PART 3...NAFTA TITLE II--CUSTOMS PROVISIONS House Ways & Means Committee Report Title II--Customs Provisions The House Energy & Commerce Committee Report No Legislative History. Senate Finance Committee Report Title II--Customs Provisions SEC. 201. TARIFF MODIFICATIONS a) Tariff Modifications Provided for in the Agreement.--(1) Proclamation authority.--The President may proclaim--(A) such modifications or continuation of any duty,(B) such continuation of duty-free or excise treatment, or(C) such additional duties, Effect on mexican gsp status.--Notwithstanding section 502(a)(2) of the Trade Act of 1974 (19 U.S.C. 2462(a)(2)), the President shall terminate the designation of Mexico as a beneficiary developing country for purposes of title V of the Trade Act of 1974 on the date of entry into force of the Agreement between the United States and Mexico.(b) Other Tariff Modifications.--(1) In general.--Subject to paragraph (2) and the consultation and layover requirements of section 103(a), the President may proclaim--(A) such modifications or continuation of any duty,(B) such modifications as the United States may agree to with Mexico or Canada regarding the staging of any duty treatment set forth in Annex 302.2 of the Agreement,(C) such continuation of duty-free or excise treatment, or(D) such additional duties, as the President determines to be necessary or appropriate to maintain the general level of reciprocal and mutually advantageous concessions with respect to Canada or Mexico provided for by the Agreement.(2) Special rule for articles with tariff phaseout periods of more than 10 years.--The President may not consider a request to accelerate the staging of duty reductions for an article for which the United States tariff phaseout period is more than 10 years if a request for acceleration with respect to such article has been denied in the preceding 3 calendar years.(c) Conversion to Ad Valorem Rates for Certain Textiles.--For purposes of subsections (a) and (b), with respect to an article covered by Annex 300-B of the Agreement imported from Mexico for which the base rate in the Schedule of the United States in Annex 300-B is a specific or compound rate of duty, the President may substitute for the base rate an ad valorem rate that the President determines to be equivalent to the base rate. House Ways & Means Committee Report Present law Section 201 of the U.S.-Canada FTA Implementation Act authorizes the President to proclaim the modification or continuation of existing U.S. rates of duty or duty-free treatment, or such additional duties as the President determines necessary or appropriate to implement Article 401 of the U.S.- Canada FTA and the schedules set forth in Annexes 401.2 and 401.7 of the FTA for elimination of U.S. duties on imports of articles originating in Canada. Section 201 of that Act also authorizes the President to proclaim, subject to consultation and Congressional layover requirements, subsequent tariff modifications as the President determines necessary or appropriate to maintain the general level of reciprocal and mutually advantageous concessions with respect to Canada under the FTA, including accelerated staging of scheduled tariff elimination as agreed with Canada. Explanation of provision Section 201 of H.R. 3450 contains the authority for the President to modify, continue, or impose additional U.S. duties as necessary or appropriate to implement various Articles of the NAFTA. Subsection (a) authorizes the President to proclaim such modifications or continuation of any U.S. duty, continuation of existing duty-free or excise treatment, or such additional duties as the President determines to be necessary or appropriate to carry out or apply Articles 302, 305, 307, 308, and 703, and Annexes 302.2, 307.1, 308.1, 308.2, 300-B, 703.2, and 703.3 of the NAFTA, as submitted to and approved by the Congress under section 101(a) of the NAFTA Implementation Act. Subsection (a) also requires the President, notwithstanding the Congressional advance notice requirements of section 502(a)(2) of the Trade Act of 1974, to terminate the designation of Mexico as a beneficiary developing country for purposes of the Generalized System of Preferences (GSP) program under Title V of the 1974 Act on the date of entry into force of the NAFTA between the United States and Mexico. Subsection (b) authorizes the President to proclaim, subject to the consultation and layover requirements of section 103(a), such modifications or continuation of any duty, such modifications as are agreed to with Mexico and Canada regarding the scheduled staging of any duty treatment set forth in Annex 302.2 of the NAFTA, continuation of duty-free or excise treatment, or such additional duties as the President determines to be necessary or appropriate to maintain the general level of reciprocal and mutually advantageous concessions with Canada or Mexico provided by the NAFTA. As an exception to this authority, the President may not consider a request to accelerate the staging of duty reductions for an article for which the U.S. tariff phaseout period is more than 10 years if a request for acceleration on that article has been denied in the preceding three calendar years. Subsection (c) authorizes the President, for purposes of implementing subsections (a) and (b), to substitute an equivalent ad valorem rate for a specific or compound rate of duty that is the base rate in the U.S. Schedule in Annex 300-B of the NAFTA for a textile or apparel article imported from Mexico. Reasons for change At the present time, U.S. imports from Mexico are subject to most-favored- nation (MFN) rates of duty, except for articles designated eligible for duty- free treatment from Mexico as a beneficiary developing country under the GSP program. Under the U.S.