing and after-
sales service personnel, and after-sales training of customers'
employees, where such costs are identified separately for sales
promotion, marketing and after-sales service of goods on the
financial statements or cost accounts of the producer;
(e) product liability insurance;
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(f) office supplies for sales promotion, marketing and after-sales
service of goods, where such costs are identified separately for
sales promotion, marketing and after-sales service of goods on the
financial statements or cost accounts of the producer;
(g) telephone, mail and other communications, where such costs are
identified separately for sales promotion, marketing and after-sales
service of goods on the financial statements or cost accounts of the
producer;
(h) rent and depreciation of sales promotion, marketing and after-
sales service offices and distribution centers;
(i) property insurance premiums, taxes, cost of utilities, and repair
and maintenance of sales promotion, marketing and after-sales service
offices and distribution centers, where such costs are identified
separately for sales promotion, marketing and after-sales service of
goods on the financial statements or cost accounts of the producer;
and
(j) payments by the producer to other persons for warranty repairs;
``self-produced material'' means a material that is produced by the
producer of a good and used in the production of that good;
``shipping and packing costs'' means the costs incurred in packing a
good for shipment and shipping the good from the point of direct
shipment to the buyer, excluding the costs of preparing and packaging
the good for retail sale;
``similar goods'' means, with respect to a good, goods that
(a) although not alike in all respects to that good, have similar
characteristics and component materials that enable the goods to
perform the same functions and to be commercially interchangeable
with that good,
(b) were produced in the same country as that good, and
(c) were produced
(i) by the producer of that good, or
(ii) by another producer, where no goods that satisfy the
requirements of paragraphs (a) and (b) were produced by the
producer of that good;
``similar materials'' means, with respect to a material, materials that
(a) although not alike in all respects to that material, have similar
characteristics and component materials that enable the materials to
perform the same functions and to be commercially interchangeable
with that material,
(b) were produced in the same country as that material, and (c) were
produced
(i) by the producer of that material, or
(ii) by another producer, where no materials that satisfy the
requirements of paragraphs (a) and (b) were produced by the
producer of that material;
``subject to a regional value-content requirement'' means, with respect
to a good, that the provisions of this Appendix that are applied to
determine whether the good is an originating good include a regional
value-content requirement;
``sub-component'' means a good that comprises a listed material and one
or more other materials or listed materials;
``tariff provision'' means a heading, subheading or tariff item;
``territory'' means, with respect to
(a) Canada, the territory to which its customs laws apply, including
any areas beyond the territorial seas of Canada within which, in
accordance with international law and its domestic law, Canada may
exercise rights with respect to the seabed and subsoil and their
natural resources,
(b) Mexico,
(i) the states of the Federation and the Federal District,
(ii) the islands, including the reefs and keys, in adjacent seas,
(iii) the islands of Guadalupe and Revillagigedo situated in the
Pacific Ocean,
(iv) the continental shelf and the submarine shelf of such islands,
keys and reefs,
(v) the waters of the territorial seas, in accordance with
international law, and its interior maritime waters,
(vi) the space located above the national territory, in accordance
with international law, and
(vii) any areas beyond the territorial seas of Mexico within which,
in accordance with international law, including the United Nations
Convention on the Law of the Sea, and its domestic law, Mexico may
exercise rights with respect to the seabed and subsoil and their
natural resources, and
(c) the United States,
(i) the customs territory of the United States, which includes the
50 states, the District of Columbia and Puerto Rico,
(ii) the foreign trade zones located in the United States and Puerto
Rico, and
(iii) any areas beyond the territorial seas of the United States
within which, in accordance with international law and its domestic
law, the United States may exercise rights with respect to the
seabed and subsoil and their natural resources;
``total cost'' means the total of all product costs, period costs and
other costs incurred in the territory of one or more of the NAFTA
countries;
``transaction value method'' means the method of calculating the
regional value content of a good that is set out in subsection 6(2);
``used'' means used or consumed in the production of a good;
``verification of origin'' means a verification of origin of goods under
(a) in the case of Canada, paragraph 42.1(1)(a) or subsection 42.2(2)
of the Customs Act,
(b) in the case of Mexico, Article 506 of the Agreement, and
(c) in the case of the United States, section 509 of the Tariff Act of
1930, as amended.
Interpretation: ``similar''
(2) For purposes of the definitions of ``similar goods'' and ``similar
materials,'' the quality of the goods or materials, their reputation
and the existence of a trademark are among the factors to be considered
for purposes of determining whether goods or materials are similar.
[[Page 46393]]
Interpretation: terms used to refer to HTSUS; use of term ``books''
(3) For purposes of this Appendix,
(a) ``chapter,'' unless otherwise indicated, refers to a chapter of
the Harmonized System;
(b) ``heading'' refers to any four-digit number, or the first four
digits of any number, set out in the column ``Heading/Subheading'' in
the Harmonized System;
(c) ``subheading'' refers to any six-digit number, or the first six
digits of any number, set out in the column ``Heading/Subheading'' in
the Harmonized System;
(d) ``tariff item'' refers to any eight-digit number set out in the
column ``Heading/Subheading'' in the Harmonized System;
(e) any reference to a tariff item in Chapter Four of the Agreement or
this Appendix that includes letters shall be reflected as the
appropriate eight-digit number in the Harmonized System as
implemented in each NAFTA country; and
(f) ``books'' refers to,
(i) with respect to the books of a person who is located in a NAFTA
country,
(A) books and other documents that support the recording of
revenues, expenses, costs, assets and liabilities and that are
maintained in accordance with Generally Accepted Accounting
Principles set out in the publications listed in Schedule XII
with respect to the territory of the NAFTA country in which the
person is located, and
(B) financial statements, including note disclosures, that are
prepared in accordance with Generally Accepted Accounting
Principles set out in the publications listed in Schedule XII
with respect to the territory of the NAFTA country in which the
person is located, and
(ii) with respect to the books of a person who is located outside
the territories of the NAFTA countries,
(A) books and other documents that support the recording of
revenues, expenses, costs, assets and liabilities and that are
maintained in accordance with generally accepted accounting
principles applied in that location or, where there are no such
principles, in accordance with the International Accounting
Standards, and
(B) financial statements, including note disclosures, that are
prepared in accordance with generally accepted accounting
principles applied in that location or, where there are no such
principles, in accordance with the International Accounting
Standards.
Use of Examples to illustrate the application of a provision
(4) Where an example, referred to as an ``Example,'' is set out in this
Appendix, the example is for purposes of illustrating the application
of a provision, and where there is any inconsistency between the
example and the provision, the provision prevails to the extent of the
inconsistency.
References to domestic laws
(5) Except as otherwise provided, references in this Appendix to
domestic laws of the NAFTA countries apply to those laws as they may be
amended or superseded.
Calculation of total cost
(6) For purposes of sections 5(9), 6(11) and 7(6) and sections 10(1)(a)
(i) and (ii),
(a) total cost consists of all product costs, period costs and other
costs that are recorded, except as otherwise provided in paragraphs
(b) (i) and (ii), on the books of the producer without regard to the
location of the persons to whom payments with respect to those costs
are made;
(b) in calculating total cost,
(i) the value of materials, other than intermediate materials,
indirect materials and packing materials and containers, shall be
the value determined in accordance with section 7(1),
(ii) the value of intermediate materials used in the production of
the good or material with respect to which total cost is being
calculated shall be calculated in accordance with section 7(6),
(iii) the value of indirect materials and the value of packing
materials and containers shall be the costs that are recorded on
the books of the producer for those materials, and
(iv) product costs, period costs and other costs, other than costs
referred to in subparagraphs (i) and (ii), shall be the costs
thereof that are recorded on the books of the producer for those
costs;
(c) total cost does not include profits that are earned by the
producer, regardless of whether they are retained by the producer or
paid out to other persons as dividends, or taxes paid on those
profits, including capital gains taxes;
(d) gains related to currency conversion that are related to the
production of the good shall be deducted from total cost, and losses
related to currency conversion that are related to the production of
the good shall be included in total cost; and
(e) the value of materials with respect to which production is
accumulated under section 14 shall be determined in accordance with
that section.
(7) For purposes of calculating total cost under sections 5(9) and 7(6)
and sections 10(1)(a) (i) and (ii),
(a) where the regional value content of the good is calculated on the
basis of the net cost method and the producer has chosen under
section 6(15), 11 (1), (3) or (6), 12(5) or 13(4) to calculate the
regional value content over a period, the total cost shall be
calculated over that period; and
(b) in any other case, the producer may choose that the total cost be
calculated over
(i) a month,
(ii) any consecutive three month or six month period that falls
within and is evenly divisible into the number of months of the
producer's fiscal year remaining at the beginning of that period,
or
(iii) the producer's fiscal year.
(8) A choice made under subsection (7) may not be rescinded or modified
with respect to the good or material, or the period, with respect to
which the choice is made.
[[Page 46394]]
(9) Where a producer chooses a one, three or six month period under
subsection (7) with respect to a good or material, the producer shall
be considered to have chosen under that subsection a period or periods
of the same duration for the remainder of the producer's fiscal year
with respect to that good or material.
(10) With respect to a good exported to a NAFTA country, a choice to
average is considered to have been made
(a) in the case of a choice referred to in section 11 (1), (3) or (6)
or 13(4), if the choice is received by the customs administration of
that NAFTA country; and
(b) in the case of a choice referred to in section 2(7), 6(15) or
12(1), if the customs administration of that NAFTA country is
informed in writing during the course of a verification of the origin
of the good that the choice has been made.
SECTION 3. CURRENCY CONVERSION
(1) Where the value of a good or a material is expressed in a currency
other than the currency of the country in which the producer of the
good is located, that value shall be converted to the currency of the
country in which that producer is located on the basis of
(a) in the case of the sale of that good or the purchase of that
material, the rate of exchange used by the producer for purposes of
recording that sale or purchase, as the case may be; and
(b) in the case of a material that is acquired by the producer other
than by a purchase,
(i) where the producer used a rate of exchange for purposes of
recording another transaction in that other currency that occurred
within 30 days of the date on which the producer acquired the
material, that rate, and
(ii) in any other case,
(A) with respect to a producer located in Canada, the rate of
exchange referred to in section 5 of the Currency Exchange for
Customs Valuation Regulations for the date on which the material
was shipped directly to the producer,
(B) with respect to a producer located in Mexico, the rate of
exchange published by the Banco de Mexico in the Diario Oficial
de la Federacion, under the title ``TIPO de cambio para solventar
obligaciones denominadas en moneda extranjera pagaderas en la
Republica Mexicana'', for the date on which the material was
shipped directly to the producer, and
(C) with respect to a producer located in the United States, the
rate of exchange referred to in 31 U.S.C. 5151 for the date on
which the material was shipped directly to the producer.
(2) Where a producer of a good has a statement referred to in section 9,
10 or 14 that includes information in a currency other than the
currency of the country in which that producer is located, the currency
shall be converted to the currency of the country in which the producer
is located on the basis of
(a) if the material was purchased by the producer in the same currency
as the currency in which the information in the statement is
provided, the rate of exchange used by the producer for purposes of
recording the purchase;
(b) if the material was purchased by the producer in a currency other
than the currency in which the information in the statement is
provided,
(i) where the producer used a rate of exchange for purposes of
recording a transaction in that other currency that occurred within
30 days of the date on which the producer acquired the material,
that rate, and
(ii) in any other case,
(A) with respect to a producer located in Canada, the rate of
exchange referred to in section 5 of the Currency Exchange for
Customs Valuation Regulations for the date on which the material
was shipped directly to the producer,
(B) with respect to a producer located in Mexico, the rate of
exchange published by the Banco de Mexico in the Diario Oficial
de la Federacion, under the title ``TIPO de cambio para solventar
obligaciones denominadas en moneda extranjera pagaderas en la
Republica Mexicana'', for the date on which the material was
shipped directly to the producer, and
(C) with respect to a producer located in the United States, the
rate of exchange referred to in 31 U.S.C. 5151 for the date on
which the material was shipped directly to the producer; and
(c) if the material was acquired by the producer other than by a
purchase,
(i) where the producer used a rate of exchange for purposes of
recording a transaction in that other currency that occurred within
30 days of the date on which the producer acquired the material,
that rate, and
(ii) in any other case,
(A) with respect to a producer located in Canada, the rate of
exchange referred to in section 5 of the Currency Exchange for
Customs Valuation Regulations for the date on which the material
was shipped directly to the producer,
(B) with respect to a producer located in Mexico, the rate of
exchange published by the Banco de Mexico in the Diario Oficial
de la Federacion, under the title ``TIPO de cambio para solventar
obligaciones denominadas en moneda extranjera pagaderas en la
Republica Mexicana'', for the date on which the material was
shipped directly to the producer, and
(C) with respect to a producer located in the United States, the
rate of exchange referred to in 31 U.S.C. 5151 for the date on
which the material was shipped directly to the producer.
PART II
SECTION 4. ORIGINATING GOODS
Identification of goods which are ``wholly obtained or produced''
(1) A good originates in the territory of a NAFTA country where the good
is
(a) a mineral good extracted in the territory of one or more of the
NAFTA countries;
(b) a vegetable or other good harvested in the territory of one or
more of the NAFTA countries;
(c) a live animal born and raised in the territory of one or more of
the NAFTA countries;
[[Page 46395]]
(d) a good obtained from hunting, trapping or fishing in the territory
of one or more of the NAFTA countries;
(e) fish, shellfish or other marine life taken from the sea by a
vessel registered or recorded with a NAFTA country and flying its
flag;
(f) a good produced on board a factory ship from a good referred to in
paragraph (e), where the factory ship is registered or recorded with
the same NAFTA country as the vessel that took that good and flies
that country's flag;
(g) a good taken by a NAFTA country or a person of a NAFTA country
from or beneath the seabed outside the territorial waters of that
country, where a NAFTA country has the right to exploit that seabed;
(h) a good taken from outer space, where the good is obtained by a
NAFTA country or a person of a NAFTA country and is not processed
outside the territories of the NAFTA countries;
(i) waste and scrap derived from
(i) production in the territory of one or more of the NAFTA
countries, or
(ii) used goods collected in the territory of one or more of the
NAFTA countries, where those goods are fit only for the recovery of
raw materials; or
(j) a good produced in the territory of one or more of the NAFTA
countries exclusively from a good referred to in any of paragraphs
(a) through (i), or from the derivatives of such a good, at any stage
of production.
Goods made from non-originating materials: change in tariff
classification requirement; regional value-content requirement
(2) A good originates in the territory of a NAFTA country where
(a) each of the non-originating materials used in the production of
the good undergoes the applicable change in tariff classification as
a result of production that occurs entirely in the territory of one
or more of the NAFTA countries, where the applicable rule in Schedule
I for the tariff provision under which the good is classified
specifies only a change in tariff classification, and the good
satisfies all other applicable requirements of this Appendix;
(b) each of the non-originating materials used in the production of
the good undergoes the applicable change in tariff classification as
a result of production that occurs entirely in the territory of one
or more of the NAFTA countries and the good satisfies the applicable
regional value-content requirement, where the applicable rule in
Schedule I for the tariff provision under which the good is
classified specifies both a change in tariff classification and a
regional value-content requirement, and the good satisfies all other
applicable requirements of this Appendix; or
(c) the good satisfies the applicable regional value-content
requirement, where the applicable rule in Schedule I for the tariff
provision under which the good is classified specifies only a
regional value-content requirement, and the good satisfies all other
applicable requirements of this Appendix.
Goods made exclusively from originating materials
(3) A good originates in the territory of a NAFTA country where the good
is produced entirely in the territory of one or more of the NAFTA
countries exclusively from originating materials.
Exceptions to the change in tariff classification requirement
(4) A good originates in the territory of a NAFTA country where
(a) except in the case of a good provided for in any of Chapters 61
through 63,
(i) the good is produced entirely in the territory of one or more of
the NAFTA countries,
(ii) one or more of the non-originating materials used in the
production of the good do not undergo an applicable change in
tariff classification because the materials were imported together,
whether or not with originating materials, into the territory of a
NAFTA country as an unassembled or disassembled good, and were
classified as an assembled good pursuant to Rule 2(a) of the
General Rules for the Interpretation of the Harmonized System,
(iii) the regional value content of the good, calculated in
accordance with section 6, is not less than 60 percent where the
transaction value method is used, or is not less than 50 percent
where the net cost method is used, and
(iv) the good satisfies all other applicable requirements of this
Appendix, including any applicable, higher regional value-content
requirement provided for in section 13 or Schedule I; or
(b) except in the case of a good provided for in any of Chapters 61
through 63,
(i) the good is produced entirely in the territory of one or more of
the NAFTA countries,
(ii) one or more of the non-originating materials used in the
production of the good do not undergo an applicable change in
tariff classification because
(A) those materials are provided for under the Harmonized System
as parts of the good, and
(B) the heading for the good provides for both the good and its
parts and is not further subdivided into subheadings, or the
subheading for the good provides for both the good and its parts,
(iii) the non-originating materials that do not undergo a change in
tariff classification in the circumstances described in
subparagraph (ii) and the good are not both classified as parts of
goods under the heading or subheading referred to in subparagraph
(ii)(B),
(iv) each of the non-originating materials that is used in the
production of the good and is not referred to in subparagraph (iii)
undergoes an applicable change in tariff classification or
satisfies any other applicable requirement set out in Schedule I,
(v) the regional value content of the good, calculated in accordance
with section 6, is not less than 60 percent where the transaction
value method is used, or is not less than 50 percent where the net
cost method is used, and
(vi) the good satisfies all other applicable requirements of this
Appendix, including any applicable, higher regional value-content
requirement provided for in section 13 or Schedule I.
Interpretation: heading or subheading which provides for both a good and
parts of the good
(5) For purposes of subsection (4)(b),
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(a) the determination of whether a heading or subheading provides for
a good and its parts shall be made on the basis of the nomenclature
of the heading or subheading and the relevant Section or Chapter
Notes, in accordance with the General Rules for the Interpretation of
the Harmonized System; and
(b) where, in accordance with the Harmonized System, a heading
includes parts of goods by application of a Section Note or Chapter
Note of the Harmonized System and the subheadings under that heading
do not include a subheading designated ``Parts'', a subheading
designated ``Other'' under that heading shall be considered to cover
only the goods and parts of the goods that are themselves classified
under that subheading.
(6) For purposes of subsection (2), where Schedule I sets out two or
more alternative rules for the tariff provision under which a good is
classified, if the good satisfies the requirements of one of those
rules, it need not satisfy the requirements of another of the rules in
order to qualify as an originating good.
Special rule for certain goods
(7) A good originates in the territory of a NAFTA country if the good is
referred to in Table 308.1.1 of Section B of Annex 308.1 to Chapter
Three of the Agreement and is imported from the territory of a NAFTA
country at a time when the NAFTA countries' most-favored-nation rate of
duty for that good is in accordance with paragraph 1 of Section A of
that Annex.
Self-produced material may be a material for determining applicability
of rules of origin
(8) For purposes of determining whether non-originating materials
undergo an applicable change in tariff classification, a self-produced
material may, at the choice of the producer of a good into which the
self-produced material is incorporated, be considered as an originating
material or non-originating material, as the case may be, used in the
production of that good.
(9) The following example is an ``Example'' as referred to in section
2(4).
Example: section 4(8), Self-produced Materials as Materials for Purposes
of Determining Whether Non-originating Materials Undergo an Applicable
Change in Tariff Classification
Producer A, located in a NAFTA country, produces Good A. In the
production process, Producer A uses originating Material X and non-
originating Material Y to produce Material Z. Material Z is a self-
produced material that will be used to produce Good A.
The rule set out in Schedule I for the heading under which Good A is
classified specifies a change in tariff classification from any other
heading. In this case, both Good A and the non-originating Material Y
are of the same heading. However, the self-produced Material Z is of a
heading different than that of Good A.
For purposes of determining whether the non-originating materials
that are used in the production of Good A undergo the applicable change
in tariff classification, Producer A has the option to consider the
self-produced Material Z as the material that must undergo a change in
tariff classification. As Material Z is of a heading different than
that of Good A, Material Z satisfies the applicable change in tariff
classification and Good A would qualify as an originating good.
SECTION 5. DE MINIMIS
De minimis rule for non-originating materials that do not undergo
subject to authorization, a required tariff change
(1) Except as otherwise provided in subsection (4), a good shall be
considered to originate in the territory of a NAFTA country where the
value of all non-originating materials that are used in the production
of the good and that do not undergo an applicable change in tariff
classification as a result of production occurring entirely in the
territory of one or more of the NAFTA countries is not more than seven
percent
(a) of the transaction value of the good determined in accordance with
Schedule II with respect to the transaction in which the producer of
the good sold the good, adjusted to an F.O.B. basis, or
(b) of the total cost of the good, where there is no transaction value
for the good under section 2(1) of Schedule III or the transaction
value of the good is unacceptable under section 2(2) of that
Schedule,
provided that,
(c) if, under the rule in which the applicable change in tariff
classification is specified, the good is also subject to a regional
value-content requirement, the value of those non-originating
materials shall be taken into account in calculating the regional
value content of the good in accordance with the method set out for
that good, and
(d) the good satisfies all other applicable requirements of this
Appendix.
(2) For purposes of subsection (1), where
(a) Schedule I sets out two or more alternative rules for the tariff
provision under which the good is classified, and
(b) the good, in accordance with subsection (1), is considered to
originate under one of those rules,
the good is not required to satisfy the requirements specified in any
alternative rule referred to in paragraph (a).
(3) For purposes of subsection (1), in the case of a good that is
provided for in heading 2402, the percentage shall be nine percent
instead of seven percent.
Exceptions
(4) Subsections (1) and (2) do not apply to
(a) a non-originating material provided for in Chapter 4 or tariff
items 1901.90.31, 1901.90.41 and 1901.90.81 (dairy preparations
containing over 10 percent by weight of milk solids) that is used in
the production of a good provided for in Chapter 4;
(b) a non-originating material provided for in Chapter 4 or tariff
items 1901.90.31, 1901.90.41 and 1901.90.81 (dairy preparations
containing over 10 percent by weight of milk solids) that is used in
the production of a good provided for in any of tariff items
1901.10.10 (infant preparations containing over 10 percent by weight
of milk solids), 1901.20.10 (mixes and doughs, containing over 25
percent by weight of butterfat, not put up for retail sale),
1901.90.31, 1901.90.41 and 1901.90.81 (dairy preparations containing
over 10 percent by weight of milk solids), heading 2105 and tariff
items 2106.90.05, 2106.90.13, 2106.90.41, 2106.90.51 and 2106.90.61
(preparations containing over 10 percent by weight of milk solids),
2202.90.10 and 2202.90.20 (beverages containing milk) and 2309.90.31
(animal feeds containing over 10 percent by weight of milk solids);
[[Page 46397]]
(c) a non-originating material provided for in any of heading 0805 and
subheadings 2009.11 through 2009.30 that is used in the production of
a good provided for in any of subheadings 2009.11 through 2009.30 and
tariff items 2106.90.16 and 2106.90.17 (concentrated fruit or
vegetable juice of any single fruit or vegetable, fortified with
minerals or vitamins) and 2202.90.30, 2202.90.35 and 2202.90.36
(fruit or vegetable juice of any single fruit or vegetable, fortified
with minerals or vitamins);
(d) a non-originating material provided for in Chapter 9 that is used
in the production of a good provided for in tariff item 2101.10.21
(instant coffee, not flavored);
(e) a non-originating material provided for in Chapter 15 that is used
in the production of a good provided for in any of headings 1501
through 1508, 1512, 1514 and 1515;
(f) a non-originating material provided for in heading 1701 that is
used in the production of a good provided for in any of headings 1701
through 1703;
(g) a non-originating material provided for in Chapter 17 or heading
1805 that is used in the production of a good provided for in
subheading 1806.10; (h) a non-originating material provided for in
any of headings 2203 through 2208 that is used in the production of a
good provided for in any of headings 2207 through 2208;
(i) a non-originating material that is used in the production of a
good provided for in any of tariff item 7321.11.30 (gas stove or
range), subheadings 8415.10, 8415.81 through 8415.83, 8418.10 through
8418.21, 8418.29 through 8418.40, 8421.12, 8422.11, 8450.11 through
8450.20 and 8451.21 through 8451.29, Mexican tariff item 8479.82.03
(trash compactors) or Canadian or U.S. tariff item 8479.89.55 (trash
compactors), and tariff item 8516.60.40 (electric stove or range);
(j) a printed circuit assembly that is a non-originating material used
in the production of a good, where the applicable change in tariff
classification for the good places restrictions on the use of that
non-originating material, such as by prohibiting, or limiting the
quantity of, that non-originating material;
(k) a non-originating material that is a single juice ingredient
provided for in heading 2009 that is used in the production of a good
provided for in any of subheading 2009.90 and tariff items 2106.90.18
(concentrated mixtures of fruit or vegetable juice, fortified with
minerals or vitamins) and 2202.90.37 (mixtures of fruit or vegetable
juices, fortified with minerals or vitamins);
(l) a non-originating material that is used in the production of a
good provided for in any of Chapters 1 through 27, unless the non-
originating material is of a different subheading than the good for
which origin is being determined under this section; or
(m) a non-originating material that is used in the production of a
good provided for in any of Chapters 50 through 63.
De minimis rule for regional value-content requirement
(5) A good that is subject to a regional value-content requirement shall
be considered to originate in the territory of a NAFTA country and
shall not be required to satisfy that requirement where
(a) the value of all non-originating materials used in the production
of the good is not more than seven percent
(i) of the transaction value of the good determined in accordance
with Schedule II with respect to the transaction in which the
producer of the good sold the good, adjusted to an F.O.B. basis, or
(ii) of the total cost of the good, where there is no transaction
value for the good under section 2(1) of Schedule III or the
transaction value of the good is unacceptable under section 2(2) of
that Schedule; and
(b) the good satisfies all other applicable requirements of this
Appendix.
De minimis rule for textile goods
(6) A good provided for in any of Chapters 50 through 63, that does not
originate in the territory of a NAFTA country because certain fibers or
yarns that are used in the production of the component of the good that
determines the tariff classification of the good do not undergo an
applicable change in tariff classification as a result of production
occurring entirely in the territory of one or more of the NAFTA
countries, shall be considered to originate in the territory of a NAFTA
country if
(a) the total weight of all those fibers or yarns is not more than
seven percent of the total weight of that component; and
(b) the good satisfies all other applicable requirements of this
Appendix.
(7) For purposes of subsection (6),
(a) the component of a good that determines the tariff classification
of that good shall be identified in accordance with the first of the
following General Rules for the Interpretation of the Harmonized
System under which the identification can be determined, namely, Rule
3(b), Rule 3(c) and Rule 4; and
(b) where the component of the good that determines the tariff
classification of the good is a blend of two or more yarns or fibers,
all yarns and fibers used in the production of the component shall be
taken into account in determining the weight of fibers and yarns in
that component.
(8) For purposes of subsections (1) and (5), the value of non-
originating materials shall be determined in accordance with sections
7(1) through (4).
Calculation of ``total cost'' for de minimis rules: choice of methods
(9) For purposes of subsection (1)(b) and subsection (5)(a)(ii), the
total cost of a good shall be, at the choice of the producer of the
good,
(a) the total cost incurred with respect to all goods produced by the
producer that can be reasonably allocated to that good in accordance
with Schedule VII; or
(b) the aggregate of each cost that forms part of the total cost
incurred with respect to that good that can be reasonably allocated
to that good in accordance with Schedule VII.
[[Page 46398]]
Calculation of total cost; application of Schedules IX and X for
determining value of non-originating materials
(10) Total cost under subsection (9) consists of the costs referred to
in section 2(6), and is calculated in accordance with that subsection
and section 2(7).
(11) For purposes of determining the value under subsection (1) of non-
originating materials that do not undergo an applicable change in
tariff classification, where Schedule X is not being used to determine
the value of those non-originating materials,
(a) if the value of those non-originating materials is being
determined as a percentage of the transaction value of the good and
the producer chooses under section 6(10) that one of the methods set
out in Schedule IX be used to determine the value of those non-
originating materials for purposes of calculating the regional value
content of the good, the value of those non-originating materials
shall be determined in accordance with that method;
(b) if
(i) the value of those non-originating materials is being determined
as a percentage of the total cost of the good,
(ii) under the rule in which the applicable change in tariff
classification is specified, the good is also subject to a regional
value-content requirement and subsection (5)(a) does not apply with
respect to that good,
(iii) the regional value content of the good is calculated on the
basis of the net cost method, and
(iv) the producer chooses under section 6(15), 11(1), (3) or (6),
12(1) or 13(4) that the regional value content of the good be
calculated over a period,
the value of those non-originating materials shall be the sum of the
values of non-originating materials determined in accordance with
that choice, divided by the number of units of the goods with respect
to which the choice is made;
(c) if
(i) the value of those non-originating materials is being determined
as a percentage of the total cost of the good,
(ii) under the rule in which the applicable change in tariff
classification is specified, the good is not also subject to a
regional value-content requirement or subsection (5)(a) applies
with respect to that good, and
(iii) the producer chooses under section 2(7)(b) that, for purposes
of section 5(9), the total cost of the good be calculated over a
period,
the value of those non-originating materials shall be the sum of the
values of non-originating materials divided by the number of units
produced during that period; and
(d) in any other case, the value of those non-originating materials
may, at the choice of the producer, be determined in accordance with
one of the methods set out in Schedule IX.
(12) For purposes of subsection (5), the value of the non-originating
materials used in the production of the good may, at the choice of the
producer, be determined in accordance with one of the methods set out
in Schedule IX.
Examples illustrating de minimis rules
(13) Each of the following examples is an ``Example'' as referred to in
section 2(4).
Example 1: section 5(1)
Producer A, located in a NAFTA country, uses originating materials
and non-originating materials in the production of copper anodes
provided for in heading 7402. The rule set out in Schedule I for
heading 7402 specifies a change in tariff classification from any other
chapter. There is no applicable regional value-content requirement for
this heading. Therefore, in order for the copper anode to qualify as an
originating good under the rule set out in Schedule I, Producer A may
not use in the production of the copper anode any non-originating
material provided for in Chapter 74.
All of the materials used in the production of the copper anode are
originating materials, with the exception of a small amount of copper
scrap provided for in heading 7404, that is in the same chapter as the
copper anode. Under section 5(1), if the value of the non-originating
copper scrap does not exceed seven percent of the transaction value of
the copper anode or the total cost of the copper anode, whichever is
applicable, the copper anode would be considered an originating good.
Example 2: section 5(2)
Producer A, located in a NAFTA country, uses originating materials
and non-originating materials in the production of ceiling fans
provided for in subheading 8414.51. There are two alternative rules set
out in Schedule I for subheading 8414.51, one of which specifies a
change in tariff classification from any other heading. The other rule
specifies both a change in tariff classification from the subheading
under which parts of the ceiling fans are classified and a regional
value-content requirement. Therefore, in order for the ceiling fan to
qualify as an originating good under the first of the alternative
rules, all of the materials that are classified under the subheading
for parts of ceiling fans and used in the production of the completed
ceiling fan must be originating materials.
In this case, all of the non-originating materials used in the
production of the ceiling fan satisfy the change in tariff
classification set out in the rule that specifies a change in tariff
classification from any other heading, with the exception of one non-
originating material that is classified under the subheading for parts
of ceiling fans. Under section 5(1), if the value of the non-
originating material that does not satisfy the change in tariff
classification specified in the first rule does not exceed seven
percent of the transaction value of the ceiling fan or the total cost
of the ceiling fan, whichever is applicable, the ceiling fan would be
considered an originating good. Therefore, under section 5(2), the
ceiling fan would not be required to satisfy the alternative rule that
specifies both a change in tariff classification and a regional value-
content requirement.
Example 3: section 5(2)
[[Page 46399]]
Producer A, located in a NAFTA country, uses originating materials
and non-originating materials in the production of plastic bags
provided for in subheading 3923.29. The rule set out in Schedule I for
subheading 3923.29 specifies both a change in tariff classification
from any other heading, except from subheadings 3920.20 or 3920.71,
under which certain plastic materials are classified, and a regional
value-content requirement. Therefore, with respect to that part of the
rule that specifies a change in tariff classification, in order for the
plastic bag to qualify as an originating good, any plastic materials
that are classified under subheading 3920.20 or 3920.71 and that are
used in the production of the plastic bag must be originating
materials.
In this case, all of the non-originating materials used in the
production of the plastic bag satisfy the specified change in tariff
classification, with the exception of a small amount of plastic
materials classified under subheading 3920.71. Section 5(1) provides
that the plastic bag can be considered an originating good if the value
of the non-originating plastic materials that do not satisfy the
specified change in tariff classification does not exceed seven percent
of the transaction value of the plastic bag or the total cost of the
plastic bag, whichever is applicable. In this case, the value of those
non-originating materials that do not satisfy the specified change in
tariff classification does not exceed the seven percent limit.
However, the rule set out in Schedule I for subheading 3923.29
specifies both a change in tariff classification and a regional value-
content requirement. Therefore, under section 5(1)(c), in order to be
considered an originating good, the plastic bag must also, except as
otherwise provided in section 5(5), satisfy the regional value-content
requirement specified in that rule. As provided in section 5(1)(c), the
value of the non-originating materials that do not satisfy the
specified change in tariff classification, together with the value of
all other non-originating materials used in the production of the
plastic bag, will be taken into account in calculating the regional
value content of the plastic bag.
Example 4: section 5(5)
Producer A, located in a NAFTA country, primarily uses originating
materials in the production of shoes provided for in heading 6405. The
rule set out in Schedule I for heading 6405 specifies both a change in
tariff classification from any subheading other than subheadings
6401.10 through 6406.10 and a regional value-content requirement.
With the exception of a small amount of materials provided for in
Chapter 39, all of the materials used in the production of the shoes
are originating materials.
Under section 5(5), if the value of all of the non-originating
materials used in the production of the shoes does not exceed seven
percent of the transaction value of the shoes or the total cost of the
shoes, whichever is applicable, the shoes are not required to satisfy
the regional value-content requirement specified in the rule set out in
Schedule I in order to be considered originating goods.
Example 5: section 5(5)
Producer A, located in a NAFTA country, produces barbers' chairs
provided for in subheading 9402.10. The rule set out in Schedule I for
goods provided for in heading 9402 specifies a change in tariff
classification from any other chapter. All of the materials used in the
production of these chairs are originating materials, with the
exception of a small quantity of non-originating materials that are
classified as parts of barbers' chairs. These parts undergo no change
in tariff classification because subheading 9402.10 provides for both
barbers' chairs and their parts.
Although Producer A's barbers' chairs do not qualify as originating
goods under the rule set out in Schedule I, section 4(4)(b) provides,
among other things, that, where there is no change in tariff
classification from the non-originating materials to the goods because
the subheading under which the goods are classified provides for both
the goods and their parts, the goods shall qualify as originating goods
if they satisfy a specified regional value-content requirement.
However, under section 5(5), if the value of the non-originating
materials does not exceed seven percent of the transaction value of the
barbers' chairs or the total cost of the barbers' chairs, whichever is
applicable, the barbers' chairs will be considered originating goods
and are not required to satisfy the regional value-content requirement
set out in section 4(4)(b)(v).
Example 6: sections 5 (6) and (7)
Producer A, located in a NAFTA country, produces women's dresses
provided for in subheading 6204.41 from fine wool fabric of heading
5112. This fine wool fabric, also produced by Producer A, is the
component of the dress that determines its tariff classification under
subheading 6204.41.
The rule set out in Schedule I for subheading 6204.41, under which
the dress is classified, specifies both a change in tariff
classification from any other chapter, except from those headings and
chapters under which certain yarns and fabrics, including combed wool
yarn and wool fabric, are classified, and a requirement that the good
be cut and sewn or otherwise assembled in the territory of one or more
of the NAFTA countries.
Therefore, with respect to that part of the rule that specifies a
change in tariff classification, in order for the dress to qualify as
an originating good, the combed wool yarn and the fine wool fabric made
therefrom that are used by Producer A in the production of the dress
must be originating materials.
At one point Producer A uses a small quantity of non-originating
combed wool yarn in the production of the fine wool fabric. Under
section 5(6), if the total weight of the non-originating combed wool
yarn does not exceed seven percent of the total weight of all the yarn
used in the production of the component of the dress that determines
its tariff classification, that is, the wool fabric, the dress would be
considered an originating good.
PART III
SECTION 6. REGIONAL VALUE CONTENT
(1) Except as otherwise provided in subsection (6), the regional value
content of a good shall be calculated, at the choice of the exporter or
producer of the good, on the basis of either the transaction value
method or the net cost method.
Transaction Value Method
(2) The transaction value method for calculating the regional value
content of a good is as follows:
where
RVC is the regional value content of the good, expressed as a
percentage;
TV is the transaction value of the good, determined in accordance with
Schedule II with respect to the transaction in which the producer of
the good sold the good, adjusted to an F.O.B. basis; and
VNM is the value of non-originating materials used by the producer in
the production of the good, determined in accordance with section 7.
RAPHIC>TR06SE95.000
[[Page 46400]]
Net Cost Method
(3) The net cost method for calculating the regional value content of a
good is as follows:
where
RVC is the regional value content of the good, expressed as a
percentage;
NC is the net cost of the good, calculated in accordance with
subsection (11); and
VNM is the value of non-originating materials used by the producer in
the production of the good, determined, except as otherwise provided
in sections 9 and 10, in accordance with section 7.
