Implementation of the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA) Uniform Regulations Regarding Rules of Origin, 39690-39751 [2020-13865]

Download as PDF 39690 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations DEPARTMENT OF HOMELAND SECURITY U.S. Customs and Border Protection DEPARTMENT OF THE TREASURY 19 CFR Parts 181 and 182 [USCBP–2020–0036; CBP Dec. 20–11] RIN 1515–AE55 Implementation of the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA) Uniform Regulations Regarding Rules of Origin U.S. Customs and Border Protection, Department of Homeland Security; Department of the Treasury. ACTION: Interim final rule; request for comments. AGENCY: This interim final rule amends the U.S. Customs and Border Protection (CBP) regulations to implement the rules of origin provisions for preferential tariff treatment of the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA). This document sets forth the framework for our regulations that provides further guidance regarding the rules of origin for those seeking USMCA preferential tariff treatment and includes the text of the Uniform Regulations regarding rules of origin, as trilaterally agreed upon by the United States, the United Mexican States (Mexico), and Canada. Because the USMCA supersedes the North American Free Trade Agreement (NAFTA) when the USMCA enters into force on July 1, 2020, this document also amends the NAFTA regulations to reflect that the NAFTA provisions do not apply to goods entered for consumption, or withdrawn from warehouse for consumption, on or after July 1, 2020. DATES: This interim final rule is effective on July 1, 2020; comments must be received by August 31, 2020. ADDRESSES: You may submit comments, identified by docket number [USCBP– 2020–0036], by one of the following methods: • Federal eRulemaking Portal at http://www.regulations.gov. Follow the instructions for submitting comments. • Mail: Due to COVID–19-related restrictions, CBP has temporarily suspended its ability to receive public comments by mail. Instructions: All submissions received must include the agency name and docket number for this rulemaking. All comments received will be posted SUMMARY: VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 without change to http:// www.regulations.gov, including any personal information provided. For detailed instructions on submitting comments and additional information on the rulemaking process, see the ‘‘Public Participation’’ heading of the SUPPLEMENTARY INFORMATION section of this document. Docket: For access to the docket to read background documents or comments received, go to http:// www.regulations.gov. Due to the relevant COVID–19-related restrictions, CBP has temporarily suspended on-site public inspection of the public comments. Please note that any submitted comments that CBP receives by mail will be posted on the abovereferenced docket for the public’s convenience. FOR FURTHER INFORMATION CONTACT: Operational Aspects: Maya Kamar, Director, Textile and Trade Agreement Division, Office of Trade, U.S. Customs and Border Protection, (202) 945–7228 or fta@cbp.dhs.gov. Audit Aspects: Amy Johnson, Senior Auditor, Regulatory Audit and Agency Advisory Services, U.S. Customs and Border Protection, (312) 983–5364 or Amelia.K.Johnson@cbp.dhs.gov. Legal Aspects: Monika Brenner, Chief, Valuation & Special Programs Branch, Regulations and Rulings, Office of Trade, U.S. Customs and Border Protection, (202) 325–0038 or monikarice.brenner@cbp.dhs.gov. SUPPLEMENTARY INFORMATION: I. Public Participation Interested persons are invited to participate in this rulemaking by submitting written data, views, or arguments on this interim final rule. As stated below, U.S. Customs and Border Protection (CBP) will not accept comments upon the Uniform Regulations regarding rules of origin trilaterally agreed upon and contained in Appendix A to part 182 of title 19 of the Code of Federal Regulations (CFR) (19 CFR part 182). CBP also invites comments that relate to the economic, environmental, or federalism effects that might result from this interim final rule. Comments that will provide the most assistance to CBP will reference a specific portion of the interim final rule, explain the reason for any recommended change, and include data, information or authority that support such recommended change. II. Background On May 18, 2017, following consultations with the relevant Congressional committees, the Office of PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 the United States Trade Representative (USTR) informed Congress of the President’s