-Canada FTA, tariffs on originating goods (goods meeting the FTA rules of origin) traded between Canada and the United States will be eliminated by January 1, 1999. Section 201 grants the President the authority to implement by proclamation the various U.S. rights and obligations under Chapters 3 and 7 of the NAFTA with respect to the application or elimination of tariffs and tariff-rate quotas: Article 302, phased elimination of tariffs on originating goods according to the staging schedule set forth in Annex 302.2; Article 305, temporary duty-free admission of goods from a NAFTA country; Article 307, duty-free entry of articles reentered after repair or alteration in Canada or Mexico, or entry under bond of articles to be repaired in the United States, and the application of drawback; Article 308, and Annexes 308.1 and 308.2, agreed MFN tariff modifications for imported automatic data processing goods and parts, color television tubes, and local area network apparatus; Annex 300-B, phased tariff elimination, tariff safeguard actions, and tariff preference levels for textile and apparel articles; and Article 703 and Annexes 703.2 and 703.3, tariff modifications and tariff-rate quotas on agricultural products. The President is required to remove the eligibility of articles imported from Mexico for duty-free treatment under the GSP program upon the entry into force of the NAFTA in order to avoid potential circumvention of the rules-of- origin requirements under the NAFTA, which are generally stricter than the rules under the GSP program. All articles currently eligible for duty-free GSP treatment will become immediately duty-free under the terms of the NAFTA upon its entry into force. The purpose of the limitation on the authority to accelerate tariff elimination is to obviate the need for import-sensitive domestic industries to bear the time and expense of repeatedly making the case for maintaining the staging period in the Agreement, if an acceleration request has been denied in the preceding three years. The Administration intent as expressed in the Statement of Administrative Action to deny requests on such articles if the domestic industry opposes acceleration will also ensure that the adjustment period is maintained for these industries. In accordance with the Statement of Administrative Action, the Committee intends for the Administration to give special priority to negotiating the acceleration of tariff reductions for products where the Canadian or Mexican duty is substantially higher than the U.S. tariff, such as dry beans, bedding components, cream cheese, flat glass, major household appliances, potatoes, and wine. The House Energy & Commerce Committee Report No Legislative History. Senate Finance Committee Article 302 of the NAFTA is the cornerstone of the agreement between the three countries. It calls for the progressive elimination of tariffs according to the staging categories set forth in Annex 302.2 and in each Partys schedule to Annex 302.2. There are four basic staging categories: (1) immediate elimination of tariffs (category A); (2) five-year phase-out in equal, annual cuts of 20 percent (category B); (3) 10-year phase-out in equal annual cuts of 10 percent (category C); and (4) in the case of the most import-sensitive products, 15-year phase-out in equal, annual cuts of 6.67 percent per year (category C+). Goods that currently receive duty-free treatment will continue to receive duty-free treatment (category D).Section 201 implements Article 302. Subsection (a) authorizes the President to proclaim such modifications or continuation of any duty, continuation of duty-free or excise treatment, or such additional duties as he determines to be necessary or appropriate to implement the NAFTA articles and annexes providing for the phase-out of tariffs.Subsection (a) further requires the President to terminate Mexico as a beneficiary under the Generalized System of Preferences (GSP) program on the date the NAFTA enters into force between the United States and Mexico. The Committee believes that termination of Mexicos status as a GSP beneficiary is necessary to achieve the goals of the NAFTA, and the maximum possible benefits for the United States. The rules of origin under GSP are generally less stringent than the NAFTA rules of origin. The Committee believes that permitting Mexico to continue to receive GSP benefits would, therefore, undermine the NAFTA.Section 201(b) authorizes the President, subject to consultation and layover requirements, to proclaim tariff modifications, including the accelerated phase-out of tariffs, that the President determines to be necessary or appropriate to maintain the general level of reciprocal and mutually advantageous concessions with respect to Canada or Mexico. Subsection (b)(2) provides, however, that for articles with a tariff phaseout period of more than 10 years, the President may not consider a new request to accelerate the staging of duty reductions if a request for acceleration has been denied with respect to that article in the preceding three years. The Committee believes that this restriction is necessary for the import- sensitive products subject to these gradual phaseout periods in order to prevent petitioners from filing annual requests for acceleration, even in the absence of changed circumstances, that would require the domestic industry to devote often-limited resources to oppose the acceleration request. The Committee believes that this three-year rule will still afford parties interested in seeking acceleration an ample opportunity to do so, without unduly burdening the domestic industry.With respect to all requests for accelerated tariff reductions, it is the Committees intent that USTR continue to use the same administrative procedures in considering such requests under the NAFTA as have been used under the CFTA, with respect to denying such requests when they are opposed by the domestic industry. It is the Committees intention to use the consultation and layover period to screen for a second time any potentially controversial acceleration proposals.At the same time, the Committee recognizes that the provisions for accelerated tariff reduction can have a beneficial effect. To that end, the Committee urges the Administration, beginning as soon as possible after the NAFTAs entry into force, to press Mexico for accelerated removal of tariffs on a number of U.S. products, particularly those for which reciprocal tariff concessions were not obtained from Mexico during the course of the NAFTA negotiations. In particular, the Committee urges USTR to request immediate consultations with Mexico to seek accelerated reductions of the tariffs on household appliances, flat glass, bedding components, and wine and brandy. This is consistent with the November 3, 1993 exchange of letters between USTR Kantor and Mexican Secretary of Commerce and Industrial Development Serra Puche, which provide that the two countries will begin the first round of tariff acceleration negotiations in January 1994, immediately after the NAFTAs entry into force, with the intention of completing them in 120 days or less. The Committee expects to consult closely with USTR concerning the outcome of those acceleration negotiations, and requests that USTR issue a report to the Committee within 30-45 days of their conclusion.Section 201(c) authorizes the President to substitute for the base rate of certain textile and apparel articles covered by Annex 300-B an ad valorem rate equivalent to the base rate. The flexibility that this subsection provides is intended to implement an agreement between the United States and Mexico that the Committee understands has the full support of U.S. industry. (The base rates for customs duties, which are, in general, the rates of duty in effect on July 1, 1991, are set forth in each Partys Schedule to Annex 302.2.) SEC. 202. RULES OF ORIGIN (a) Originating Goods.