VNM does not include value of non-originating materials used in
originating material
(4) Except as otherwise provided in section 9 and section 10(1)(d), for
purposes of calculating the regional value content of a good under
subsection (2) or (3), the value of non-originating materials used by a
producer in the production of the good shall not include
(a) the value of any non-originating materials used by another
producer in the production of originating materials that are
subsequently acquired and used by the producer of the good in the
production of that good; or
(b) the value of any non-originating materials used by the producer in
the production of a self-produced material that is an originating
material and is designated as an intermediate material.
(5) For purposes of subsection (4),
(a) in the case of any self-produced material that is not designated
as an intermediate material, only the value of any non-originating
materials used in the production of the self-produced material shall
be included in the value of non-originating materials used in the
production of the good; and
(b) where a self-produced material that is designated as an
intermediate material and is an originating material is used by the
producer of the good with non-originating materials (whether or not
those non-originating materials are produced by that producer) in the
production of the good, the value of those non-originating materials
shall be included in the value of non-originating materials.
Net Cost Method required in certain circumstances
(6) The regional value content of a good shall be calculated only on the
basis of the net cost method where
(a) there is no transaction value for the good under section 2(1) of
Schedule III;
(b) the transaction value of the good is unacceptable under section
2(2) of Schedule III;
(c) the good is sold by the producer to a related person and the
volume, by units of quantity, of sales by that producer of identical
goods or similar goods, or any combination thereof, to related
persons during the six month period immediately preceding the month
in which the goods are sold exceeds 85 percent of the producer's
total sales to all persons, whether or not related and regardless of
location, after ``the producer's total sales''of identical goods or
similar goods, or any combination thereof, during that period;
(d) the good is
(i) a motor vehicle provided for in any of headings 8701 and 8702,
subheadings 8703.21 through 8703.90 and headings 8704, 8705 and
8706,
(ii) a good provided for in a tariff provision listed in Schedule IV
or an automotive component assembly, automotive component, sub-
component or listed material, and is for use in a motor vehicle
referred to in subparagraph (i), either as original equipment or as
an after-market part,
(iii) a good provided for in any of subheadings 6401.10 through
6406.10, or
(iv) a good provided for in tariff item 8469.10.40 (word processing
machines);
(e) the exporter or producer chooses to accumulate with respect to the
good in accordance with section 14; or
(f) the good is an intermediate material and is subject to a regional
value-content requirement.
Option to change from TVM to NCM for calculation of regional value
content
(7) If the exporter or producer of a good calculates the regional value
content of the good on the basis of the transaction value method and
the customs administration of a NAFTA country subsequently notifies
that exporter or producer in writing, during the course of a
verification of origin, that
(a) the transaction value of the good, as determined by the exporter
or producer, is required to be adjusted under section 4 of Schedule
II or is unacceptable under section 2(2) of Schedule III, there is no
transaction value for the good under section 2(1) of Schedule III or
the transaction value method may not be used because of the
application of subsection (6)(c), or
(b) the value of any material used in the production of the good, as
determined by the exporter or producer, is required to be adjusted
under section 5 of Schedule VIII or is unacceptable under section
2(3) of Schedule VIII, or there is no transaction value for the
material under section 2(2) of Schedule VIII or the transaction value
method may not be used to calculate the regional value content of the
material because of the application of subsection (6)(c),
the exporter or producer may choose that the regional value content of
the good be calculated on the basis of the net cost method, in which
case the calculation must be made within 60 days after the producer
receives the notification, or such longer period as that customs
administration specifies.
RAPHIC>TR06SE95.001
[[Page 46401]]
Change from NCM to TVM not permitted
(8) If the exporter or producer of a good chooses that the regional
value content of the good be calculated on the basis of the net cost
method and the customs administration of a NAFTA country subsequently
notifies that exporter or producer in writing, during the course of a
verification of origin, that the good does not satisfy the applicable
regional value-content requirement, the exporter or producer of the
good may not recalculate the regional value content on the basis of the
transaction value method.
(9) Nothing in subsection (7) shall be construed as preventing any
review and appeal under Article 510 of the Agreement, as implemented in
each NAFTA country, of an adjustment to or a rejection of
(a) the transaction value of the good; or
(b) the value of any material used in the production of the good.
Application of Schedule IX for determining value of ``identical'' non-
originating materials under TVM
(10) For purposes of the transaction value method, where non-originating
materials that are the same as one another in all respects, including
physical characteristics, quality and reputation but excluding minor
differences in appearance, are used in the production of a good, the
value of those non-originating materials may, at the choice of the
producer of the good, be determined in accordance with one of the
methods set out in Schedule IX.
Options for calculating the net cost of a good
(11) For purposes of subsection (3), the net cost of a good may be
calculated, at the choice of the producer of the good, by
(a) calculating the total cost incurred with respect to all goods
produced by that producer, subtracting any excluded costs that are
included in that total cost, and reasonably allocating, in accordance
with Schedule VII, the remainder to the good;
(b) calculating the total cost incurred with respect to all goods
produced by that producer, reasonably allocating, in accordance with
Schedule VII, that total cost to the good, and subtracting any
excluded costs that are included in the amount allocated to that
good; or
(c) reasonably allocating, in accordance with Schedule VII, each cost
that forms part of the total cost incurred with respect to the good
so that the aggregate of those costs does not include any excluded
costs.
Calculation of total cost
(12) Total cost under subsection (11) consists of the costs referred to
in section 2(6), and is calculated in accordance with that subsection.
Calculation of net cost; excluded costs
(13) For purposes of calculating net cost under subsection (11),
(a) excluded costs shall be the excluded costs that are recorded on
the books of the producer of the good;
(b) excluded costs that are included in the value of a material that
is used in the production of the good shall not be subtracted from or
otherwise excluded from the total cost; and
(c) excluded costs do not include any amount paid for research and
development services performed in the territory of a NAFTA country.
Non-allowable interest; determination under Schedule XI
(14) For purposes of calculating non-allowable interest costs, the
determination of whether interest costs incurred by a producer are more
than 700 basis points above the yield on debt obligations of comparable
maturities issued by the federal government of the country in which the
producer is located shall be made in accordance with Schedule XI.
Use of ``averaging'' over a period to calculate RVC under NCM; period
cannot be changed
(15) For purposes of the net cost method, the regional value content of
the good, other than a good with respect to which a choice to average
may be made under section 11(1), (3) or (6), 12(1) or 13(4), may be
calculated, where the producer chooses to do so, by
(a) calculating the sum of the net costs incurred and the sum of the
values of non-originating materials used by the producer of the good
with respect to the good and identical goods or similar goods, or any
combination thereof, produced in a single plant by the producer over
(i) a month,
(ii) any consecutive three month or six month period that falls
within and is evenly divisible into the number of months of the
producer's fiscal year remaining at the beginning of that period,
or
(iii) the producer's fiscal year; and
(b) using the sums referred to in paragraph (a) as the net cost and
the value of non-originating materials, respectively.
(16) The calculation made under subsection (15) shall apply with respect
to all units of the good produced during the period chosen by the
producer under subsection (15)(a).
(17) A choice made under subsection (15) may not be rescinded or
modified with respect to the goods or the period with respect to which
the choice is made.
Choice of averaging period cannot be changed for remainder of fiscal
year
(18) Where a producer chooses a one, three or six month period under
subsection (15) with respect to goods, the producer shall be considered
to have chosen under that subsection a period or periods of the same
duration for the remainder of the producer's fiscal year with respect
to those goods.
Choice of net cost method cannot be changed for remainder of the fiscal
year
(19) Where the net cost method is required to be used or has been chosen
and a choice has been made under subsection (15), the regional value
content of the good shall be calculated on the basis of the net cost
method over the period chosen under that subsection and for the
remainder of the producer's fiscal year.
[[Page 46402]]
Obligation to perform self-analysis and give notification of changed
circumstance if RVC calculated on basis of estimated costs
(20) Except as otherwise provided in sections 11(10), 12(11) and 13(10),
where the producer of a good has calculated the regional value content
of the good under the net cost method on the basis of estimated costs,
including standard costs, budgeted forecasts or other similar
estimating procedures, before or during the period chosen in subsection
(15)(a), the producer shall conduct an analysis at the end of the
producer's fiscal year of the actual costs incurred over the period
with respect to the production of the good and, if the good does not
satisfy the regional value-content requirement on the basis of the
actual costs during that period, immediately inform any person to whom
the producer has provided a Certificate of Origin for the good, or a
written statement that the good is an originating good, that the good
is a non-originating good.
Option to treat any material as non-originating
(21) For purposes of calculating the regional value content of a good,
the producer of that good may choose to treat any material used in the
production of that good as a non-originating material.
Examples of Calculation of RVC under TVM and NCM
(22) Each of the following examples is an ``Example'' as referred to in
section 2(4).
Example 1: example of point of direct shipment (with respect to adjusted
to an F.O.B. basis)
A producer has only one factory, at which the producer manufactures
finished office chairs. Because the factory is located close to
transportation facilities, all units of the finished good are stored in
a factory warehouse 200 meters from the end of the production line.
Goods are shipped worldwide from this warehouse. The point of direct
shipment is the warehouse.
Example 2: examples of point of direct shipment (with respect to
adjusted to an F.O.B. basis)
A producer has six factories, all located within the territory of
one of the NAFTA countries, at which the producer produces garden tools
of various types. These tools are shipped worldwide, and orders usually
consist of bulk orders of various types of tools. Because different
tools are manufactured at different factories, the producer decided to
consolidate storage and shipping facilities and ships all finished
products to a large warehouse located near the seaport, from which all
orders are shipped. The distance from the factories to the warehouse
varies from 3 km to 130 km. The point of direct shipment for each of
the goods is the warehouse.
Example 3: examples of point of direct shipment (with respect to
adjusted to an F.O.B. basis)
A producer has only one factory, located near the center of one of
the NAFTA countries, at which the producer manufactures finished office
chairs. The office chairs are shipped from that factory to three
warehouses leased by the producer, one on the west coast, one near the
factory and one on the east coast. The office chairs are shipped to
buyers from these warehouses, the shipping location depending on the
shipping distance from the buyer. Buyers closest to the west coast
warehouse are normally supplied by the west coast warehouse, buyers
closest to the east coast are normally supplied by the warehouse
located on the east coast and buyers closest to the warehouse near the
factory are normally supplied by that warehouse. In this case, the
point of direct shipment is the location of the warehouse from which
the office chairs are normally shipped to customers in the location in
which the buyer is located.
Example 4: section 6(3), net cost method
A producer located in NAFTA country A sells Good A that is subject
to a regional value-content requirement to a buyer located in NAFTA
country B. The producer of Good A chooses that the regional value
content of that good be calculated using the net cost method. All
applicable requirements of this Appendix, other than the regional value-
content requirement, have been met. The applicable regional value-
content requirement is 50 percent.
In order to calculate the regional value-content of Good A, the
producer first calculates the net cost of Good A. Under section
6(11)(a), the net cost is the total cost of Good A (the aggregate of
the product costs, period costs and other costs) per unit, minus the
excluded costs (the aggregate of the sales promotion, marketing and
after-sales service costs, royalties, shipping and packing costs and
non-allowable interest costs) per unit. The producer uses the following
figures to calculate the net cost:
Product costs:
Value of originating materials......................... $30.00
Value of non-originating materials..................... 40.00
Other product costs.................................... 20.00
Period costs............................................... 10.00
Other costs................................................ 0.00
------------
Total cost of Good A, per unit............................. $100.00
Excluded costs:
Sales promotion, marketing and after-sales service cost $5.00
Royalties.............................................. 2.50
Shipping and packing costs............................. 3.00
Non-allowable interest costs........................... 1.50
------------
Total excluded costs....................................... $12.00
The net cost is the total cost of Good A, per unit, minus the
excluded costs.
Total cost of Good A, per unit:............................ $100.00
Excluded costs............................................. -12.00
------------
Net cost of Good A, per unit............................... $88.00
The value for net cost ($88) and the value of non-originating
materials ($40) are needed in order to calculate the regional value
content. The producer calculates the regional value content of Good A
under the net cost method in the following manner:
[[Page 46403]]
[GRAPHIC][TIFF OMITTED]TR06SE95.002
Therefore, under the net cost method, Good A qualifies as an
originating good, with a regional value-content of 54.5 percent.
Example 5: section 6(6)(c), net cost method required for certain sales
to related persons
On January 15, 1994, a producer located in NAFTA country A sells
1,000 units of Good A to a related person, located in NAFTA country B.
During the six month period beginning on July 1, 1993 and ending on
December 31, 1993, the producer sold 90,000 units of identical goods
and similar goods to related persons from various countries, including
that buyer. The producer's total sales of those identical goods and
similar goods to all persons from all countries during that six month
period were 100,000 units.
The total quantity of identical goods and similar goods sold by the
producer to related persons during that six month period was 90 percent
of the producer's total sales of those identical goods and similar
goods to all persons. Under section 6(6)(c), the producer must use the
net cost method to calculate the regional value content of Good A sold
in January 1994, because the 85 percent limit was exceeded.
Example 6: section 6(11)(a)
A producer in a NAFTA country produces Good A and Good B during the
producer's fiscal year.
The producer uses the following figures, which are recorded on the
producer's books and represent all of the costs incurred with respect
to both Good A and Good B, to calculate the net cost of those goods:
[[Page 46404]]
Product costs:
Value of originating materials......................... $2,000
Value of non-originating materials..................... 1,000
Other product costs.................................... 2,400
Period costs: (including $1,200 in excluded costs)......... 3,200
Other costs............................................... 400
------------
Total cost of Good A and Good B............................ $9,000
The net cost is the total cost of Good A and Good B, minus
the excluded costs incurred with respect to those goods.
Total cost of Good A and Good B............................ $9,000
Excluded costs............................................ -1,200
------------
Net cost of Good A and Good B.............................. $7,800
The net cost must then be reasonably allocated, in accordance with
Schedule VII, to Good A and Good B.
Example 7: section 6(11)(b)
A producer located in a NAFTA country produces Good A and Good B
during the producer's fiscal year. In order to calculate the regional
value content of Good A and Good B, the producer uses the following
figures that are recorded on the producer's books and incurred with
respect to those goods:
Product costs:
Value of originating materials......................... $2,000
Value of non-originating materials..................... 1,000
Other product costs.................................... 2,400
Period costs: (including $1,200 in excluded costs)......... 3,200
Other costs................................................ 400
------------
Total cost of Good A and Good B............................ $9,000
Under section 6(11)(b), the total cost of Good A and Good B is then
reasonably allocated, in accordance with Schedule VII, to those goods.
The costs are allocated in the following manner:
------------------------------------------------------------------------
Allocated toGood Allocated toGood
A B
------------------------------------------------------------------------
Total cost ($9,000 for both Good A
and Good B)........................ $5,220 $3,780
------------------------------------------------------------------------
The excluded costs ($1,200) that are included in total cost
allocated to Good A and Good B, in accordance with Schedule VII, are
subtracted from that amount.
------------------------------------------------------------------------
Excluded Excluded
Cost Cost
Allocated Allocated
to Good A to Good B
------------------------------------------------------------------------
Total excluded costs:
Sales promotion, marketing
and after-sale service costs 500 290 210
Royalties.................... 200 116 84
Shipping and packing costs... 500 290 210
--------------------------------------
Net cost (total cost minus
excluded costs)................. ........... $4,524 $3,276
------------------------------------------------------------------------
The net cost of Good A is thus $4,524, and the net cost of Good B is
$3,276.
Example 8: section 6(11)(c)
A Producer located in a NAFTA country produces Good C and Good D.
The following costs are recorded on the producer's books for the months
of January, February and March, and each cost that forms part of the
total cost are reasonably allocated, in accordance with Schedule VII,
to Good C and Good D.
[[Page 46405]]
------------------------------------------------------------------------
Total cost: Allocated Allocated
Good C and to Good C to Good D
Good D (in (in (in
thousands thousands thousands
of dollars) of dollars) of dollars)
------------------------------------------------------------------------
Product costs:
Value of originating
materials................... 100 0 100
Value of non-originating
materials................... 900 800 100
Other product costs.......... 500 300 200
Period costs (including $420 in
excluded costs)................. 5,679 3,036 2,643
Minus Excluded Costs............. 420 300 120
Other costs...................... 0 0 0
--------------------------------------
Total cost (aggregate of product
costs, period costs and other
costs).......................... 6,759 3,836 2,923
------------------------------------------------------------------------
Example 9: section 6(12)
Producer A, located in a NAFTA country, produces Good A that is
subject to a regional value-content requirement. The producer chooses
that the regional value content of that good be calculated using the
net cost method. Producer A buys Material X from Producer B, located in
a NAFTA country. Material X is a non-originating material and is used
in the production of Good A. Producer A provides Producer B, at no
charge, with tools to be used in the production of Material X. The cost
of the tools that is recorded on the books of Producer A has been
expensed in the current year. Pursuant to section 5(1)(b)(ii) of
Schedule VIII, the value of the tools is included in the value of
Material X. Therefore, the cost of the tools that is recorded on the
books of Producer A and that has been expensed in the current year
cannot be included as a separate cost in the net cost of Good A because
it has already been included in the value of Material X.
Example 10: section 6(12)
Producer A, located in a NAFTA country, produces Good A that is
subject to a regional value-content requirement. The producer chooses
that the regional value content of that good be calculated using the
net cost method and averages the calculation over the producer's fiscal
year under section 6(15). Producer A determines that during that fiscal
year Producer A incurred a gain on foreign currency conversion of
$10,000 and a loss on foreign currency conversion of $8,000, resulting
in a net gain of $2,000. Producer A also determines that $7,000 of the
gain on foreign currency conversion and $6,000 of the loss on foreign
currency conversion is related to the purchase of non-originating
materials used in the production of Good A, and $3,000 of the gain on
foreign currency conversion and $2,000 of the loss on foreign currency
conversion is not related to the production of Good A. The producer
determines that the total cost of Good A is $45,000 before deducting
the $1,000 net gain on foreign currency conversion related to the
production of Good A. The total cost of Good A is therefore $44,000.
That $1,000 net gain is not included in the value of non-originating
materials under section 7(1).
Example 11: section 6(12)
Given the same facts as in example 10, except that Producer A
determines that $6,000 of the gain on foreign currency conversion and
$7,000 of the loss on foreign currency conversion is related to the
purchase of non-originating materials used in the production of Good A.
The total cost of Good A is $45,000, which includes the $1,000 net loss
on foreign currency conversion related to the production of Good A.
That $1,000 net loss is not included in the value of non-originating
materials under section 7(1).
PART IV
SECTION 7. MATERIALS
Valuation of materials used in the production of a good other than
certain automotive goods
(1) Except as otherwise provided for non-originating materials used in
the production of a good referred to in section 9(1) or 10(1), and
except in the case of indirect materials, intermediate materials and
packing materials and containers, for purposes of calculating the
regional value content of a good and for purposes of sections 5(1) and
(5), the value of a material that is used in the production of the good
shall be
(a) except as otherwise provided in subsection (2), where the material
is imported by the producer of the good into the territory of the
NAFTA country in which the good is produced, the customs value of the
material with respect to that importation, or
(b) where the material is acquired by the producer of the good from
another person located in the territory of the NAFTA country in which
the good is produced
(i) the transaction value, determined in accordance with section
2(1) of Schedule VIII, with respect to the transaction in which the
producer acquired the material, or
(ii) the value determined in accordance with sections 6 through 11
of Schedule VIII, where, with respect to the transaction in which
the producer acquired the material, there is no transaction value
under section 2(2) of that Schedule or the transaction value is
unacceptable under section 2(3) of that Schedule,
and shall include the following costs if they are not included under
paragraph (a) or (b):
(c) the costs of freight, insurance and packing and all other costs
incurred in transporting the material to the location of the
producer,
(d) duties and taxes paid or payable with respect to the material in
the territory of one or more of the NAFTA countries, other than
duties and taxes that are waived, refunded, refundable or otherwise
recoverable, including credit against duty or tax paid or payable,
(e) customs brokerage fees, including the cost of in-house customs
brokerage services, incurred with respect to the material in the
territory of one or more of the NAFTA countries, and
(f) the cost of waste and spoilage resulting from the use of the
material in the production of the good, minus the value of any
reusable scrap or by-product.
Valuation of material if customs value is not in accordance with
Schedule VIII
(2) For purposes of subsection (1)(a), where the customs value of the
material referred to in that paragraph was not determined in a manner
consistent with Schedule VIII, the value of the material shall be
determined in accordance with Schedule VIII with respect to the
importation of that material and, where the costs referred to in
subsections (1)(c) through (f) are not included in that value, those
costs be added to that value.
[[Page 46406]]
Costs recorded on books
(3) For purposes of subsection (1), the costs referred to in subsections
(1)(c) through (f) shall be the costs referred to in those paragraphs
that are recorded on the books of the producer of the good.
Designation of self-produced material as an intermediate material;
limitation on designations; designation is optional
(4) Except for purposes of determining the value of non-originating
materials used in the production of a light-duty automotive good and
except in the case of an automotive component assembly, automotive
component or sub-component for use as original equipment in the
production of a heavy-duty vehicle, for purposes of calculating the
regional value content of a good the producer of the good may designate
as an intermediate material any self-produced material that is used in
the production of the good, provided that where an intermediate
material is subject to a regional value-content requirement, no other
self-produced material that is subject to a regional value-content
requirement and is incorporated into that intermediate material is also
designated by the producer as an intermediate material.
(5) For purposes of subsection (4),
(a) in order to qualify as an originating material, a self-produced
material that is designated as an intermediate material must qualify
as an originating material under these Regulations;
(b) the designation of a self-produced material as an intermediate
material shall be made solely at the choice of the producer of that
self-produced material; and
(c) except as otherwise provided in section 14(4), the proviso set out
in subsection (4) does not apply with respect to an intermediate
material used by another producer in the production of a material
that is subsequently acquired and used in the production of a good by
the producer referred to in subsection (4).
Valuation of an intermediate material
(6) The value of an intermediate material shall be, at the choice of the
producer of the good,
(a) the total cost incurred with respect to all goods produced by the
producer that can be reasonably allocated to that intermediate
material in accordance with Schedule VII; or
(b) the aggregate of each cost that forms part of the total cost
incurred with respect to that intermediate material that can be
reasonably allocated to that intermediate material in accordance with
Schedule VII.
Calculation of total cost
(7) Total cost under subsection (6) consists of the costs referred to in
section 2(6), and is calculated in accordance with that section and
section 2(7).
Rescission of a designation during course of verification; option to
designate another intermediate material
(8) Where a producer of a good designates a self-produced material as an
intermediate material under subsection (4) and the customs
administration of a NAFTA country into which the good is imported
determines during a verification of origin of the good that the
intermediate material is a non-originating material and notifies the
producer of this in writing before the written determination of whether
the good qualifies as an originating good, the producer may rescind the
designation, and the regional value content of the good shall be
calculated as though the self-produced material were not so designated.
(9) A producer of a good who rescinds a designation under subsection (8)
(a) shall retain any rights of review and appeal under Article 510 of
the Agreement, as implemented in each NAFTA country, with respect to
the determination of the origin of the intermediate material as
though the producer did not rescind the designation; and
(b) may, not later than 30 days after the customs administration
referred to in subsection (8) notifies the producer in writing that
the self-produced material referred to in paragraph (a) is a non-
originating material, designate as an intermediate material another
self-produced material that is incorporated into the good, subject to
the proviso set out in subsection (4).
(10) Where a producer of a good designates another self-produced
material as an intermediate material under subsection (9)(b) and the
customs administration referred to in subsection (8) determines during
the verification of origin of the good that that self-produced material
is a non-originating material,
(a) the producer may rescind the designation, and the regional value
content of the good shall be calculated as though the self-produced
material were not so designated;
(b) the producer shall retain any rights of review and appeal under
Article 510 of the Agreement, as implemented in each NAFTA country,
with respect to the determination of the origin of the intermediate
material as though the producer did not rescind the designation; and
(c) the producer may not designate another self-produced material that
is incorporated into the good as an intermediate material.
Indirect Materials; deemed originating; value as recorded on books of
producer
(11) For purposes of determining whether a good is an originating good,
an indirect material that is used in the production of the good
(a) shall be considered to be an originating material, regardless of
where that indirect material is produced; and
(b) if the good is subject to a regional value-content requirement,
for purposes of calculating the net cost under the net cost method,
the value of the indirect material shall be the costs of that
material that are recorded on the books of the producer of the good.
Packaging Materials and Containers; origin disregarded for tariff change
rules
(12) Packaging materials and containers, if classified under the
Harmonized System with the good that is packaged therein, shall be
disregarded for purposes of
(a) determining whether all of the non-originating materials used in
the production of the good undergo an applicable change in tariff
classification; and
[[Page 46407]]
(b) determining under section 5(1) the value of non-originating
materials that do not undergo an applicable change in tariff
classification.
Actual originating status considered for RVC requirement; valuation of
packaging
(13) Where packaging materials and containers are classified under the
Harmonized System with the good that is packaged therein and that good
is subject to a regional value-content requirement, the value of those
packaging materials and containers shall be taken into account as
originating materials or non-originating materials, as the case may be,
for purposes of calculating the regional value content of the good.
(14) For purposes of subsection (13), where packaging materials and
containers are self-produced materials, the producer may choose to
designate those materials as intermediate materials under subsection
(4).
Packing materials and containers; disregarded for tariff change rule and
for RVC requirement; value as recorded on books
(15) For purposes of determining whether a good is an originating good,
packing materials and containers in which the good is packed
(a) shall be disregarded for purposes of determining whether
(i) the non-originating materials used in the production of the good
undergo an applicable change in tariff classification, and
(ii) the good satisfies a regional value-content requirement; and
(b) if the good is subject to a regional value-content requirement,
the value of the packing materials and containers shall be the costs
thereof that are recorded on the books of the producer of the good.
Fungible materials; fungible commingled goods; inventory management
methods for determining whether originating
(16) For purposes of determining whether a good is an originating good,
(a) where originating materials and non-originating materials that are
fungible materials are used in the production of the good, the
determination of whether the materials are originating materials may,
at the choice of the producer of the good or the person from whom the
producer acquired the materials, be made on the basis of any of the
applicable inventory management methods set out in Schedule X; and
(b) where originating goods and non-originating goods that are
fungible goods are physically combined or mixed in inventory and
prior to exportation do not undergo production or any other operation
in the territory of the NAFTA country in which they were physically
combined or mixed in inventory, other than unloading, reloading or
any other operation necessary to preserve the goods in good condition
or to transport the goods for exportation to the territory of another
NAFTA country, the determination of whether the good is an
originating good may, at the choice of the exporter of the good or
the person from whom the exporter acquired the good, be made on the
basis of any of the applicable inventory management methods set out
in Schedule X.
Accessories, spare parts and tools; deemed originating for tariff change
rule; actual origin applicable for RVC requirement
(17) Accessories, spare parts or tools that are delivered with a good
and form part of the good's standard accessories, spare parts or tools
are originating materials if the good is an originating good, and shall
be disregarded for purposes of determining whether all the non-
originating materials used in the production of the good undergo an
applicable change in tariff classification or determining under section
5(1) the value of non-originating materials that do not undergo an
applicable change in tariff classification, provided that
(a) the accessories, spare parts or tools are not invoiced separately
from the good; and
(b) the quantities and value of the accessories, spare parts or tools
are customary for the good, within the industry that produces the
good.
(18) Where a good is subject to a regional value-content requirement,
the value of accessories, spare parts and tools that are delivered with
that good and form part of the good's standard accessories, spare parts
or tools shall be taken into account as originating or non-originating
materials, as the case may be, in calculating the regional value
content of the good.
(19) For purposes of subsection (18), where accessories, spare parts and
tools are self-produced materials, the producer may choose to designate
those materials as intermediate materials under subsection (4).
Examples illustrating the provisions on materials
(20) Each of the following examples is an ``Example'' as referred to in
section 2(4).
Example 1: section 7(2), Customs Value not Determined in a Manner
Consistent with Schedule VIII
Producer A, located in NAFTA country A, imports material A into
NAFTA country A. Producer A purchased material A from a middleman
located in country B. The middleman purchased the material from a
manufacturer located in country B. Under the laws in NAFTA country A
that implement the Agreement on Implementation of Article VII of the
General Agreement on Tariffs and Trade, the customs value of material A
was based on the price actually paid or payable by the middleman to the
manufacturer. Producer A uses material A to produce Good C, and exports
Good C to NAFTA country D. Good C is subject to a regional value-
content requirement.
Under section 4(1) of Schedule VIII, the price actually paid or
payable is the total payment made or to be made by the producer to or
for the benefit of the seller of the material. Section 1 of that
Schedule defines producer and seller for purposes of the Schedule. A
producer is the person who uses the material in the production of a
good that is subject to a regional value-content requirement. A seller
is the person who sells the material being valued to the producer.
The customs value of material A was not determined in a manner
consistent with Schedule VIII because it was based on the price
actually paid or payable by the middleman to the manufacturer, rather
than on the price actually paid or payable by Producer A to the
middleman. Thus, section 7(2) applies and material A is valued in
accordance with Schedule VIII.
Example 2: section 7(5), Value of Intermediate Materials
A producer located in a NAFTA country produces Good B, which is
subject to a regional value-content requirement under section 4(2)(b).
The producer also produces Material A, which is used in the production
of Good B. Both originating materials and non-originating materials are
used in the production of Material A. Material A is subject to a change
in tariff classification requirement under section 4(2)(a). The costs
to produce Material A are the following:
[[Page 46408]]
Product costs:
Value of originating materials......................... $1.00
Value of non-originating materials..................... 7.50
Other product costs.................................... 1.50
Period costs (including $0.30 in royalties)................ 0.50
Other costs................................................ 0.10
------------
Total cost of Material A................................... $10.60
The producer designates Material A as an intermediate material and
determines that, because all of the non-originating materials that are
used in the production of Material A undergo an applicable change in
tariff classification set out in Schedule I, Material A would, under
paragraph 4(2)(a) qualify as an originating material. The cost of the
non-originating materials used in the production of Material A is
therefore not included in the value of non-originating materials that
are used in the production of Good B for the purpose of determining the
regional value content of Good B. Because Material A has been
designated as an intermediate material, the total cost of Material A,
which is $10.60, is treated as the cost of originating materials for
the purpose of calculating the regional value content of Good B. The
total cost of Good B is determined in accordance with the following
figures:
Product costs:
Value of originating materials
--intermediate materials........................... $10.60
--other materials.................................. 3.00
Value of non-originating materials..................... 5.50
Other product costs.................................... 6.50
Period costs............................................... 2.50
Other costs................................................ 0.10
------------
Total cost of Good B....................................... $28.20
Example 3: section 7(5), Effects of the Designation of Self-produced
Materials on Net Cost
The ability to designate intermediate materials helps to put the
vertically integrated producer who is self-producing materials that are
used in the production of a good on par with a producer who is
purchasing materials and valuing those materials in accordance with
subsection 7(1). The following situations demonstrate how this is
achieved:
[[Page 46409]]
Situation 1
A producer located in a NAFTA country produces Good B, which is
subject to a regional value-content requirement of 50 percent under the
net cost method. Good B satisfies all other applicable requirements of
these Regulations. The producer purchases Material A, which is used in
the production of Good B, from a supplier located in a NAFTA country.
The value of Material A determined in accordance with subsection 7(1)
is $11.00. Material A is an originating material. All other materials
used in the production of Good B are non-originating materials. The net
cost of Good B is determined as follows:
Product costs:
Value of originating materials (Material A)............ $11.00
Value of non-originating materials..................... 5.50
Other product costs.................................... 6.50
Period costs: (including $0.20 in excluded costs).......... 0.50
Other costs................................................ 0.10
------------
Total cost of Good B....................................... $23.60
============
Excluded costs: (included in period costs)................. -0.20
------------
Net cost of Good B......................................... $23.40
The regional value content of Good B is calculated as follows:
The regional value content of Good B is 76.5 percent, and Good B,
therefore, qualifies as an originating good.
Situation 2
A producer located in a NAFTA country produces Good B, which is
subject to a regional value-content requirement of 50 percent under the
net cost method. Good B satisfies all other applicable requirements of
these Regulations. The producer self-produces Material A which is used
in the production of Good B. The costs to produce Material A are the
following:
RAPHIC>TR06SE95.003
[[Page 46410]]
Product costs:
Value of originating materials......................... $1.00
Value of non-originating materials..................... 7.50
Other product costs.................................... 1.50
Period costs: (including $0.20 in excluded costs).......... 0.50
Other costs................................................ 0.10
------------
Total cost of Material A................................... $10.60
Additional costs to produce Good B are the following:
Product costs:
Value of originating materials......................... $0.00
Value of non-originating materials..................... 5.50
Other product costs.................................... 6.50
Period costs: (including $0.20 in excluded costs).......... 0.50
Other costs................................................ 0.10
------------
Total additional costs..................................... $12.60
The producer does not designate Material A as an intermediate
material under subsection 7(4). The net cost of Good B is calculated as
follows:
------------------------------------------------------------------------
Costs of Material
A (not designated
as an Additional Costs Total
intermediate to Produce Good B
material)
------------------------------------------------------------------------
Product costs:
Value of
originating
materials....... $1.00 $0.00 $1.00
Value of non-
originating
materials....... 7.50 5.50 13.00
Other product
costs........... 1.50 6.50 8.00
Period costs
(including $0.20 in
excluded costs)..... 0.50 0.50 1.00
Other costs.......... 0.10 0.10 0.20
--------------------------------------------------
Total cost of Good B. $10.60 $12.60 $23.20
==================================================
Excluded costs (in
period costs)....... 0.20 0.20 -0.40
--------------------------------------------------
Net cost of Good B
(total cost minus
excluded costs)..... ................. ................. $22.80
------------------------------------------------------------------------
[[Page 46411]]
The regional value content of Good B is calculated as follows:
The regional value content of Good B is 42.9 percent, and Good B,
therefore, does not qualify as an originating good.
Situation 3
A producer located in a NAFTA country produces Good B, which is
subject to a regional value-content requirement of 50 percent under the
net cost method. Good B satisfies all other applicable requirements of
these Regulations. The producer self-produces Material A, which is used
in the production of Good B. The costs to produce Material A are the
following:
Product costs:
Value of originating materials......................... $1.00
Value of non-originating materials..................... 7.50
Other product costs.................................... 1.50
Period costs: (including $0.20 in excluded costs).......... 0.50
Other costs................................................ 0.10
------------
Total cost of Material A................................... $10.60
Additional costs to produce Good B are the following:
Product costs:
Value of originating materials......................... $0.00
Value of non-originating materials..................... 5.50
Other product costs.................................... 6.50
Period costs: (including $0.20 in excluded costs).......... 0.50
Other costs................................................ 0.10
------------
Total additional costs..................................... $12.60
The producer designates Material A as an intermediate material under
subsection 7(4). Material A qualifies as an originating material under
paragraph 4(2)(a). Therefore, the value of non-originating materials
used in the production of Material A is not included in the value of
non-originating materials for the purposes of calculating the regional
value content of Good B. The net cost of Good B is calculated as
follows:
RAPHIC>TR06SE95.004
[[Page 46412]]
----------------------------------------------------------------------------------------------------------------
Costs of
Material A Additional
(designated Costs to
as an Produce Total
intermediate Good B
material)
----------------------------------------------------------------------------------------------------------------
Product costs:
Value of originating materials...................................... $10.60 $0.00 $10.60
Value of non-originating materials.................................. ............ 5.50 5.50
Other product costs................................................. ............ 6.50 6.50
Period costs (including $0.20 in excluded costs)........................ ............ 0.50 0.50
Other costs............................................................. ............ 0.10 0.10
---------------------------------------
Total cost of Good B.................................................... $10.60 $12.60 $23.20
=======================================
Excluded costs (in period costs)........................................ ............ .20 -0.20
------------
Net cost of Good B (total cost minus excluded costs).................... ............ ........... $23.00
----------------------------------------------------------------------------------------------------------------
The regional value content of Good B is calculated as follows:
The regional value content of Good B is 76.1 percent, and Good B,
therefore, qualifies as an originating good.
Example 4: Originating Materials Acquired from a Producer Who Produced
Them Using Intermediate Materials
Producer A, located in NAFTA country A, produces switches. In order
for the switches to qualify as originating goods, Producer A designates
subassemblies of the switches as intermediate materials. The
subassemblies are subject to a regional value-content requirement. They
satisfy that requirement, and qualify as originating materials. The
switches are also subject to a regional value-content requirement, and,
with the subassemblies designated as intermediate materials, are
determined to have a regional value content of 65 percent.
Producer A sells the switches to Producer B, located in NAFTA
country B, who uses them to produce switch assemblies that are used in
the production of Good B. The switch assemblies are subject to a
regional value-content requirement. Producers A and B are not
accumulating their production within the meaning of section 14.
Producer B is therefore able, under section 7(4), to designate the
switch assemblies as intermediate materials.
If Producers A and B were accumulating their production within the
meaning of section 14, Producer B would be unable to designate the
switch assemblies as intermediate materials, because the production of
both producers would be considered to be the production of one
producer.
Example 5: Single Producer and Successive Designations of Materials
Subject to a Regional Value-Content Requirement as Intermediate
Materials
Producer A, located in NAFTA country, produces Material X and uses
Material X in the production of Good B. Material X qualifies as an
originating material because it satisfies the applicable regional value-
content requirement. Producer A designates Material A as an
intermediate material.
Producer A uses Material X in the production of Material Y, which is
also used in the production of Good B. Material Y is also subject to a
regional value-content requirement. Under the proviso set out in
section 7(4), Producer A cannot designate Material Y as an intermediate
material, even if Material Y satisfies the applicable regional value-
content requirement, because Material X was already designated by
Producer A as an intermediate material.