intent to renegotiate the North American Free Trade Agreement (NAFTA). USTR announced this intention in a notice published in the Federal Register on May 23, 2017 (82 FR 23699), requesting public comments to assist in the development of the U.S. negotiating objectives on matters related to the modernization of NAFTA. The negotiations began on August 16, 2017, and concluded on September 30, 2018. On November 30, 2018, USTR signed the ‘‘Protocol Replacing the North American Free Trade Agreement with the Agreement Between the United States of America, the United Mexican States, and Canada’’ (the Protocol). The Agreement Between the United States of America, the United Mexican States (Mexico), and Canada (the USMCA) 1 is attached as an annex to the Protocol and was subsequently amended to reflect certain modifications and technical corrections in the ‘‘Protocol of Amendment to the Agreement Between the United States of America, the United Mexican States, and Canada’’ (the Amended Protocol), which USTR signed on December 10, 2019. Pursuant to section 106 of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (19 U.S.C. 4205) and section 151 of the Trade Act of 1974 (19 U.S.C. 2191), the United States adopted the USMCA through the enactment of the United States-Mexico-Canada Agreement Implementation Act (USMCA Act), Public Law 116–113, 134 Stat. 11, on January 29, 2020. Mexico, Canada, and the United States certified their preparedness to implement the USMCA on December 12, 2019, March 13, 2020, and April 24, 2020, respectively. As a result, pursuant to paragraph 2 of the Protocol, which provides that the USMCA will take effect on the first day of the third month after the last signatory party provides written notification of the completion of the domestic implementation of the USMCA through the enactment of implementing legislation, the USMCA will enter into force on July 1, 2020. A. U.S. Implementation of USMCA Uniform Regulations Section 103(a)(1)(B) of the USMCA Act provides the authority for new or amended regulations to be issued to implement the USMCA, as of the date 1 The Agreement between the United States of America, the United Mexican States, and Canada is the official name of the USMCA treaty. Please be aware that, in other contexts, the same document is also referred to as the United States-MexicoCanada Agreement. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations of its entry into force. Further, section 103(b)(2) of the USMCA Act requires that interim or initial regulations shall be prescribed not later than the date on which the USMCA enters into force to implement the Uniform Regulations regarding rules of origin. In accordance with section 103(b)(2) of the USMCA Act, CBP is adding to this new part 182, as Appendix A, the Uniform Regulations on rules of origin for Chapters 4 and 6 of the USMCA trilaterally agreed upon by the United States, Mexico, and Canada. Since the USMCA uniform regulations on rules of origin were trilaterally negotiated and may not be unilaterally altered, CBP is not requesting public comments in this interim final rule (IFR) with regard to Appendix A to part 182. CBP welcomes public comments on all other aspects of this IFR. Claims for preferential tariff treatment under the USMCA may be made as of July 1, 2020. In addition to the regulations set forth in this document, those persons intending to make USMCA preference claims may refer to the CBP website at https://www.cbp.gov/ trade/priority-issues/trade-agreements/ free-trade-agreements/USMCA for further guidance, including the U.S. USMCA Implementing Instructions. The United States International Trade Commission has modified the Harmonized Tariff Schedule of the United States (HTSUS) to include the addition of a new General Note 11, incorporating the USMCA rules of origin, and the insertion of the special program indicator ‘‘S or S+’’ for the USMCA in the HTSUS ‘‘special’’ rate of duty subcolumn.2 Pursuant to section 103(b) of the USMCA Act, CBP will issue initial regulations (new part 182 including Appendix A) regarding rules of origin, as provided for under Article 5.16 of the USMCA, not later than the date on which USMCA enters into force. CBP expects to publish additional regulations by July 1, 2021, one year from when the USMCA enters into force, to set forth any remaining USMCA implementing regulations, and to request public comments on those implementing regulations. B. Impact on NAFTA The USMCA supersedes NAFTA and its related provisions on USMCA’s entry into force date. See Protocol, paragraph 1. NAFTA entered into force on January 1, 