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(continued)
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.
(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.
(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
4010.31 through
4010.34 and
4010.39.10 through
4010.39.20
4011
4016.93.10
4016.99.30 and
4016.99.55
7007.11 and 7007.21
7009.10
8301.20
8407.31
8407.32
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
8415.20
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
8519.93
8527.21
8527.29
8536.50
8536.90
8537.10.60
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








SCHEDULE V
LIST OF AUTOMOTIVE
COMPONENTS AND
MATERIALS FOR THE
PURPOSES OF SECTION
10 OF THE APPENDIX






------------------------------------------------------------------------
Column I
Item automotive Column II listed materials
components
------------------------------------------------------------------------
1. Engines provided Cast blocks, cast heads, fuel nozzles, fuel
for in heading injector pumps, glow plugs, turbochargers,
8407 or 8408. 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 (a) For manual transmissions: transmission
(transmissions) cases and clutch housings; clutches;
provided for in internal shifting mechanisms; gear sets,
subheading synchronizers and shafts; and
8708.40.
(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








(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
correspondin
g 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
correspondin
g 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.
(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 4.1.
Nothwithstanding
section 3 and 7,
where a producer
allocates, for an
internal
management
purpose, costs to
a good that is not
produced in the
period in which
the costs are
expensed on the
books of the
producer (such as
costs with respect
to research and
development, and
obsolete
materials), those
costs shall be
considered
reasonably
allocated if
(a) for purposes
of section
6(11), they are
allocated to a
good that is
produced in the
period in which
the costs are
expensed, and
(b) the good
produced in that
period is within
a group or range
of goods,
including
identical goods
or similar
goods, that is
produced by the
same industry or
industry sector
as the goods to
which the costs
are expensed.
SECTION 5.
Any cost
allocation method
referred to in
section 3, 4 or
4.1 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,
except gains or
losses related
to the
production of
the good;
(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:






where

CR is the cost ratio with respect to the good;

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:
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:






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) × DLDMR ($15/$25)

OAG (Good A) = $18.00

Overhead Allocated to Good B

OAG (Good B) = O ($30) × 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
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:






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) × DCR ($23/$35)

IOAG (Good A) = $19.71

Indirect Overhead Allocated to Good B

IOAG (Good B) = IO ($30) × 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 (continued)