Example 6: Single Producer and Multiple Designations of Materials as
Intermediate Materials
Producer X, who is located in NAFTA country X, uses non-originating
materials in the production of self-produced materials A, B, and C.
None of the self-produced materials are used in the production of any
of the other self-produced materials.
Producer X uses the self-produced materials in the production of
Good O, which is exported to NAFTA country Y. Materials A, B and C
qualify as originating materials because they satisfy the applicable
regional value-content requirements.
Because none of the self-produced materials are used in the
production of any of the other self-produced materials, then even
though each self-produced material is subject to a regional value-
content requirement, Producer X may, under section 7(4), designate all
of the self-produced materials as intermediate materials. The proviso
set out in section 7(4) only applies where self-produced materials are
used in the production of other self-produced materials and both are
subject to a regional value-content requirement.
Example 7: section 7(17)
The following are examples of accessories, spare parts or tools that
are delivered with a good and form part of the good's standard
accessories, spare parts or tools:
(a) consumables that must be replaced at regular intervals, such as
dust collectors for an air-conditioning system,
(b) a carrying case for equipment,
(c) a dust cover for a machine,
(d) an operational manual for a vehicle,
(e) brackets to attach equipment to a wall,
(f) a bicycle tool kit or a car jack,
(g) a set of wrenches to change the bit on a chuck,
(h) a brush or other tool to clean out a machine, and
(i) electrical cords and power bars for use with electronic goods.
Example 8: Value of Indirect Materials that are Assists
RAPHIC>TR06SE95.005
[[Page 46413]]
Producer A, located in a NAFTA country, produces Good A that is
subject to a regional value-content requirement. The producer chooses
that the regional value content of that good be calculated using the
net cost method. Producer A buys Material X from Producer B, located in
a NAFTA country, and uses it in the production of Good A. Producer A
provides to Producer B, at no charge, tools to be used in the
production of Material X. The tools have a value of $100 which is
expensed in the current year by Producer A.
Material X is subject to a regional value-content requirement which
Producer B chooses to calculate using the net cost method. For purposes
of determining the value of non-originating materials in order to
calculate the regional value content of Material X, the tools are
considered to be an originating material because they are an indirect
material. However, pursuant to section 7(11) they have a value of nil
because the cost of the tools with respect to Material X is not
recorded on the books of Producer B.
It is determined that Material X is a non-originating material. The
cost of the tools that is recorded on the books of producer A is
expensed in the current year. Pursuant to section 5 of Schedule VIII,
the value of the tools (see section 5(1)(b)(ii) of Schedule VIII) must
be included in the value of Material X by Producer A when calculating
the regional value content of Good A. The cost of the tools, although
recorded on the books of producer A, cannot be included as a separate
cost in the net cost of Good A because it is already included in the
value of Material X. The entire cost of Material X, which includes the
cost of the tools, is included in the value of non-originating
materials for purposes of the regional value content of Good A.
PART V
AUTOMOTIVE GOODS
SECTION 8. DEFINITIONS AND INTERPRETATION
For purposes of this Part,
``after-market parts'' means goods that are not for use as original
equipment in the production of light-duty vehicles or heavy-duty
vehicles and that are
(a) goods provided for in a tariff provision listed in Schedule IV, or
(b) automotive component assemblies, automotive components, sub-
components or listed materials;
``class of motor vehicles'' means any one of the following categories of
motor vehicles:
(a) motor vehicles provided for in any of subheading 8701.20, tariff
items 8702.10.30 and 8702.90.30 (vehicles for the transport of 16 or
more persons), subheadings 8704.10, 8704.22, 8704.23, 8704.32 and
8704.90 and headings 8705 and 8706,
(b) motor vehicles provided for in any of subheadings 8701.10 and
8701.30 through 8701.90,
(c) motor vehicles provided for in any of tariff items 8702.10.60 and
8702.90.60 (vehicles for the transport of 15 or fewer persons) and
subheadings 8704.21 and 8704.31, and
(d) motor vehicles provided for in any of subheadings 8703.21 through
8703.90;
``complete motor vehicle assembly process'' means the production of a
motor vehicle from separate constituent parts, which parts include the
following:
(a) a structural frame or unibody,
(b) body panels,
(c) an engine, a transmission and a drive train,
(d) brake components,
(e) steering and suspension components,
(f) seating and internal trim,
(g) bumpers and external trim,
(h) wheels, and
(i) electrical and lighting components;
``first prototype'' means the first motor vehicle that
(a) is produced using tooling and processes intended for the
production of motor vehicles to be offered for sale, and
(b) follows the complete motor vehicle assembly process in a manner
not specifically designed for testing purposes;
``floor pan of a motor vehicle'' means a component, comprising a single
part or two or more parts joined together, with or without additional
stiffening members, that forms the base of a motor vehicle, beginning
at the firewall or bulkhead of the motor vehicle and ending
(a) where there is a luggage floor panel in the motor vehicle, at the
place where that luggage floor panel begins, and
(b) where there is no luggage floor panel in the motor vehicle, at the
place where the passenger compartment of the motor vehicle ends;
``heavy-duty automotive good'' means a heavy-duty vehicle or a heavy-
duty component;
``heavy-duty component'' means an automotive component or automotive
component assembly that is for use as original equipment in the
production of a heavy-duty vehicle;
``marque'' means a trade name used by a marketing division of a motor
vehicle assembler that is separate from any other marketing division of
that motor vehicle assembler;
``model line'' means a group of motor vehicles having the same platform
or model name;
``model name'' means the word, group of words, letter, number or similar
designation assigned to a motor vehicle by a marketing division of a
motor vehicle assembler
(a) to differentiate the motor vehicle from other motor vehicles that
use the same platform design,
(b) to associate the motor vehicle with other motor vehicles that use
different platform designs, or
(c) to denote a platform design;
``new building'' means a new construction to house a complete motor
vehicle assembly process, where that construction includes the pouring
or construction of a new foundation and floor, the erection of a new
frame and roof, and the installation of new plumbing and electrical and
other utilities;
``plant'' means a building, or buildings in close proximity but not
necessarily contiguous, machinery, apparatus and fixtures that are
under the control of a producer and are used in the production of any
of the following:
(a) light-duty vehicles and heavy-duty vehicles,
(b) goods of a tariff provision listed in Schedule IV, and
(c) automotive component assemblies, automotive components, sub-
components and listed materials;
[[Page 46414]]
``platform'' means the primary load-bearing structural assembly of a
motor vehicle that determines the basic size of the motor vehicle, and
is the structural base that supports the driveline and links the
suspension components of the motor vehicle for various types of frames,
such as the body-on-frame or space-frame, and monocoques;
``received in the territory of a NAFTA country'' means, with respect to
section 9(2), the location at which a traced material arrives in the
territory of a NAFTA country and is documented for any customs purpose,
which, in the case of a traced material imported into
(a) Canada,
(i) where the traced material is imported on a vessel, as defined in
section 2 of the Reporting of Imported Goods Regulations, is the
location at which the traced material is last unloaded from the
vessel and reported, under section 12 of the Customs Act, to a
customs office, including reported for transportation under bond by
a conveyance other than that vessel, and
(ii) in any other case, is the location at which the traced material
is reported, under section 12 of the Customs Act, to a customs
office, including reported for transportation under bond,
(b) Mexico,
(i) where the traced material is imported on a vessel, the location
at which the traced material is last unloaded from the vessel and
reported for any customs purpose, and
(ii) in any other case, the location at which the traced material is
reported for any customs purpose, and
(c) the United States, is the location at which the traced material is
entered for any customs purpose, including entered for consumption,
entered for warehouse or entered for transportation under bond, or
admitted into a foreign trade zone;
``refit'' means a closure of a plant for a period of at least three
consecutive months that is for purposes of plant conversion or
retooling;
``size category'', with respect to a light-duty vehicle, means that the
total of the interior volume for passengers and the interior volume for
luggage is
(a) 85 cubic feet (2.38 m3) or less,
(b) more than 85 cubic feet (2.38 m3) but less than 100 cubic feet
(2.80 m3),
(c) 100 cubic feet (2.80 m3) or more but not more than 110 cubic feet
(3.08 m3),
(d) more than 110 cubic feet (3.08 m3) but less than 120 cubic feet
(3.36 m3), or
(e) 120 cubic feet (3.36 m3) or more;
``traced material'' means a material, produced outside the territories
of the NAFTA countries, that is imported from outside the territories
of the NAFTA countries and is, when imported, of a tariff provision
listed in Schedule IV;
``underbody'' means the floor pan of a motor vehicle.
SECTION 9. LIGHT-DUTY AUTOMOTIVE GOODS
VNM determined by tracing of certain non-originating materials
(1) For purposes of calculating the regional value content of a light-
duty automotive good under the net cost method, the value of non-
originating materials used by the producer in the production of the
good shall be the sum of the values of the non-originating materials
that are traced materials and are incorporated into the good.
Valuation of traced materials for VNM in the RVC
(2) Except as otherwise provided in subsections (3) and (6) through (8),
the value of each of the traced materials that is incorporated into a
good shall be
(a) where the producer imports the traced material from outside the
territories of the NAFTA countries and has or takes title to it at
the time of importation, the sum of
(i) the customs value of the traced material,
(ii) where not included in that customs value, any freight,
insurance, packing and other costs that were incurred in
transporting the traced material to the first place at which it was
received in the territory of a NAFTA country, and
(iii) where not included in that customs value, the costs referred
to in subsection (4);
(b) where the producer imports the traced material from outside the
territories of the NAFTA countries and does not have or take title to
it at the time of importation, the sum of
(i) the customs value of the traced material,
(ii) where not included in that customs value, any freight,
insurance, packing and other costs that were incurred in
transporting the traced material to the place at which it was when
the producer takes title in the territory of a NAFTA country, and
(iii) where not included in that customs value, the costs referred
to in subsection (4);
(c) where a person other than the producer imports the traced material
from outside the territories of the NAFTA countries and that person
has or takes title to the material at the time of importation, if the
producer has a statement that
(i) is signed by the person from whom the producer acquired the
traced material, whether in the form in which it was imported into
the territory of a NAFTA country or incorporated into another
material, and
(ii) states
(A) the customs value of the traced material,
(B) where not included in that customs value, any freight,
insurance, packing and other costs that were incurred in
transporting the traced material to the first place at which it
was received in the territory of a NAFTA country, and
(C) where not included in that customs value, the costs referred
to in subsection (4),
the sum of the customs value of the traced material, the freight,
insurance, packing and other costs referred to in subparagraph
(ii)(B) and the costs referred to in subparagraph (ii)(C);
[[Page 46415]]
(d) where a person other than the producer imports the traced material
from outside the territories of the NAFTA countries and that person
does not have or take title to the material at the time of
importation, if the producer has a statement that
(i) is signed by the person from whom the producer acquired the
traced material, whether in the form in which it was imported into
the territory of a NAFTA country or incorporated into another
material, and
(ii) states
(A) the customs value of the traced material,
(B) where not included in that customs value, any freight,
insurance, packing and other costs that were incurred in
transporting the traced material to the place at which it was
located when the first person in the territory of a NAFTA country
takes title, and
(C) where not included in that customs value, the costs referred
to in subsection (4),
the sum of the customs value of the traced material, the freight,
insurance, packing and other costs referred to in subparagraph
(ii)(B) and the costs referred to in subparagraph (ii)(C);
(e) where a person other than the producer imports the traced material
from outside the territories of the NAFTA countries and the producer
acquires the traced material or a material that incorporates the
traced material from a person in the territory of a NAFTA country who
has title to it, if the producer has a statement that
(i) is signed by the person from whom the producer acquired the
traced material or the material that incorporates it, and
(ii) states the value of the traced material or a material that
incorporates the traced material, determined in accordance with
subsection (5), with respect to a transaction that occurs after the
customs value of the traced material was determined,
the value of the traced material or the material that incorporates the
traced material, determined in accordance with subsection (5), with
respect to the transaction referred to in that statement;
(f) where a person other than the producer imports the traced material
from outside the territories of the NAFTA countries, and the producer
acquires a material that incorporates that traced material and the
acquired material was produced in the territory of a NAFTA country
and is subject to a regional value-content requirement, if the
producer has a statement that
(i) is signed by the person from whom the producer acquired that
material, and
(ii) states that the acquired material is an originating material
and states the regional value content of the material,
an amount equal to VM x (1 - RVC)
where
VM is the value of the acquired material, determined in accordance
with subsection (5), with respect to the transaction in which the
producer acquired that material, and
RVC is the regional value content of the acquired material,
expressed as a decimal;
(g) where a person other than the producer imports the traced material
from outside the territories of the NAFTA countries, and the producer
acquires a material that incorporates that traced material and the
acquired material was produced in the territory of a NAFTA country
and is subject to a regional value-content requirement, if the
producer has a statement that
(i) is signed by the person from whom the producer acquired that
material, and
(ii) states that the acquired material is an originating material
but does not state any value with respect to the traced material,
an amount equal to VM x (1 - RVCR)
where
VM is the value of the acquired material, determined in accordance
with subsection (5), with respect to the transaction in which the
producer acquired that material, and
RVCR is the regional value-content requirement for the acquired
material, expressed as a decimal;
(h) where a person other than the producer imports the traced material
from outside the territories of the NAFTA countries and the producer
acquires a material that
(i) incorporates that traced material,
(ii) was produced in the territory of a NAFTA country, and
(iii) with respect to which an amount was determined in accordance
with paragraph (f) or (g),
if the producer of the good has a statement signed by the person from
whom the producer acquired that material that states that amount, the
amount as determined in accordance with paragraph (f) or (g), as the
case may be; and
(i) where a person other than the producer imports the traced material
from outside the territories of the NAFTA countries and the producer
does not have a statement described in any of paragraphs (c) through
(h), the value of the traced material or any material that
incorporates it, determined in accordance with subsection (5) with
respect to the transaction in which the producer acquires the traced
material or any material that incorporates it.
Value of traced material if customs value is not in accordance with
Schedule VIII
(3) For purposes of subsections (2) (a) through (d), where the customs
value of the traced material referred to in those paragraphs was not
determined in a manner consistent with Schedule VIII, the value of the
material shall be the sum of
(a) the value of the material determined in accordance with Schedule
VIII with respect to the transaction in which the person who imported
the material from outside the territories of the NAFTA countries
acquired it; and
(b) where not included in that value, the costs referred to in
subsections (2)(a) (ii) and (iii), subsections (2)(b) (ii) and (iii),
subsections (2)(c)(ii) (B) and (C) or subsections (2)(d)(ii) (B) and
(C), as the case may be.
Additional costs included in traced value if not already included in
customs value
(4) The costs referred to in subsections (2) (a) through (d) and
subsection (3) are the following:
[[Page 46416]]
(a) duties and taxes paid or payable with respect to the material in
the territory of one or more of the NAFTA countries, other than
duties and taxes that are waived, refunded, refundable or otherwise
recoverable, including credit against duty or tax paid or payable;
and
(b) customs brokerage fees, including the cost of in-house customs
brokerage services, incurred with respect to the material in the
territory of one or more of the NAFTA countries.
Value of traced material determined under Schedule VIII if value is not
customs value
(5) For purposes of subsections (2) (e) through (g) and (i) and
subsections (6) and (7), the value of a material
(a) shall be the transaction value of the material, determined in
accordance with section 2(1) of Schedule VIII with respect to the
transaction referred to in that paragraph or subsection, or
(b) shall be determined in accordance with sections 6 through 11 of
Schedule VIII, where, with respect to the transaction referred to in
that paragraph or subsection, there is no transaction value for the
material under section 2(2) of that Schedule, or the transaction
value of the material is unacceptable under section 2(3) of that
Schedule,
and, where not included under paragraph (a) or (b), shall include taxes,
other than duties paid on an importation of a material from a NAFTA
country, paid or payable with respect to the material in the territory
of one or more of the NAFTA countries, other than taxes that are
waived, refunded, refundable or otherwise recoverable, including credit
against tax paid or payable.
(6) Where it is determined, during the course of a verification of
origin of a light-duty automotive good with respect to which the
producer of that good has a statement referred to in subsection (2) (f)
or (g), that the acquired material referred to in that statement is not
an originating material, the value of the acquired material shall, for
purposes of subsection (2), be determined in accordance with subsection
(5) with respect to the transaction in which that producer acquired it.
Effect on value of traced material if value on a statement cannot be
verified
(7) Where any person who has information with respect to a statement
referred to in any of subsections (2)(c) through (h) does not allow a
customs administration to verify that information during a verification
of origin, the value of the material with respect to which that person
did not allow the customs administration to verify the information may
be determined by that customs administration in accordance with
subsection (5) with respect to the transaction in which that person
sells, or otherwise transfers to another person, that material or a
material that incorporates that material.
Use of value of VNM as determined under section 12(3) for traced
material incorporated into another material
(8) Where a traced material is incorporated into a material produced in
the territory of a NAFTA country and that material is incorporated into
a light-duty automotive good, the statement referred to in subsection
(2)(c), (d) or (e) may state the value of non-originating materials,
determined in accordance with section 12(3), with respect to the
material that incorporates the traced material.
Interpretations and clarifications for provisions applicable to tracing
rules for light-duty automotive goods
(9) For purposes of this section,
(a) where a producer, in accordance with section 7(4), designates as
an intermediate material any self-produced material used in the
production of a light-duty automotive good,
(i) the designation applies solely to the calculation of the net
cost of that good, and
(ii) the value of a traced material that is incorporated into that
good shall be determined as though the designation had not been
made;
(b) the value of a material not listed in Schedule IV, when imported
from outside the territories of the NAFTA countries,
(i) shall not be included in the value of non-originating materials
that are used in the production of a light-duty automotive good,
and
(ii) shall be included in calculating the net cost of a light-duty
automotive good that incorporates that material;
(c) except as otherwise provided in section 12(10), this section does
not apply with respect to after-market parts;
(d) the costs referred to in subsections (2)(a)(ii) and (b)(ii),
subsections (2)(c)(ii)(B) and (d)(ii)(B) and subsections (4) and (5)
shall be the costs referred to in those paragraphs that are recorded
on the books of the producer of the light-duty automotive good;
(e) for purposes of calculating the regional value content of a light-
duty automotive good, the producer of that good may choose to treat
any material used in the production of that good as a non-originating
material, and the value of that material shall be determined in
accordance with subsection (5) with respect to the transaction in
which the producer acquired it; and
(f) any information set out in a statement referred to in subsection
(2) that concerns the value of materials or costs shall be in the
same currency as the currency of the country in which the person who
provided the statement is located.
Examples of application of tracing for light-duty automotive goods
(10) Each of the following examples is an ``Example'' as referred to in
section 2(4).
Example 1:
Nuts and bolts provided for in heading 7318 are imported from
outside the territories of the NAFTA countries and are used in the
territory of a NAFTA country in the production of a light-duty
automotive good referred to in section 9(1). Heading 7318 is not listed
in Schedule IV so the nuts and bolts are not traced materials.
Because the nuts and bolts are not traced materials the value, under
section 9(1), of the nuts and bolts is not included in the value of non-
originating materials used in the light-duty automotive good even
though the nuts and bolts are imported from outside the territories of
the NAFTA countries.
The value, under section 9(9)(b), of the nuts and bolts is included
in the net cost of the light-duty automotive good for the purposes of
calculating, under section 9(1), regional value content of the motor
vehicle.
Example 2:
[[Page 46417]]
A rear view mirror provided for in subheading 7009.10 is imported
from outside the territories of the NAFTA countries and is used in the
territory of a NAFTA country as original equipment in the production of
a light-duty vehicle.
Subheading 7009.10 is listed in Schedule IV. The rear view mirror is
a traced material. For purposes of calculating, under section 9(1),
regional value content of the light-duty vehicle, the value of the
mirror is included in the value of non-originating materials in
accordance with sections 9(2) through (9).
Example 3:
Glass provided for in heading 7005 is imported from outside the
territories of the NAFTA countries and is used in the territory of
NAFTA country A in the production of a rear view mirror. The rear view
mirror is a non-originating good because it fails to satisfy the
applicable change in tariff classification.
That rear view mirror is exported to NAFTA country B where it is
used as original equipment in the production of a light-duty vehicle.
Even though the rear view mirror is a non-originating material and is
provided for in a tariff item listed in Schedule IV, it is not a traced
material because it was not imported from outside the territories of
the NAFTA countries.
For purposes of calculating, under section 9(1), the regional value
content of a light-duty vehicle in which the rear view mirror is
incorporated, the value of the rear view mirror, under section 9(1), is
not included in the value of non-originating materials used in the
production of the light-duty vehicle.
Even though the glass provided for in heading 7005 that was used in
the production of the rear view mirror and incorporated into the light-
duty vehicle was imported from outside the territories of the NAFTA
countries, the glass is not a traced material because heading 7005 is
not listed in Schedule IV. For purposes of calculating, under section
9(1), the regional value content of the light-duty vehicle that
incorporates the glass, the value of the glass is not included in the
value of non-originating materials used in the production of the light-
duty vehicle. The value of the rear view mirror would be included in
the net cost of the light-duty vehicle, but the value of the imported
glass would not be separately included in the value of non-originating
materials of the light-duty vehicle.
Example 4:
An electric motor provided for in subheading 8501.10 is imported
from outside the territories of the NAFTA countries and is used in the
territory of a NAFTA country in the production of a seat frame provided
for in subheading 9401.90. The seat frame, with the electric motor
attached, is sold to a producer of seats provided for in subheading
9401.20. The seat producer sells the seat to a producer of light-duty
vehicles. The seat is to be used as original equipment in the
production of that light-duty vehicle.
Subheadings 8501.10 and 9401.20 are listed in Schedule IV;
subheading 9401.90 is not. The electric motor is a traced material; the
seat is not a traced material because it was not imported from outside
the territories of the NAFTA countries.
The seat is a light-duty automotive good referred to in section
9(1). For purposes of calculating, under section 9(1), the regional
value content of the seat, the value of traced materials incorporated
into it is included in the value of non-originating materials used in
the production of the seat. The value of the electric motor is included
in that value. (However, the value of the motor would not be included
separately in the net cost of the seat because the value of the motor
is included as part of the cost of the seat frame.)
For purposes of calculating, under section 9(1), the regional value
content of the light-duty vehicle, the value of the electric motor is
included in the value of non-originating materials used in the
production of the light-duty vehicle, even if the seat is an
originating material.
Example 5:
Cast blocks, cast heads and connecting rod assemblies provided for
in heading 8409 are imported from outside the territories of the NAFTA
countries by an engine producer, who has title to them at the time of
importation, and are used by the producer in the territory of NAFTA
country A in the production of an engine provided for in heading 8407.
After the regional value content of the engine is calculated, the
engine is an originating good. It is not a traced material because it
was not imported from outside the territories of the NAFTA countries.
The engine is exported to NAFTA country B, to be used as original
equipment by a producer of light-duty vehicles.
For purposes of calculating, under section 9(1), the regional value
content of the light-duty vehicle that incorporates the engine, because
heading 8409 is listed in Schedule IV and because the cast blocks, cast
heads and connecting rod assemblies were imported into the territory of
a NAFTA country and are incorporated into the light-duty vehicle, the
value of those materials, which are traced materials, is included in
the value of non-originating materials used in the production of the
light-duty vehicle, even though the engine is an originating material.
The producer of the light-duty vehicle did not import the traced
materials. However, because that producer has a statement referred to
in section 9(2)(c) and that statement states the value of non-
originating materials of the traced materials in accordance with
section 12(2), the producer of the light-duty vehicle may, in
accordance with section 9(8), use that value as the value of non-
originating materials of the light-duty vehicle with respect to that
engine.
Example 6:
Aluminum ingots provided for in subheading 7601.10 and piston
assemblies provided for in heading 8409 are imported from outside the
territories of the NAFTA countries by an engine producer and are used
by that producer in the territory of NAFTA country A in the production
of an engine provided for in heading 8407. The aluminum ingots are used
by the producer to produce an engine block; the piston assembly is then
incorporated into the engine block and the producer designates, in
accordance with section 7(4), a short block provided for in heading
8409 as an intermediate material. The intermediate material qualifies
as an originating material. The engine that incorporates the short
block is exported to NAFTA country B and used as original equipment in
the production of a light-duty vehicle. The piston assemblies provided
for in heading 8409 are traced materials; neither the engine nor the
short block are traced materials because they were not imported from
outside the territories of the NAFTA countries.
For purposes of calculating, under section 9(1), the regional value
content of the engine, the value of the piston assemblies is included,
under section 9(9)(a)(ii), in the value of non-originating materials,
even if the intermediate material is an originating material. However,
the value of the aluminum ingots is not included in the value of non-
originating materials because subheading 7601.10 is not listed in
Schedule IV. The value of the aluminum ingots does not need to be
included separately in the net cost of the engine because that value is
included in the value of the intermediate material, and the total cost
of the intermediate material is included in the net cost of the engine.
For purposes of calculating, under section 9(1), the regional value
content of the light-duty vehicle that incorporates the engine (and the
piston assemblies), the value of the piston assemblies incorporated
into that light-duty vehicle is included in the value of non-
originating materials of the light-duty vehicle.
Example 7:
[[Page 46418]]
An engine provided for in heading 8407 is imported from outside the
territories of the NAFTA countries. The producer of the engine, located
in the country from which the engine is imported, used in the
production of the engine a piston assembly provided for in heading 8409
that was produced in a NAFTA country and is an originating good. The
engine is used in the territory of a NAFTA country as original
equipment in the production of a light-duty vehicle. The engine is a
traced material.
For purposes of calculating, under section 9(1), the regional value
content of a light-duty vehicle that incorporates that engine, the
value of the engine is included in the value of non-originating
materials of that light-duty vehicle. The value of the piston assembly,
which was, before its exportation to outside the territories of the
NAFTA countries, an originating good, shall not be deducted from the
value of non-originating materials used in the production of the light-
duty vehicle. Under section 18 (transshipment), the piston assembly is
no longer considered to be an originating good because it was used in
the production of a good outside the territories of the NAFTA
countries.
Example 8:
A wholesaler, located in City A in the territory of a NAFTA country,
imports from outside the territories of the NAFTA countries rubber
hoses provided for in heading 4009, which is listed in Schedule IV. The
wholesaler takes title to the goods at the wholesaler's place of
business in City A. The customs value of the imported goods is $500.
All freight, taxes and duties associated with the good to the
wholesaler's place of business total $100; the cost of the freight,
included in that $100, from the place where it was received in the
territory of a NAFTA country to the location of the wholesaler's place
of business in City A is $25. The wholesaler sells the rubber hoses for
$650 to a producer of light-duty vehicles who uses the goods in the
territory of a NAFTA country as original equipment in the production of
a light-duty vehicle. The light-duty vehicle producer pays $50 to have
the goods shipped from the location of the wholesaler's place of
business in City A to the location at which the light-duty vehicle is
produced.
The rubber hoses are traced materials and they are incorporated into
a light-duty automotive good. For purposes of calculating, under
section 9(1), the regional value content of the light-duty vehicle,
(1) if the wholesaler takes title to the goods before the first place
at which they were received in the territory of a NAFTA country, then
the value of non-originating materials, where the light-duty vehicle
producer has a statement referred to in section 9(2)(c), would not
include the cost of freight from the place where they were received
in the territory of a NAFTA country to the location of the
wholesaler's place of business: in this situation, the value of non-
originating materials would be $575;
(2) if the producer has a statement referred to in section 9(2)(d)
that states the customs value of the traced material and, where not
included in that price, the cost of taxes, duties, fees and
transporting the goods to the place where title is taken, the light-
duty vehicle producer may use those values as the value of non-
originating materials with respect to the goods: in this situation,
the value of non-originating materials would be $600; or
(3) if the wholesaler is unwilling to provide the light-duty vehicle
producer with such a statement, the value of non-originating
materials with respect to the traced materials will be the value of
the materials with respect to the transaction in which the producer
acquired them, as provided for in section 9(2)(i), in this instance
$650; the costs of transporting the goods from the location of the
wholesaler's place of business to the location of the producer will
be included in the net cost of the goods, but not in the value of non-
originating materials.
Example 9:
A wholesaler, located in City A in the territory of a NAFTA country,
imports from outside the territories of the NAFTA countries rubber hose
provided for in heading 4009, which is listed in Schedule IV. The
wholesaler sells the good to a producer located in the territory of the
NAFTA country who uses the hose to produce a power steering hose
assembly, also provided for in heading 4009. The power steering hose
assembly is then sold to a producer of light-duty vehicles who uses
that good in the production of a light-duty vehicle. The rubber hose is
a traced material; the power steering hose assembly is not a traced
material because it was not imported from outside the territories of
the NAFTA countries.
The wholesaler who imported the rubber hose from outside the
territories of the NAFTA countries has title to it at the time of
importation. The customs value of the good is $3, including freight and
insurance and all other costs incurred in transporting the good to the
first place at which it was received in the territory of the NAFTA
country. Duties and fees and all other costs referred to in section
9(4), paid by the wholesaler with respect to the good, total an
additional $1. The wholesaler sells the good to the producer of the
power steering hose assemblies for $5, not including freight to the
location of that producer. The power steering hose producer pays $2 to
have the good delivered to the location of production. The value of the
power steering hose assembly sold to the light-duty vehicle producer is
$10, including freight for delivery of the goods to the location of the
light-duty vehicle producer.
For purposes of calculating, under section 9(1), the regional value
content of the light-duty vehicle:
(1) if the motor vehicle producer has a statement referred to in
section 9(2)(c) from the producer of the power steering hose assembly
that states the customs value of the imported rubber hose
incorporated in the power steering hose assembly, and the value of
the duties, fees and other costs referred to in section 9(4), the
producer may use those values as the value of non-originating
materials with respect to that traced good: in this situation, that
value would be the customs value of $3 and the cost of duties and
fees of $1, provided that the wholesaler has provided the producer of
the power steering hose assembly with the information regarding the
customs value of the imported good and the other costs;
(2) if the light-duty vehicle producer has a statement from the
producer of the power steering hose assembly that states the value of
the imported hose, with respect to the transaction in which the power
steering hose assembly producer acquires the imported hose from the
wholesaler, the light-duty vehicle producer may include that value as
the value of non-originating materials, in accordance with section
9(2)(e): in this situation, that value is $5; and the $2 cost of
transporting the good from the location of the wholesaler to the
location of the producer, because that cost is separately identified,
would not be included in the value of non-originating materials of
the light-duty vehicle;
(3) if the light-duty vehicle producer has a statement referred to in
section 9(2)(f) signed by the producer of the power steering hose
assembly, the light-duty vehicle producer may use the formula set out
in section 9(2)(f) to calculate the value of non-originating
materials with respect to that acquired material: in this situation,
assuming the regional value content is 55 per cent, the value of non-
originating materials would be $4.50; and because the cost of
transportation from the location of the producer of the power
steering hose assembly to the location of the light-duty vehicle
producer is included in the purchase price and not separately
identified, it may not be deducted from the purchase price, because
the formula referred to in section 9(2)(f) does not allow for the
deduction of transportation costs that would otherwise not be non-
originating;
(4) if the light-duty vehicle producer has a statement referred to in
section 9(2)(g) signed by the producer of the power steering hose
assembly, the light-duty vehicle producer may use the formula set out
in section 9(2)(g) to calculate the value of non-originating
materials with respect to that acquired material: in this situation,
assuming the regional value-content requirement is 50 per cent, the
value of non-originating materials would be $5; and because the cost
of transportation from the location of the producer of the power
steering hose assembly to the location of the light-duty vehicle
producer is included in the purchase price and not separately
identified, it may not be deducted from the purchase price, because
the formula referred to in section 9(2)(g) does not allow for the
deduction of transportation costs that would otherwise not be non-
originating; or
[[Page 46419]]
(5) if the light-duty vehicle producer does not have a statement
referred to in any of sections 9(2)(c) through (h) from the producer
of the power steering hose assembly, the light-duty vehicle producer
includes in the value of non-originating materials of the vehicles
the value, determined in accordance with section 9(2)(i), of the
power steering hose assembly: in this situation, that amount would be
$10, the cost to the producer of acquiring that material.
Example 10:
A producer of light-duty vehicles located in City C in the territory
of a NAFTA country imports from outside the territories of the NAFTA
countries rubber hose provided for in heading 4009, which is listed in
Schedule IV, and uses that good as original equipment in the production
of a light-duty vehicle.
The rubber hose arrives at City A in the NAFTA country, but the
producer of the light-duty vehicle does not have title to the good; it
is transported under bond to City B, and on its arrival in City B, the
producer of the light-duty vehicle takes title to it and the good is
received in the territory of a NAFTA country. The good is then
transported to the location of the light-duty vehicle producer in City
C.
The customs value of the imported good is $4, the transportation and
other costs referred to in subparagraph 9(2)(b)(ii) to City A are $3
and to City B are $2, and the cost of duties, taxes and other fees
referred to in section 9(4) is $1. The cost of transporting the good
from City B to the location of the producer in City C is $1. The rubber
hose is traced material.
For purposes of calculating, under section 9(1), the regional value
content of the light-duty vehicle, the value, under section 9(2)(b), of
non-originating materials of that vehicle is the customs value of the
traced material and, where not included in that value, the cost of
taxes, duties, fees and the cost of transporting the traced material to
the place where title is taken. In this situation, the value of non-
originating materials would be the customs value of the traced
material, $4, the cost of duties taxes and other fees, $1, the cost of
transporting the material to City A, $3, and the cost of transporting
that material from City A to City B, $2, for a total of $10. The $1
cost of transporting the good from City B to the location of the
producer in City C would not be included in the value of non-
originating materials of the light-duty vehicle because a person of a
NAFTA country has taken title to the traced material.
Example 11:
A radiator provided for in subheading 8708.91 is imported from
outside the territories of the NAFTA countries by a producer of light-
duty vehicles and is used in the territory of a NAFTA country as
original equipment in the production of a light-duty vehicle.
The radiator is transported by ship from outside the territories of
the NAFTA countries and arrives in the territory of the NAFTA country
at City A. The radiator is not, however, unloaded at City A and
although the radiator is physically present in the territory of the
NAFTA country, it has not been received in the territory of a NAFTA
country.
The ship sails in territorial waters from City A to City B and the
radiator is unloaded there. The light-duty vehicle producer files, from
City C in the same country, the entry for the radiator; the radiator
enters the territory of the NAFTA country at City B.
Subheading 8708.91 is listed in Schedule IV. The radiator is a
traced material.
For purposes of calculating, under section 9(1), the regional value
content of the light-duty vehicle, the value of the radiator is
included in the value of non-originating materials of the light-duty
vehicle. The costs of any freight, insurance, packing and other costs
incurred in transporting the radiator to City B are included in the
value of non-originating materials of the light-duty vehicle, including
the cost of transporting the radiator from City A to City B. The costs
of any freight, insurance, packing and other costs that were incurred
in transporting the radiator from City B to the location of the
producer are not included in the value of non-originating materials of
the light-duty vehicle.
Example 12:
Producer X, located in NAFTA country A, produces a car seat of
subheading No. 9401.20 that is used in the production of a light-duty
vehicle. The only non-originating material used in the production of
the car seat is an electric motor of subheading No. 8501.20 that was
imported by Producer X from outside the territories of the NAFTA
countries. The electric motor is a material of a tariff provision
listed in Schedule IV and thus is a traced material.
Producer X sells the car seat as original equipment to Producer Y, a
light-duty vehicle producer, located in NAFTA country B. The car seat
is an originating good because the non-originating material in the car
seat (the electric motor) undergoes the applicable change in tariff
classification set out in a rule that specifies only a change in tariff
classification. Consequently, Producer X does not choose to calculate
the regional value content of the car seat in accordance with section
12(1).
For purposes of determining, under section 9(1), the value of non-
originating materials used in the production of the light-duty vehicle
that incorporates the car seat, the value of the electric motor is
included even though the car seat qualifies as an originating material.
Producer X provides Producer Y with a statement described in section
9(2)(c), with the value of non-originating material used in the
production of the car seat determined in accordance with section 12(3),
as is permitted by section 9(8). Producer Y uses that value as the
value of non-originating materials used in the production of the light-
duty vehicle with respect to the car seat.
Example 13:
This example has the same facts as in Example 12, except that the
car seat does not qualify as an originating good under the rule that
specifies only a change in tariff classification. Instead, it qualifies
as an originating good under a rule that specifies a regional value-
content requirement and a change in tariff classification. For purposes
of that rule, Producer X chose to calculate the regional value content
of the car seat in accordance with section 12(1) over a period set out
in section 12(5)(a) and using a category set out in section 12(4)(a).
For purposes of the statement described in section 9(2)(c), Producer
X determined, as is permitted under section 9(8), the value of non-
originating material used in the production of the car seat in
accordance with section 12(3) over a period set out in section 12(5)(a)
and using a category set out in section 12(4)(e).