-- (1) In general.--For purposes of implementing the tariff treatment and quantitative restrictions provided for under the Agreement, except as otherwise provided in this section, a good originates in the territory of a NAFTA country if-- (A) the good is wholly obtained or produced entirely in the territory of one or more of the NAFTA countries; (B)(i) each nonoriginating material used in the production of the good--(I) undergoes an applicable change in tariff classification set out in Annex 401 of the Agreement as a result of production occurring entirely in the territory of one or more of the NAFTA countries; or(II) where no change in tariff classification is required, the good otherwise satisfies the applicable requirements of such Annex; and(ii) the good satisfies all other applicable requirements of this section;(C) the good is produced entirely in the territory of one or more of the NAFTA countries exclusively from originating materials; or(D) except for a good provided for in chapters 61 through 63 of the HTS, the good is produced entirely in the territory of one or more of the NAFTA countries, but one or more of the nonoriginating materials, that are provided for as parts under the HTS and are used in the production of the good, does not undergo a change in tariff classification because--(i) the good was imported into the territory of a NAFTA country in an unassembled or a disassembled form but was classified as an assembled good pursuant to General Rule of Interpretation 2(a) of the HTS; or(ii)(I) the heading for the good provides for and specifically describes both the good itself and its parts and is not further subdivided into subheadings; or(II) the subheading for the good provides for and specifically describes both the good itself and its parts.(2) Special rules.--(A) Foreign-trade zones.--Subparagraph (B) of paragraph (1) shall not apply to a good produced in a foreign-trade zone or subzone (established pursuant to the Act of June 18, 1934, commonly known as the Foreign Trade Zones Act) that is entered for consumption in the customs territory of the United States.(B) Regional value-content requirement.--For purposes of subparagraph (D) of paragraph (1), a good shall be treated as originating in a NAFTA country if the regional value-content of the good, determined in accordance with subsection (b), is not less than 60 percent where the transaction value method is used, or not less than 50 percent where the net cost method is used, and the good satisfies all other applicable requirements of this section.(b) Regional Value-Content.--(1) In general.--Except as provided in paragraph (5), 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--(A) the transaction value method described in paragraph (2); or(B) the net cost method described in paragraph (3).(2) Transaction value method.--(A) In general.--An exporter or producer may calculate the regional value-content of a good on the basis of the following transaction value method: tv-vnm rvc = ------ x 100 tv (B) Definitions.--For purposes of subparagraph (A):(i) The term RVC means the regional value-content, expressed as a percentage.(ii) The term TV means the transaction value of the good adjusted to a F.O.B. basis.(iii) The term VNM means the value of nonoriginating materials used by the producer in the production of the good.(3) Net cost method.--(A) In general.--An exporter or producer may calculate the regional value-content of a good on the basis of the following net cost method: nc-vnm rvc = ------ x 100 nc (B) Definitions.--For purposes of subparagraph (A):(i) The term RVC means the regional value-content, expressed as a percentage.(ii) The term NC means the net cost of the good.(iii) The term VNM means the value of nonoriginating materials used by the producer in the production of the good.(4) Value of nonoriginating materials used in originating materials.--Except as provided in subsection (c)(1), and for a motor vehicle identified in subsection (c)(2) or a component identified in Annex 403.2 of the Agreement, the value of nonoriginating materials used by the producer in the production of a good shall not, for purposes of calculating the regional value-content of the good under paragraph (2) or (3), include the value of nonoriginating materials used to produce originating materials that are subsequently used in the production of the good.(5) Net cost method must be used in certain cases.--An exporter or producer shall calculate the regional value-content of a good solely on the basis of the net cost method described in paragraph (3), if--(A) there is no transaction value for the good;(B) the transaction value of the good is unacceptable under Article 1 of the Customs Valuation Code;(C) the good is sold by the producer to a related person and the volume, by units of quantity, of sales of identical or similar goods to related persons during the six-month period immediately preceding the month in which the good is sold exceeds 85 percent of the producers total sales of such goods during that period;(D) the good is--(i) a motor vehicle provided for in heading 8701 or 8702, subheadings 8703.21 through 8703.90, or heading 8704, 8705, or 8706;(ii) identified in Annex 403.1 or 403.2 of the Agreement and is for use in a motor vehicle provided for in heading 8701 or 8702, subheadings 8703.21 through 8703.90, or heading 8704, 8705, or 8706;(iii) provided for in subheadings 6401.10 through 6406.10; or(iv) a word processing machine provided for in subheading 8469.10.00;(E) the exporter or producer chooses to accumulate the regional value-content of the good in accordance with subsection (d); or(F) the good is designated as an intermediate material under paragraph (10) and is subject to a regional value-content requirement.(6) Net cost method allowed for adjustments.--If an exporter or producer of a good calculates the regional value-content of the good on the basis of the transaction value method and a NAFTA country subsequently notifies the exporter or producer, during the course of a verification conducted in accordance with chapter 5 of the Agreement, that the transaction value of the good or the value of any material used in the production of the good must be adjusted or is unacceptable under Article 1 of the Customs Valuation Code, the exporter or producer may calculate the regional value-content of the good on the basis of the net cost method.