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(continued)
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
(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;
(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.
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
Internationa
l 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
Internationa
l 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;
(e) the value of
materials with
respect to which
production is
accumulated
under section 14
shall be
determined in
accordance with
that section;
and
(f) total cost
includes the
impact of
inflation as
recorded on the
books of the
producer, if
recorded in
accordance with
the Generally
Accepted
Accounting
Principles of
the producer's
country.
(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.
(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;
(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),
(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);
(c) a non-
originating
material
provided for in
any of heading
0805 and
subheadings
2009.11 through
2009.39 that is
used in the
production of a
good provided
for in any of
subheadings
2009.11 through
2009.39 and
tariff items
2106.90.48 and
2106.90.52
(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 2101.11.21
(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 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,
and tariff items
8479.89.55
(trash
compactors) and
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 Rulesfor the (continued)