SECTION 10. HEAVY-DUTY AUTOMOTIVE GOODS
Determining VNM for the calculation of the RVC for heavy-duty automotive
goods
(1) Except as otherwise provided in subsections (3) through (8) and
section 12(10)(a), for purposes of calculating the regional value
content of a heavy-duty automotive good under the net cost method, the
value of non-originating materials used by the producer of the good in
the production of the good shall be the sum of
(a) for each listed material that is a non-originating material, is a
self-produced material and is used by the producer in the production
of the good, at the choice of the producer, either
(i) the total cost incurred with respect to all goods produced by
the producer that can be reasonably allocated to that listed
material in accordance with Schedule VII,
(ii) the aggregate of each cost that forms part of the total cost
incurred with respect to that listed material that can be
reasonably allocated to that listed material in accordance with
Schedule VII, or
(iii) the sum of
(A) the customs value of each non-originating material imported by
the producer and used in the production of the listed material,
and, where not included in that customs value, the costs referred
to in subsections (2)(c) through (f), and
[[Page 46420]]
(B) the value of each non-originating material that is not
imported by the producer of the listed material and is used in
the production of the listed material, determined in accordance
with subsection (2) with respect to the transaction in which the
producer of the listed material acquired it;
(b) for each listed material that is a non-originating material, is
produced in the territory of a NAFTA country and is acquired and used
by the producer in the production of the good, at the choice of the
producer, either
(i) the value of that non-originating listed material, determined in
accordance with subsection (2), with respect to the transaction in
which the producer acquired the listed material, or
(ii) where the producer of the good has a statement described in
clause (A) or (B) with respect to each material that is a non-
originating material used in the production of that listed
material, the sum of
(A) the customs value of each non-originating material imported by
the producer of the listed material and used in the production of
that listed material, and, where not included in that customs
value, the costs referred to in subsections (2)(c) through (f),
if the producer of the good has a statement signed by the
producer of the listed material that states the customs value of
that non-originating material and the costs referred to in
subsections (2)(c) through (f) that the producer of the listed
material incurred with respect to the non-originating material,
and
(B) the value of each non-originating material that is not
imported by the producer of the listed material, and is acquired
and used in the production of the listed material, determined in
accordance with subsection (2) with respect to the transaction in
which the producer of the listed material acquired that non-
originating material, if the producer of the good has a statement
signed by the producer of the listed material that states the
value of the acquired material, determined in accordance with
subsection (2) with respect to the transaction in which the
producer of the listed material acquired the non-originating
material;
(c) for each listed material, automotive component assembly,
automotive component or sub-component that is imported from outside
the territories of the NAFTA countries, and is used by the producer
in the production of the good,
(i) where it is imported by the producer, the customs value of that
non-originating listed material, automotive component assembly,
automotive component or sub-component, and, where not included in
that customs value, the costs referred to in subsections (2)(c)
through (f), and
(ii) where it is not imported by the producer, the value of that non-
originating listed material, automotive component assembly,
automotive component or sub-component, determined in accordance
with subsection (2) with respect to the transaction in which the
producer acquired it;
(d) for each automotive component assembly, automotive component or
sub-component that is an originating material and is acquired and
used by the producer in the production of the good, at the choice of
the producer,
(i) the sum of
(A) the value of each non-originating listed material used in the
production of the originating material, determined under
paragraphs (a) and (b),
(B) the value of each non-originating material incorporated into
the originating material, determined under paragraph (c),
(C) the value of each non-originating listed material used in the
production of a material referred to in paragraph (e) that is
used in the production of the originating material, determined
under paragraphs (a) and (b), and
(D) where the value of a non-originating listed material referred
to in clause (C), and used in the production of a non-originating
automotive component assembly, automotive component or sub-
component that is used in the production of the originating
material, is not included under clause (C), the value of that
automotive component assembly, automotive component or sub-
component, determined under paragraph (e)(ii),
if the producer has a statement, signed by the person from whom the
originating material was acquired, that states the sum of the
values, as determined by the producer of the originating material
under paragraphs (a), (b), (c) and (e) of each non-originating
material referred to in any of clauses (A) through (D) that is
incorporated into that originating material;
(ii) an amount equal to the number resulting from applying the
following formula:
VM x (1 - RVC)
where
VM is the value of the acquired material, determined in
accordance with subsection (2), with respect to the transaction
in which the producer of the good acquired that material, and
RVC is the regional value content of the acquired material,
expressed as a decimal,
if the material is subject to a regional value-content requirement
and the producer has a statement, signed by the person from whom
the producer acquired that material, that states that the acquired
material is an originating material and states the regional value
content of the material,
(iii) an amount equal to the number resulting from applying the
following formula:
VM x (1 - RVCR)
where
VM is the value of the acquired material, determined in
accordance with subsection (2), with respect to the transaction
in which the producer of the good acquired that material, and
RVCR is the regional value-content requirement for the acquired
material, expressed as a decimal,
if the material is subject to a regional value-content requirement
and the producer has a statement, signed by the person from whom
the producer acquired that material, that states that the acquired
material is an originating material but does not state the value of
non-originating materials with respect to that acquired material;
or
(iv) the value of that automotive component assembly, automotive
component or sub-component determined in accordance with subsection
(2) with respect to the transaction in which the producer acquired
the material;
[[Page 46421]]
(e) for each automotive component assembly, automotive component or
sub-component that is a non-originating material produced in the
territory of a NAFTA country and that is acquired by the producer and
used by the producer in the production of the good, at the choice of
the producer, either
(i) the sum of the values of the non-originating materials
incorporated into that non-originating material that is acquired by
the producer, determined under paragraphs (a), (b), (c), (d) and
(f), if the producer has a statement, signed by the person from
whom the non-originating material was acquired, that states the sum
of the values of the non-originating materials incorporated into
that non-originating material, determined by the producer of the
non-originating material in accordance with paragraphs (a), (b),
(c), (d) and (f), or
(ii) the value of that non-originating automotive component
assembly, automotive component or sub-component, determined in
accordance with subsection (2) with respect to the transaction in
which the producer acquired the material; and
(f) for each non-originating material that is not referred to in
paragraph (a), (b), (c) or (e) and that is used by the producer in
the production of the good,
(i) where it is imported by the producer, the customs value of that
non-originating material, and, where not included in that customs
value, the costs referred to in subsections (2)(c) through (f), and
(ii) where it is not imported by the producer, the value of that non-
originating material, determined in accordance with subsection (2)
with respect to the transaction in which the producer acquired the
material.
Application of Schedule VIII to determine VNM; additional costs to be
included
(2) For purposes of subsection (1)(a)(ii)(B), subsection (1)(b)(i),
subsection (1)(b)(ii)(B), subsections (1)(c)(ii), (1)(d)(ii) through
(iv), (1)(e)(ii) and subsection (1)(f)(ii), the value of a material
(a) shall be the transaction value of the material, determined in
accordance with section 2(1) of Schedule VIII with respect to the
transaction referred to in that clause, subparagraph or paragraph, or
(b) where, with respect to the transaction referred to in that clause,
subparagraph, or paragraph, there is no transaction value for the
material under section 2(2) of Schedule VIII or the transaction value
of the material is unacceptable under section 2(3) of that Schedule,
shall be determined in accordance with sections 6 through 11 of that
Schedule,
and shall include the following costs where they are not included under
paragraph (a) or (b):
(c) the costs of freight, insurance and packing, and all other costs
incurred in transporting the material to the location of the
producer,
(d) duties and taxes paid or payable with respect to the material in
the territory of one or more of the NAFTA countries, other than
duties and taxes that are waived, refunded, refundable or otherwise
recoverable, including credit against duty or tax paid or payable,
(e) customs brokerage fees, including the cost of in-house customs
brokerage and customs clearance services, incurred with respect to
the material in the territory of one or more of the NAFTA countries,
and
(f) the cost of waste and spoilage resulting from the use of the
material in the production of the good, minus the value of any
reusable scrap or by-product.
Value of imported material if customs value is not in accordance with
Schedule VIII
(3) For purposes of subsections (1)(a)(ii)(A) and (b)(ii)(A) and
subsections (1)(c)(i) and (f)(i), where the customs value of an
imported material referred to in those clauses or paragraphs was not
determined in a manner consistent with Schedule VIII, the value of the
material shall be determined in accordance with Schedule VIII with
respect to the importation for which that customs value was determined
and, where the costs referred to in sections (2)(c) through (f) are not
included in that value, those costs shall be added to the value of the
material.
Option to use section 9 tracing rules in certain circumstances
(4) For purposes of calculating the regional value content of a heavy-
duty component, where
(a) a heavy-duty component is produced in the same plant as an
automotive component assembly or automotive component that is of the
same heading or subheading as that heavy-duty component and is for
use as original equipment in a light-duty vehicle, and
(b) it is not reasonable for the producer to know which of the
production will constitute a heavy-duty component for use in a heavy-
duty vehicle,
the value of the non-originating materials used in the production of the
heavy-duty component in that plant may, at the choice of the producer,
be determined in the manner set out in section 9.
(5) For purposes of calculating the regional value content of a heavy-
duty vehicle, where a producer of such a vehicle acquires, for use by
that producer in the production of the vehicle, a heavy-duty component
with respect to which the value of non-originating materials has been
determined in accordance with subsection (4), the value of the non-
originating materials used by the producer with respect to that heavy-
duty component is the value of non-originating materials determined
under that subsection.
VNM may be redetermined for certain acquired materials
(6) Where it is determined, during the course of a verification of
origin of a heavy-duty automotive good with respect to which the
producer of that good has a statement referred to in subsection
(1)(d)(ii) or (iii) that the acquired material referred to in that
statement is not an originating material, the value of the acquired
material shall, for purposes of subsection (1), be determined in
accordance with subsection (2) with respect to the transaction in which
that producer acquired it.
[[Page 46422]]
Effect on value of traced material if value on a statement cannot be
verified
(7) Where any person who has information with respect to a statement
referred to in subsection (1)(b)(ii), (d)(i) or (e)(i) does not allow a
customs administration to verify that information during a verification
of origin, the value of any material with respect to which that person
did not allow the customs administration to verify the information may
be determined by that customs administration in accordance with
subsection (2) with respect to the transaction in which that person
sells, or otherwise transfers to another person, that material or a
material that incorporates that material.
Use of value of VNM as determined under section 12(3) for traced
material incorporated into another material
(8) Where a heavy-duty component, sub-component or listed material is
incorporated into a material produced in the territory of a NAFTA
country and that material is incorporated into a heavy-duty automotive
good, the statement referred to in subsection (1)(b)(ii), (d)(i) or
(e)(i) may state the value of non-originating materials, determined in
accordance with section 12(3), with respect to the material that
incorporates the heavy-duty component, sub-component or listed
material.
Interpretations and clarifications for provisions applicable to rules
for determining VNM for heavy-duty automotive goods
(9) For purposes of this section,
(a) for purposes of calculating the regional value content of a heavy-
duty automotive good, sub-component or listed material, a producer of
such a good may, in accordance with section 7(4), designate as an
intermediate material any self-produced material, other than a heavy-
duty component or sub-component, that is used in the production of
that good;
(b) except as otherwise provided in section 12(10), this section does
not apply with respect to after-market parts;
(c) this section does not apply to a sub-component for purposes of
calculating its regional value content before it is incorporated into
a heavy-duty automotive good;
(d) for purposes of calculating the regional value content of a heavy-
duty automotive good, the producer of that good may choose to treat
any material used in the production of that good as a non-originating
material, and the value of that material shall be determined in
accordance with subsection (2) with respect to the transaction in
which the producer acquired it;
(e) any information set out in a statement referred to in subsections
(1)(b)(ii), (d)(i) through (iii) or (e)(i) that concerns the value of
materials or costs shall be in the same currency as the currency of
the country in which the person who provided the statement is
located; and
(f) total cost under subsections (1)(a)(i) and (ii) consists of the
costs referred to section 2(6), and is calculated in accordance with
that section and section 2(7).
Examples of application of rules for determining VNM for heavy-duty
automotive goods
(10) Each of the following examples is an ``Example'' as referred to in
section 2(4).
Example 1: A listed material is imported from outside the territories of
the NAFTA countries
A cast head, produced outside the territories of the NAFTA
countries, is imported into the territory of a NAFTA country and used
in that country in the production of an engine that will be used as
original equipment in the production of a heavy-duty vehicle. No other
non-originating materials are used in the production of the engine. The
cast head is a listed material; the engine is an automotive component.
Situation 1: Use of the listed material in an automotive component
For purposes of calculating the regional value content of the
engine, the value of listed materials imported from outside the
territories of the NAFTA countries is included in the value of non-
originating materials used in the production of the engine. Because the
cast head was produced outside the territories of the NAFTA countries,
its value, under section 10(1)(c), is included in the value of non-
originating materials used in the production of the engine.
Situation 2: Use of an originating automotive component
incorporating the listed material
The engine is an originating material acquired by the producer of
the heavy-duty vehicle. For purposes of calculating the regional value
content of the heavy-duty vehicle that incorporates that engine (and
incorporates the cast head), the value of non-originating materials
used in the production of the heavy-duty vehicle is determined under
section 10(1)(d) with respect to that engine. The producer may choose
to include in the value of non-originating materials of the heavy-duty
vehicle
(a) the value, determined under section 10(1)(d)(i), of the non-
originating materials that are incorporated into the engine, which is
the value, determined under sections 10(1) (a) through (c) and
paragraph (e)(ii), of the non-originating materials;
(b) the value, determined under section 10(1)(d)(ii), which is an
amount equal to the amount determined under section 10(1)(d)(iv)
multiplied by the remainder of one minus the regional value content,
expressed as a decimal, of the engine;
(c) the value, determined under section 10(1)(d)(iii), which is an
amount equal to the amount determined under section 10(1)(d)(iv)
multiplied by the remainder of one minus the regional value-content
requirement, expressed as a decimal, for the engine; or
(d) the value, determined under section 10(1)(d)(iv), of the engine.
The heavy-duty vehicle producer may only choose the first option if
that producer has a statement, referred to in section 10(1)(d)(i), from
the person from whom the engine was acquired. In this situation, the
value, determined under section 10(1)(c), of the cast head, is included
in the value of non-originating materials of the heavy-duty vehicle,
with respect to the engine that is used in the production of the heavy-
duty vehicle.
The heavy-duty vehicle producer may only choose the second option if
that producer has a statement, referred to in section 10(1)(d)(ii),
from the person from whom the engine was acquired. In this situation,
because of the application of the equation, the value of the cast head
will be included in the amount determined under section 10(1)(d)(ii)
and is, consequently, included in the value of non-originating
materials used in the production of the heavy-duty vehicle.
The heavy-duty vehicle producer may only choose the third option if
that producer has a statement, referred to in section 10(1)(d)(iii),
from the person from whom the engine was acquired. In this situation,
because of the application of the equation, the value of the cast head
will be included in the amount determined under section 10(1)(d)(iii)
and is, consequently, included in the value of non-originating
materials used in the production of the heavy-duty vehicle.
Situation 3: Use of a non-originating automotive component
incorporating the listed material
[[Page 46423]]
The engine is a non-originating material acquired by the producer of
the heavy-duty vehicle. For purposes of calculating the regional value
content of the heavy-duty vehicle that incorporates that engine (and
incorporates the cast head), the value of non-originating materials
used in the production of the heavy-duty vehicle is determined under
section 10(1)(e) with respect to that engine. The producer of the heavy-
duty vehicle may choose to include in the value of non-originating
materials either
(a) the value, as determined under section 10(1)(e)(i), of the non-
originating materials that are incorporated into the engine, which is
the value of the non-originating materials as determined under
sections 10(1)(a) through (d) and (f), or
(b) the value of the engine, determined under section 10(1)(e)(ii).
The heavy-duty vehicle producer may only choose the first option if
that producer has a statement, referred to in section 10(1)(e)(i), from
the person from whom the engine was acquired. In this situation, the
value of the cast head, as determined under section 10(1)(c), is
included in the value of non-originating materials used in the
production of the heavy-duty vehicle, with respect to the engine that
is used in the production of the heavy-duty vehicle.
Example 2: A material is imported from outside the territories of the
NAFTA countries
A rocker arm assembly, produced outside the territories of the NAFTA
countries, is imported into the territory of a NAFTA country and used
in that country in the production of an engine that will be used as
original equipment in the production of a heavy-duty vehicle. No other
non-originating materials are used in the production of the engine. The
rocker arm assembly is neither a listed material nor a sub-component;
the engine is an automotive component.
Situation 1: Use of the material in an automotive component
For purposes of calculating the regional value content of the
engine, the value of non-originating materials that are not listed
materials is included in the value of non-originating materials used in
the production of the engine. Because the rocker arm assembly was
produced outside the territories of the NAFTA countries, it is a non-
originating material and its value, under section 10(1)(f), is included
in the value of non-originating materials used in the production of the
engine.
Situation 2: Use of an originating automotive component
incorporating the material
The engine is an originating material acquired by the producer of
the heavy-duty vehicle. For purposes of calculating the regional value
content of the heavy-duty vehicle that incorporates that engine (and
incorporates the rocker arm assembly), the value of non-originating
materials used in the production of the heavy-duty vehicle is
determined under section 10(1)(d) with respect to that engine. The
producer may choose to include in the value of non-originating
materials of the heavy-duty vehicle
(a) the value, determined under section 10(1)(d)(i), of the non-
originating materials that are incorporated into the engine, which is
the value, determined under sections 10(1) (a) through (c) and
paragraph (e)(ii), of the non-originating materials;
(b) the value, determined under section 10(1)(d)(ii), which is an
amount equal to the amount determined under section 10(1)(d)(iv)
multiplied by the remainder of one minus the regional value content,
expressed as a decimal, of the engine;
(c) the value, determined under section 10(1)(d)(iii), which is an
amount equal to the amount determined under section 10(1)(d)(iv)
multiplied by the remainder of one minus the regional value-content
requirement, expressed as a decimal, for the engine; or
(d) the value, determined under section 10(1)(d)(iv), of the engine.
The heavy-duty vehicle producer may only choose the first option if
that producer has a statement, referred to in section 10(1)(d)(i), from
the person from whom the engine was acquired. In this situation, the
value of the rocker arm assembly, as determined under section 10(1)(f),
is not included in the value of non-originating materials of the heavy-
duty vehicle, with respect to the engine that is used in the production
of the heavy-duty vehicle.
The heavy-duty vehicle producer may only choose the second option if
that producer has a statement, referred to in section 10(1)(d)(ii),
from the person from whom the engine was acquired. In this situation,
because of the application of the equation, the value of the rocker arm
assembly will be included in the amount determined under section
10(1)(d)(ii) and will, consequently, be included in the value of non-
originating materials used in the production of the heavy-duty vehicle.
The heavy-duty vehicle producer may only choose the third option if
that producer has a statement, referred to in section 10(1)(d)(iii),
from the person from whom the engine was acquired. In this situation,
because of the application of the equation, the value of the rocker arm
assembly will be included in the amount determined under section
10(1)(d)(iii) and will, consequently, be included in the value of non-
originating materials used in the production of the heavy-duty vehicle.
Situation 3: Use of a non-originating automotive component
incorporating the material
The engine is a non-originating material acquired by the producer of
the heavy-duty vehicle. For purposes of calculating the regional value
content of the heavy-duty vehicle that incorporates that engine (and
incorporates the rocker arm assembly), the value of non-originating
materials used in the production of the heavy-duty vehicle is
determined under section 10(1)(e) with respect to that engine. The
producer of the heavy-duty vehicle may choose to include in the value
of non-originating materials either
(a) the value, as determined under section 10(1)(e)(i), of the non-
originating materials that are incorporated into the engine, which is
the value of the non-originating materials as determined under
sections 10(1) (a) through (d) and (f), or
(b) the value of the engine, determined under section 10(1)(e)(ii).
The heavy-duty vehicle producer may only choose the first option if
that producer has a statement, referred to in section 10(1)(e)(i), from
the person from whom the engine was acquired. In this situation, the
value of the rocker arm assembly, as determined under section 10(1)(f),
is included in the value of non-originating materials used in the
production of the heavy-duty vehicle, with respect to the engine that
is used in the production of the heavy-duty vehicle.
Situation 4: Use of the material in a self-produced automotive
component
If the engine is a self-produced material rather than an acquired
material, the heavy-duty vehicle producer is using the rocker arm
assembly in the production of the heavy-duty vehicle rather than in the
production of the engine, because, under section 7(4), the engine
cannot be designated as an intermediate material. For purposes of
calculating the regional value content of the heavy-duty vehicle, the
value, under section 10(1)(f), of the rocker arm assembly is included
in the value of non-originating materials used in the production of the
heavy-duty vehicle.
Example 3: An automotive component is imported from outside the
territories of the NAFTA countries
A transmission, produced outside the territories of the NAFTA
countries, is imported into the territory of a NAFTA country and used
in that country as original equipment in the production of a heavy-duty
vehicle. The transmission is an automotive component.
Situation: Use of the automotive component
For purposes of calculating the regional value content of the heavy-
duty vehicle in which the transmission is used, the value of the
transmission is included in the value of the non-originating materials
under section 10(1)(c), regardless of whether the producer imported the
transmission or acquired it from someone else in the territory of a
NAFTA country.
Example 4: An automotive component is imported from outside the
territories of the NAFTA countries
[[Page 46424]]
A transmission, produced outside the territories of the NAFTA
countries, is imported into the territory of a NAFTA country and
combined with an engine to produce an engine-transmission assembly that
will be used as original equipment in the production of a heavy-duty
vehicle. The transmission is an automotive component; the engine-
transmission assembly is an automotive component assembly.
Situation: Use of the automotive component assembly
The automotive component assembly is acquired by a producer who uses
it in the production of a heavy-duty vehicle. If the automotive
component assembly that incorporates the imported transmission is an
originating material, the value of non-originating materials used in
the production of the automotive component assembly is determined, at
the choice of the producer, under any of section 10(1)(d) (i), (ii),
(iii) and (iv). (See example 1 for more detailed explanations of these
provisions.) If the automotive component assembly that incorporates the
imported transmission is a non-originating material, the value of non-
originating materials used in the production of the automotive
component assembly is determined, at the choice of the producer, under
section 10(1)(e) (i) or (ii). (See example 1 for more detailed
explanations of these provisions.)
Regardless of whether the automotive component assembly is an
originating material or a non-originating material, the value of the
automotive component that was imported from outside the territories of
the NAFTA countries is included in the value of non-originating
materials used in the production of the heavy-duty vehicle. The
transmission is a non-originating material, and, for purposes of
calculating the regional value content of an automotive component
assembly or heavy-duty vehicle that incorporates that transmission, the
value of the transmission is included in the value of non-originating
materials used in the production of the automotive component assembly
or heavy-duty vehicle that incorporates it.
Example 5: A material is imported from outside the territories of the
NAFTA countries
An aluminum ingot, produced outside the territories of the NAFTA
countries, is imported into the territory of a NAFTA country and used
in that country in the production of cast block that will be used in an
engine that will be used as original equipment in the production of a
heavy-duty vehicle. The aluminum ingot is not a listed material; the
cast block is a listed material; the engine is an automotive component.
Situation 1: Use of the material in an intermediate material that is
a listed material
The engine producer designates the cast block as an intermediate
material under section 7(4). For purposes of determining the origin of
that cast block, because the aluminum ingot is classified under a
different heading than the cast block, the cast block satisfies the
applicable change in tariff classification and is an originating
material.
Situation 2: Use of the listed material incorporating the material
For purposes of calculating the regional value content of the engine
that incorporates that cast block (and thus incorporates the aluminum
ingot), the value of non-originating materials is determined under
section 10(1). Because none of sections 10(1) (a) through (f) require
that a listed material that is an originating material be included in
the value of non-originating materials used in the production of a
good, the value of the cast block is not included in the value of non-
originating materials used in the production of the engine or in the
value of non-originating materials used in the production of an
automotive component assembly or heavy-duty vehicle that incorporates
the engine.
Because section 10(1)(d) does not refer to a listed material that is
an originating material, the value of the non-originating aluminum
ingot used in the production of the originating cast block is not
included in the value of non-originating materials used in the
production of any good or material that incorporates the originating
cast block.
Example 6: A non-originating listed material is used to produce a sub-
component that is used to produce another sub-component
A crankshaft, produced in the territory of NAFTA country A from a
forging imported from outside the territories of the NAFTA countries,
is a non-originating material. The crankshaft is sold to another
producer, located in the same country, who uses it to produce an
originating block assembly. That block assembly is sold to another
producer, also located in the same country, who uses it to produce a
finished block. The finished block is sold to a producer of engines,
who is located in NAFTA country B, for use in the production of a heavy-
duty vehicle. The crankshaft is a listed material; the block assembly
is a sub-component, as is the finished block.
Situation 1: Calculating the regional value content of the finished
block
A sub-component is not a heavy-duty automotive good. As referred to
in section 10(9)(c), for purposes of calculating the regional value
content of the sub-component before it is incorporated into a heavy-
duty automotive good, such as when the sub-component is exported from
the territory of one NAFTA country to the territory of another NAFTA
country, the value of non-originating materials of the sub-component
includes only the value of non-originating materials used in the
production of that sub-component. Because the block assembly is an
originating material, its value is not included in the value of non-
originating materials of the finished block, nor is the value of the
non-originating crankshaft included in the value of non-originating
materials used in the production of the finished block because the
crankshaft was used in the production of the block assembly and was not
used in the production of the finished block.
Situation 2: Calculating the regional value content of the component
that incorporates the finished block
For purposes of calculating the regional value content of the heavy-
duty vehicle that incorporates a sub-component, the value of non-
originating materials used in the production of the sub-component is
determined under section 10(1) (d) or (e) with respect to that sub-
component. In this situation, the value, under section 10(1)(b), of the
non-originating crankshaft is included in the value of non-originating
materials used in the production of the engine. (See examples 1 and 2
for more detailed explanations of sections 10(1) (d) and (e).)
Example 7: A non-listed material is imported from outside the
territories of the NAFTA countries and is used in the production of
another non-listed material
A bumper part, produced outside the territories of the NAFTA
countries, is imported into the territory of a NAFTA country and is
used in the production of a bumper. The bumper is used in the territory
of a NAFTA country as original equipment in the production of a heavy-
duty vehicle. Neither a bumper part nor a bumper is a listed material,
sub-component, automotive component or automotive component assembly.
Situation 1: The non-listed material is an originating material
The bumper is an originating material. For purposes of calculating
the regional value content of the heavy-duty vehicle, neither the value
of the imported bumper part nor the value of the bumper is included in
the value of the non-originating materials.
Situation 2: The non-listed material is a non-originating material
The bumper is a non-originating material. For purposes of
calculating the regional value content of the heavy-duty vehicle, the
value of non-originating materials used in the production of the heavy-
duty vehicle is determined under section 10(1)(f) with respect to the
bumper. In this situation, the value of the bumper is included in the
value of non-originating materials of the heavy-duty vehicle. Because a
bumper is not a listed material, the producer of the heavy-duty vehicle
does not have the option, under section 10(1)(b)(ii), to include only
the value of the imported bumper part in the value of non-originating
materials used in the production of the heavy-duty vehicle.
Example 8:
[[Page 46425]]
Situation: Transhipment of a listed material
A producer, located in the territory of a NAFTA country, produces,
in that country, a cast head that is an originating good. The producer
exports the cast head to outside the territories of the NAFTA
territories, where valves, springs, valve lifters, a camshaft and gears
are added to it to create a cast head assembly. An engine producer,
located in the territory of a NAFTA country, imports the cast head
assembly into that country and uses it in the production of an engine
that will be used as original equipment in the production of a heavy-
duty vehicle. A cast head is a listed material; a cast head assembly is
a sub-component.
For purposes of calculating the regional value content of the
engine, the value of the imported cast head assembly is included in the
value of non-originating materials under section 10(1)(c). The value of
the cast head cannot be deducted from the value determined under
section 10(1)(c). Although the cast head was once an originating good,
under section 18 when further production was performed with respect to
the cast head outside the territories of the NAFTA countries, it was no
longer an originating good.
Example 9: A material is imported from outside the territories of the
NAFTA countries and a heavy-duty vehicle producer self-produces a non-
originating listed material
A material, produced outside the territories of the NAFTA countries,
is imported into the territory of a NAFTA country and used in that
country in the production of a water pump that will be used as original
equipment by the same producer in the production of a heavy-duty
vehicle. Although the producer, under section 7(4), designates the
water pump as an intermediate material it is a non-originating material
because it fails to satisfy the regional value-content requirement. A
water pump is a listed material.
For purposes of calculating the regional value content of the heavy-
duty vehicle, the value of non-originating materials includes, at the
choice of the producer, either the total cost, determined under section
10(1)(a)(i), of the water pump or the value, determined under section
10(1)(a)(iii)(A), of the material imported from outside the territories
of the NAFTA countries.
Example 10: A material is acquired and used to produce a non-originating
listed material
A material, produced outside the territories of the NAFTA countries,
is acquired in the territory of a NAFTA country and is used in that
country in the production of a water pump that will be used as original
equipment in the production of a heavy-duty vehicle. The producer of
the water pump and the producer of the heavy-duty vehicle are separate,
unrelated producers, located in the same country. A water pump is a
listed material. The producer of the water pump chose to calculate the
regional value content of the water pump in accordance with section
12(1) over a period set out in section 12(5)(a) and using a category
set out in section 12(4)(b). The water pump is a non-originating
material because it fails to satisfy the regional value-content
requirement.
For purposes of calculating the regional value content of the heavy-
duty vehicle, the value of non-originating materials includes, at the
choice of the producer, either the value, determined under section
10(1)(b)(i), of the water pump or, if the producer has a statement
referred to in section 10(1)(b)(ii)(B), the value, determined under
that section, of the material imported from outside the territories of
the NAFTA countries.
The producer has a statement referred to in section 10(1)(b)(ii)(B)
and chooses to use the value of non-originating material determined
under that section. The statement states, as is permitted under section
10(8), the value of non-originating material used in the production of
the water pump in accordance with section 12(3) over a period set out
in section 12(5)(a) and using a category set out in section 12(4)(e).
SECTION 11. MOTOR VEHICLE AVERAGING
NC and VNM for motor vehicles may be averaged over producer's fiscal
year
(1) For purposes of calculating the regional value content of light-duty
vehicles or heavy-duty vehicles, the producer of those motor vehicles
may choose that
(a) the sum of the net costs incurred and the sum of the values of non-
originating materials used by the producer be calculated over the
producer's fiscal year with respect to the motor vehicles that are in
any one of the categories set out in subsection (5) that is chosen by
the producer; and
(b) the sums referred to in paragraph (a) be used in the calculation
referred to in section 6(3) as the net cost and the value of non-
originating materials, respectively.
Information required when producer chooses to average for motor vehicles
(2) A choice made under subsection (1) shall
(a) state the category chosen by the producer, and
(i) where the category referred to in subsection (5)(a) is chosen,
state the model line, model name, class of motor vehicle and tariff
classification of the motor vehicles in that category, and the
location of the plant at which the motor vehicles are produced,
(ii) where the category referred to in subsection (5)(b) is chosen,
state the model name, class of motor vehicle and tariff
classification of the motor vehicles in that category, and the
location of the plant at which the motor vehicles are produced, and
(iii) where the category referred to in subsection (5)(c) is chosen,
state the model line, model name, class of motor vehicle and tariff
classification of the motor vehicles in that category, and the
locations of the plants at which the motor vehicles are produced;
(b) state the basis of the calculation described in subsection (9);
(c) state the producer's name and address;
(d) state the period with respect to which the choice is made,
including the starting and ending dates;
(e) state the estimated regional value content of motor vehicles in
the category on the basis stated under paragraph (b);
(f) be dated and signed by an authorized officer of the producer; and
(g) be filed with the customs administration of each NAFTA country to
which vehicles in that category are to be exported during the period
covered by the choice, at least 10 days before the first day of the
producer's fiscal year, or such shorter period as that customs
administration may accept.
[[Page 46426]]
Averaging period
(3) Where the fiscal year of a producer begins after the date of the
entry into force of the Agreement but before one year after that date,
the producer may choose that the calculation of regional value content
referred to in subsection (1) or (6) be made under that subsection over
the period beginning on the date of the entry into force of the
Agreement and ending at the end of that fiscal year, in which case the
choice shall be filed with the customs administration of each NAFTA
country to which vehicles are to be exported during the period covered
by the choice not later than 10 days after the entry into force of the
Agreement, or such longer period as that customs administration may
accept.
(4) Where the fiscal year of a producer begins on the date of the entry
into force of the Agreement, the producer may make the choice referred
to in subsection (1) not later than 10 days after the entry into force
of the Agreement, or such longer period as the customs administration
referred to in subsection (2)(g) may accept.
Categories of motor vehicles for averaging
(5) The categories referred to in subsection (1) are the following:
(a) the same model line of motor vehicles in the same class of motor
vehicles produced in the same plant in the territory of a NAFTA
country;
(b) the same class of motor vehicles produced in the same plant in the
territory of a NAFTA country; and
(c) the same model line of motor vehicles produced in the territory of
a NAFTA country.
(6) Where applicable, a producer may choose that the calculation of the
regional value content of motor vehicles referred to in Schedule VI be
made in accordance with that schedule.
Timely filing of choice to average
(7) Subject to section 5(4) of Schedule VI, the choice referred to in
subsection (6) shall be filed with the customs administration of the
NAFTA country to which vehicles referred to in that schedule are to be
exported, at least 10 days before the first day of the producer's
fiscal year with respect to which that choice is to apply or such
shorter period as the customs administration may accept.
Choice to average cannot be rescinded
(8) A choice filed for the period referred to in subsection (1) or (3)
may not be
(a) rescinded; or
(b) modified with respect to the category or basis of calculation.
Averaged net cost and VNM included in calculation of RVC on the basis of
producer's option to include all vehicles of category or only certain
exported vehicles of category
(9) For purposes of this section, where a producer files a choice under
subsection (1), (3) or (4), including a choice referred to in section
13(9), the net cost incurred and the values of non-originating
materials used by the producer, with respect to
(a) all motor vehicles that fall within the category chosen by the
producer and that are produced during the fiscal year or, in the case
of a choice filed under subsection (3), during the period with
respect to which the choice is made, or
(b) those motor vehicles to be exported to the territory of one or
more of the NAFTA countries that fall within the category chosen by
the producer and that are produced during the fiscal year or, in the
case of a choice filed under subsection (3), during the period with
respect to which the choice is made,
shall be included in the calculation of the regional value content under
any of the categories set out in subsection (5).
Year-end analysis required if averaging based on estimated costs;
obligation to notify of change in status
(10) Where the producer of a motor vehicle has calculated the regional
value content of the motor vehicle on the basis of estimated costs,
including standard costs, budgeted forecasts or other similar
estimating procedures, before or during the producer's fiscal year, the
producer shall conduct an analysis at the end of the producer's fiscal
year of the actual costs incurred over the period with respect to the
production of the motor vehicle, and, if the motor vehicle does not
satisfy the regional value content requirement on the basis of the
actual costs, immediately inform any person to whom the producer has
provided a Certificate of Origin for the motor vehicle, or a written
statement that the motor vehicle is an originating good, that the motor
vehicle is a non-originating good.
(11) The following example is an ``Example'' as referred to in section
2(4).
Example:
A motor vehicle producer located in NAFTA country A produces
vehicles that fall within a category set out in section 11(5) that is
chosen by the producer. The motor vehicles are to be sold in NAFTA
countries A, B and C, as well as in country D, which is not a NAFTA
country. Under section 11(1), the motor vehicle producer may choose
that the sum of the net costs incurred and the sum of the values of non-
originating materials used by the producer be calculated over the
producer's fiscal year. The producer may state in the choice the basis
of the calculation as described in section 11(9)(a), in which case the
calculation would be on the basis of all the motor vehicles produced
regardless of where they are destined. Alternatively, the producer may
state in the choice the basis of the calculation as described in
section 11(9)(b). In this case, the producer would also need to state
that the calculation is on the basis of
(a) the motor vehicles produced that are for export to NAFTA countries
B and C;
(b) the motor vehicles produced that are for export to only NAFTA
country B; or
(c) the motor vehicles produced that are for export to only NAFTA
country C.
The calculation would be on the basis as described in the choice.
SECTION 12. AUTOMOTIVE PARTS AVERAGING
NC and VNM for automotive parts may be averaged to determine RVC of
parts
(1) The regional value content of any or all goods that are of the same
tariff provision listed in Schedule IV, or an automotive component
assembly, an automotive component, a sub-component or a listed
material, produced in the same plant, may, where the producer of those
goods chooses to do so, be calculated by
[[Page 46427]]
(a) calculating the sum of the net costs incurred and the sum of the
values of non-originating materials used by the producer of the goods
over the period set out in subsection (5) that is chosen by the
producer with respect to any or all of those goods in any one of the
categories set out in subsection (4) that is chosen by the producer;
and
(b) using the sums referred to in paragraph (a) in the calculation
referred to in section 6(3) as the net cost and the value of non-
originating materials, respectively.
(2) The calculation of the regional value content made under subsection
(1) shall apply with respect to each unit of the goods in the category
set out in subsection (4) that is chosen by the producer and produced
during the period chosen by the producer under subsection (5).
VNM for each unit in a category of goods for which averaging used
(3) The value of non-originating materials of each unit of the goods
(a) in the category set out in subsection (4) chosen by the producer,
and
(b) produced during the period chosen by the producer under subsection
(5),
shall be the sum of the values of non-originating materials referred to
in subsection (1)(a) divided by the number of units of the goods in
that category and produced during that period.
Categories of automotive parts for averaging
(4) The categories referred to in subsection (1)(a) are the following:
(a) original equipment for use in the production of light- duty
vehicles;
(b) original equipment for use in the production of heavy-duty
vehicles;
(c) after-market parts;
(d) any combination of goods referred to in paragraphs (a) through
(c);
(e) goods that are in a category set out in any of paragraphs (a)
through (d) and are sold to one or more motor vehicle producers; and
(f) goods that are in a category set out in any of paragraphs (a)
through (e) and are exported to the territory of one or more of the
NAFTA countries.