(7) Review of adjustment.--Nothing in paragraph (6) shall be construed to prevent any review or appeal available in accordance with article 510 of the Agreement with respect to an adjustment to or a rejection of--(A) the transaction value of a good; or(B) the value of any material used in the production of a good.(8) Calculating net cost.--The producer may, consistent with regulations implementing this section, calculate the net cost of a good under paragraph (3), by--(A) calculating the total cost incurred with respect to all goods produced by that producer, subtracting any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and nonallowable interest costs that are included in the total cost of all such goods, and reasonably allocating the resulting net cost of those goods to the good;(B) calculating the total cost incurred with respect to all goods produced by that producer, reasonably allocating the total cost to the good, and subtracting any sales promotion, marketing and after- sales service costs, royalties, shipping and packing costs, and nonallowable interest costs that are included in the portion of the total cost allocated to the good; or(C) reasonably allocating each cost that is part of the total cost incurred with respect to the good so that the aggregate of these costs does not include any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, or nonallowable interest costs.(9) Value of material used in production.--Except as provided in paragraph (11), the value of a material used in the production of a good--(A) shall--(i) be the transaction value of the material determined in accordance with Article 1 of the Customs Valuation Code; or(ii) in the event that there is no transaction value or the transaction value of the material is unacceptable under Article 1 of the Customs Valuation Code, be determined in accordance with Articles 2 through 7 of the Customs Valuation Code; and(B) if not included under clause (i) or (ii) of subparagraph (A), shall include--(i) freight, insurance, packing, and all other costs incurred in transporting the material to the location of the producer;(ii) duties, taxes, and customs brokerage fees paid on the material in the territory of one or more of the NAFTA countries; and(iii) the cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of renewable scrap or by-product.(10) Intermediate material.--Except for goods described in subsection (c)(1), any self-produced material, other than a component identified in Annex 403.2 of the Agreement, that is used in the production of a good may be designated by the producer of the good as an intermediate material for the purpose of calculating the regional value-content of the good under paragraph (2) or (3); provided that if the 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 used in the production of the intermediate material may be designated by the producer as an intermediate material.(11) Value of intermediate material.--The value of an intermediate material shall be--(A) the total cost incurred with respect to all goods produced by the producer of the good that can be reasonably allocated to the intermediate material; or(B) the aggregate of each cost that is part of the total cost incurred with respect to the intermediate material that can be reasonably allocated to that intermediate material.(12) Indirect material.--The value of an indirect material shall be based on the Generally Accepted Accounting Principles applicable in the territory of the NAFTA country in which the good is produced.(c) Automotive Goods.--(1) Passenger vehicles and light trucks, and their automotive parts.--For purposes of calculating the regional value-content under the net cost method for--(A) a good that is a motor vehicle for the transport of 15 or fewer persons provided for in subheading 8702.10.00 or 8702.90.00, or a motor vehicle provided for in subheadings 8703.21 through 8703.90, or subheading 8704.21 or 8704.31, or(B) a good provided for in the tariff provisions listed in Annex 403.1 of the Agreement, that is subject to a regional value-content requirement and is for use as original equipment in the production of a motor vehicle for the transport of 15 or fewer persons provided for in subheading 8702.10.00 or 8702.90.00, or a motor vehicle provided for in subheadings 8703.21 through 8703.90, or subheading 8704.21 or 8704.31, (2) Other vehicles and their automotive parts.--For purposes of calculating the regional value-content under the net cost method for a good that is a motor vehicle provided for in heading 8701, subheading 8704.10, 8704.22, 8704.23, 8704.32, or 8704.90, or heading 8705 or 8706, a motor vehicle for the transport of 16 or more persons provided for in subheading 8702.10.00 or 8702.90.00, or a component identified in Annex 403.2 of the Agreement for use as original equipment in the production of the motor vehicle, the value of nonoriginating materials used by the producer in the production of the good shall be the sum of--(A) for each material used by the producer listed in Annex 403.2 of the Agreement, whether or not produced by the producer, at the choice of the producer and determined in accordance with subsection (b), either--(i) the value of such material that is nonoriginating, or(ii) the value of nonoriginating materials used in the production of such material; and(B) the value of any other nonoriginating material used by the producer that is not listed in Annex 403.2 of the Agreement determined in accordance with subsection (b).(3) Averaging permitted.--(A) In general.--For purposes of calculating the regional value- content of a motor vehicle described in paragraph (1) or (2), the producer may average its calculation over its fiscal year, using any of the categories described in subparagraph (B), on the basis of either all motor vehicles in the category or on the basis of only the motor vehicles in the category that are exported to the territory of one or more of the other NAFTA countries.(B) Category described.--A category is described in this subparagraph if it is--(i) the same model line of motor vehicles in the same class of vehicles produced in the same plant in the territory of a NAFTA country;(ii) the same class of motor vehicles produced in the same plant in the territory of a NAFTA country;(iii) the same model line of motor vehicles produced in the territory of a NAFTA country; or(iv) if applicable, the basis set out in Annex 403.3 of the Agreement.(4) Annex 403.1 and annex 403.2.