Periods for averaging RVC for automotive parts
(5) The period referred to in subsection (1)(a) is,
(a) with respect to goods referred to in subsection (4) (a), (b) or
(d), or subsection (4) (e) or (f) where the goods in that category
are in a category referred to in subsection (4) (a) or (b), any
month, any consecutive three month period that is evenly divisible
into the number of months of the producer's fiscal year remaining at
the beginning of that period or the fiscal year of the motor vehicle
producer to whom those goods are sold; and
(b) with respect to goods referred to in subsection (4)(c), or
subsection (4) (e) or (f) where the goods in that category are in a
category referred to in subsection (4)(c), any month, any consecutive
three month period that is evenly divisible into the number of months
of the producer's fiscal year remaining at the beginning of that
period, the fiscal year of that producer or the fiscal year of the
motor vehicle producer to whom those goods are sold.
Choice to average may not be rescinded
(6) A choice made under subsection (1) may not be rescinded or modified
with respect to the goods or the period with respect to which the
choice is made.
(7) Where a producer of goods chooses a one or three month period under
subsection (5) with respect to the goods referred to in subsection
(5)(a), that producer shall be considered to have chosen under that
subsection a period or periods of the same duration for
(a) the remainder of the fiscal year of the motor vehicle producer to
whom those goods are sold, where the producer chooses under
subsection (9)(a) the fiscal year of that motor vehicle producer; and
(b) the remainder of the fiscal year of the producer of those goods,
where the producer does not choose under subsection (9)(a) the fiscal
year of the motor vehicle producer to whom the goods are sold.
(8) Where a producer of goods chooses a one or three month period under
subsection (5) with respect to the goods referred to in subsection
(5)(b), that producer shall be considered to have chosen under that
subsection a period or periods of the same duration for the remainder
of, at the choice of the producer, the producer's fiscal year or the
fiscal year of the motor vehicle producer to whom those goods are sold.
(9) Where a producer of goods chooses a one or three month period under
subsection (5) with respect to the goods, the producer may,
(a) with respect to goods referred to in subsection (5)(a), at the end
of the fiscal year of the motor vehicle producer to whom those goods
are sold, choose the fiscal year of that motor vehicle producer; and
(b) with respect to goods referred to in subsection (5)(b), at the end
of the producer's fiscal year or the fiscal year of the motor vehicle
producer to whom those goods are sold, as the case may be, choose the
producer's fiscal year or the fiscal year of that motor vehicle
producer.
Applicable method for averaging VNM under different categories
(10) Where a producer chooses that the regional value content of goods
be calculated in accordance with subsection (1) and the goods are in
any of the categories set out in subsections (4) (d) through (f), the
value of non-originating materials
(a) shall be determined in the manner set out in section 9, where any
of those goods are light-duty automotive goods;
(b) shall be determined in the manner set out in section 10, where any
of those goods are heavy-duty automotive goods but none of the goods
are light-duty automotive goods; and
(c) shall be determined in the manner set out in section 7, where none
of those goods are light-duty automotive goods or heavy-duty
automotive goods.
[[Page 46428]]
Year-end analysis required if averaging based on estimated costs;
obligation to notify of change in status
(11) Where the producer of a good has calculated the regional value
content of the good on the basis of estimated costs, including standard
costs, budgeted forecasts or other similar estimating procedures,
before or during the period chosen under subsection (1), the producer
shall conduct an analysis, at the end of the producer's fiscal year
following the end of that period, of the actual costs incurred over the
period with respect to the production of the good and, if the good does
not satisfy the regional value content requirement on the basis of the
actual costs during that period, immediately inform any person to whom
the producer has provided a Certificate of Origin for the good, or a
written statement that the good is an originating good, that the good
is a non-originating good.
SECTION 13. SPECIAL REGIONAL VALUE-CONTENT REQUIREMENTS
Changes in regional value content level for automotive goods
(1) Notwithstanding the regional value-content requirement set out in
Schedule I, and except as otherwise provided in subsection (2), the
regional value-content requirement for a good referred to in paragraph
(a) or (b) is as follows:
(a) for the fiscal year of a producer that begins on the day closest
to January 1, 1998 and for the three following fiscal years of that
producer, not less than 56 percent, and for the fiscal year of a
producer that begins on the day closest to January 1, 2002 and
thereafter, not less than 62.5 percent, in the case of
(i) a light-duty vehicle, and
(ii) a good provided for in any of headings 8407 and 8408 and
subheading 8708.40, that is for use in a light-duty vehicle; and
(b) for the fiscal year of a producer that begins on the day closest
to January 1, 1998 and for the three following fiscal years of that
producer, not less than 55 percent, and for the fiscal year of a
producer that begins on the day closest to January 1, 2002 and
thereafter, not less than 60 percent, in the case of
(i) a heavy-duty vehicle,
(ii) a good provided for in any of headings 8407 and 8408 and
subheading 8708.40 that is for use in a heavy-duty vehicle, and
(iii) except in the case of a good referred to in paragraph (a)(ii)
or provided for in any of subheadings 8482.10 through 8482.80,
8483.20 and 8483.30, a good of a tariff provision listed in
Schedule IV that is subject to a regional value-content requirement
and is for use in a light-duty vehicle or a heavy-duty vehicle.
Regional value content level for motor vehicles produced in a new plant
or in a refit plant
(2) Notwithstanding the regional value-content requirement set out in
Schedule I, the regional value-content requirement for a light-duty
vehicle or a heavy-duty vehicle that is produced in a plant is as
follows:
(a) not less than 50 percent for five years after the date on which
the first prototype of the motor vehicle is produced in the plant by
a motor vehicle assembler, if
(i) the motor vehicle is of a class, marque or, except in the case
of a heavy-duty vehicle, size category and type of underbody, that
was not previously produced by the motor vehicle assembler in the
territory of any of the NAFTA countries,
(ii) the plant consists of, or includes, a new building in which the
motor vehicle is assembled, and
(iii) the value of machinery that was never previously used for
production, and that is used in the new building or buildings for
the purposes of the complete motor vehicle assembly process with
respect to that motor vehicle, is at least 90 percent of the value
of all machinery used for purposes of that process; and
(b) not less than 50 percent for two years after the date on which the
first prototype of the motor vehicle is produced in the plant by a
motor vehicle assembler following a refit of that plant, if the motor
vehicle is of a class, marque or, except in the case of a heavy-duty
vehicle, size category and type of underbody, that was not assembled
by the motor vehicle assembler in the plant before the refit.
Value of machinery in a new plant
(3) For purposes of subsection (2)(a)(iii), the value of machinery shall
be
(a) where the machinery was acquired by the producer of the motor
vehicle from another person, the cost of that machinery that is
recorded on the books of the producer;
(b) where the machinery was used previously by the producer of the
motor vehicle in the production of another good, the cost of the
machinery that is recorded on the books of the producer minus
accumulated depreciation of that machinery that is recorded on those
books; and
(c) where the machinery was produced by the producer of the good, the
total cost incurred with respect to that machinery, calculated on the
basis of the costs that are recorded on the books of the producer.
Averaging period for calculation of RVC for vehicles of new plant or
refit plant
(4) For purposes of calculating the regional value content of a motor
vehicle referred to in subsection (2) that is in any one of the
categories set out in subsection (7) that is chosen by the producer,
the producer may file with the customs administration of the NAFTA
country into the territory of which vehicles in that category are to be
imported a choice to calculate the regional value content of such
vehicles by
(a) calculating the sum of the net costs incurred and the sum of the
values of non-originating materials used by the producer with respect
to all of such motor vehicles in the category chosen over
(i) the period beginning on the day on which the first prototype of
the motor vehicle is produced and ending on the last day of the
producer's first fiscal year that begins on or after the beginning
of the period,
(ii) a fiscal year of the producer that starts after the period
referred to in subparagraph (i) and ends on or before the end of
the period referred to in subsection (2)(a) or (b), or
(iii) the period beginning on the first day of the producer's fiscal
year that begins before the end of the period referred to in
subsection (2)(a) or (b) and ending at the end of that period; and
[[Page 46429]]
(b) using the sums referred to in paragraph (a) in the calculation
referred to in section 6(3) as the net cost and the value of non-
originating materials, respectively.
Information required on document filed when choosing to average; timely
filing;
(5) A choice made under subsection (4) shall
(a) state the category chosen by the producer and
(i) where the category referred to in subsection (7)(a) is chosen,
the model name, model line, class of motor vehicle and tariff
classification of the motor vehicles in that category, and the
location of the plant at which the motor vehicles are produced, and
(ii) where the category referred to in subsection (7)(b) is chosen,
state the model name, class of motor vehicle and tariff
classification of the motor vehicles in that category, and the
plant location at which the motor vehicles are produced;
(b) state the basis of the calculation described in subsection (8);
(c) state the producer's name and address;
(d) state the period with respect to which the choice is made,
including the starting and ending dates;
(e) state the estimated regional value content of motor vehicles in
the category on the basis stated under paragraph (b);
(f) state whether the choice is with respect to a motor vehicle
referred to in subsection (2)(a) or (b);
(g) be dated and signed by an authorized officer of the producer; and
(h) be filed with the customs administration of each NAFTA country to
which vehicles in that category are to be exported during the period
covered by the choice, at least 10 days before the first day of the
producer's fiscal year, or such shorter period as that customs
administration may accept.
No rescission or modification permitted
(6) A choice filed for the period referred to in subsection (4) may not
be
(a) rescinded; or
(b) modified with respect to the category or basis of calculation.
Categories of motor vehicles for averaging
(7) The categories referred to in subsection (4) are the following:
(a) the same model line of motor vehicles in the same class of motor
vehicles produced in the same plant in the territory of a NAFTA
country; and
(b) the same class of motor vehicles produced in the same plant in the
territory of a NAFTA country.
(8) For purposes of subsection (4), the net cost incurred and the values
of non-originating materials used by the producer, with respect to
(a) all motor vehicles that fall within the category chosen by the
producer and that are produced during the period with respect to
which the choice is made, or
(b) those motor vehicles to be exported to the territory of one or
more of the NAFTA countries that fall within the category chosen by
the producer and that are produced during the period with respect to
which the choice is made,
shall be included in the calculation of the regional value content under
any of the categories set out in subsection (7).
Period for averaging RVC of motor vehicles of new or refit plant
(9) Where the period referred to in subsection (4) ends on a day other
than the last day of the producer's fiscal year, the producer may, for
purposes of section 11, make the choice referred to in that section
with respect to
(a) the period beginning on the day following the end of that period
and ending on the last day of that fiscal year; or
(b) the period beginning on the day following the end of that period
and ending on the last day of the following full fiscal year.
Year-end analysis required if averaging based on estimated costs;
obligation to notify of change in status
(10) Where the producer of a motor vehicle has calculated the regional
value content of the motor vehicle on the basis of estimated costs,
including standard costs, budgeted forecasts or other similar
estimating procedures, before or during the producer's fiscal year, the
producer shall conduct an analysis at the end of the producer's fiscal
year of the actual costs incurred over the period with respect to the
production of the motor vehicle, and, if the motor vehicle does not
satisfy the regional value-content requirement on the basis of the
actual costs, immediately inform any person to whom the producer has
provided a Certificate of Origin for the motor vehicle, or a written
statement that the motor vehicle is an originating good, that the motor
vehicle is a non-originating good.
PART VI
GENERAL PROVISIONS
SECTION 14. ACCUMULATION
Option to determine origin of good by accumulating the production of a
material with production of the good in which the material is used
(1) Subject to subsections (2) and (4), for purposes of determining
whether a good is an originating good, an exporter or producer of a
good may choose to accumulate the production, by one or more producers
in the territory of one or more of the NAFTA countries, of materials
that are incorporated into that good so that the production of the
materials shall be considered to have been performed by that exporter
or producer.
Statement required; information as to net cost and value of non-
originating materials from production of material if accumulating for
regional value content requirement
(2) Where a good is subject to a regional value-content requirement and
an exporter or producer of the good has a statement signed by a
producer of a material that is used in the production of the good that
[[Page 46430]]
(a) states the net cost incurred and the value of non-originating
materials used by the producer of the material in the production of
that material,
(i) the net cost incurred by the producer of the good with respect
to the material shall be the net cost incurred by the producer of
the material plus, where not included in the net cost incurred by
the producer of the material, the costs referred to in sections
7(1)(c) through (e), and
(ii) the value of non-originating materials used by the producer of
the good with respect to the material shall be the value of non-
originating materials used by the producer of the material; or
(b) states any amount, other than an amount that includes any of the
value of non-originating materials, that is part of the net cost
incurred by the producer of the material in the production of that
material,
(i) the net cost incurred by the producer of the good with respect
to the material shall be the value of the material, determined in
accordance with section 7(1), and
(ii) the value of non-originating materials used by the producer of
the good with respect to the material shall be the value of the
material, determined in accordance with section 7(1), minus the
amount stated in the statement.
Averaging of costs from accumulated production
(3) Where a good is subject to a regional value-content requirement and
an exporter or producer of the good does not have a statement described
in subsection (2) but has a statement signed by a producer of a
material that is used in the production of the good that
(a) states the sum of the net costs incurred and the sum of the values
of non-originating materials used by the producer of the material in
the production of that material and identical materials or similar
materials, or any combination thereof, produced in a single plant by
the producer of the material over a month or any consecutive three,
six or twelve month period that falls within the fiscal year of the
producer of the good, divided by the number of units of materials
with respect to which the statement is made,
(i) the net cost incurred by the producer of the good with respect
to the material shall be the sum of the net costs incurred by the
producer of the material with respect to that material and the
identical materials or similar materials, divided by the number of
units of materials with respect to which the statement is made,
plus, where not included in the net costs incurred by the producer
of the material, the costs referred to in sections 7(1) (c) through
(e), and
(ii) the value of non-originating materials used by the producer of
the good with respect to the material shall be the sum of the
values of non-originating materials used by the producer of the
material with respect to that material and the identical materials
or similar materials divided by the number of units of materials
with respect to which the statement is made; or
(b) states any amount, other than an amount that includes any of the
values of non-originating materials, that is part of the sum of the
net costs incurred by the producer of the material in the production
of that material and identical materials or similar materials, or any
combination thereof, produced in a single plant by the producer of
the material over a month or any consecutive three, six or twelve
month period that falls within the fiscal year of the producer of the
good, divided by the number of units of materials with respect to
which the statement is made,
(i) the net cost incurred by the producer of the good with respect
to the material shall be the value of the material, determined in
accordance with section 7(1), and
(ii) the value of non-originating materials used by the producer of
the good with respect to the material shall be the value of the
material, determined in accordance with section 7(1), minus the
amount stated in the statement.
Accumulated production considered to be production of a single producer
(4) For purposes of section 7(4), where a producer of the good chooses
to accumulate the production of materials under subsection (1), that
production shall be considered to be the production of the producer of
the good.
(5) For purposes of this section,
(a) in order to accumulate the production of a material,
(i) where the good is subject to a regional value-content
requirement, the producer of the good must have a statement
described in subsection (2) or (3) that is signed by the producer
of the material, and
(ii) where an applicable change in tariff classification is applied
to determine whether the good is an originating good, the producer
of the good must have a statement signed by the producer of the
material that states the tariff classification of all non-
originating materials used by that producer in the production of
that material and that the production of the material took place
entirely in the territory of one or more of the NAFTA countries;
(b) a producer of a good who chooses to accumulate is not required to
accumulate the production of all materials that are incorporated into
the good; and
(c) any information set out in a statement referred to in subsection
(2) or (3) that concerns the value of materials or costs shall be in
the same currency as the currency of the country in which the person
who provided the statement is located.
Examples of accumulation of production
(6) Each of the following examples is an ``Example'' as referred to in
section 2(4).
Example 1: section 14(1)
Producer A, located in NAFTA country A, imports unfinished bearing
rings provided for in subheading 8482.99 into NAFTA country A from a
non-NAFTA territory. Producer A further processes the unfinished
bearing rings into finished bearing rings, which are of the same
subheading. The finished bearing rings of Producer A do not satisfy an
applicable change in tariff classification and therefore do not qualify
as originating goods. The net cost of the finished bearing rings (per
unit) is calculated as follows:
[[Page 46431]]
Product costs:
Value of originating materials......................... $0.15
Value of non-originating materials..................... 0.75
Other product costs.................................... 0.35
Period costs: (including $0.05 in excluded costs).......... 0.15
Other costs................................................ 0.05
------------
Total cost of the finished bearing rings, per unit......... $1.45
Excluded costs: (included in period costs)................. 0.05
------------
Net cost of the finished bearing rings, per unit........... $1.40
Producer A sells the finished bearing rings to Producer B who is
located in NAFTA country A for $1.50 each. Producer B further processes
them into bearings, and intends to export the bearings to NAFTA country
B. Although the bearings satisfy the applicable change in tariff
classification, the bearings are subject to a regional value-content
requirement.
Situation A:
Producer B does not choose to accumulate costs incurred by Producer
A with respect to the bearing rings used in the production of the
bearings. The net cost of the bearings (per unit) is calculated as
follows:
Product costs:
Value of originating materials......................... $0.45
Value of non-originating materials (value, per unit, of
the bearing rings purchased from Producer A).......... 1.50
Other product costs................................... 0.75
Period costs: (including $0.05 in excluded costs) 0.15
Other costs................................................ 0.05
------------
Total cost of the bearings, per unit....................... $2.90
Excluded costs: (included in period costs)................. 0.05
------------
Net cost of the bearings, per unit......................... $2.85
Under the net cost method, the regional value content of the
bearings is
Therefore, the bearings are non-originating goods.
Situation B:
Producer B chooses to accumulate costs incurred by Producer A with
respect to the bearing rings used in the production of the bearings.
Producer A provides a statement described in section 14(2)(a) to
Producer B. The net cost of the bearings (per unit) is calculated as
follows:
Product costs:
Value of originating materials ($0.45+$0.15)........... $0.60
Value of non-originating materials (value, per unit, of
the unfinished bearing rings imported by Producer A).. 0.75
Other product costs ($0.75+$0.35)...................... 1.10
Period costs: (($0.15+$0.15), including $0.10 in excluded
costs).................................................... 0.30
Other costs: ($0.05+$0.05)................................. 0.10
------------
Total cost of the bearings, per unit....................... $2.85
Excluded costs: (included in period costs)................. 0.10
------------
Net cost of the bearings, per unit......................... $2.75
Under the net cost method, the regional value content of the
bearings is
RAPHIC>TR06SE95.006
[[Page 46432]]
[GRAPHIC][TIFF OMITTED]TR06SE95.007
Therefore, the bearings are originating goods.
Situation C:
Producer B chooses to accumulate costs incurred by Producer A with
respect to the bearing rings used in the production of the bearings.
Producer A provides to Producer B a statement described in section
14(2)(b) that specifies an amount equal to the net cost minus the value
of non-originating materials used to produce the finished bearing rings
($1.40-$0.75 = $0.65). The net cost of the bearings (per unit) is
calculated as follows:
Product costs:
Value of originating materials ($0.45+$0.65)........... $1.10
Value of non-originating materials ($1.50-$0.65)....... 0.85
Other product costs.................................... 0.75
Period costs: (including $0.05 in excluded costs).......... 0.15
Other costs................................................ 0.05
------------
Total cost of the bearings, per unit....................... $2.90
Excluded costs: (included in period costs)................. 0.05
------------
Net cost of the bearings, per unit......................... $2.85
Under the net cost method, the regional value content of the
bearings is
Therefore, the bearings are originating goods.
Situation D:
Producer B chooses to accumulate costs incurred by Producer A with
respect to the bearing rings used in the production of the bearings.
Producer A provides to Producer B a statement described in section
14(2)(b) that specifies an amount equal to the value of other product
costs used in the production of the finished bearing rings ($0.35). The
net cost of the bearings (per unit) is calculated as follows:
Product costs:
Value of originating materials......................... $0.45
Value of non-originating materials ($1.50-$0.35)....... 1.15
Other product costs ($0.75 + $0.35).................... 1.10
Period costs: (including $0.05 in excluded costs).......... 0.15
Other costs................................................ 0.05
------------
Total cost of the bearings, per unit....................... $2.90
Excluded costs: (included in period costs)................. 0.05
------------
Net cost of the bearings, per unit......................... $2.85
Under the net cost method, the regional value content of the
bearings is
RAPHIC>TR06SE95.008
[[Page 46433]]
[GRAPHIC][TIFF OMITTED]TR06SE95.009
Therefore, the bearings are originating goods.
Example 2: section 14(1)
Producer A, located in NAFTA country A, imports non-originating
cotton, carded or combed, provided for in heading 5203 for use in the
production of cotton yarn provided for in heading 5205. Because the
change from cotton, carded or combed, to cotton yarn is a change within
the same chapter, the cotton does not satisfy the applicable change in
tariff classification for heading 5205, which is a change from any
other chapter, with certain exceptions. Therefore, the cotton yarn that
Producer A produces from non-originating cotton is a non-originating
good.
Producer A then sells the non-originating cotton yarn to Producer B,
also located in NAFTA country A, who uses the cotton yarn in the
production of woven fabric of cotton provided for in heading 5208. The
change from non-originating cotton yarn to woven fabric of cotton is
insufficient to satisfy the applicable change in tariff classification
for heading 5208, which is a change from any heading outside headings
5208 through 5212, except from certain headings, under which various
yarns, including cotton yarn provided for in heading 5205, are
classified. Therefore, the woven fabric of cotton that Producer B
produces from non-originating cotton yarn produced by Producer A is a
non-originating good.
However, under section 14(1), if Producer B chooses to accumulate
the production of Producer A, the production of Producer A would be
considered to have been performed by Producer B. The rule for heading
5208, under which the cotton fabric is classified, does not exclude a
change from heading 5203, under which carded or combed cotton is
classified. Therefore, under section 15(1), the change from carded or
combed cotton provided for in heading 5203 to the woven fabric of
cotton provided for in heading 5208 would satisfy the applicable change
of tariff classification for heading 5208. The woven fabric of cotton
would be considered as an originating good.
Producer B, in order to choose to accumulate Producer A's
production, must have a statement described in section 14(4)(a)(ii).
SECTION 15. INABILITY TO PROVIDE SUFFICIENT INFORMATION
Supplier of material unable to provide information; beyond control of
supplier; procedure to be followed by Customs
(1) Where, during a verification of origin of a good, the person from
whom a producer of the good acquired a material used in the production
of that good is unable to provide the customs administration that is
conducting the verification with sufficient information to substantiate
that the material is an originating material or that the value of the
material declared for purpose of calculating the regional value content
of the good is accurate, and the inability of that person to provide
the information is due to reasons beyond the control of that person,
the customs administration shall, before making a determination as to
the origin or value of the material, consider, where relevant, the
following:
(a) whether the customs administration of the NAFTA country into the
territory of which the good was imported issued an advance ruling
under Article 509 of the Agreement, as implemented in each NAFTA
country, with respect to that material that concluded that the
material is an originating material or that the value of the material
declared for purposes of calculating the regional value content of
the good is accurate;
(b) whether an independent auditor has confirmed the accuracy of
(i) any signed statement referred to in this Appendix with respect
to the material,
(ii) the information that was used by the person from whom the
producer acquired the material to substantiate whether the material
is an originating material, or
(iii) the information submitted by the producer of the material with
an application for an advance ruling where, on the basis of that
information, the customs administration concluded that the material
is an originating material or that the value declared for the
purpose of calculating the regional value content of the good is
accurate;
(c) whether the customs administration has, before the start of the
origin verification of the good, conducted a verification of origin
of identical materials or similar materials produced by the producer
of the material and determined that
(i) the identical materials or similar materials are originating
materials, or
(ii) any signed statement referred to in this Appendix with respect
to those identical materials or similar materials is accurate;
(d) whether the producer of the good has exercised due diligence to
ensure that any signed statement that is referred to in this Appendix
with respect to the material and that was provided by the person from
whom the producer acquired the material is accurate;
(e) where the customs administration has access only to partial
records of the person from whom the producer acquired the material,
whether the records provide sufficient evidence to substantiate that
the material is an originating material or that the value of the
material declared for purposes of calculating the regional value
content of the good is accurate;
(f) whether the customs administration can obtain, subject to Article
507 of the Agreement, as implemented in each NAFTA country, by means
other than those referred to in paragraphs (a) through (e), relevant
information regarding the determination of the origin or value of the
material from the customs administration of the NAFTA country in the
territory of which the person from whom the producer acquired the
material was located; and
(g) whether the producer of the good, the person from whom the
producer acquired the material or a representative of that person or
producer agrees to bear the expenses incurred in providing the
customs administration with the assistance that it may require for
determining the origin or value of the material.
``Reasons beyond control'' of supplier
(2) For purposes of subsection (1), ``reasons beyond the control'' of
the person from whom the producer of the good acquired the material
includes
[[Page 46434]]
(a) the bankruptcy of the person from whom the producer acquired the
material or any other financial distress situation or business
reorganization that resulted in that person or a related person
having lost control of the records containing the information that
substantiate that the material is an originating material or the
value of the material declared for the purpose of calculating the
regional value content of the good;
(b) any other reason that results in partial or complete loss of
records of that producer that the producer could not reasonably have
been expected to foresee, including loss of records due to fire,
flooding or other natural cause.
Exporter or producer of good unable to provide information; reasons
beyond control of exporter or producer; procedure to be followed by
Customs
(3) Where, during a verification of origin of a good, the exporter or
producer of the good is unable to provide the customs administration
conducting the verification with sufficient information to substantiate
that the good is an originating good, and the inability of that person
to provide the information is due to reasons beyond the control of that
person, the customs administration shall, before making a determination
as to the origin of the good, consider, where relevant, the following:
(a) whether the customs administration of the NAFTA country into the
territory of which the good was imported issued an advance ruling
under Article 509 of the Agreement, as implemented in each NAFTA
country, with respect to that good that concluded that the good is an
originating good;
(b) whether an independent auditor has confirmed the accuracy of an
origin statement with respect to the good;
(c) whether the customs administration has, before the start of the
origin verification of the good, conducted a verification of origin
of identical goods or similar goods produced by the producer of the
good and determined that the identical goods or similar goods are
originating goods;
(d) whether the exporter or producer of the good has exercised due
diligence to ensure that the information provided to substantiate
that the good is an originating good is sufficient; and
(e) where the customs administration has access only to partial
records of the exporter or producer of the good, whether the records
provide sufficient evidence to substantiate that the good is an
originating good;
(f) whether the customs administration can obtain, subject to Article
507 of the Agreement, as implemented in each NAFTA country, by means
other than those referred to in paragraphs (a) through (e), relevant
information regarding the determination of the origin of the good
from the customs administration of the NAFTA country in the territory
of which the exporter or producer of the good was located; and
(g) whether the exporter or producer of the good or a representative
of that person agrees to bear the expenses incurred in providing the
customs administration with the assistance that it may require for
determining the origin or value of the good.
``Reasons beyond control''
(4) For purposes of subsection (3), ``reasons beyond the control'' of
the exporter or producer of the good includes
(a) the bankruptcy of the exporter or producer or any other financial
distress situation or business reorganization that resulted in that
person or a related person having lost control of the records
containing the information that substantiate that the good is an
originating good;
(b) any other reason that results in partial or complete loss of
records of that exporter or producer that that person could not
reasonably have been expected to foresee, including loss of records
due to fire, flooding or other natural cause.
SECTION 16. TRANSSHIPMENT
Effect of subsequent processing outside the territory of a NAFTA
country; loss of originating good status
(1) A good is not an originating good by reason of having undergone
production that occurs entirely in the territory of one or more of the
NAFTA countries that would enable the good to qualify as an originating
good if subsequent to that production
(a) the good is withdrawn from customs control outside the territories
of the NAFTA countries; or
(b) the good undergoes further production or any other operation
outside the territories of the NAFTA countries, other than unloading,
reloading or any other operation necessary to preserve the good in
good condition, such as inspection, removal of dust that accumulates
during shipment, ventilation, spreading out or drying, chilling,
replacing salt, sulphur dioxide or other aqueous solutions, replacing
damaged packing materials and containers and removal of units of the
good that are spoiled or damaged and present a danger to the
remaining units of the good, or to transport the good to the
territory of a NAFTA country.
Transshipped good considered entirely non-originating
(2) A good that is a non-originating good by application of subsection
(1) is considered to be entirely non-originating for purposes of this
Appendix.
Exceptions for certain goods
(3) Subsection (1) does not apply with respect to a good provided for in
any of subheadings 8541.10 through 8541.60 and 8542.11 through 8542.80
where any further production or other operation that that good
undergoes outside the territories of the NAFTA countries does not
result in a change in the tariff classification of the good to a
subheading outside subheadings 8541.10 through 8542.90.
SECTION 17. NON-QUALIFYING OPERATIONS
Mere dilution; production or pricing practice to circumvent the
provisions of this Appendix
17. A good is not an originating good merely by reason of
(a) mere dilution with water or another substance that does not
materially alter the characteristics of the good; or
(b) any production or pricing practice with respect to which it may be
demonstrated, on the basis of a preponderance of evidence, that the
object was to circumvent this Appendix.
[[Page 46435]]
SCHEDULE I
Schedule I shall be the text of Annex 401 to the Agreement as
implemented in General Note 12 of the HTSUS.
SCHEDULE II
VALUE OF GOODS
SECTION 1. Definitions.
For purposes of this Schedule, unless otherwise stated:
``buyer'' refers to a person who purchases a good from the producer;
``buying commissions'' means fees paid by a buyer to that buyer's agent
for the agent's services in representing the buyer in the purchase of a
good;
``producer'' refers to the producer of the good being valued.
SECTION 2.
For purposes of Article 402(2) of the Agreement, as implemented by
section 6(2) of this Appendix, the transaction value of a good shall be
the price actually paid or payable for the good, determined in
accordance with section 3 and adjusted in accordance with section 4.
SECTION 3.
(1) The price actually paid or payable is the total payment made or to
be made by the buyer to or for the benefit of the producer. The payment
need not necessarily take the form of a transfer of money; it may be
made by letters of credit or negotiable instruments. The payment may be
made directly or indirectly to the producer. For an illustration of
this, the settlement by the buyer, whether in whole or in part, of a
debt owed by the producer is an indirect payment.
(2) Activities undertaken by the buyer on the buyer's own account, other
than those for which an adjustment is provided in section 4, shall not
be considered to be an indirect payment, even though the activities
might be regarded as being for the benefit of the producer. For an
illustration of this, the buyer, by agreement with the producer,
undertakes activities relating to the marketing of the good. The costs
of such activities shall not be added to the price actually paid or
payable.
(3) The transaction value shall not include the following charges or
costs, provided that they are distinguished from the price actually
paid or payable:
(a) charges for construction, erection, assembly, maintenance or
technical assistance related to the good undertaken after the good
has been sold to the buyer; or
(b) duties and taxes paid in the country in which the buyer is located
with respect to the good.
(4) The flow of dividends or other payments from the buyer to the
producer that do not relate to the purchase of the good are not part of
the transaction value.
SECTION 4.
(1) In determining the transaction value of a good, the following shall
be added to the price actually paid or payable:
(a) to the extent that they are incurred by the buyer, or by a related
person on behalf of the buyer, with respect to the good being valued
and are not included in the price actually paid or payable
(i) commissions and brokerage fees, except buying commissions,
(ii) the costs of transporting the good to the producer's point of
direct shipment and the costs of loading, unloading, handling and
insurance that are associated with that transportation, and
(iii) where the packaging materials and containers in which the good
is packaged for retail sale are classified with the good under the
Harmonized System, the value of the packaging materials and
containers;
(b) the value, reasonably allocated in accordance with subsection
(12), of the following elements where they are supplied directly or
indirectly to the producer by the buyer, free of charge or at reduced
cost for use in connection with the production and sale of the good,
to the extent that the value is not included in the price actually
paid or payable:
(i) a material, other than an indirect material, used in the
production of the good,
(ii) tools, dies, molds and similar indirect materials used in the
production of the good,
(iii) an indirect material, other than those referred to in
subparagraph (ii) or in paragraphs (c), (e) or (f) of the
definition ``indirect material'' set out in Article 415 of the
Agreement, as implemented by section 2(1) of this Appendix, used in
the production of the good, and
(iv) engineering, development, artwork, design work, and plans and
sketches necessary for the production of the good, regardless of
where performed;
(c) the royalties related to the good, other than charges with respect
to the right to reproduce the good in the territory of one or more of
the NAFTA countries, that the buyer must pay directly or indirectly
as a condition of sale of the good, to the extent that such royalties
are not included in the price actually paid or payable; and
(d) the value of any part of the proceeds of any subsequent resale,
disposal or use of the good that accrues directly or indirectly to
the producer.
(2) The additions referred to in subsection (1) shall be made to the
price actually paid or payable under this section only on the basis of
objective and quantifiable data.
(3) Where objective and quantifiable data do not exist with regard to
the additions required to be made to the price actually paid or payable
under subsection (1), the transaction value cannot be determined under
section 2.
(4) No additions shall be made to the price actually paid or payable for
the purpose of determining the transaction value except as provided in
this section.
(5) The amounts to be added under subsections (1)(a) (i) and (ii) shall
be
(a) those amounts that are recorded on the books of the buyer, or
(b) where those amounts are costs incurred by a related person on
behalf of the buyer and are not recorded on the books of the buyer,
those amounts that are recorded on the books of that related person.
(6) The value of the packaging materials and containers referred to in
subsection (1)(a)(iii) and the value of the elements referred to in
subsection (1)(b)(i) shall be
[[Page 46436]]
(a) where the packaging materials and containers or the elements are
imported from outside the territory of the NAFTA country in which the
producer is located, the customs value of the packaging materials and
containers or the elements,
(b) where the buyer, or a related person on behalf of the buyer,
purchases the packaging materials and containers or the elements from
an unrelated person in the territory of the NAFTA country in which
the producer is located, the price actually paid or payable for the
packaging materials and containers or the elements,
(c) where the buyer, or a related person on behalf of the buyer,
acquires the packaging materials and containers or the elements from
an unrelated person in the territory of the NAFTA country in which
the producer is located other than through a purchase, the value of
the consideration related to the acquisition of the packaging
materials and containers or the elements, based on the cost of the
consideration that is recorded on the books of the buyer or the
related person, or
(d) where the packaging materials and containers or the elements are
produced by the buyer, or by a related person, in the territory of
the NAFTA country in which the producer is located, the total cost of
the packaging materials and containers or the elements, determined in
accordance with subsection (7),
and shall include the following costs that are recorded on the books of
the buyer or the related person supplying the packaging materials and
containers or the elements on behalf of the buyer, to the extent that
such costs are not included under paragraphs (a) through (d):
(e) the costs of freight, insurance, packing, and all other costs
incurred in transporting the packaging materials and containers or
the elements to the location of the producer,
(f) duties and taxes paid or payable with respect to the packaging
materials and containers or the elements, other than duties and taxes
that are waived, refunded, refundable or otherwise recoverable,
including credit against duty or tax paid or payable,
(g) customs brokerage fees, including the cost of in-house customs
brokerage services, incurred with respect to the packaging materials
and containers or the elements, and
(h) the cost of waste and spoilage resulting from the use of the
packaging materials and containers or the elements in the production
of the good, less the value of renewable scrap or by-product.
(7) For purposes of subsection (6)(d), the total cost of the packaging
materials and containers referred to in subsection (1)(a)(iii) or the
elements referred to in subsection (1)(b)(i) shall be
(a) where the packaging materials and containers or the elements are
produced by the buyer, at the choice of the buyer,
(i) the total cost incurred with respect to all goods produced by
the buyer, calculated on the basis of the costs that are recorded
on the books of the buyer, that can be reasonably allocated to the
packaging materials and containers or the elements in accordance
with Schedule VII, or
(ii) the aggregate of each cost incurred by the buyer that forms
part of the total cost incurred with respect to the packaging
materials and containers or the elements, calculated on the basis
of the costs that are recorded on the books of the buyer, that can
be reasonably allocated to the packaging materials and containers
or the elements in accordance with Schedule VII; and
(b) where the packaging materials and containers or the elements are
produced by a person who is related to the buyer, at the choice of
the buyer,
(i) the total cost incurred with respect to all goods produced by
that related person, calculated on the basis of the costs that are
recorded on the books of that person, that can be reasonably
allocated to the packaging materials and containers or the elements
in accordance with Schedule VII, or
(ii) the aggregate of each cost incurred by that related person that
forms part of the total cost incurred with respect to the packaging
materials and containers or the elements, calculated on the basis
of the costs that are recorded on the books of that person, that
can be reasonably allocated to the packaging materials and
containers or the elements in accordance with Schedule VII.
(8) Except as provided in subsections (10) and (11), the value of the
elements referred to in subsections (1)(b)(ii) through (iv) shall be
(a) the cost of those elements that is recorded on the books of the
buyer, or
(b) where such elements are provided by another person on behalf of
the buyer and the cost is not recorded on the books of the buyer, the
cost of those elements that is recorded on the books of that other
person.
(9) Where the elements referred to in subsections (1)(b)(ii) through
(iv) were previously used by or on behalf of the buyer, the value of
the elements shall be adjusted downward to reflect that use.
(10) Where the elements referred to in subsections (1)(b)(ii) and (iii)
were leased by the buyer or a person related to the buyer, the value of
the elements shall be the cost of the lease as recorded on the books of
the buyer or that related person.
(11) No addition shall be made to the price actually paid or payable for
the elements referred to in subsection (1)(b)(iv) that are available in
the public domain, other than the cost of obtaining copies of them.
(12) The producer shall choose the method of allocating to the good the
value of the elements referred to in subsections (1)(b)(ii) through
(iv), provided that the value is reasonably allocated to the good in a
manner appropriate to the circumstances. The methods the producer may
choose to allocate the value include allocating the value over the
number of units produced up to the time of the first shipment or
allocating the value over the entire anticipated production where
contracts or firm commitments exist for that production. For an
illustration of this, a buyer provides the producer with a mold to be
used in the production of the good and contracts with the producer to
buy 10,000 units of that good. By the time the first shipment of 1,000
units arrives, the producer has already produced 4,000 units. In these
circumstances, the producer may choose to allocate the value of the
mold over 4,000 units or 10,000 units but shall not choose to allocate
the value of the elements to the first shipment of 1,000 units. The
producer may choose to allocate the entire value of the elements to a
single shipment of a good only where that single shipment comprises all
of the units of the good acquired by the buyer under the contract or
commitment for that number of units of the good between the producer
and the buyer.
[[Page 46437]]
(13) The addition for the royalties referred to in subsection (1)(c)
shall be the payment for the royalties that is recorded on the books of
the buyer, or where the payment for the royalties is recorded on the
books of another person, the payment for the royalties that is recorded
on the books of that other person.
(14) The value of the proceeds referred to in subsection (1)(d) shall be
the amount that is recorded for such proceeds on the books of the buyer
or the producer.
SCHEDULE III
UNACCEPTABLE TRANSACTION VALUE
SECTION 1. Definitions.
For purposes of this Schedule, unless otherwise stated
``buyer'' refers to a person who purchases a good from the producer;
``customs administration'' refers to the customs administration of the
NAFTA country into whose territory the good being valued is imported;
``producer'' refers to the producer of the good being valued.
SECTION 2.
(1) There is no transaction value for a good where the good is not the
subject of a sale.
(2) The transaction value of a good is unacceptable where
(a) there are restrictions on the disposition or use of the good by
the buyer, other than restrictions that
(i) are imposed or required by law or by the public authorities in
the territory of the NAFTA country in which the buyer is located,
(ii) limit the geographical area in which the good may be resold, or
(iii) do not substantially affect the value of the good;
(b) the sale or price actually paid or payable is subject to a
condition or consideration for which a value cannot be determined
with respect to the good;
(c) part of the proceeds of any subsequent resale, disposal or use of
the good by the buyer will accrue directly or indirectly to the
producer, and an appropriate addition to the price actually paid or
payable cannot be made in accordance with section 4(1)(d) of Schedule
II; or
(d) except as provided in section 3, the producer and the buyer are
related persons and the relationship between them influenced the
price actually paid or payable for the good.
(3) The conditions or considerations referred to in subsection (2)(b)
include the following circumstances:
(a) the producer establishes the price actually paid or payable for
the good on condition that the buyer will also buy other goods in
specified quantities;
(b) the price actually paid or payable for the good is dependent on
the price or prices at which the buyer sells other goods to the
producer of the good; and
(c) the price actually paid or payable is established on the basis of
a form of payment extraneous to the good, such as where the good is a
semi-finished good that has been provided by the producer to the
buyer on condition that the producer will receive a specified
quantity of the finished good from the buyer.
(4) For purposes of subsection (2)(b), conditions or considerations
relating to the production or marketing of the good shall not render
the transaction value unacceptable, such as where the buyer undertakes
on the buyer's own account, even though by agreement with the producer,
activities relating to the marketing of the good.
(5) Where objective and quantifiable data do not exist with regard to
the additions required to be made to the price actually paid or payable
under section 4(1) of Schedule II, the transaction value cannot be
determined under the provisions of section 2 of that Schedule. For an
illustration of this, a royalty is paid on the basis of the price
actually paid or payable in a sale of a liter of a particular good that
was purchased by the kilogram and made up into a solution. If the
royalty is based partially on the purchased good and partially on other
factors that have nothing to do with that good, such as when the
purchased good is mixed with other ingredients and is no longer
separately identifiable, or when the royalty cannot be distinguished
from special financial arrangements between the producer and the buyer,
it would be inappropriate to add the royalty and the transaction value
of the good could not be determined. However, if the amount of the
royalty is based only on the purchased good and can be readily
quantified, an addition to the price actually paid or payable can be
made and the transaction value can be determined.
SECTION 3.
(1) In determining whether the transaction value is unacceptable under
section 2(2)(d), the fact that the producer and the buyer are related
persons shall not in itself be grounds for the customs administration
to render the transaction value unacceptable. In such cases, the
circumstances surrounding the sale shall be examined and the
transaction value shall be accepted provided that the relationship
between the producer and the buyer did not influence the price actually
paid or payable. Where the customs administration has reasonable
grounds for considering that the relationship between the producer and
the buyer influenced the price, the customs administration shall
communicate the grounds to the producer, and that producer shall be
given a reasonable opportunity to respond to the grounds communicated
by the customs administration. If that producer so requests, the
customs administration shall communicate in writing the grounds on
which it considers that the relationship between the producer and the
buyer influenced the price actually paid or payable.
[[Page 46438]]
(2) Subsection (1) provides that, where the producer and the buyer are
related persons, the circumstances surrounding the sale shall be
examined and the transaction value shall be accepted as the value
provided that the relationship between the producer and the buyer did
not influence the price actually paid or payable. It is not intended
under subsection (1) that there should be an examination of the
circumstances in all cases where the producer and the buyer are related
persons. Such an examination will only be required where the customs
administration has doubts that the price actually paid or payable is
acceptable because of the relationship between the producer and the
buyer. Where the customs administration does not have doubts that the
price actually paid or payable is acceptable, it shall accept that
price without requesting further information. For an illustration of
this, the customs administration may have previously examined the
relationship between the producer and the buyer, or it may already have
detailed information concerning the relationship between the producer
and the buyer, and may already be satisfied from that examination or
information that the relationship between them did not influence the
price actually paid or payable.
(3) In applying subsection (1), where the producer and the buyer are
related persons and the customs administration has doubts that the
transaction value is acceptable without further inquiry, the customs
administration shall give the producer an opportunity to supply such
further information as may be necessary to enable it to examine the
circumstances surrounding the sale. In such a case, the customs
administration shall examine the relevant aspects of the sale,
including the way in which the producer and the buyer organize their
commercial relations and the way in which the price actually paid or
payable for the good being valued was arrived at, in order to determine
whether the relationship between the producer and the buyer influenced
that price actually paid or payable. Where it can be shown that the
producer and the buyer buy from and sell to each other as if they were
not related persons, the price actually paid or payable shall be
considered as not having been influenced by the relationship between
them. For an illustration of this, if the price actually paid or
payable for the good had been settled in a manner consistent with the
normal pricing practices of the industry in question or with the way in
which the producer settles prices for sales to unrelated buyers, the
price actually paid or payable shall be considered as not having been
influenced by the relationship between the buyer and the producer. As
another illustration, where it is shown that the price actually paid or
payable for the good is adequate to ensure recovery of the total cost
of producing the good plus a profit that is representative of the
producer's overall profit realized over a representative period of
time, such as on an annual basis, in sales of goods of the same class
or kind, the price actually paid or payable shall be considered as not
having been influenced by the relationship between the producer and the
buyer.
(4) In a sale between a producer and a buyer who are related persons,
the transaction value shall be accepted and determined in accordance
with section 2 of Schedule II wherever the producer demonstrates that
the transaction value of the good in that sale closely approximates a
test value referred to in subsection (5).
(5) The value to be used as a test value shall be the transaction value
of identical goods or similar goods sold at or about the same time as
the good being valued is sold to an unrelated buyer who is located in
the territory of the NAFTA country in which the buyer is located.
(6) In applying a test value referred to in subsection (4), due account
shall be taken of demonstrated differences in commercial levels,
quantity levels, the value of the elements specified in section 4(1)(b)
of Schedule II and the costs incurred by the producer in sales to
unrelated buyers that are not incurred by the producer in sales to a
related person.
(7) The application of the test value referred to in subsection (4)
shall be used at the initiative of the producer and shall be used only
for comparison purposes to determine whether the transaction value of
the good is acceptable. The test value shall not be used as the
transaction value of that good.
(8) Subsection (4) provides an opportunity for the producer to
demonstrate that the transaction value closely approximates a test
value previously accepted by the customs administration, and is
therefore acceptable under subsections (1) and (4). Where the
application of a test value under subsection (4) demonstrates that the
transaction value of the good being valued is acceptable, the customs
administration shall not examine the question of influence in regard to
the relationship between the producer and the buyer under subsection
(1). Where the customs administration already has sufficient
information available, without further inquiries, that the transaction
value closely approximates a test value referred to in subsection (4),
the producer is not required to apply a test value to demonstrate that
the transaction value is acceptable under that subsection.
(9) A number of factors must be taken into consideration for the purpose
of determining whether the transaction value of the identical goods or
similar goods closely approximates the transaction value of the good
being valued. These factors include the nature of the good, the nature
of the industry itself, the season in which the good is sold, and
whether the difference in values is commercially significant. Since
these factors may vary from case to case, it would be impossible to
apply an acceptable standardized difference such as a fixed amount or
fixed percentage difference in each case. For an illustration of this,
a small difference in value in a case involving one type of good could
be unacceptable, while a large difference in a case involving another
type of good might be acceptable for the purposes of determining
whether the transaction value closely approximates a test value set out
in subsection (4).
SCHEDULE IV
LIST OF TARIFF PROVISIONS FOR THE PURPOSES OF SECTION 9 OF THE APPENDIX
4009
4010.10
4011
4016.93.10
4016.99.30 and 4016.99.55
7007.11 and 7007.21
7009.10
8301.20
8407.31
8407.32
[[Page 46439]]
8407.33
8407.34.05, 8407.34.15 and 8407.34.25
8407.34.35, 8407.34.45 and 8407.34.55
8408.20
8409
8413.30
8414.59.30
8414.80.05
8415.81 through 8415.83
8421.39.40
8481.20, 8481.30 and 8481.80
8482.10 through 8482.80
8483.10 through 8483.40
8483.50
8501.10
8501.20
8501.31
8501.32.45
8507.20.40, 8507.30.40, 8507.40.40 and 8507.80.40
8511.30
8511.40
8511.50
8512.20
8512.40
8519.91
8527.21
8527.29
8536.50
8536.90
8537.10.30
8539.10
8539.21
8544.30
8706
8707
8708.10.30
8708.21
8708.29.20
8708.29.10
8708.29.15
8708.39
8708.40
8708.50
8708.60
8708.70.05, 8708.70.25 and 8708.70.45
8708.80
8708.91
8708.92
8708.93.15 and 8708.93.60
8708.94
8708.99.03, 8708.99.27 and 8708.99.55
8708.99.06, 8708.99.31 and 8708.99.58
8708.99.09, 8708.99.34 and 8708.99.61
8708.99.12, 8708.99.37 and 8708.99.64
8708.99.15, 8708.99.40 and 8708.99.67
8708.99.18, 8708.99.43 and 8708.99.70
8708.99.21, 8708.99.46 and 8708.99.73
8708.99.24, 8708.99.49 and 8708.99.80
9031.80
9032.89
9401.20
[[Page 46440]]
SCHEDULE V
LIST OF AUTOMOTIVE COMPONENTS AND MATERIALS FOR THE PURPOSES OF
SECTION 10 OF THE APPENDIX
----------------------------------------------------------------------------------------------------------------
Item Column I automotive components Column II listed materials
----------------------------------------------------------------------------------------------------------------
1. Engines provided for in heading 8407 or 8408.. Cast blocks, cast heads, fuel nozzles, fuel injector
pumps, glow plugs, turbochargers, superchargers,
electronic engine controls, intake manifolds, exhaust
manifolds, intake valves, exhaust valves, crankshafts,
camshafts, alternators, starters, air cleaner
assemblies, pistons, connecting rods and assemblies
made therefrom, rotor assemblies for rotary engines,
flywheels (for manual transmissions), flexplates (for
automatic transmissions), oil pans, oil pumps, pressure
regulators, water pumps, crankshaft gears, camshaft
gears, radiator assemblies, charge-air coolers.
2. Gear boxes (transmissions) provided for in (a) For manual transmissions: transmission cases and
subheading 8708.40. clutch housings; clutches; internal shifting
mechanisms; gear sets, synchronizers and shafts; and
(b) For torque convertor type transmissions:
transmission cases and convertor housings; torque
convertor assemblies; gear sets and clutches;
electronic transmission controls.
----------------------------------------------------------------------------------------------------------------
SCHEDULE VI
REGIONAL VALUE-CONTENT CALCULATION FOR CAMI
SECTION 1. Definitions.
In this Schedule,
``closed'' means, with respect to a plant, a closure
(a) for purposes of re-tooling for a change in model line, or
(b) as a result of any event or circumstance (other than the
imposition of antidumping duties or countervailing duties, or an
interruption of operations resulting from a labor strike, lock-out,
labor dispute, picketing or boycott of or by employees of CAMI
Automotive, Inc. or General Motors of Canada Limited) that CAMI
Automotive, Inc. or General Motors of Canada Limited could not
reasonably have been expected to avert by corrective action or by
exercise of due care and diligence, including a shortage of
materials, failure of utilities, or inability to obtain or a delay in
obtaining raw materials, parts, fuel or utilities;
``GM'' means General Motors of Canada Limited, General Motors
Corporation, General Motors de Mexico, S.A. de C.V., and any subsidiary
directly or indirectly owned by any of them, or by any combination
thereof;
``producer'' means CAMI Automotive, Inc.
SECTION 2.
For purposes of section 11 of this Appendix, for purposes of
determining the regional value content, in a fiscal year, of a motor
vehicle of a class of motor vehicles or a model line produced by the
producer in the territory of Canada and imported into the territory of
the United States, the producer may choose to calculate the regional
value content by
(a) calculating
[[Page 46441]]
(i) the sum of
(A) the net cost incurred by the producer, during that fiscal
year, in the production in the territory of Canada of motor
vehicles of a category referred to in section 3 that is chosen by
the producer, and
(B) the net cost incurred by General Motors of Canada Limited,
during the fiscal year that corresponds most closely to the
producer's fiscal year, in the production in the territory of
Canada of a corresponding class of motor vehicles or model line,
and
(ii) the sum of
(A) the value, determined in accordance with section 9 of this
Appendix for light-duty vehicles and section 10 of this Appendix
for heavy-duty vehicles, of the non-originating materials that
are used by the producer, during that fiscal year, in the
production in the territory of Canada of motor vehicles of a
category referred to in section 2.1 that is chosen by the
producer, and
(B) the value, determined in accordance with section 9 of this
Appendix for light-duty vehicles and section 10 of this Appendix
for heavy-duty vehicles, of the non-originating materials that
are used by General Motors of Canada Limited, during the fiscal
year that corresponds most closely to the producer's fiscal year,
in the production in the territory of Canada of a corresponding
class of motor vehicles or model line, and
(b) using the sums referred to in paragraphs (a)(i) and (ii) as the
net cost and the value of non-originating materials, respectively, in
the calculation referred to in section 6(3) of this Appendix,
provided that
(c) at the beginning of the producer's fiscal year, General Motors of
Canada Limited owns 50 percent or more of the voting common stock of
the producer, and
(d) GM acquires 75 percent or more by unit of quantity of the class of
motor vehicles or model line, as the case may be, that the producer
produced in the territory of Canada in the producer's fiscal year for
sale in the territory of one or more of the NAFTA countries.
SECTION 3.
The categories referred to in clauses 2(a)(i)(A) and (ii)(A) are the
following:
(a) the class of motor vehicles that the producer produced in the
territory of Canada in the producer's fiscal year for sale in the
territory of one or more of the NAFTA countries; and
(b) the model line that the producer produced in the territory of
Canada in the producer's fiscal year for sale in the territory of one
or more of the NAFTA countries.
SECTION 4.
Where GM does not satisfy the requirement set out in section 2(d),
the producer may choose that the regional value content be calculated
in accordance with section 2 only for those motor vehicles that are
acquired by GM for distribution under the GEO marque or another GM
marque.
SECTION 5.
(1) The producer may choose that the calculation referred to in section
2 be made over a period of two fiscal years where
(a) any plant operated by the producer or by General Motors of Canada
Limited is closed for more than two consecutive months; and
(b) the motor vehicles of a category referred to in section 3, with
respect to which the producer chooses that the regional value content
be calculated in accordance with section 2, are produced in that
plant.
(2) Subject to subsection (3), the period of two fiscal years referred
to in subsection (1) corresponds to the fiscal year in which the plant
is closed and, at the choice of the producer, the preceding or the
subsequent fiscal year.
(3) Where the plant is closed for a period that spans two fiscal years,
the calculation referred to in section 2 may be made only over those
two fiscal years.
(4) Where the producer has chosen that the regional value content be
calculated over two fiscal years under this section, the choice
referred to in section 11(6) of this Appendix shall be filed not later
than 10 days after the end of the period during which the plant is
closed, or at such later time as the customs administration may accept.
SECTION 6.
For purposes of this Schedule, a motor vehicle producer shall be
deemed to be GM where, as a result of an amalgamation, reorganization,
division or similar transaction, that motor vehicle producer
(a) acquires all or substantially all of the assets used by GM, and
(b) directly or indirectly controls, or is controlled by, GM, or both
that motor vehicle producer and GM are controlled by the same person.
SCHEDULE VII
REASONABLE ALLOCATION OF COSTS
SECTION 1. Definitions.
For purposes of this Schedule,
``costs'' means any costs that are included in total cost and that need
to be allocated pursuant to sections 5(9), 6(11) and 7(6) and sections
10(1)(a)(i) and (ii) of these Regulations, section 4(7) of Schedule II
and sections 5(7) and 10(2) of Schedule VIII;
``discontinued operations'', in the case of a producer located in a
NAFTA country, has the meaning set out in that NAFTA country's
Generally Accepted Accounting Principles;
``indirect overhead'' means period costs and other costs;
``internal management purpose'' means any purpose relating to tax
reporting, financial reporting, financial planning, decision-making,
pricing, cost recovery, cost control management or performance
measurement; and
``overhead'' means costs, other than direct material costs and direct
labor costs.
SECTION 2. Interpretation.
[[Page 46442]]
(1) In this Schedule, reference to ``producer'' shall, for purposes of
section 4(7) of Schedule II, be read as a reference to ``buyer''.
(2) In this Schedule, reference to ``good'' shall,
(a) for purposes of section 6(14) of this Appendix, be read as a
reference to ``identical goods or similar goods, or any combination
thereof'';
(b) for purposes of section 7(6) of this Appendix, be read as a
reference to ``intermediate material'';
(c) for purposes of section 11 of this Appendix, be read as a
reference to ``category of vehicles that is chosen pursuant to
section 11(1) of this Appendix'';
(d) for purposes of section 12 of this Appendix, be read as a
reference to ``category of goods chosen pursuant to section 12(1) of
this Appendix'';
(e) for purposes of section 13(4) of this Appendix, be read as a
reference to ``category of vehicles chosen pursuant to section 13(4)
of this Appendix'';
(f) for purposes of section 4(7) of Schedule II, be read as a
reference to ``packaging materials and containers or the elements'';
and
(g) for purposes of section 5(7) of Schedule VIII, be read as a
reference to ``elements''.
Methods to Reasonably Allocate Costs
SECTION 3.
(1) Where a producer of a good is using, for an internal management
purpose, a cost allocation method to allocate to the good direct
material costs, or part thereof, and that method reasonably reflects
the direct material used in the production of the good based on the
criterion of benefit, cause or ability to bear, that method shall be
used to reasonably allocate the costs to the good.
(2) Where a producer of a good is using, for an internal management
purpose, a cost allocation method to allocate to the good direct labor
costs, or part thereof, and that method reasonably reflects the direct
labor used in the production of the good based on the criterion of
benefit, cause or ability to bear, that method shall be used to
reasonably allocate the costs to the good.
(3) Where a producer of a good is using, for an internal management
purpose, a cost allocation method to allocate to the good overhead, or
part thereof, and that method is based on the criterion of benefit,
cause or ability to bear, that method shall be used to reasonably
allocate the costs to the good.
SECTION 4.
Where costs are not reasonably allocated to a good under section 3,
those costs are reasonably allocated to the good if they are allocated,
(a) with respect to direct material costs, on the basis of any method
that reasonably reflects the direct material used in the production
of the good based on the criterion of benefit, cause or ability to
bear;
(b) with respect to direct labor costs, on the basis of any method
that reasonably reflects the direct labor used in the production of
the good based on the criterion of benefit, cause or ability to bear;
and
(c) with respect to overhead, on the basis of any of the following
methods:
(i) the method set out in Addendum A, Addendum B or Addendum C,
(ii) a method based on a combination of the methods set out in
Addenda A and B or Addenda A and C, and
(iii) a cost allocation method based on the criterion of benefit,
cause or ability to bear.
SECTION 5.
Any cost allocation method referred to in section 3 or 4 that is
used by a producer for the purposes of this Appendix shall be used
throughout the producer's fiscal year.
Costs Not Reasonably Allocated
SECTION 6.
The allocation to a good of any of the following is considered not
to be reasonably allocated to the good:
(a) costs of a service provided by a producer of a good to another
person where the service is not related to the good;
(b) gains or losses resulting from the disposition of a discontinued
operation;
(c) cumulative effects of accounting changes reported in accordance
with a specific requirement of the applicable Generally Accepted
Accounting Principles; and''.
(d) gains or losses resulting from the sale of a capital asset of the
producer.
SECTION 7.
Any costs allocated under section 3 on the basis of a cost
allocation method that is used for an internal management purpose that
is solely for the purpose of qualifying a good as an originating good
are considered not to be reasonably allocated.
ADDENDUM A
COST RATIO METHOD
Calculation of Cost Ratio
For the overhead to be allocated, the producer may choose one or
more allocation bases that reflect a relationship between the overhead
and the good based on the criterion of benefit, cause or ability to
bear.
With respect to each allocation base that is chosen by the producer
for allocating overhead, a cost ratio is calculated for each good
produced by the producer in accordance with the following formula:
[GRAPHIC][TIFF OMITTED]TR06SE95.010
where
CR is the cost ratio with respect to the good;
[[Page 46443]]
AB is the allocation base for the good; and
TAB is the total allocation base for all the goods produced by the
producer.
Allocation to a Good of Costs Included in Overhead
The costs with respect to which an allocation base is chosen are
allocated to a good in accordance with the following formula:
CAG = CA x CR
where
CAG is the costs allocated to the good;
CA is the costs to be allocated; and
CR is the cost ratio with respect to the good.
Excluded Costs
Under section 6(11)(b) of this Appendix, where excluded costs are
included in costs to be allocated to a good, the cost ratio used to
allocate that cost to the good is used to determine the amount of
excluded costs to be subtracted from the costs allocated to the good.
Allocation Bases for Costs
The following is a non-exhaustive list of allocation bases that may
be used by the producer to calculate cost ratios:
Direct Labor Hours
Direct Labor Costs
Units Produced
Machine-hours
Sales Dollars or Pesos
Floor Space
``Examples''
The following examples illustrate the application of the cost ratio
method to costs included in overhead.
Example 1: Direct Labor Hours
A producer who produces Good A and Good B may allocate overhead on
the basis of direct labor hours spent to produce Good A and Good B. A
total of 8,000 direct labor hours have been spent to produce Good A and
Good B: 5,000 hours with respect to Good A and 3,000 hours with respect
to Good B. The amount of overhead to be allocated is $6,000,000.
Calculation of the Ratios:
Good A: 5,000 hours/8,000 hours = .625
Good B: 3,000 hours/8,000 hours = .375
Allocation of overhead to Good A and Good B:
Good A: $6,000,000 x .625 = $3,750,000
Good B: $6,000,000 x .375 = $2,250,000
Example 2: Direct Labor Costs
A producer who produces Good A and Good B may allocate overhead on
the basis of direct labor costs incurred in the production of Good A
and Good B. The total direct labor costs incurred in the production of
Good A and Good B is $60,000: $50,000 with respect to Good A and
$10,000 with respect to Good B. The amount of overhead to be allocated
is $6,000,000.
Calculation of the Ratios:
Good A: $50,000/$60,000 = .833
Good B: $10,000/$60,000 = .167
Allocation of Overhead to Good A and Good B:
Good A: $6,000,000 x .833 = $4,998,000
Good B: $6,000,000 x .167 = $1,002,000
Example 3: Units Produced
A producer of Good A and Good B may allocate overhead on the basis
of units produced. The total units of Good A and Good B produced is
150,000: 100,000 units of Good A and 50,000 units of Good B. The amount
of overhead to be allocated is $6,000,000.
Calculation of the Ratios:
Good A: 100,000 units/150,000 units = .667
Good B: 50,000 units/150,000 units = .333
Allocation of Overhead to Good A and Good B:
Good A: $6,000,000 x .667 = $4,002,000
Good B: $6,000,000 x .333 = $1,998,000
Example 4: Machine-hours
A producer who produces Good A and Good B may allocate machine-
related overhead on the basis of machine-hours utilized in the
production of Good A and Good B. The total machine-hours utilized for
the production of Good A and Good B is 3,000 hours: 1,200 hours with
respect to Good A and 1,800 hours with respect to Good B. The amount of
machine-related overhead to be allocated is $6,000,000.
Calculation of the Ratios:
Good A: 1,200 machine-hours/3,000 machine-hours = .40
Good B: 1,800 machine-hours/3,000 machine-hours = .60
Allocation of Machine-Related Overhead to Good A and Good B:
Good A: $6,000,000 x .40 = $2,400,000
Good B: $6,000,000 x .60 = $3,600,000
Example 5: Sales Dollars or Pesos
A producer who produces Good A and Good B may allocate overhead on
the basis of sales dollars. The producer sold 2,000 units of Good A at
$4,000 and 200 units of Good B at $3,000. The amount of overhead to be
allocated is $6,000,000.
Total Sales Dollars for Good A and Good B:
Good A: $4,000 x 2,000 = $8,000,000
Good B: $3,000 x 200 = $600,000
Total Sales Dollars: $8,000,000 + $600,000 = $8,600,000
Calculation of the Ratios:
[[Page 46444]]
Good A: $8,000,000/$8,600,000 = .93
Good B: $600,000/$8,600,000 = .07
Allocation of Overhead to Good A and Good B:
Good A: $6,000,000 x .93 = $5,580,000
Good B: $6,000,000 x .07 = $420,000
Example 6: Floor Space
A producer who produces Good A and Good B may allocate overhead
relating to utilities (heat, water and electricity) on the basis of
floor space used in the production and storage of Good A and Good B.
The total floor space used in the production and storage of Good A and
Good B is 100,000 square feet: 40,000 square feet with respect to Good
A and 60,000 square feet with respect to Good B. The amount of overhead
to be allocated is $6,000,000.
Calculation of the Ratios:
Good A: 40,000 square feet/100,000 square feet = .40
Good B: 60,000 square feet/100,000 square feet = .60
Allocation of Overhead (Utilities) to Good A and Good B:
Good A: $6,000,000 x .40 = $2,400,000
Good B: $6,000,000 x .60 = $3,600,000
ADDENDUM B
DIRECT LABOR AND DIRECT MATERIAL RATIO METHOD
Calculation of Direct Labor and Direct Material Ratio
For each good produced by the producer, a direct labor and direct
material ratio is calculated in accordance with the following formula:
[GRAPHIC][TIFF OMITTED]TR06SE95.011
where
DLDMR is the direct labor and direct material ratio for the good;
DLC is the direct labor costs of the good;
DMC is the direct material costs of the good;
TDLC is the total direct labor costs of all goods produced by the
producer; and
TDMC is the total direct material costs of all goods produced by
the producer.
Allocation of Overhead to a Good
Overhead is allocated to a good in accordance with the following
formula:
OAG = O x DLDMR
where
OAG is the overhead allocated to the good;
O is the overhead to be allocated; and
DLDMR is the direct labor and direct material ratio for the good.
Excluded Costs
Under section 6(11)(b) of this Appendix, where excluded costs are
included in overhead to be allocated to a good, the direct labor and
direct material ratio used to allocate overhead to the good is used to
determine the amount of excluded costs to be subtracted from the
overhead allocated to the good.
``Examples''
Example 1:
The following example illustrates the application of the direct
labor and direct material ratio method used by a producer of a good to
allocate overhead where the producer chooses to calculate the net cost
of the good in accordance with section 6(11)(a) of this Appendix.
A producer produces Good A and Good B. Overhead (O) minus excluded
costs (EC) is $30 and the other relevant costs are set out in the
following table:
------------------------------------------------------------------------
Good A Good B Total
------------------------------------------------------------------------
Direct labor costs (DLC)......... $5 $5 $10
Direct material costs (DMC)...... 10 5 15
--------------------------------------
Totals........................... $15 $10 $25
------------------------------------------------------------------------
Overhead Allocated to Good A
OAG (Good A) = O ($30) x DLDMR ($15/$25)
OAG (Good A) = $18.00
Overhead Allocated to Good B
OAG (Good B) = O ($30) x DLDMR ($10/$25)
OAG (Good B) = $12.00
Example 2:
The following example illustrates the application of the direct
labor and direct material ratio method used by a producer of a good to
allocate overhead where the producer chooses to calculate the net cost
of the good in accordance with section 6(11)(b) of this Appendix and
where excluded costs are included in overhead.
A producer produces Good A and Good B. Overhead (O) is $50
(including excluded costs (EC) of $20). The other relevant costs are
set out in the table of Example 1.
Overhead Allocated to Good A
[[Page 46445]]
OAG (Good A) = [O ($50) x DLDMR ($15/$25)] - [EC ($20) x DLDMR
($15/$25)]
OAG (Good A) = $18.00
Overhead Allocated to Good B
OAG (Good B) = [O ($50) x DLDMR ($10/$25)] - [EC ($20) x DLDMR
($10/$25)]
OAG (Good B) = $12.00
ADDENDUM C
DIRECT COST RATIO METHOD
Direct Overhead
Direct overhead is allocated to a good on the basis of a method
based on the criterion of benefit, cause or ability to bear.
Indirect Overhead
Indirect overhead is allocated on the basis of a direct cost ratio.
Calculation of Direct Cost Ratio
For each good produced by the producer, a direct cost ratio is
calculated in accordance with the following formula:
[GRAPHIC][TIFF OMITTED]TR06SE95.012
where
DCR is the direct cost ratio for the good;
DLC is the direct labor costs of the good;
DMC is the direct material costs of the good;
DO is the direct overhead of the good;
TDLC is the total direct labor costs of all goods produced by the
producer;
TDMC is the total direct material costs of all goods produced by
the producer; and
TDO is the total direct overhead of all goods produced by the
producer;
Allocation of Indirect Overhead to a Good
Indirect overhead is allocated to a good in accordance with the
following formula:
IOAG = IO x DCR
where
IOAG is the indirect overhead allocated to the good;
IO is the indirect overhead of all goods produced by the producer; and
DCR is the direct cost ratio of the good.
Excluded Costs
Under section 6(11)(b) of this Appendix, where excluded costs are
included in
(a) direct overhead to be allocated to a good, those excluded costs
are subtracted from the direct overhead allocated to the good; and
(b) indirect overhead to be allocated to a good, the direct cost ratio
used to allocate indirect overhead to the good is used to determine
the amount of excluded costs to be subtracted from the indirect
overhead allocated to the good.
``Examples''
Example 1:
The following example illustrates the application of the direct cost
ratio method used by a producer of a good to allocate indirect overhead
where the producer chooses to calculate the net cost of the good in
accordance with section 6(11)(a) of this Appendix.
A producer produces Good A and Good B. Indirect overhead (IO) minus
excluded costs (EC) is $30. The other relevant costs are set out in the
following table:
------------------------------------------------------------------------
Good A Good B Total
------------------------------------------------------------------------
Direct labor costs (DLC)......... $5 $5 $10
Direct material costs (DMC)...... 10 5 15
Direct overhead (DO)............. 8 2 10
--------------------------------------
Totals........................... $23 $12 $35
------------------------------------------------------------------------
Indirect Overhead Allocated to Good A
IOAG (Good A) = IO ($30) x DCR ($23/$35)
IOAG (Good A) = $19.71
Indirect Overhead Allocated to Good B
IOAG (Good B) = IO ($30) x DCR ($12/$35)
IOAG (Good B) = $10.29
Example 2:
The following example illustrates the application of the direct cost
ratio method used by a producer of a good to allocate indirect overhead
where the producer has chosen to calculate the net cost of the good in
accordance with section 6(11)(b) of this Appendix and where excluded
costs are included in indirect overhead.
A producer produces Good A and Good B. The indirect overhead (IO) is
$50 (including excluded costs (EC) of $20). The other relevant costs
are set out in the table to Example 1.
Indirect Overhead Allocated to Good A
IOAG (Good A) = [IO ($50) x DCR ($23/$35)] - [EC ($20) x DCR ($23/
$35)]
[[Page 46446]]
IOAG (Good A) = $19.72
Indirect Overhead Allocated to Good B
IOAG (Good B) = [IO ($50) x DCR ($12/$35)] - [EC ($20) x DCR ($12/
$35)]
IOAG (Good B) = $10.28
SCHEDULE VIII
VALUE OF MATERIALS
SECTION 1. Definitions.
(1) For purposes of this Schedule, unless otherwise stated,
``buying commissions'' means fees paid by a producer to that producer's
agent for the agent's services in representing the producer in the
purchase of a material;
``customs administration'' refers to the customs administration of the
NAFTA country into whose territory the good, in the production of which
the material being valued is used, is imported;
``materials of the same class or kind'' means, with respect to materials
being valued, materials that are within a group or range of materials
that
(a) is produced by a particular industry or industry sector, and
(b) includes identical materials or similar materials;
``producer'' refers to
(a) in the case of section 10(1)(b)(i) of these Regulations, the
producer of the listed material, and
(b) in any other case, the producer who used the material in the
production of a good that is subject to a regional value-content
requirement;
``seller'' refers to a person who sells the material being valued to the
producer.
Interpretation
(2) Where it is to be determined under section 9(3) of these Regulations
whether the customs value of a material was determined in a manner
consistent with this Schedule for purposes of section 9(2) (c) or (d)
of these Regulations, a reference in this Schedule to ``producer''
shall be read as a reference to ``person other than the producer who
imports the traced material from outside the territories of the NAFTA
countries.
SECTION 2.
(1) Except as provided under subsections (2) and (3), the transaction
value of a material under Article 402(9)(a) of the Agreement, as
implemented by section 7(1)(b) and sections 9(5) and 10(2) of this
Appendix, shall be the price actually paid or payable for the material
determined in accordance with section 4 and adjusted in accordance with
section 5.
(2) There is no transaction value for a material where the material is
not the subject of a sale.
(3) The transaction value of a material is unacceptable where
(a) there are restrictions on the disposition or use of the material
by the producer, other than restrictions that
(i) are imposed or required by law or by the public authorities in
the territory of the NAFTA country in which the producer of the
good or the seller of the material is located,
(ii) limit the geographical area in which the material may be used,
or
(iii) do not substantially affect the value of the material;
(b) the sale or price actually paid or payable is subject to a
condition or consideration for which a value cannot be determined
with respect to the material;
(c) part of the proceeds of any subsequent disposal or use of the
material by the producer will accrue directly or indirectly to the
seller, and an appropriate addition to the price actually paid or
payable cannot be made in accordance with section 5(1)(d); and
(d) except as provided in section 3, the producer and the seller are
related persons and the relationship between them influenced the
price actually paid or payable for the material.
(4) The conditions or considerations referred to in subsection (3)(b)
include the following circumstances:
(a) the seller establishes the price actually paid or payable for the
material on condition that the producer will also buy other materials
or goods in specified quantities;
(b) the price actually paid or payable for the material is dependent
on the price or prices at which the producer sells other materials or
goods to the seller of the material; and
(c) the price actually paid or payable is established on the basis of
a form of payment extraneous to the material, such as where the
material is a semi-finished material that has been provided by the
seller to the producer on condition that the seller will receive a
specified quantity of the finished material from the producer.
(5) For purposes of subsection (3)(b), conditions or considerations
relating to the use of the material shall not render the transaction
value unacceptable, such as where the producer undertakes on the
producer's own account, even though by agreement with the seller,
activities relating to the warranty of the material used in the
production of a good.
(6) Where objective and quantifiable data do not exist with regard to
the additions required to be made to the price actually paid or payable
under section 5(1), the transaction value cannot be determined under
the provisions of section 2(1). For an illustration of this, a royalty
is paid on the basis of the price actually paid or payable in a sale of
a liter of a particular good that is produced by using a material that
was purchased by the kilogram and made up into a solution. If the
royalty is based partially on the purchased material and partially on
other factors that have nothing to do with that material, such as when
the purchased material is mixed with other ingredients and is no longer
separately identifiable, or when the royalty cannot be distinguished
from special financial arrangements between the seller and the
producer, it would be inappropriate to add the royalty and the
transaction value of the material could not be determined. However, if
the amount of the royalty is based only on the purchased material and
can be readily quantified, an addition to the price actually paid or
payable can be made and the transaction value can be determined.
SECTION 3.
[[Page 46447]]
(1) In determining whether the transaction value is unacceptable under
section 2(3)(d), the fact that the seller and the producer are related
persons shall not in itself be grounds for the customs administration
to render the transaction value unacceptable. In such cases, the
circumstances surrounding the sale shall be examined and the
transaction value shall be accepted provided that the relationship
between the seller and the producer did not influence the price
actually paid or payable. Where the customs administration has
reasonable grounds for considering that the relationship between the
seller and the producer influenced the price, the customs
administration shall communicate the grounds to the producer, and that
producer shall be given a reasonable opportunity to respond to the
grounds communicated by the customs administration. If that producer so
requests, the customs administration shall communicate in writing the
grounds on which it considers that the relationship between the seller
and the producer influenced the price actually paid or payable.