--For purposes of calculating the regional value-content for any or all goods provided for in a tariff provision listed in Annex 403.1 of the Agreement, or a component or material identified in Annex 403.2 of the Agreement, produced in the same plant, the producer of the good may--(A) average its calculation--(i) over the fiscal year of the motor vehicle producer to whom the good is sold;(ii) over any quarter or month; or(iii) over its fiscal year, if the good is sold as an aftermarket part;(B) calculate the average referred to in subparagraph (A) separately for any or all goods sold to one or more motor vehicle producers; or(C) with respect to any calculation under this paragraph, make a separate calculation for goods that are exported to the territory of one or more NAFTA countries.(5) Phase-in of regional value-content requirement.--Notwithstanding Annex 401 of the Agreement, and except as provided in paragraph (6), the regional value-content requirement shall be--(A) for a producers fiscal year beginning on the day closest to January 1, 1998, and thereafter, 56 percent calculated under the net cost method, and for a producers fiscal year beginning on the day closest to January 1, 2002, and thereafter, 62.5 percent calculated under the net cost method, for--(i) a good that is a motor vehicle for the transport of 15 or fewer persons provided for in subheading 8702.10.00 or 8702.90.00, or a motor vehicle provided for in subheadings 8703.21 through 8703.90, or subheading 8704.21 or 8704.31; and(ii) a good provided for in heading 8407 or 8408, or subheading 8708.40, that is for use in a motor vehicle identified in clause (i); and(B) for a producers fiscal year beginning on the day closest to January 1, 1998, and thereafter, 55 percent calculated under the net cost method, and for a producers fiscal year beginning on the day closest to January 1, 2002, and thereafter, 60 percent calculated under the net cost method, for--(i) a good that is a motor vehicle provided for in heading 8701, subheading 8704.10, 8704.22, 8704.23, 8704.32, or 8704.90, or heading 8705 or 8706, or a motor vehicle for the transport of 16 or more persons provided for in subheading 8702.10.00 or 8702.90.00;(ii) a good provided for in heading 8407 or 8408, or subheading 8708.40 that is for use in a motor vehicle identified in clause (i); and(iii) except for a good identified in subparagraph (A)(ii) or a good provided for in subheadings 8482.10 through 8482.80, or subheading 8483.20 or 8483.30, a good identified in Annex 403.1 of the Agreement that is subject to a regional value-content requirement and is for use in a motor vehicle identified in subparagraph (A)(i) or (B)(i).(6) New and refitted plants.--The regional value-content requirement for a motor vehicle identified in paragraph (1) or (2) shall be--(A) 50 percent for 5 years after the date on which the first motor vehicle prototype is produced in a plant by a motor vehicle assembler, if--(i) it is a motor vehicle of a class, or marque, or, except for a motor vehicle identified in paragraph (2), size category and underbody, not previously produced by the motor vehicle assembler in the territory of any of the NAFTA countries;(ii) the plant consists of a new building in which the motor vehicle is assembled; and(iii) the plant contains substantially all new machinery that is used in the assembly of the motor vehicle; or(B) 50 percent for 2 years after the date on which the first motor vehicle prototype is produced at a plant following a refit, if it is a motor vehicle of a class, or marque, or, except for a motor vehicle identified in paragraph (2), size category and underbody, different from that assembled by the motor vehicle assembler in the plant before the refit.(7) Election for certain vehicles from canada.--In the case of goods provided for in subheadings 8703.21 through 8703.90, or subheading 8704.21 or 8704.31, exported from Canada directly to the United States, and entered on or after January 1, 1989, and before the date of entry into force of the Agreement between the United States and Canada, an importer may elect to use the rules of origin set out in this section in lieu of the rules of origin contained in section 202 of the United States-Canada Free-Trade Agreement Implementation Act of 1988 (19 U.S.C. 2112 note) and may elect to use the method for calculating the value of nonoriginating materials established in article 403(2) of the Agreement in lieu of the method established in article 403(1) of the Agreement for purposes of determining eligibility for preferential duty treatment under the United States-Canada Free-Trade Agreement. Any election under this paragraph shall be made in writing to the Customs Service not later than the date that is 180 days after the date of entry into force of the Agreement between the United States and Canada. Any such election may be made only if the liquidation of such entry has not become final. For purposes of averaging the calculation of regional value-content for the goods covered by such entry, where the producers 1989-1990 fiscal year began after January 1, 1989, the producer may include the period between January 1, 1989, and the beginning of its first fiscal year after January 1, 1989, as part of fiscal year 1989-1990.(d) Accumulation.--(1) Determination of originating good.--For purposes of determining whether a good is an originating good, the production of the good in the territory of one or more of the NAFTA countries by one or more producers shall, at the choice of the exporter or producer of the good, be considered to have been performed in the territory of any of the NAFTA countries by that exporter or producer, if--(A) all nonoriginating materials used in the production of the good undergo an applicable tariff classification change set out in Annex 401 of the Agreement;(B) the good satisfies any applicable regional value-content requirement; and(C) the good satisfies all other applicable requirements of this section. (2) Treatment as single producer.--For purposes of subsection (b)(10), the production of a producer that chooses to accumulate its production with that of other producers under paragraph (1) shall be treated as the production of a single producer.(e) De Minimis Amounts of Nonoriginating Materials.--(1) In general.--Except as provided in paragraphs (3), (4), (5), and (6), a good shall be considered to be an originating good if--(A) the value of all nonoriginating materials used in the production of the good that do not undergo an applicable change in tariff classification (set out in Annex 401 of the Agreement) is not more than 7 percent of the transaction value of the good, adjusted to a F.O.B. basis, or(B) where the transaction value of the good is unacceptable under Article 1 of the Customs Valuation Code, the value of all such nonoriginating materials is not more than 7 percent of the total cost of the good, (2) Goods not subject to regional value-content requirement.