(2) Subsection (1) provides that, where the seller and the producer are
related persons, the circumstances surrounding the sale shall be
examined and the transaction value shall be accepted as the value
provided that the relationship between the seller and the producer did
not influence the price actually paid or payable. It is not intended
under subsection (1) that there should be an examination of the
circumstances in all cases where the seller and the producer are
related persons. Such an examination will only be required where the
customs administration has doubts that the price actually paid or
payable is acceptable because of the relationship between the seller
and the producer. Where the customs administration does not have doubts
that the price actually paid or payable is acceptable, it shall accept
that price without requesting further information. For an illustration
of this, the customs administration may have previously examined the
relationship between the seller and the producer, or it may already
have detailed information concerning the relationship between the
seller and the producer, and may already be satisfied from that
examination or information that the relationship between them did not
influence the price actually paid or payable.
(3) In applying subsection (1), where the seller and the producer are
related persons and the customs administration has doubts that the
transaction value is acceptable without further inquiry, the customs
administration shall give the producer an opportunity to supply such
further information as may be necessary to enable it to examine the
circumstances surrounding the sale. In such a case, the customs
administration shall examine the relevant aspects of the sale,
including the way in which the seller and the producer organize their
commercial relations and the way in which the price actually paid or
payable by that producer for the material being valued was arrived at,
in order to determine whether the relationship between the seller and
the producer influenced that price actually paid or payable. Where it
can be shown that the seller and the producer buy from and sell to each
other as if they were not related persons, the price actually paid or
payable shall be considered as not having been influenced by the
relationship between them. For an illustration of this, if the price
actually paid or payable for the material had been settled in a manner
consistent with the normal pricing practices of the industry in
question or with the way in which the seller settles prices for sales
to unrelated buyers, the price actually paid or payable shall be
considered as not having been influenced by the relationship between
the producer and the seller. For another illustration of this, where it
is shown that the price actually paid or payable for the material is
adequate to ensure recovery of the total cost of producing the material
plus a profit that is representative of the seller's overall profit
realized over a representative period of time, such as on an annual
basis, in sales of materials of the same class or kind, the price
actually paid or payable shall be considered as not having been
influenced by the relationship between the seller and the producer.
(4) In a sale between a seller and a producer who are related persons,
the transaction value shall be accepted and determined in accordance
with section 2(1), wherever the seller or the producer demonstrates
that the transaction value of the material in that sale closely
approximates one of the following test values that occurs at or about
the same time as the sale and is chosen by the seller or the producer:
(a) the transaction value in sales to unrelated buyers of identical
materials or similar materials, as determined in accordance with
section 2(1);
(b) the value of identical materials or similar materials, as
determined in accordance with section 9; or
(c) the value of identical materials or similar materials, as
determined in accordance with section 10.
(5) In applying a test value referred to in subsection (4), due account
shall be taken of demonstrated differences in commercial levels,
quantity levels, the value of the elements specified in section 5(1)(b)
and the costs incurred by the seller in sales to unrelated buyers that
are not incurred by the seller in sales by the seller to a related
person.
(6) The application of a test value referred to in subsection (4) shall
be used at the initiative of the seller, or at the initiative of the
producer with the consent of the seller, and shall be used only for
comparison purposes to determine whether the transaction value of the
material is acceptable. The test value shall not be used as the
transaction value of that material.
(7) Subsection (4) provides an opportunity for the seller or the
producer to demonstrate that the transaction value closely approximates
a test value previously accepted by the customs administration of the
NAFTA country in which the producer is located, and is therefore
acceptable under subsection (1). Where the application of a test value
under subsection (4) demonstrates that the transaction value of the
material being valued is acceptable, the customs administration shall
not examine the question of influence in regard to the relationship
between the seller and the producer under subsection (1). Where the
customs administration already has sufficient information available,
without further inquiries, that the transaction value closely
approximates one of the test values determined under subsection (4),
the seller or the producer is not required to apply a test value to
demonstrate that the transaction value is acceptable under that
subsection.
(8) A number of factors must be taken into consideration for the purpose
of determining whether the transaction value of the identical materials
or similar materials closely approximates the transaction value of the
material being valued. These factors include the nature of the
material, the nature of the industry itself, the season in which the
material is sold, and whether the difference in values is commercially
significant. Since these factors may vary from case to case, it would
be impossible to apply an acceptable standardized difference such as a
fixed amount or fixed percentage difference in each case. For an
illustration of this, a small difference in value in a case involving
one type of material could be unacceptable, while a large difference in
a case involving another type of material might be acceptable for the
purposes of determining whether the transaction value closely
approximates a test value set out in subsection (4).
[[Page 46448]]
SECTION 4.
(1) The price actually paid or payable is the total payment made or to
be made by the producer to or for the benefit of the seller of the
material. The payment need not necessarily take the form of a transfer
of money: it may be made by letters of credit or negotiable
instruments. Payment may be made directly or indirectly to the seller.
For an illustration of this, the settlement by the producer, whether in
whole or in part, of a debt owed by the seller, is an indirect payment.
(2) Activities undertaken by the producer on the producer's own account,
other than those for which an adjustment is provided in section 5,
shall not be considered to be an indirect payment, even though the
activities might be regarded as being for the benefit of the seller.
(3) The transaction value shall not include charges for construction,
erection, assembly, maintenance or technical assistance related to the
use of the material by the producer, provided that they are
distinguished from the price actually paid or payable.
(4) The flow of dividends or other payments from the producer to the
seller that do not relate to the purchase of the material are not part
of the transaction value.
SECTION 5.
(1) In determining the transaction value of the material, the following
shall be added to the price actually paid or payable:
(a) to the extent that they are incurred by the producer with respect
to the material being valued and are not included in the price
actually paid or payable,
(i) commissions and brokerage fees, except buying commissions, and
(ii) the costs of containers which, for customs purposes, are
classified with the material under the Harmonized System;
(b) the value, reasonably allocated in accordance with subsection
(12), of the following elements where they are supplied directly or
indirectly to the seller by the producer free of charge or at reduced
cost for use in connection with the production and sale of the
material, to the extent that the value is not included in the price
actually paid or payable:
(i) a material, other than an indirect material, used in the
production of the material being valued,
(ii) tools, dies, molds and similar indirect materials used in the
production of the material being valued,
(iii) an indirect material, other than those referred to in
subparagraph (ii) or in paragraphs (c), (e) or (f) of the
definition ``indirect material'' set out in Article 415 of the
Agreement, as implemented by section 2(1) of this Appendix, used in
the production of the material being valued, and
(iv) engineering, development, artwork, design work, and plans and
sketches performed outside the territory of the NAFTA country in
which the producer is located that are necessary for the production
of the material being valued;
(c) the royalties related to the material, other than charges with
respect to the right to reproduce the material in the territory of
the NAFTA country in which the producer is located that the producer
must pay directly or indirectly as a condition of sale of the
material, to the extent that such royalties are not included in the
price actually paid or payable; and
(d) the value of any part of the proceeds of any subsequent disposal
or use of the material that accrues directly or indirectly to the
seller.
(2) The additions referred to in subsection (1) shall be made to the
price actually paid or payable under this section only on the basis of
objective and quantifiable data.
(3) Where objective and quantifiable data do not exist with regard to
the additions required to be made to the price actually paid or payable
under subsection (1), the transaction value cannot be determined under
section 2(1).
(4) No additions shall be made to the price actually paid or payable for
the purpose of determining the transaction value except as provided in
this section.
(5) The amounts to be added under subsection (1)(a) shall be those
amounts that are recorded on the books of the producer.
(6) The value of the elements referred to in subsection (1)(b)(i) shall
be
(a) where the elements are imported from outside the territory of the
NAFTA country in which the seller is located, the customs value of
the elements,
(b) where the producer, or a related person on behalf of the producer,
purchases the elements from an unrelated person in the territory of
the NAFTA country in which the seller is located, the price actually
paid or payable for the elements,
(c) where the producer, or a related person on behalf of the producer,
acquires the elements from an unrelated person in the territory of
the NAFTA country in which the seller is located other than through a
purchase, the value of the consideration related to the acquisition
of the elements, based on the cost of the consideration that is
recorded on the books of the producer or the related person, or
(d) where the elements are produced by the producer, or by a related
person, in the territory of the NAFTA country in which the seller is
located, the total cost of the elements, determined in accordance
with subsection (7),
and shall include the following costs, that are recorded on the books of
the producer or the related person supplying the elements on behalf of
the producer, to the extent that such costs are not included under
paragraph (a) through (d):
(e) the costs of freight, insurance, packing, and all other costs
incurred in transporting the elements to the location of the seller,
(f) duties and taxes paid or payable with respect to the elements,
other than duties and taxes that are waived, refunded, refundable or
otherwise recoverable, including credit against duty or tax paid or
payable,
(g) customs brokerage fees, including the cost of in-house customs
brokerage services, incurred with respect to the elements, and
(h) the cost of waste and spoilage resulting from the use of the
elements in the production of the material, minus the value of
reusable scrap or by-product.
[[Page 46449]]
(7) For the purposes of subsection (6)(d), the total cost of the
elements referred to in subsection (1)(b)(i) shall be
(a) where the elements are produced by the producer, at the choice of
the producer,
(i) the total cost incurred with respect to all goods produced by
the producer, calculated on the basis of the costs that are
recorded on the books of the producer, that can be reasonably
allocated to the elements in accordance with Schedule VII, or
(ii) the aggregate of each cost incurred by the producer that forms
part of the total cost incurred with respect to the elements,
calculated on the basis of the costs that are recorded on the books
of the producer, that can be reasonably allocated to the elements
in accordance with Schedule VII; and
(b) where the elements are produced by a person who is related to the
producer, at the choice of the producer,
(i) the total cost incurred with respect to all goods produced by
that related person, calculated on the basis of the costs that are
recorded on the books of that person, that can be reasonably
allocated to the elements in accordance with Schedule VII, or
(ii) the aggregate of each cost incurred by that related person that
forms part of the total cost incurred with respect to the elements,
calculated on the basis of the costs that are recorded on the books
of that person, that can be reasonably allocated to the elements in
accordance with Schedule VII.
(8) Except as provided in subsections (10) and (11), the value of the
elements referred to in subsections (1)(b)(ii) through (iv) shall be
(a) the cost of those elements that is recorded on the books of the
producer; or
(b) where such elements are provided by another person on behalf of
the producer and the cost is not recorded on the books of the
producer, the cost of those elements that is recorded on the books of
that other person.
(9) Where the elements referred to in subsections (1)(b)(ii) through
(iv) were previously used by or on behalf of the producer, the value of
the elements shall be adjusted downward to reflect that use.
(10) Where the elements referred to in subsections (1)(b)(ii) and (iii)
were leased by the producer or a person related to the producer, the
value of the elements shall be the cost of the lease that is recorded
on the books of the producer or that related person.
(11) No addition shall be made to the price actually paid or payable for
the elements referred to in subsection (1)(b)(iv) that are available in
the public domain, other than the cost of obtaining copies of them.
(12) The producer shall choose the method of allocating to the material
the value of the elements referred to in subsections (1)(b)(ii) through
(iv), provided that the value is reasonably allocated to the material
in a manner appropriate to the circumstances. The methods the producer
may choose to allocate the value include allocating the value over the
number of units produced up to the time of the first shipment or
allocating the value over the entire anticipated production where
contracts or firm commitments exist for that production. For an
illustration of this, a producer provides the seller with a mold to be
used in the production of the material and contracts with the seller to
buy 10,000 units of that material. By the time the first shipment of
1,000 units arrives, the seller has already produced 4,000 units. In
these circumstances, the producer may choose to allocate the value of
the mold over 4,000 units or 10,000 units but shall not choose to
allocate the value of the elements to the first shipment of 1,000
units. The producer may choose to allocate the entire value of the
elements to a single shipment of material only where that single
shipment comprises all of the units of the material acquired by the
producer under the contract or commitment for that number of units of
the material between the seller and the producer.
(13) The addition for the royalties referred to in subsection (1)(c)
shall be the payment for the royalties that is recorded on the books of
the producer, or where the payment for the royalties is recorded on the
books of another person, the payment for the royalties that is recorded
on the books of that other person.
(14) The value of the proceeds referred to in subsection (1)(d) shall be
the amount that is recorded for such proceeds on the books of the
producer or the seller.
SECTION 6.
(1) If there is no transaction value under section 2(2) or the
transaction value is unacceptable under section 2(3), the value of the
material, referred to in Article 402(9)(b) of the Agreement, as
implemented by section 7(1)(b)(ii) of Part IV of this Appendix, shall
be the transaction value of identical materials sold, at or about the
same time as the material being valued was shipped to the producer, to
a buyer located in the same country as the producer.
(2) In applying this section, the transaction value of identical
materials in a sale at the same commercial level and in substantially
the same quantity of materials as the material being valued shall be
used to determine the value of the material. Where no such sale is
found, the transaction value of identical materials sold at a different
commercial level or in different quantities, adjusted to take into
account the differences attributable to the commercial level or
quantity, shall be used, provided that such adjustments can be made on
the basis of evidence that clearly establishes that the adjustment is
reasonable and accurate, whether the adjustment leads to an increase or
a decrease in the value.
(3) A condition for adjustment under subsection (2) because of different
commercial levels or different quantities is that such adjustment be
made only on the basis of evidence that clearly establishes that an
adjustment is reasonable and accurate. For an illustration of this, a
bona fide price list contains prices for different quantities. If the
material being valued consists of a shipment of 10 units and the only
identical materials for which a transaction value exists involved a
sale of 500 units, and it is recognized that the seller grants quantity
discounts, the required adjustment may be accomplished by resorting to
the seller's bona fide price list and using the price applicable to a
sale of 10 units. This does not require that sales had to have been
made in quantities of 10 as long as the price list has been established
as being bona fide through sales at other quantities. In the absence of
such an objective measure, however, the determination of a value under
this section is not appropriate.
(4) If more than one transaction value of identical materials is found,
the lowest such value shall be used to determine the value of the
material under this section.
SECTION 7.
[[Page 46450]]
(1) If there is no transaction value under section 2(2) or the
transaction value is unacceptable under section 2(3), and the value of
the material cannot be determined under section 6, the value of the
material, referred to in Article 402(9)(b) of the Agreement, as
implemented by section 7(1)(b)(ii) of Part IV of this Appendix, shall
be the transaction value of similar materials sold, at or about the
same time as the material being valued was shipped to the producer, to
a buyer located in the same country as the producer.
(2) In applying this section, the transaction value of similar materials
in a sale at the same commercial level and in substantially the same
quantity of materials as the material being valued shall be used to
determine the value of the material. Where no such sale is found, the
transaction value of similar materials sold at a different commercial
level or in different quantities, adjusted to take into account the
differences attributable to the commercial level or quantity, shall be
used, provided that such adjustments can be made on the basis of
evidence that clearly establishes that the adjustment is reasonable and
accurate, whether the adjustment leads to an increase or a decrease in
the value.
(3) A condition for adjustment under subsection (2) because of different
commercial levels or different quantities is that such adjustment be
made only on the basis of evidence that clearly establishes that an
adjustment is reasonable and accurate. For an illustration of this, a
bona fide price list contains prices for different quantities. If the
material being valued consists of a shipment of 10 units and the only
similar materials for which a transaction value exists involved a sale
of 500 units, and it is recognized that the seller grants quantity
discounts, the required adjustment may be accomplished by resorting to
the seller's bona fide price list and using the price applicable to a
sale of 10 units. This does not require that sales had to have been
made in quantities of 10 as long as the price list has been established
as being bona fide through sales at other quantities. In the absence of
such an objective measure, however, the determination of a value under
this section is not appropriate.
(4) If more than one transaction value of similar materials is found,
the lowest such value shall be used to determine the value of the
material under this section.
SECTION 8.
If there is no transaction value under section 2(2) or the
transaction value is unacceptable under section 2(3), and the value of
the material cannot be determined under section 6 or 7, the value of
the material, referred to in Article 402(9)(b) of the Agreement, as
implemented by section 7(1)(b)(ii) of Part IV of this Appendix, shall
be determined under section 9 or, when the value cannot be determined
under that section, under section 10 except that, at the request of the
producer, the order of application of sections 9 and 10 shall be
reversed.
SECTION 9.
(1) Under this section, if identical materials or similar materials are
sold in the territory of the NAFTA country in which the producer is
located, in the same condition as the material was in when received by
the producer, the value of the material, referred to in Article
402(9)(b) of the Agreement, as implemented by section 7(1)(b)(ii) of
Part IV of this Appendix, shall be based on the unit price at which
those identical materials or similar materials are sold, in the
greatest aggregate quantity by the producer or, where the producer does
not sell those identical materials or similar materials, by a person at
the same trade level as the producer, at or about the same time as the
material being valued is received by the producer, to persons located
in that territory who are not related to the seller, subject to
deductions for the following:
(a) either the amount of commissions usually earned or the amount
generally reflected for profit and general expenses, in connection
with sales, in the territory of that NAFTA country, of materials of
the same class or kind as the material being valued; and
(b) taxes, if included in the unit price, payable in the territory of
that NAFTA country, which are either waived, refunded or recoverable
by way of credit against taxes actually paid or payable.
(2) If neither identical materials nor similar materials are sold at or
about the same time the material being valued is received by the
producer, the value shall, subject to the deductions provided for under
subsection (1), be based on the unit price at which identical materials
or similar materials are sold in the territory of the NAFTA country in
which the producer is located, in the same condition as the material
was in when received by the producer, at the earliest date within 90
days after the date the material being valued was received by the
producer.
(3) The expression ``unit price at which those identical materials or
similar materials are sold, in the greatest aggregate quantity'' in
subsection (1) means the price at which the greatest number of units is
sold in sales between unrelated persons. For an illustration of this,
materials are sold from a price list which grants favorable unit prices
for purchases made in larger quantities.
----------------------------------------------------------------------------------------------------------------
Total quantity
Sale quantity Unit price Number of sales sold at each
price
----------------------------------------------------------------------------------------------------------------
1-10 units.......................... 100 10 sales of 5 units.......................... 65
........... 5 sales of 3 units........................... ..............
11-25 units......................... 95 5 sales of 11 units.......................... 55
........... 1 sale of 20 units........................... ..............
Over 25 units....................... 90 1 sale of 30 units........................... 80
........... 1 sale of 50 units........................... ..............
----------------------------------------------------------------------------------------------------------------
The greatest number of units sold at a particular price is 80;
therefore, the unit price in the greatest aggregate quantity is 90.
As another illustration of this, two sales occur. In the first sale
500 units are sold at a price of 95 currency units each. In the second
sale 400 units are sold at a price of 90 currency units each. In this
illustration, the greatest number of units sold at a particular price
is 500; therefore, the unit price in the greatest aggregate quantity is
95.
[[Page 46451]]
(4) Any sale to a person who supplies, directly or indirectly, free of
charge or at reduced cost for use in connection with the production of
the material, any of the elements specified in section 5(1)(b), shall
not be taken into account in establishing the unit price for the
purposes of this section.
(5) The amount generally reflected for profit and general expenses
referred to in subsection (1)(a) shall be taken as a whole. The figure
for the purposes of deducting an amount for profit and general expenses
shall be determined on the basis of information supplied by or on
behalf of the producer unless the figures provided by the producer are
inconsistent with those usually reflected in sales, in the country in
which the producer is located, of materials of the same class or kind
as the material being valued. Where the figures provided by the
producer are inconsistent with those figures, the amount for profit and
general expenses shall be based on relevant information other than that
supplied by or on behalf of the producer.
(6) For the purposes of this section, general expenses are the direct
and indirect costs of marketing the material in question.
(7) In determining either the commissions usually earned or the amount
generally reflected for profit and general expenses under this section,
the question as to whether certain materials are materials of the same
class or kind as the material being valued shall be determined on a
case-by-case basis with reference to the circumstances involved. Sales
in the country in which the producer is located of the narrowest group
or range of materials of the same class or kind as the material being
valued, for which the necessary information can be provided, shall be
examined. For the purposes of this section, ``materials of the same
class or kind'' includes materials imported from the same country as
the material being valued as well as materials imported from other
countries or acquired within the territory of the NAFTA country in
which the producer is located.
(8) For the purposes of subsection (2), the earliest date shall be the
date by which sales of identical materials or similar materials are
made, in sufficient quantity to establish the unit price, to other
persons in the territory of the NAFTA country in which the producer is
located.
SECTION 10.
(1) Under this section, the value of a material, referred to in Article
402(9)(b) of the Agreement, as implemented by section 7(1)(b)(ii) of
Part IV of this Appendix, shall be the sum of
(a) the cost or value of the materials used in the production of the
material being valued, as determined on the basis of the costs that
are recorded on the books of the producer of the material,
(b) the cost of producing the material being valued, as determined on
the basis of the costs that are recorded on the books of the producer
of the material, and
(c) an amount for profit and general expenses equal to that usually
reflected in sales
(i) where the material being valued is imported by the producer into
the territory of the NAFTA country in which the producer is
located, to persons located in the territory of the NAFTA country
in which the producer is located by producers of materials of the
same class or kind as the material being valued who are located in
the country in which the material is produced, and
(ii) where the material being valued is acquired by the producer
from another person located in the territory of the NAFTA country
in which the producer is located, to persons located in the
territory of the NAFTA country in which the producer is located by
producers of materials of the same class or kind as the material
being valued who are located in the country in which the producer
is located,
(d) the value of elements referred to in section 5(1)(b)(i),
determined in accordance with section 5(6), and
(e) the value of elements referred to in sections 5(1)(b)(ii) through
(iv), determined in accordance with section 5(8) and reasonably
allocated to the material in accordance with section 5(12).
(2) For purposes of subsections (1)(a) and (b), where the costs recorded
on the books of the producer of the material relate to the production
of other goods and materials as well as to the production of the
material being valued, the costs referred to in subsections (1)(a) and
(b) with respect to the material being valued shall be those costs
recorded on the books of the producer of the material that can be
reasonably allocated to that material in accordance with Schedule VII.
(3) The amount for profit and general expenses referred to in subsection
(1)(c) shall be determined on the basis of information supplied by or
on behalf of the producer of the material being valued unless the
profit and general expenses figures that are supplied with that
information are inconsistent with those usually reflected in sales by
producers of materials of the same class or kind as the material being
valued who are located in the country in which the material is produced
or the producer is located, as the case may be. The information
supplied shall be prepared in a manner consistent with generally
accepted accounting principles of the country in which the material
being valued is produced. Where the material is produced in the
territory of a NAFTA country, the information shall be prepared in
accordance with the Generally Accepted Accounting Principles set out in
the authorities listed for that NAFTA country in Schedule XII.
(4) For purposes of subsection (1)(c) and subsection (3), general
expenses means the direct and indirect costs of producing and selling
the material that are not included under subsections (1)(a) and (b).
(5) For purposes of subsection (3), the amount for profit and general
expenses shall be taken as a whole. Where, in the information supplied
by or on behalf of the producer of a material, the profit figure is low
and the general expenses figure is high, the profit and general expense
figures taken together may nevertheless be consistent with those
usually reflected in sales of materials of the same class or kind as
the material being valued. Where the producer of a material can
demonstrate that it is taking a nil or low profit on its sales of the
material because of particular commercial circumstances, its actual
profit and general expense figures shall be taken into account,
provided that the producer of the material has valid commercial reasons
to justify them and its pricing policy reflects usual pricing policies
in the branch of industry concerned. For an illustration of this, such
a situation might occur where producers have been forced to lower
prices temporarily because of an unforeseeable drop in demand, or where
the producers sell the material to complement a range of materials and
goods being produced in the country in which the material is sold and
accept a low profit to maintain competitiveness. A further illustration
is where a material was being launched and the producer accepted a nil
or low profit to offset high general expenses associated with the
launch.
[[Page 46452]]
(6) Where the figures for the profit and general expenses supplied by or
on behalf of the producer of the material are not consistent with those
usually reflected in sales of materials of the same class or kind as
the material being valued that are made by other producers in the
country in which that material is sold, the amount for profit and
general expenses may be based on relevant information other than that
supplied by or on behalf of the producer of the material.
(7) Where a customs administration uses information other than that
supplied by or on behalf of the producer of the material for the
purposes of determining the value of a material under this section, the
customs administration shall communicate to the producer, if that
producer so requests, the source of such information, the data used and
the calculations based upon such data, subject to the provisions on
confidentiality under Article 507 of the Agreement, as implemented in
each NAFTA country.
(8) Whether certain materials are of the same class or kind as the
material being valued shall be determined on a case-by-case basis with
reference to the circumstances involved. For purposes of determining
the amount for profit and general expenses usually reflected under the
provisions of this section, sales of the narrowest group or range of
materials of the same class or kind, which includes the material being
valued, for which the necessary information can be provided, shall be
examined. For the purposes of this section, the materials of the same
class or kind must be from the same country as the material being
valued.
SECTION 11.
(1) Where there is no transaction value under section 2(2) or the
transaction value is unacceptable under section 2(3), and the value of
the materials cannot be determined under sections 6 through 10, the
value of the material, referred to in Article 402(9)(b) of the
Agreement, as implemented by section 7(1)(b)(ii) of Part IV of this
Appendix, shall be determined under this section using reasonable means
consistent with the principles and general provisions of this Schedule
and on the basis of data available in the country in which the producer
is located.
(2) The value of the material determined under this section shall not be
determined on the basis of
(a) a valuation system which provides for the acceptance of the higher
of two alternative values;
(b) a cost of production other than the value determined in accordance
with section 10;
(c) minimum values;
(d) arbitrary or fictitious values;
(e) where the material is produced in the territory of the NAFTA
country in which the producer is located, the price of the material
for export from that territory; or
(f) where the material is imported, the price of the material for
export to a country other than to the territory of the NAFTA country
in which the producer is located.
(3) To the greatest extent possible, the value of the material
determined under this section shall be based on the methods of
valuation set out in sections 2 through 10, but a reasonable
flexibility in the application of such methods would be in conformity
with the aims and provisions of this section. For an illustration of
this, under section 6, the requirement that the identical materials
should be sold at or about the same time as the time the material being
valued is shipped to the producer could be flexibly interpreted.
Similarly, identical materials produced in a country other than the
country in which the material is produced could be the basis for
determining the value of the material, or the value of identical
materials already determined under section 9 could be used. For another
illustration, under section 7, the requirement that the similar
materials should be sold at or about the same time as the material
being valued are shipped to the producer could be flexibly interpreted.
Likewise, similar materials produced in a country other than the
country in which the material is produced could be the basis for
determining the value of the material, or the value of similar
materials already determined under the provisions of section 9 could be
used. For a further illustration, under section 9, the ninety days
requirement could be administered flexibly.
SCHEDULE IX
METHODS FOR DETERMINING THE VALUE OF NON-ORIGINATING MATERIALS THAT ARE
IDENTICAL MATERIALS AND THAT ARE USED IN THE PRODUCTION OF A GOOD
Definitions and Interpretation
SECTION 1. Definitions.
For purposes of this Schedule,
``FIFO method'' means the method by which the value of non-originating
materials first received in materials inventory, determined in
accordance with section 7 of this Appendix, is considered to be the
value of non-originating materials used in the production of the good
first shipped to the buyer of the good;
``identical materials'' means, with respect to a material, materials
that are the same as that material in all respects, including physical
characteristics, quality and reputation but excluding minor differences
in appearance;
``LIFO method'' means the method by which the value of non-originating
materials last received in materials inventory, determined in
accordance with section 7 of this Appendix, is considered to be the
value of non-originating materials used in the production of the good
first shipped to the buyer of the good;
``materials inventory'' means, with respect to a single plant of the
producer of a good, an inventory of non-originating materials that are
identical materials and that are used in the production of the good;
and
``rolling average method'' means the method by which the value of non-
originating materials used in the production of a good that is shipped
to the buyer of the good is based on the average value, calculated in
accordance with section 4, of the non-originating materials in
materials inventory.
General
SECTION 2.
For purposes of sections 5(11) and (12) and 6(10) of this Appendix,
the following are the methods for determining the value of non-
originating materials that are identical materials and are used in the
production of a good:
(a) FIFO method;
(b) LIFO method; and
[[Page 46453]]
(c) rolling average method.
SECTION 3.
(1) Where a producer of a good chooses, with respect to non-originating
materials that are identical materials, any of the methods referred to
in section 2, the producer may not use another of those methods with
respect to any other non-originating materials that are identical
materials and that are used in the production of that good or in the
production of any other good.
(2) Where a producer of a good produces the good in more than one plant,
the method chosen by the producer shall be used with respect to all
plants of the producer in which the good is produced.
(3) The method chosen by the producer to determine the value of non-
originating materials may be chosen at any time during the producer's
fiscal year and may not be changed during that fiscal year.
Average Value for Rolling Average Method
SECTION 4.
(1) The average value of non-originating materials that are identical
materials and that are used in the production of a good that is shipped
to the buyer of the good is calculated by dividing
(a) the total value of non-originating materials that are identical
materials in materials inventory prior to the shipment of the good,
determined in accordance with section 7 of this Appendix,
by
(b) the total units of those non-originating materials in materials
inventory prior to the shipment of the good.
(2) The average value calculated under subsection (1) is applied to the
remaining units of non-originating materials in materials inventory.
ADDENDUM
``EXAMPLES'' ILLUSTRATING THE APPLICATION OF THE METHODS FOR DETERMINING
THE VALUE OF NON-ORIGINATING MATERIALS THAT ARE IDENTICAL MATERIALS AND
THAT ARE USED IN THE PRODUCTION OF A GOOD
The following ``examples'' are based on the figures set out in the
table below and on the following assumptions:
(a) Materials A are non-originating materials that are identical
materials that are used in the production of Good A;
(b) one unit of Materials A is used to produce one unit of Good A;
(c) all other materials used in the production of Good A are
originating materials; and
(d) Good A is produced in a single plant.
----------------------------------------------------------------------------------------------------------------
Materials inventory (Receipts of Sales (Shipments
materials A) of good A)
Date (M/D/Y) --------------------------------------------------------
Quantity (units) Unit cost * Quantity (units)
----------------------------------------------------------------------------------------------------------------
01/01/94............................................... 200 $1.05 .................
01/03/94............................................... 1,000 1.00 .................
01/05/94............................................... 1,000 1.10 .................
01/08/94............................................... ................. ................. 500
01/09/94............................................... ................. ................. 500
01/10/94............................................... 1,000 1.05 .................
01/14/94............................................... ................. ................. 1,500
01/16/94............................................... 2,000 1.10 .................
01/18/94............................................... ................. ................. 1,500
----------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 7 of this Appendix.
Example 1: FIFO method
By applying the FIFO method:
(1) the 200 units of Materials A received on 01/01/94 and valued at
$1.05 per unit and 300 units of the 1,000 units of Material A received
on 01/03/94 and valued at $1.00 per unit are considered to have been
used in the production of the 500 units of Good A shipped on 01/08/94;
therefore, the value of the non-originating materials used in the
production of those goods is considered to be $510 [(200 unit x
$1.05) + ($300 units x $1.00)];
(2) 500 units of the remaining 700 units of Materials A received on 01/
03/94 and valued at $1.00 per unit are considered to have been used in
the production of the 500 units of Good A shipped on 01/09/94;
therefore, the value of the non-originating materials used in the
production of those goods is considered to be $500 (500 units x
$1.00);
(3) the remaining 200 units of the 1,000 of Materials A received on 01/
03/94 and valued at $1.00 per unit, the 1,000 units of Materials A
received on 01/05/94 and valued at $1.10 per unit, and 300 units of the
1,000 Materials A received on 01/10/94 and valued at $1.05 per unit are
considered to have been used in the production of the 1,500 units of
Good A shipped on 01/14/94; therefore, the value of non-originating
materials used in the production of those goods is considered to be
$1,615 [(200 units x $1.00) + (1,000 units x $1.10) + (300 units x
$1.05)]; and
(4) the remaining 700 units of the 1,000 units of Materials A received
on 01/10/94 and valued at $1.05 per unit and 800 units of the 2,000
units of Materials A received on 01/16/94 and valued at $1.10 per unit
are considered to have been used in the production of the 1,500 units
of Good A shipped on 01/18/94; therefore, the value of non-originating
materials used in the production of those goods is considered to be
$1,615 [(700 x $1.05) + (800 x $1.10)].
Example 2: LIFO method
By applying the LIFO method:
(1) 500 units of the 1,000 units of Materials A received on 01/05/94 and
valued at $1.10 per unit are considered to have been used in the
production of the 500 units of Good A shipped on 01/08/94; therefore,
the value of the non-originating materials used in the production of
those goods is considered to be $550 (500 units x $1.10);
[[Page 46454]]
(2) the remaining 500 units of the 1,000 units of Materials A received
on 01/05/94 and valued at $1.10 per unit are considered to have been
used in the production of the 500 units of Good A shipped on 01/09/94;
therefore, the value of non-originating materials used in the
production of those goods is considered to be $550 (500 units x
$1.10);
(3) the 1,000 units of Materials A received on 01/10/94 and valued at
$1.05 per unit and 500 units of the 1,000 units of Material A received
on 01/03/94 and valued at $1.00 per unit are considered to have been
used in the production of the 1,500 units of Good A shipped on 01/14/
94; therefore, the value of non-originating materials used in the
production of those goods is considered to be $1,550 [(1,000 units x
$1.05) + (500 units x $1.00)]; and
(4) 1,500 units of the 2,000 units of Materials A received on 01/16/94
and valued at $1.10 per unit are considered to have been used in the
production of the 1,500 units of Good A shipped on 01/18/94; therefore,
the value of non-originating materials used in the production of those
goods is considered to be $1,650 (1,500 units x $1.10).
Example 3: Rolling average method
The following table identifies the average value of non-originating
Materials A as determined under the rolling average method. For
purposes of this example, a new average value of non-originating
Materials A is calculated after each receipt.
----------------------------------------------------------------------------------------------------------------
Materials inventory
-----------------------------------------------------------------------------------------------------------------
Date (M/D/Y) Quantity (units) Unit cost* Total value
----------------------------------------------------------------------------------------------------------------
Beginning Inventory................. 1/1/94 200 $1.05 $210
Receipt............................. 1/3/94 1,000 1.00 1,000
AVERAGE VALUE....................... ................. 1,200 1.008 1,210
Receipt............................. 1/5/94 1,000 1.10 1,100
AVERAGE VALUE....................... ................. 2,200 1.05 2,310
Shipment............................ 1/8/94 500 1.05 525
AVERAGE VALUE....................... ................. 1,700 1.05 1,785
Shipment............................ 1/9/94 500 1.05 525
AVERAGE VALUE....................... ................. 1,200 1.05 1,260
Receipt............................. 1/16/94 2,000 1.10 2,200
AVERAGE VALUE....................... ................. 3,200 1.08 3,460
----------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 7 of this Appendix.
By applying the rolling average method:
(1) the value of non-originating materials used in the production of the
500 units of Good A shipped on 01/08/94 is considered to be $525 (500
units x $1.05); and
(2) the value of non-originating materials used in the production of the
500 units of Good A shipped on 01/09/94 is considered to be $525 (500
units x $1.05).
SCHEDULE X
INVENTORY MANAGEMENT METHODS
PART I
FUNGIBLE MATERIALS
Definitions and Interpretation
SECTION 1. Definitions.
For purposes of this Part,
``average method'' means the method by which the origin of fungible
materials withdrawn from materials inventory is based on the ratio,
calculated under section 5, of originating materials and non-
originating materials in materials inventory;
``FIFO method'' means the method by which the origin of fungible
materials first received in materials inventory is considered to be the
origin of fungible materials first withdrawn from materials inventory;
``LIFO method'' means the method by which the origin of fungible
materials last received in materials inventory is considered to be the
origin of fungible materials first withdrawn from materials inventory;
``materials inventory'' means,
(a) with respect to a producer of a good, an inventory of fungible
materials that are used in the production of the good, and
(b) with respect to a person from whom the producer of the good
acquired those fungible materials, an inventory from which fungible
materials are sold or otherwise transferred to the producer of the
good;
``opening inventory'' means the materials inventory at the time an
inventory management method is chosen;
``origin identifier'' means any mark that identifies fungible materials
as originating materials or non-originating materials.
General
SECTION 2.
The inventory management methods for determining whether fungible
materials referred to in section 7(16)(a) of this Appendix are
originating materials are the following:
(a) specific identification method;
(b) FIFO method;
(c) LIFO method; and
(d) average method.
SECTION 3.
[[Page 46455]]
Where a producer of a good or a person from whom the producer
acquired the materials that are used in the production of the good
chooses an inventory management method referred to in section 2, that
method, including the averaging period chosen in the case of the
average method, shall be used from the time the choice is made until
the end of the fiscal year of the producer or person.
Specific Identification Method
SECTION 4.
(1) Except as otherwise provided under subsection (2), where the
producer or person referred to in section 3 chooses the specific
identification method, the producer or person shall physically
segregate, in materials inventory, originating materials that are
fungible materials from non-originating materials that are fungible
materials.
(2) Where originating materials or non-originating materials that are
fungible materials are marked with an origin identifier, the producer
or person need not physically segregate those materials under
subsection (1) if the origin identifier remains visible throughout the
production of the good.
Average Method
SECTION 5.
Where the producer or person referred to in section 3 chooses the
average method, the origin of fungible materials withdrawn from
materials inventory is determined on the basis of the ratio of
originating materials and non-originating materials in materials
inventory that is calculated under sections 6 through 8.
SECTION 6.