--A good that is otherwise subject to a regional value-content requirement shall not be required to satisfy such requirement if--(A)(i) the value of all nonoriginating materials used in the production of the good is not more than 7 percent of the transaction value of the good, adjusted to a F.O.B. basis; or(ii) where the transaction value of the good is unacceptable under Article 1 of the Customs Valuation Code, the value of all nonoriginating materials is not more than 7 percent of the total cost of the good; and(B) the good satisfies all other applicable requirements of this section.(3) Dairy products, etc.--Paragraph (1) does not apply to--(A) a nonoriginating material provided for in chapter 4 of the HTS or a dairy preparation containing over 10 percent by weight of milk solids provided for in subheading 1901.90.30, 1901.90.40, or 1901.90.80 that is used in the production of a good provided for in chapter 4 of the HTS;(B) a nonoriginating material provided for in chapter 4 of the HTS or a dairy preparation containing over 10 percent by weight of milk solids provided for in subheading 1901.90.30, 1901.90.40, or 1901.90.80 that is used in the production of--(i) preparations for infants containing over 10 percent by weight of milk solids provided for in subheading 1901.10.00;(ii) mixes and doughs, containing over 25 percent by weight of butterfat, not put up for retail sale, provided for in subheading 1901.20.00;(iii) a dairy preparation containing over 10 percent by weight of milk solids provided for in subheading 1901.90.30, 1901.90.40, or 1901.90.80;(iv) a good provided for in heading 2105 or subheading 2106.90.05, or preparations containing over 10 percent by weight of milk solids provided for in subheading 2106.90.15, 2106.90.40, 2106.90.50, or 2106.90.65;(v) a good provided for in subheading 2202.90.10 or 2202.90.20; or(vi) animal feeds containing over 10 percent by weight of milk solids provided for in subheading 2309.90.30;(C) a nonoriginating material provided for in heading 0805 or subheadings 2009.11 through 2009.30 that is used in the production of--(i) a good provided for in subheadings 2009.11 through 2009.30, or subheading 2106.90.16, or concentrated fruit or vegetable juice of any single fruit or vegetable, fortified with minerals or vitamins, provided for in subheading 2106.90.19; or(ii) a good provided for in subheading 2202.90.30 or 2202.90.35, or fruit or vegetable juice of any single fruit or vegetable, fortified with minerals or vitamins, provided for in subheading 2202.90.36;(D) a nonoriginating material provided for in chapter 9 of the HTS that is used in the production of instant coffee, not flavored, provided for in subheading 2101.10.20;(E) a nonoriginating material provided for in chapter 15 of the HTS that is used in the production of a good provided for in headings 1501 through 1508, or heading 1512, 1514, or 1515;(F) a nonoriginating material provided for in heading 1701 that is used in the production of a good provided for in headings 1701 through 1703;(G) a nonoriginating material provided for in chapter 17 of the HTS or heading 1805 that is used in the production of a good provided for in subheading 1806.10;(H) a nonoriginating material provided for in headings 2203 through 2208 that is used in the production of a good provided for in headings 2207 through 2208;(I) a nonoriginating material used in the production of--(i) a good provided for in subheading 7321.11.30;(ii) a good provided for in subheading 8415.10, subheadings 8415.81 through 8415.83, subheadings 8418.10 through 8418.21, subheadings 8418.29 through 8418.40, subheading 8421.12 or 8422.11, subheadings 8450.11 through 8450.20, or subheadings 8451.21 through 8451.29;(iii) trash compactors provided for in subheading 8479.89.60; or(iv) a good provided for in subheading 8516.60.40; and(J) a printed circuit assembly that is a nonoriginating material used in the production of a good where the applicable change in tariff classification for the good, as set out in Annex 401 of the Agreement, places restrictions on the use of such nonoriginating material.(4) Certain fruit juices.--Paragraph (1) does not apply to a nonoriginating single juice ingredient provided for in heading 2009 that is used in the production of--(A) a good provided for in subheading 2009.90, or concentrated mixtures of fruit or vegetable juice, fortified with minerals or vitamins, provided for in subheading 2106.90.19; or(B) mixtures of fruit or vegetable juices, fortified with minerals or vitamins, provided for in subheading 2202.90.39.(5) Goods provided for in chapters 1 through 27 of the hts.-- Paragraph (1) does not apply to a nonoriginating material used in the production of a good provided for in chapters 1 through 27 of the HTS unless the nonoriginating material is provided for in a different subheading than the good for which origin is being determined under this section.(6) Goods provided for in chapters 50 through 63 of the hts.--A good provided for in chapters 50 through 63 of the HTS, that does not originate because certain fibers or yarns 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 set out in Annex 401 of the Agreement, shall be considered to be a good that originates if the total weight of all such fibers or yarns in that component is not more than 7 percent of the total weight of that component.(f) Fungible Goods and Materials.--For purposes of determining whether a good is an originating good--(1) if originating and nonoriginating fungible materials are used in the production of the good, the determination of whether the materials are originating need not be made through the identification of any specific fungible material, but may be determined on the basis of any of the inventory management methods set out in regulations implementing this section; and(2) if originating and nonoriginating fungible goods are commingled and exported in the same form, the determination may be made on the basis of any of the inventory management methods set out in regulations implementing this section.(g) Accessories, Spare Parts, or Tools.--(1) In general.--Except as provided in paragraph (2), accessories, spare parts, or tools delivered with the good that form part of the goods standard accessories, spare parts, or tools shall--(A) be considered as originating goods if the good is an originating good, and(B) be disregarded in determining whether all the nonoriginating materials used in the production of the good undergo an applicable change in tariff classification set out in Annex 401 of the Agreement.(2) Conditions.--Paragraph (1) shall apply only if--(A) the accessories, spare parts, or tools are not invoiced separately from the good;(B) the quantities and value of the accessories, spare parts, or tools are customary for the good; and(C) in any case in which the good is subject to a regional value- content requirement, the value of the accessories, spare parts, or tools are taken into account as originating or nonoriginating materials, as the case may be, in calculating the regional value- content of the good.(h) Indirect Materials.--An indirect material shall be considered to be an originating material without regard to where it is produced.(i) Packaging Materials and Containers for Retail Sale.--Packaging materials and containers in which a good is packaged for retail sale, if classified with the good, shall be disregarded in determining whether all the nonoriginating materials used in the production of the good undergo an applicable change in tariff classification set out in Annex 401 of the Agreement. If the good is subject to a regional value-content requirement, the value of such packaging materials and containers shall be taken into account as originating or nonoriginating materials, as the case may be, in calculating the regional value-content of the good.(j) Packing Materials and Containers for Shipment.--Packing materials and containers in which a good is packed for shipment shall be disregarded--(1) in determining whether the nonoriginating materials used in the production of the good undergo an applicable change in tariff classification set out in Annex 401 of the Agreement; and(2) in determining whether the good satisfies a regional value- content requirement.(k) Transshipment.--A good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of subsection (a) if, subsequent to that production, 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 it in good condition or to transport the good to the territory of a NAFTA country.(l) Nonqualifying Operations.--A good shall not be considered to be an originating good merely by reason of--(1) mere dilution with water or another substance that does not materially alter the characteristics of the good; or(2) any production or pricing practice with respect to which it may be demonstrated, by a preponderance of evidence, that the object was to circumvent this section.(m) Interpretation and Application.--For purposes of this section:(1) The basis for any tariff classification is the HTS.(2) Except as otherwise expressly provided, whenever in this section there is a reference to a heading or subheading such reference shall be a reference to a heading or subheading of the HTS.(3) In applying subsection (a)(4), the determination of whether a heading or subheading under the HTS provides for and specifically describes both a good and its parts shall be made on the basis of the nomenclature of the heading or subheading, the rules of interpretation, or notes of the HTS.(4) In applying the Customs Valuation Code--(A) the principles of the Customs Valuation Code shall apply to domestic transactions, with such modifications as may be required by the circumstances, as would apply to international transactions;(B) the provisions of this section shall take precedence over the Customs Valuation Code to the extent of any difference; and(C) the definitions in subsection (o) shall take precedence over the definitions in the Customs Valuation Code to the extent of any difference.(5) All costs referred to in this section shall be recorded and maintained in accordance with the Generally Accepted Accounting Principles applicable in the territory of the NAFTA country in which the good is produced.(n) Origin of Automatic Data Processing Goods.--Notwithstanding any other provision of this section, when the NAFTA countries apply the most-favored- nation rate of duty described in paragraph 1 of section A of Annex 308.1 of the Agreement to a good provided for under the tariff provisions set out in Table 308.1.1 of such Annex, the good shall, upon importation from a NAFTA country, be deemed to originate in the territory of a NAFTA country for purposes of this section.(o) Special Rule for Certain Agricultural Products.--Notwithstanding any other provision of this section, for purposes of applying a rate of duty to a good provided for in--(1) heading 1202 that is exported from the territory of Mexico, if the good is not wholly obtained in the territory of Mexico,(2) subheading 2008.11 that is exported from the territory of Mexico, if any material provided for in heading 1202 used in the production of that good is not wholly obtained in the territory of Mexico, or(3) subheading 1806.10.42 or 2106.90.12 that is exported from the territory of Mexico, if any material provided for in subheading 1701.99 used in the production of that good is not a qualifying good, (p) Definitions.--For purposes of this section--(1) Class of motor vehicles.--The term class of motor vehicles means any one of the following categories of motor vehicles:(A) Motor vehicles provided for in subheading 8701.20, subheading 8704.10, 8704.22, 8704.23, 8704.32, or 8704.90, or heading 8705 or 8706, or motor vehicles designed for the transport of 16 or more persons provided for in subheading 8702.10.00 or 8702.90.00.(B) Motor vehicles provided for in subheading 8701.10, or subheadings 8701.30 through 8701.90.(C) Motor vehicles for the transport of 15 or fewer persons provided for in subheading 8702.10.00 or 8702.90.00, or motor vehicles provided for in subheading 8704.21 or 8704.31.(D) Motor vehicles provided for in subheadings 8703.21 through 8703.90.(2) Customs valuation code.--The term Customs Valuation Code means the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, including its interpretative notes.(3) F.O.B.--The term F.O.B. means free on board, regardless of the mode of transportation, at the point of direct shipment by the seller to the buyer.(4) Fungible goods and fungible materials.--The terms fungible goods and fungible materials mean goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical.(5) Generally accepted accounting principles.--The term 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, or procedures.(6) Goods wholly obtained or produced entirely in the territory of one or more of the nafta countries.