(1) Except as otherwise provided in sections 7 and 8, the ratio is
calculated with respect to a month or three-month period, at the choice
of the producer or person, by dividing
(a) the sum of
(i) the total units of originating materials or non-originating
materials that are fungible materials and that were in materials
inventory at the beginning of the preceding one-month or three-
month period, and
(ii) the total units of originating materials or non-originating
materials that are fungible materials and that were received in
materials inventory during that preceding one-month or three-month
period,
by
(b) the sum of
(i) the total units of originating materials and non-originating
materials that are fungible materials and that were in materials
inventory at the beginning of the preceding one-month or three-
month period, and
(ii) the total units of originating materials and non-originating
materials that are fungible materials and that were received in
materials inventory during that preceding one-month or three-month
period.
(2) The ratio calculated with respect to a preceding month or three-
month period under subsection (1) is applied to the fungible materials
remaining in materials inventory at the end of the preceding month or
three-month period.
SECTION 7.
(1) Where the good is subject to a regional value-content requirement
and the regional value content is calculated under the net cost method
and the producer or person chooses to average over a period under
sections 6(15), 11(1), (3) or (6), 12(1) or 13(4) of this Appendix, the
ratio is calculated with respect to that period by dividing
(a) the sum of
(i) the total units of originating materials or non-originating
materials that are fungible materials and that were in materials
inventory at the beginning of the period, and
(ii) the total units of originating materials or non-originating
materials that are fungible materials and that were received in
materials inventory during that period,
by
(b) the sum of
(i) the total units of originating materials and non-originating
materials that are fungible materials and that were in materials
inventory at the beginning of the period, and
(ii) the total units of originating materials and non-originating
materials that are fungible materials and that were received in
materials inventory during that period.
(2) The ratio calculated with respect to a period under subsection (1)
is applied to the fungible materials remaining in materials inventory
at the end of the period.
SECTION 8.
(1) Where the good is subject to a regional value-content requirement
and the regional value content of that good is calculated under the
transaction value method or the net cost method, the ratio is
calculated with respect to each shipment of the good by dividing
(a) the total units of originating materials or non-originating
materials that are fungible materials and that were in materials
inventory prior to the shipment,
by
(b) the total units of originating materials and non-originating
materials that are fungible materials and that were in materials
inventory prior to the shipment.
(2) The ratio calculated with respect to a shipment of a good under
subsection (1) is applied to the fungible materials remaining in
materials inventory after the shipment.
Manner of Dealing With Opening Inventory
SECTION 9.
(1) Except as otherwise provided under subsections (2) and (3), where
the producer or person referred to in section 3 has fungible materials
in opening inventory, the origin of those fungible materials is
determined by
(a) identifying, in the books of the producer or person, the latest
receipts of fungible materials that add up to the amount of fungible
materials in opening inventory;
[[Page 46456]]
(b) determining the origin of the fungible materials that make up
those receipts; and
(c) considering the origin of those fungible materials to be the
origin of the fungible materials in opening inventory.
(2) Where the producer or person chooses the specific identification
method and has, in opening inventory, originating materials or non-
originating materials that are fungible materials and that are marked
with an origin identifier, the origin of those fungible materials is
determined on the basis of the origin identifier.
(3) The producer or person may consider all fungible materials in
opening inventory to be non-originating materials.
PART II
FUNGIBLE GOODS
Definitions and Interpretation
SECTION 10. Definitions.
For purposes of this Part,
``average method'' means the method by which the origin of fungible
goods withdrawn from finished goods inventory is based on the ratio,
calculated under section 12, of originating goods and non-originating
goods in finished goods inventory;
``FIFO method'' means the method by which the origin of fungible goods
first received in finished goods inventory is considered to be the
origin of fungible goods first withdrawn from finished goods inventory;
``finished goods inventory'' means an inventory from which fungible
goods are sold or otherwise transferred to another person;
``LIFO method'' means the method by which the origin of fungible goods
last received in finished goods inventory is considered to be the
origin of fungible goods first withdrawn from finished goods inventory;
``opening inventory'' means the finished goods inventory at the time an
inventory management method is chosen; and
``origin identifier'' means any mark that identifies fungible goods as
originating goods or non-originating goods.
General
SECTION 11.
The inventory management methods for determining whether fungible
goods referred to in section 7(16)(b) of this Appendix are originating
goods are the following:
(a) specific identification method;
(b) FIFO method;
(c) LIFO method; and
(d) average method.
SECTION 12.
Where an exporter of a good or a person from whom the exporter
acquired the good chooses an inventory management method referred to in
section 11, that method, including the averaging period chosen in the
case of the average method, shall be used from the time the choice is
made until the end of the fiscal year of the exporter or person.
Specific Identification Method
SECTION 13.
(1) Except as provided under subsection (2), where the exporter or
person referred to in section 12 chooses the specific identification
method, the exporter or person shall physically segregate, in finished
goods inventory, originating goods that are fungible goods from non-
originating goods that are fungible goods.
(2) Where originating goods or non-originating goods that are fungible
goods are marked with an origin identifier, the exporter or person need
not physically segregate those goods under subsection (1) if the origin
identifier is visible on the fungible goods.
Average Method
SECTION 14.
(1) Where the exporter or person referred to in section 12 chooses the
average method, the origin of each shipment of fungible goods withdrawn
from finished goods inventory during a month or three-month period, at
the choice of the exporter or person, is determined on the basis of the
ratio of originating goods and non-originating goods in finished goods
inventory for the preceding one-month or three-month period that is
calculated by dividing
(a) the sum of
(i) the total units of originating goods or non-originating goods
that are fungible goods and that were in finished goods inventory
at the beginning of the preceding one-month or three-month period,
and
(ii) the total units of originating goods or non-originating goods
that are fungible goods and that were received in finished goods
inventory during that preceding one-month or three-month period,
by
(b) the sum of
(i) the total units of originating goods and non-originating goods
that are fungible goods and that were in finished goods inventory
at the beginning of the preceding one-month or three-month period,
and
(ii) the total units of originating goods and non-originating goods
that are fungible goods and that were received in finished goods
inventory during that preceding one-month or three-month period.
(2) The calculation with respect to a preceding month or three-month
period under subsection (1) is applied to the fungible goods remaining
in finished goods inventory at the end of the preceding month or three-
month period.
Manner of Dealing with Opening Inventory
SECTION 15.
(1) Except as otherwise provided under subsections (2) and (3), where
the exporter or person referred to in section 12 has fungible goods in
opening inventory, the origin of those fungible goods is determined by
[[Page 46457]]
(a) identifying, in the books of the exporter or person, the latest
receipts of fungible goods that add up to the amount of fungible
goods in opening inventory;
(b) determining the origin of the fungible goods that make up those
receipts; and
(c) considering the origin of those fungible goods to be the origin of
the fungible goods in opening inventory.
(2) Where the exporter or person chooses the specific identification
method and has, in opening inventory, originating goods or non-
originating goods that are fungible goods and that are marked with an
origin identifier, the origin of those fungible goods is determined on
the basis of the origin identifier.
(3) The exporter or person may consider all fungible goods in opening
inventory to be non-originating goods.
ADDENDUM A
``EXAMPLES'' ILLUSTRATING THE APPLICATION OF THE INVENTORY MANAGEMENT
METHODS TO DETERMINE THE ORIGIN OF FUNGIBLE MATERIALS
The following ``examples'' are based on the figures set out in the
table below and on the following assumptions:
(a) originating Material A and non-originating Material A that are
fungible materials are used in the production of Good A;
(b) one unit of Material A is used to produce one unit of Good A;
(c) Material A is only used in the production of Good A;
(d) all other materials used in the production of Good A are
originating materials; and
(e) the producer of Good A exports all shipments of Good A to the
territory of a NAFTA country.
----------------------------------------------------------------------------------------------------------------
Materials inventory(Receipts of material A) Sales(Shipments
--------------------------------------------------------- of good A)
Date(M/D/Y) ------------------
Quantity(units) Unit cost * Total value Quantity(units)
----------------------------------------------------------------------------------------------------------------
12/18/93............................ 100 (O \1\) $1.00 $100
12/27/93............................ 100 (N \2\) 1.10 110
01/01/94............................ 200 (OI \3\)
01/01/94............................ 1,000 (O) 1.00 1,000
01/05/94............................ 1,000 (N) 1.10 1,100
01/10/94............................ ................. ................. ................. 100
01/10/94............................ 1,000 (O) 1.05 1,050
01/15/94............................ ................. ................. ................. 700
01/16/94............................ 2,000 (N) 1.10 2,200
01/20/94............................ ................. ................. ................. 1,000
01/23/94............................ ................. ................. ................. 900
----------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 7 of this Appendix.
\1\ ``O'' denotes originating materials.
\2\ ``N'' denotes non-originating materials.
\3\ ``OI'' denotes opening inventory.
Example 1: FIFO method
Good A is subject to a regional value-content requirement. Producer
A is using the transaction value method to determine the regional value
content of Good A.
By applying the FIFO method:
(1) the 100 units of originating Material A in opening inventory that
were received in materials inventory on 12/18/93 are considered to have
been used in the production of the 100 units of Good A shipped on 01/10/
94; therefore, the value of non-originating materials used in the
production of those goods is considered to be $0;
(2) the 100 units of non-originating Material A in opening inventory
that were received in materials inventory on 12/27/93 and 600 units of
the 1,000 units of originating Material A that were received in
materials inventory on 01/01/94 are considered to have been used in the
production of the 700 units of Good A shipped on 01/15/94; therefore,
the value of non-originating materials used in the production of those
goods is considered to be $110 (100 units x $1.10);
(3) the remaining 400 units of the 1,000 units of originating Material A
that were received in materials inventory on 01/01/94 and 600 units of
the 1,000 units of non-originating Material A that were received in
materials inventory on 01/05/94 are considered to have been used in the
production of the 1,000 units of Good A shipped on 01/20/94; therefore,
the value of non-originating materials used in the production of those
goods is considered to be $660 (600 units x $1.10); and
(4) the remaining 400 units of the 1,000 units of non-originating
Material A that were received in materials inventory on 01/05/94 and
500 units of the 1,000 units of originating Material A that were
received in materials inventory on 01/10/94 are considered to have been
used in the production of the 900 units of Good A shipped on 01/23/94;
therefore, the value of non-originating materials used in the
production of those goods is considered to be $440 (400 units x $1.10).
Example 2: LIFO method
Good A is subject to a change in tariff classification requirement
and the non-originating Material A used in the production of Good A
does not undergo the applicable change in tariff classification.
Therefore, where originating Material A is used in the production of
Good A, Good A is an originating good and, where non-originating
Material A is used in the production of Good A, Good A is a non-
originating good.
By applying the LIFO method:
(1) 100 units of the 1,000 units of non-originating Material A that were
received in materials inventory on 01/05/94 are considered to have been
used in the production of the 100 units of Good A shipped on 01/10/94;
(2) 700 units of the 1,000 units of originating Material A that were
received in materials inventory on 01/10/94 are considered to have been
used in the production of the 700 units of Good A shipped on 01/15/94;
(3) 1,000 units of the 2,000 units of non-originating Material A that
were received in materials inventory on 01/16/94 are considered to have
been used in the production of the 1,000 units of Good A shipped on 01/
20/94; and
[[Page 46458]]
(4) 900 units of the remaining 1,000 units of non-originating Material A
that were received in materials inventory on 01/16/94 are considered to
have been used in the production of the 900 units of Good A shipped on
01/23/94.
Example 3: Average method
Good A is subject to an applicable regional value-content
requirement. Producer A is using the transaction value method to
determine the regional value content of Good A. Producer A determines
the average value of non-originating Material A and the ratio of
originating Material A to total value of originating Material A and non-
originating Material A in the following table.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Materials inventory Sales(Shipments
-------------------------------------------------------------------------------------- of good A)
Date(M/D/Y) (Receipts of material A) (Non-originating material) ----------------
--------------------------------------------------------------------------------------
Quantity(units) Total value Unit cost * Quantity(units) Total value Ratio Quantity(units)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Receipt............................. 12/18/93 100 (O \1\) $100 $1.00
Receipt............................. 12/27/93 100 (N \2\) 110 1.10 100 $110.00
-------------------------------------------------------------------------
NEW AVERAGE INV. VALUE.............. ........... 200 (OI \3\) 210 1.05 100 105.00 0.50
Receipt............................. 01/01/94 1,000 (O) 1,000 1.00
-------------------------------------------------------------------------
NEW AVERAGE INV. VALUE.............. ........... 1,200 1,210 1.01 100 101.00 0.08
Receipt............................. 01/05/94 1,000 (N) 1,100 1.10 1,000 1,100.00
-------------------------------------------------------------------------
NEW AVERAGE INV. VALUE.............. ........... 2,200 2,310 1.05 1,100 1,155.00 0.50
Shipment............................ 01/10/94 (100) (105) 1.05 (50) (52.50) ........... 100
Receipt............................. 01/10/94 1,000 (O) 1,050 1.05
-------------------------------------------------------------------------
NEW AVERAGE INV. VALUE.............. ........... 3,100 3,255 1.05 1,050 1,102.50 0.34
Shipment............................ 01/15/94 (700) (735) 1.05 (238) (249.90) ........... 700
Receipt............................. 01/16/94 2,000 (N) 2,200 1.10 2,000 2,000.00
-------------------------------------------------------------------------
NEW AVERAGE INV. VALUE.............. ........... 4,400 4,720 1.07 2,816 3,013.20 0.64
Shipment............................ 01/20/94 (1,000) (1,070) 1.07 (640) (648.80) ........... 1,000
Shipment............................ 01/23/94 (900) (963) 1.07 (576) (616.32) ........... 900
-------------------------------------------------------------------------
NEW AVERAGE INV. VALUE.............. ........... 2,500 2,687 1.07 1,596 1,707.24 0.64
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 7 of this Appendix.
\1\ ``O'' denotes originating materials.
\2\ ``N'' denotes non-originating materials.
\3\ ``OI'' denotes opening inventory.
By applying the average method:
(1) before the shipment of the 100 units of Material A on 01/10/94, the
ratio of units of originating Material A to total units of Material A
in materials inventory was .50 (1,100 units/2,200 units) and the ratio
of units of non-originating Material A to total units of Material A in
materials inventory was .50 (1,100 units/2,200 units); based on those
ratios, 50 units (100 units x .50) of originating Material A and 50
units (100 units x .50) of non-originating Material A are considered
to have been used in the production of the 100 units of Good A shipped
on 01/10/94; therefore, the value of non-originating Material A used in
the production of those goods is considered to be $52.50 [100 units x
$1.05 (average unit value) x .50]; the ratios are applied to the
units of Material A remaining in materials inventory after the
shipment: 1,050 units (2,100 units x .50) are considered to be
originating materials and 1,050 units (2,100 units x .50) are
considered to be non-originating materials;
(2) before the shipment of the 700 units of Good A on 01/15/94, the
ratio of units of originating Material A to total units of Material A
in materials inventory was 66% (2,050 units/3,100 units) and the ratio
of units of non-originating Material A to total units of Material A in
materials inventory was 34% (1,050 units/3,100 units); based on those
ratios, 462 units (700 units x .66) of originating Material A and 238
units (700 units x .34) of non-originating Material A are considered
to have been used in the production of the 700 units of Good A shipped
on 01/15/94; therefore, the value of non-originating Material A used in
the production of those goods is considered to be $249.90 [700 units x
$1.05 (average unit value) x 34%]; the ratios are applied to the
units of Material A remaining in materials inventory after the
shipment: 1,584 units (2,400 units x .66) are considered to be
originating materials and 816 units (2,400 units x .34) are
considered to be non-originating materials;
(3) before the shipment of the 1,000 units of Material A on 01/20/94,
the ratio of units of originating Material A to total units of Material
A in materials inventory was 36% (1,584 units/4,400 units) and the
ratio of units of non-originating Material A to total units of Material
A in materials inventory was 64% (2,816 units/4,400 units); based on
those ratios, 360 units (1,000 units x .36) of originating Material A
and 640 units (1,000 units x .64) of non-originating Material A are
considered to have been used in the production of the 1,000 units of
Good A shipped on 01/20/94; therefore, the value of non-originating
Material A used in the production of those goods is considered to be
$684.80 [1,000 units x $1.07 (average unit value) x 64%]; those
ratios are applied to the units of Material A remaining in materials
inventory after the shipment: 1,224 units (3,400 units x .36) are
considered to be originating materials and 2,176 units (3,400 units x
.64) are considered to be non-originating materials;
[[Page 46459]]
(4) before the shipment of the 900 units of Good A on 01/23/94, the
ratio of units of originating Material A to total units of Material A
in materials inventory was 36% (1,224 units/3,400 units) and the ratio
of units of non-originating Material A to total units of Material A in
materials inventory was 64% (2,176 units/3,400 units; based on those
ratios, 324 units (900 units x .36) of originating Material A and 576
units (900 units x .64) of non-originating Material A are considered
to have been used in the production of the 900 units of Good A shipped
on 01/23/94; therefore, the value of non-originating Material A used in
the production of those goods is considered to be $616.32 [900 units x
$1.07 (average unit value) x 64%]; those ratios are applied to the
units of Material A remaining in materials inventory after the
shipment: 900 units (2,500 units x .36) are considered to be
originating materials and 1,600 units (2,500 units x .64) are
considered to be non-originating materials.
Example 4: Average method
Good A is subject to an applicable regional value-content
requirement. Producer A is using the net cost method and is averaging
over a period of one month under section 6(15)(a) of this Appendix to
determine the regional value content of Good A.
By applying the average method:
the ratio of units of originating Material A to total units of
Material A in materials inventory for January 1994 is 40.4% (2,100
units/5,200 units);
based on that ratio, 1,091 units (2,700 units x .404) of originating
Material A and 1,609 units (2,700 units-1,091 units) of non-
originating Material A are considered to have been used in the
production of the 2,700 units of Good A shipped in January 1994;
therefore, the value of non-originating materials used in the
production of those goods is considered to be $0.64 per unit [$5,560
(total value of Material A in materials inventory)/ $5,200 (units of
Material A in materials inventory) = $1.07 (average unit value) x
(1-.404)] or $1,728 ($0.64 x 2,700 units); and
that ratio is applied to the units of Material A remaining in
materials inventory on January 31, 1994: 1,010 units (2,500 units x
.404) are considered to be originating materials and 1,490 units
(2,500 units-1,010 units) are considered to be non-originating
materials.
ADDENDUM B
``EXAMPLES'' ILLUSTRATING THE APPLICATION OF THE INVENTORY MANAGEMENT
METHODS TO DETERMINE
THE ORIGIN OF FUNGIBLE GOODS
The following ``examples'' are based on the figures set out in the
table below and on the assumption that Exporter A acquires originating
Good A and non-originating Good A that are fungible goods and
physically combines or mixes Good A before exporting those goods to the
buyer of those goods.
----------------------------------------------------------------------------------------------------------------
Finished goods Sales (shipments of
inventory (receipts of good A)
Date (M/D/Y) good A) ------------------------
-------------------------
Quantity (units) Quantity (units)
----------------------------------------------------------------------------------------------------------------
12/18/93...................................................... 100 (O 1)
12/27/93...................................................... 100 (N 2)
01/01/94...................................................... 200 (OI 3)
01/01/94...................................................... 1,000 (O)
01/05/94...................................................... 1,000 (N)
01/10/94...................................................... ....................... 100
01/15/94...................................................... 1,000 (O)
01/16/94...................................................... ....................... 700
01/20/94...................................................... 2,000 (N)
01/20/94...................................................... ....................... 1,000
01/23/94...................................................... ....................... 900
----------------------------------------------------------------------------------------------------------------
1 ``O'' denotes originating goods.
2 ``N'' denotes non-originating goods.
3 ``OI'' denotes opening inventory.
Example 1: FIFO method
By applying the FIFO method:
(1) the 100 units of originating Good A in opening inventory that were
received in finished goods inventory on 12/18/93 are considered to be
the 100 units of Good A shipped on 01/10/94;
(2) the 100 units of non-originating Good A in opening inventory that
were received in finished goods inventory on 12/27/93 and 600 units of
the 1,000 units of originating Good A that were received in finished
goods inventory on 01/01/94 are considered to be the 700 units of Good
A shipped on 01/15/94;
(3) the remaining 400 units of the 1,000 units of originating Good A
that were received in finished goods inventory on 01/01/94 and 600
units of the 1,000 units of non-originating Good A that were received
in finished goods inventory on 01/05/94 are considered to be the 1,000
units of Good A shipped on 01/20/94; and
(4) the remaining 400 units of the 1,000 units of non-originating Good A
that were received in finished goods inventory on 01/05/94 and 500
units of the 1,000 units of originating Good A that were received in
finished goods inventory on 01/10/94 are considered to be the 900 units
of Good A shipped on 01/23/94.
Example 2: LIFO method
By applying the LIFO method:
(1) 100 units of the 1,000 units of non-originating Good A that were
received in finished goods inventory on 01/05/94 are considered to be
the 100 units of Good A shipped on 01/10/94;
(2) 700 units of the 1,000 units of originating Good A that were
received in finished goods inventory on 01/10/94 are considered to be
the 700 units of Good A shipped on 01/15/94;
(3) 1,000 units of the 2,000 units of non-originating Good A that were
received in finished goods inventory on 01/16/94 are considered to be
the 1,000 units of Good A shipped on 01/20/94; and
(4) 900 units of the remaining 1,000 units of non-originating Good A
that were received in finished goods inventory on 01/16/94 are
considered to be the 900 units of Good A shipped on 01/23/94.
Example 3: Average method
[[Page 46460]]
Exporter A chooses to determine the origin of Good A on a monthly
basis. Exporter A exported 3,000 units of Good A during the month of
February 1994. The origin of the units of Good A exported during that
month is determined on the basis of the preceding month, that is
January 1994.
By applying the average method:
the ratio of originating goods to all goods in finished goods
inventory for the month of January 1994 is 40.4% (2,100 units/5,200
units);
based on that ratio, 1,212 units (3,000 units x .404) of Good A
shipped in February 1994 are considered to be originating goods and
1,788 units (3,000 units - 1,212 units) of Good A are considered to
be non-originating goods; and
that ratio is applied to the units of Good A remaining in finished
goods inventory on January 31, 1994: 1,010 units (2,500 units x
.404) are considered to be originating goods and 1,490 units (2,500
units - 1,010 units) are considered to be non-originating goods.
SCHEDULE XI
METHOD FOR CALCULATING NON-ALLOWABLE INTEREST COSTS
Definitions and Interpretation
SECTION 1. Definitions.
For purposes of this Schedule,
``fixed-rate contract'' means a loan contract, installment purchase
contract or other financing agreement in which the interest rate
remains constant throughout the life of the contract or agreement;
``linear interpolation'' means, with respect to the yield on federal
government debt obligations, the application of the following
mathematical formula:
A+[((B-A) x (E-D))/(C-D)]
where
A is the yield on federal government debt obligations that are
nearest in maturity but of shorter maturity than the weighted
average principal maturity of the payment schedule under the fixed-
rate contract or variable-rate contract to which they are being
compared,
B is the yield on federal government debt obligations that are
nearest in maturity but of greater maturity than the weighted
average principal maturity of that payment schedule,
C is the maturity of federal government debt obligations that are
nearest in maturity but of greater maturity than the weighted
average principal maturity of that payment schedule,
D is the maturity of federal government debt obligations that are
nearest in maturity but of shorter maturity than the weighted
average principal maturity of that payment schedule, and
E is the weighted average principal maturity of that payment
schedule; ``payment schedule'' means the schedule of payments,
whether on a weekly, bi-weekly, monthly, yearly or other basis, of
principal and interest, or any combination thereof, made by a
producer to a lender in accordance with the terms of a fixed-rate
contract or variable-rate contract;
``variable-rate contract'' means a loan contract, installment purchase
contract or other financing agreement in which the interest rate is
adjusted at intervals during the life of the contract or agreement in
accordance with its terms;
``weighted average principal maturity'' means, with respect to fixed-
rate contracts and variable-rate contracts, the number of years, or
portion thereof, that is equal to the number obtained by
(a) dividing the sum of the weighted principal payments,
(i) in the case of a fixed-rate contract, by the original amount of
the loan, and
(ii) in the case of a variable-rate contract, by the principal
balance at the beginning of the interest rate period for which the
weighted principal payments were calculated, and
(b) rounding the amount determined under paragraph (a) to the nearest
single decimal place and, where that amount is the midpoint between
two such numbers, to the greater of those two numbers;
``weighted principal payment'' means,
(a) with respect to fixed-rate contracts, the amount determined by
multiplying each principal payment under the contract by the number
of years, or portion thereof, between the date the producer entered
into the contract and the date of that principal payment, and
(b) with respect to variable-rate contracts
(i) the amount determined by multiplying each principal payment made
during the current interest rate period by the number of years, or
portion thereof, between the beginning of that interest rate period
and the date of that payment, and
(ii) the amount equal to the outstanding principal owing, but not
necessarily due, at the end of the current interest rate period,
multiplied by the number of years, or portion thereof, between the
beginning and the end of that interest rate period;
``yield on federal government debt obligations'' means
(a) in the case of a producer located in Canada, the yield for federal
government debt obligations set out in the Bank of Canada's Weekly
Financial Statistics
(i) where the interest rate is adjusted at intervals of less than
one year, under the title ``Treasury Bills'', and
(ii) in any other case, under the title ``Selected Government of
Canada benchmark bond yields'',
for the week that the producer entered into the contract or the week
of the most recent interest rate adjustment date, if any, under the
contract,
(b) in the case of a producer located in Mexico, the yield for federal
government debt obligations set out in La Seccion de Indicadores
Monetarios, Financieros, y de Finanzas Publicas, de los Indicadores
Economicos, published by the Banco de Mexico under the title
``Certificados de la Tesoreria de la Federacion'' for the week that
the producer entered into the contract or the week of the most recent
interest rate adjustment date, if any, under the contract, and
(c) in the case of a producer located in the United States, the yield
for federal government debt obligations set out in the Federal
Reserve statistical release (H.15) Selected Interest Rates
[[Page 46461]]
(i) where the interest rate is adjusted at intervals of less than
one year, under the title ``U.S. government securities, Treasury
bills, Secondary market'', and
(ii) in any other case, under the title ``U.S. Government
Securities, Treasury constant maturities'',
for the week that the producer entered into the contract or the week
of the most recent interest rate adjustment date, if any, under the
contract.
General
SECTION 2.
For purposes of calculating non-allowable interest costs
(a) with respect to a fixed-rate contract, the interest rate under
that contract shall be compared with the yield on federal government
debt obligations that have maturities of the same length as the
weighted average principal maturity of the payment schedule under the
contract (that yield determined by linear interpolation, where
necessary);
(b) with respect to a variable-rate contract
(i) in which the interest rate is adjusted at intervals of less than
or equal to one year, the interest rate under that contract shall
be compared with the yield on federal government debt obligations
that have maturities closest in length to the interest rate
adjustment period of the contract, and
(ii) in which the interest rate is adjusted at intervals of greater
than one year, the interest rate under the contract shall be
compared with the yield on federal government debt obligations that
have maturities of the same length as the weighted average
principal maturity of the payment schedule under the contract (that
yield determined by linear interpolation, where necessary); and
(c) with respect to a fixed-rate or variable-rate contract in which
the weighted average principal maturity of the payment schedule under
the contract is greater than the maturities offered on federal
government debt obligations, the interest rate under the contract
shall be compared to the yield on federal government debt obligations
that have maturities closest in length to the weighted average
principal maturity of the payment schedule under the contract.
ADDENDUM
``EXAMPLE'' ILLUSTRATING THE APPLICATION OF THE METHOD FOR CALCULATING
NON-ALLOWABLE INTEREST COSTS IN THE CASE OF A FIXED-RATE CONTRACT
The following example is based on the figures set out in the table
below and on the following assumptions:
(a) a producer in a NAFTA country borrows $1,000,000 from a person of
the same NAFTA country under a fixed-rate contract;
(b) under the terms of the contract, the loan is payable in 10 years
with interest paid at the rate of 6 percent per year on the declining
principal balance;
(c) the payment schedule calculated by the lender based on the terms
of the contract requires the producer to make annual payments of
principal and interest of $135,867.36 over the life of the contract;
(d) there are no federal government debt obligations that have
maturities equal to the 6-year weighted average principal maturity of
the contract; and
(e) the federal government debt obligations that are nearest in
maturity to the weighted average principal maturity of the contract
are of 5- and 7-year maturities, and the yields on them are 4.7
percent and 5.0 percent, respectively.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Weighted
Years of loan Principal balance Interest payment Principal payment Payment schedule principal payment
\1\ \2\ \3\ \4\
--------------------------------------------------------------------------------------------------------------------------------------------------------
1....................................................... $924,132.04 $60,000.00 $75,867.96 $135,867.96 $75,867.96
2....................................................... 843,712.00 55,447.92 80,420.04 135,867.96 160,840.08
3....................................................... 758,466.76 50,622.72 85,245.24 135,867.96 255,735.72
4....................................................... 668,106.81 45,508.01 90,359.95 135,867.96 361,439.82
5....................................................... 572,325.26 40,086.41 95,781.55 135,867.96 478,907.76
6....................................................... 470,796.81 34,339.52 101,528.44 135,867.96 609,170.67
7....................................................... 363,176.66 28,247.81 107,620.15 135,867.96 753,341.06
8....................................................... 249,099.30 21,790.60 114,077.36 135,867.96 912,618.88
9....................................................... 128,177.30 14,945.96 120,922.00 135,867.96 1,088,298.02
10...................................................... (0.00) 7,690.66 128,177.32 135,867.96 1,281,773.22
------------------
.................. ................. ................. ................. $5,977,993.19
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The principal balance represents the loan balance at the end of each full year the loan is in effect and is calculated by subtracting the current
year's principal payment from the prior year's ending loan balance.
\2\ Interest payments are calculated by multiplying the prior year's ending loan balance by the contract interest rate of 6 percent.
\3\ Principal payments are calculated by subtracting the current year's interest payments from the annual payment schedule amount.
\4\ The weighted principal payment is determined by, for each year of the loan, multiplying that year's principal payment by the number of years the
loan had been in effect at the end of that year.
\5\ The weighted average principal maturity of the contract is calculated by dividing the sum of the weighted principal payments by the original loan
amount and rounding the amount determined to the nearest decimal place.
Weighted Average Principal Maturity
$5,977,993.19/$1,000,000=5.977993 or 6 years \5\
By applying the above method:
(1) the weighted average principal maturity of the payment schedule
under the 6 percent contract is 6 years;
(2) the yields on the closest maturities for comparable federal
government debt obligations of 5 years and 7 years are 4.7 percent
and 5.0 percent, respectively; therefore, using linear interpolation,
the yield on a federal government debt obligation that has a maturity
equal to the weighted average principal maturity of the contract is
4.85 percent. This number is calculated as follows:
[[Page 46462]]
4.7+[((5.0-4.7) x (6-5))/(7-5)]
=4.7+0.15
=4.85%; and
(3) the producer's contract interest rate of 6 percent is within 700
basis points of the 4.85 percent yield on the comparable federal
government debt obligation; therefore, none of the producer's
interest costs are considered to be non-allowable interest costs for
purposes of the definition ``non-allowable interest costs.''
``EXAMPLE'' ILLUSTRATING THE APPLICATION OF THE METHOD FOR CALCULATING
NON-ALLOWABLE INTEREST COSTS IN THE CASE OF A VARIABLE-RATE CONTRACT
The following example is based on the figures set out in the tables
below and on the following assumptions:
(a) a producer in a NAFTA country borrows $1,000,000 from a person of
the same NAFTA country under a variable-rate contract;
(b) under the terms of the contract, the loan is payable in 10 years
with interest paid at the rate of 6 percent per year for the first
two years and 8 percent per year for the next two years on the
principal balance, with rates adjusted each two years after that;
(c) the payment schedule calculated by the lender based on the terms
of the contract requires the producer to make annual payments of
principal and interest of $135,867.96 for the first two years of the
loan, and of $146,818.34 for the next two years of the loan;
(d) there are no federal government debt obligations that have
maturities equal to the 1.9-year weighted average principal maturity
of the first two years of the contract;
(e) there are no federal government debt obligations that have
maturities equal to the 1.9-year weighted average principal maturity
of the third and fourth years of the contract; and
(f) the federal government debt obligations that are nearest in
maturity to the weighted average principal maturity of the contract
are 1- and 2-year maturities, and the yields on them are 3.0 percent
and 3.5 percent respectively.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Weighted
Beginning of year Principal balance Interest rate (%) Interest payment Principal payment Payment schedule principal payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..................................... $1,000,000.00 6.00 $60,000.00 $75,867.96 $135,867.96 $75,867.96
2..................................... 924,132.04 6.00 55,447.92 80,420.04 135,867.96 1,848,264.08
------------------
................. ................. ................. ................. ................. $1,924,132.04
--------------------------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Principal Maturity
$1,924,132.04/$1,000,000=1.92413204 or 1.9 years
By applying the above method:
(1) the weighted average principal maturity of the payment schedule of
the first two years of the contract is 1.9 years;
(2) the yield on the closest maturities of federal government debt
obligations of 1 year and 2 years are 3.0 and 3.5 percent,
respectively; therefore, using linear interpolation, the yield on a
federal government debt obligation that has a maturity equal to the
weighted average principal maturity of the payment schedule of the
first two years of the contract is 3.45 percent. This amount is
calculated as follows:
3.0+[((3.5-3.0) x (1.9-1.0))/(2.0-1.0)]
=3.0+0.45
=3.45%; and
(3) the producer's contract rate of 6 percent for the first two years
of the loan is within 700 basis points of the 3.45 percent yield on
federal government debt obligations that have maturities equal to the
1.9-year weighted average principal maturity of the payment schedule
of the first two years of the producer's loan contract; therefore,
none of the producer's interest costs are considered to be non-
allowable interest costs for purposes of the definition ``non-
allowable interest costs''.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Weighted
Beginning of year Principal balance Interest rate (%) Interest payment Principal payment Payment schedule principal payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..................................... $1,000,000.00 6.00 $60,000.00 $75,867.96 $135,867.96
2..................................... 924,132.04 6.00 55,447.92 80,420.04 135,867.96
3..................................... 843,712.01 8.00 67,496.96 79,321.38 146,818.34 $79,321.38
4..................................... 764,390.62 8.00 61,151.25 85,667.09 146,818.34 1,528,781.24
------------------
$1,608,102.62
--------------------------------------------------------------------------------------------------------------------------------------------------------
Weighted Average Principal Maturity
$1,608,102.62/$843,712.01=1.905985 or 1.9 years
By applying the above method:
(1) the weighted average principal maturity of the payment schedule
under the first two years of the contract is 1.9 years;
[[Page 46463]]
(2) the federal government debt obligations that are nearest in
maturities to the weighted average principal maturity of the contract
are 1- and 2-year maturities, and the yields on them are 3.0 and 3.5
percent, respectively; therefore, using linear interpolation, the
yield on a federal government debt obligation that has a maturity
equal to the weighted average principal maturity of the payment
schedule of the first two years of the contract is 3.45 percent. This
amount is calculated as follows:
3.0+[((3.5-3.0) x (1.9-1.0))/(2.0-1.0)]
=3.0+0.45
=3.45%
(3) the producer's contract interest rate, for the third and fourth
years of the loan, of 8 percent is within 700 basis points of the
3.45 percent yield on federal government debt obligations that have
maturities equal to the 1.9-year weighted average principal maturity
of the payment schedule under the third and fourth years of the
producer's loan contract; therefore, none of the producer's interest
costs are considered to be non-allowable interest costs for purposes
of the definition ``non-allowable interest costs''.
SCHEDULE XII
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
SECTION 1.
Generally Accepted Accounting Principles means the recognized
consensus or substantial authoritative support in the territory of a
NAFTA country with respect to the recording of revenues, expenses,
costs, assets and liabilities, disclosure of information and
preparation of financial statements. These standards may be broad
guidelines of general application as well as detailed standards,
practices and procedures.
SECTION 2.
For purposes of Generally Accepted Accounting Principles, the
recognized consensus or authoritative support are referred to or set
out in the following publications:
(a) with respect to the territory of Canada, The Canadian Institute of
Chartered Accountants Handbook, as updated from time to time;
(b) with respect to the territory of Mexico, Los Principios de
Contabilidad Generalmente Aceptados, issued by the Instituto Mexicano
de Contadores Publicos A.C. (IMCP), including the boletines
complementarios, as updated from time to time; and
(c) with respect to the territory of the United States,
(i) the following publications of the American Institute of
Certified Public Accountants (AICPA), as updated from time to time:
(A) AICPA Professional Standards,
(B) Committee on Accounting Procedure Accounting Research
Bulletins,
(C) Accounting Principles Board Opinions and Statements,
(D) APB Accounting and Auditing Guides,
(E) AICPA Statements of Position, and
(F) AICPA Issues Papers and Practice Bulletins,
(ii) the following publications of the Financial Accounting
Standards Board (FASB), as updated from time to time:
(A) FASB Accounting Standards and Interpretations,
(B) FASB Technical Bulletins, and
(C) FASB Concepts Statements.
PART 191--DRAWBACK
1. The general authority citation for Part 191 is revised to read
as follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20,
Harmonized Tariff Schedule of the United States), 1313, 1624.
* * * * *
2. The last sentence of Sec. 191.0 is republished to read as
follows:
Sec. 191.0 Scope.
* * * Additional drawback provisions relating to the North American
Free Trade Agreement are contained in subpart E of part 181 of this
chapter.
Dated: August 16, 1995.
George J. Weise,
Commissioner of Customs.
Approved:
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 95-21716 Filed 8-30-95; 9:56 am]
BILLING CODE 4820-02-P