--The term goods wholly obtained or produced entirely in the territory of one or more of the NAFTA countries means--(A) mineral goods extracted in the territory of one or more of the NAFTA countries;(B) vegetable goods harvested in the territory of one or more of the NAFTA countries;(C) live animals born and raised in the territory of one or more of the NAFTA countries;(D) goods obtained from hunting, trapping, or fishing in the territory of one or more of the NAFTA countries;(E) goods (such as fish, shellfish, and other marine life) taken from the sea by vessels registered or recorded with a NAFTA country and flying its flag;(F) goods produced on board factory ships from the goods referred to in subparagraph (E), if such factory ships are registered or recorded with that NAFTA country and fly its flag;(G) goods taken by a NAFTA country or a person of a NAFTA country from the seabed or beneath the seabed outside territorial waters, provided that a NAFTA country has rights to exploit such seabed;(H) goods taken from outer space, if the goods are obtained by a NAFTA country or a person of a NAFTA country and not processed in a country other than a NAFTA country;(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, if such goods are fit only for the recovery of raw materials; and(J) goods produced in the territory of one or more of the NAFTA countries exclusively from goods referred to in subparagraphs (A) through (I), or from their derivatives, at any stage of production.(7) Identical or similar goods.--The term identical or similar goods means identical goods and similar goods, respectively, as defined in the Customs Valuation Code.(8) Indirect material.--(A) The term indirect material means a good--(i) used in the production, testing, or inspection of a good but not physically incorporated into the good, or(ii) used in the maintenance of buildings or the operation of equipment associated with the production of a good, (B) When used for a purpose described in subparagraph (A), the following materials are among those considered to be indirect materials:(i) Fuel and energy.(ii) Tools, dies, and molds.(iii) Spare parts and materials used in the maintenance of equipment and buildings.(iv) Lubricants, greases, compounding materials, and other materials used in production or used to operate equipment and buildings.(v) Gloves, glasses, footwear, clothing, safety equipment, and supplies.(vi) Equipment, devices, and supplies used for testing or inspecting the goods.(vii) Catalysts and solvents.(viii) Any other goods that are not incorporated into the good, if the use of such goods in the production of the good can reasonably be demonstrated to be a part of that production.(9) Intermediate material.--The term intermediate material means a material that is self-produced, used in the production of a good, and designated pursuant to subsection (b)(10).(10) Marque.--The term marque means the trade name used by a separate marketing division of a motor vehicle assembler.(11) Material.--The term material means a good that is used in the production of another good and includes a part or an ingredient.(12) Model line.--The term model line means a group of motor vehicles having the same platform or model name.(13) Motor vehicle assembler.--The term motor vehicle assembler means a producer of motor vehicles and any related persons or joint ventures in which the producer participates.(14) NAFTA country.--The term NAFTA country means the United States, Canada or Mexico for such time as the Agreement is in force with respect to Canada or Mexico, and the United States applies the Agreement to Canada or Mexico.(15) New building.--The term new building means a new construction, including at least the pouring or construction of new foundation and floor, the erection of a new structure and roof, and installation of new plumbing, electrical, and other utilities to house a complete vehicle assembly process.(16) Net cost.--The term net cost means total cost less sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and nonallowable interest costs that are included in the total cost.(17) Net cost of a good.--The term net cost of a good means the net cost that can be reasonably allocated to a good using one of the methods set out in subsection (b)(8).(18) Nonallowable interest costs.--The term nonallowable interest costs means interest costs incurred by a producer as a result of an interest rate that exceeds the applicable federal government interest rate for comparable maturities by more than 700 basis points, determined pursuant to regulations implementing this section.(19) Nonoriginating good; nonoriginating material.--The term nonoriginating good or nonoriginating material means a good or material that does not qualify as an originating good or material under the rules of origin set out in this section.(20) Originating.--The term originating means qualifying under the rules of origin set out in this section.(21) Producer.--The term producer means a person who grows, mines, harvests, fishes, traps, hunts, manufactures, processes, or assembles a good.(22) Production.--The term production means growing, mining, harvesting, fishing, trapping, hunting, manufacturing, processing, or assembling a good.(23) Reasonably allocate.--The term reasonably allocate means to apportion in a manner appropriate to the circumstances.(24) Refit.--The term refit means a plant closure, for purposes of plant conversion or retooling, that lasts at least 3 months.(25) Related persons.--The term related persons means persons specified in any of the following subparagraphs:(A) Persons who are officers or directors of one anothers businesses.(B) Persons who are legally recognized partners in business.(C) Persons who are employer and employee.(D) Persons one of whom owns, controls, or holds 25 percent or more of the outstanding voting stock or shares of the other.(E) Persons if 25 percent or more of the outstanding voting stock or shares of each of them is directly or indirectly owned, controlled, or held by a third person.(F) Persons one of whom is directly or indirectly controlled by the other.(G) Persons who are directly or indirectly controlled by a third person.(H) Persons who are members of the same family. (26) Royalties.--The term royalties means payments of any kind, including payments under technical assistance or similar agreements, made as consideration for the use or right to use any copyright, literary, artistic, or scientific work, patent, trademark, design, model, plan, secret formula, or process. It does not include payments under technical assistance 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.(27) Sales promotion, marketing, and after-sales service costs.--The term sales promotion, marketing, and after-sales service costs means the costs related to sales promotion,
Posted on: Tue, 22 Oct 2013 04:10:39 +0000
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