1994. Pursuant to section 1103 of the Omnibus Trade and Competitiveness Act of 1988 (19 U.S.C. 2903) and section 2 The S+ indicator is used for certain agricultural goods and textile tariff preference levels (TPLs). VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 151 of the Trade Act of 1974 (19 U.S.C. 2191), the United States adopted NAFTA through the enactment of the North American Free Trade Agreement Implementation Act (NAFTA Implementation Act), Public Law 103– 182, 107 Stat. 2057 (19 U.S.C. 3301), on December 8, 1993. Section 601 of the USMCA Act repeals the NAFTA Implementation Act, as of the date that the USMCA enters into force. On December 30, 1993, the U.S. Customs Service [now CBP] published interim regulations (58 FR 69460) in a new part 181 of title 19 of the CFR (19 CFR part 181) to implement the preferential tariff treatment and other customs related provisions of NAFTA. Part 181 sets forth the relevant definitions, the requirements for filing a claim for preferential tariff treatment, post-importation duty refund claims, and the NAFTA uniform regulations on rules of origin, among others. The general rules of origin in Chapter Four of NAFTA, as well as the specific rules of origin in Annex 401 of NAFTA, are set forth in General Note 12, HTSUS. The NAFTA provisions set forth in 19 CFR part 181 and General Note 12, HTSUS, continue to apply to goods entered for consumption, or withdrawn from warehouse for consumption, prior to July 1, 2020. III. Amendments to the CBP Regulations A. Section 181.0 Part 181 of title 19 of the CFR contains the NAFTA duty preference and other related CBP provisions. As the USMCA supersedes NAFTA upon the former’s entry into force, CBP is adding a sentence to the scope provision in section 181.0 to indicate that part 181 is not applicable to goods entered for consumption, or withdrawn from warehouse for consumption, on or after July 1, 2020. The USMCA provisions, not the NAFTA provisions, are applicable to goods entered for consumption, or withdrawn from warehouse for consumption, on or after July 1, 2020. B. New Part 182 CBP is adding a new part 182 to title 19 of the CFR to establish the USMCA preferential tariff treatment and other customs related provisions. This document sets forth the scope of part 182, the rules of origin subpart, and Appendix A to part 182 containing the Uniform Regulations for Chapters 4 and 6 of the USMCA trilaterally agreed upon by the United States, Mexico, and Canada. These amendments are explained below. PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 39691 This document also includes the structure and subparts for the entirety of part 182. CBP is reserving the remaining sections at this time. As discussed above, CBP will publish in separate subsequent IFRs, additional regulations to set forth the remaining USMCA implementing regulations, which will be in part 182, and also any other affected parts of title 19 of the CFR, as needed, to implement the USMCA (including the United States’ implementation of additional Uniform Regulations on origin procedures, as needed, for Chapters 5, 6, and 7 of the USMCA). Subpart A—General Provisions Section 182.0 sets forth the scope of the new part 182. Section 182.0 provides the USMCA citations and parameters, and states that the part 181 NAFTA regulations are applicable for goods entered for consumption, or withdrawn from warehouse for consumption, prior to July 1, 2020. This section further clarifies that, except where the context otherwise requires, the requirements contained in part 182 are in addition to the general administrative and enforcement provisions set forth elsewhere in the CBP regulations. Subpart F—Rules of Origin Section 182.61 provides that the USMCA implementing regulations regarding rules of origin for preferential tariff treatment provisions of General Note 11, HTSUS, and Chapters Four and Six of the USMCA are contained in Appendix A to part 182. Appendix A—Rules of Origin Regulations The rules of origin regulations are set forth as Appendix A to part 182. The text contained in this appendix is as trilaterally negotiated by the United States, Mexico, and Canada. This appendix contains the uniform regulations for the interpretation, application, and administration of the rules of origin of Chapter Four of the USMCA and the rules of origin of Chapter Six of the USMCA related to textiles and apparel goods. The regulations contained in Appendix A may be cited as the ‘‘USMCA Rules of Origin Regulations.’’ Definitions and Currency Conversion Appendix A sets forth the relevant definitions and interpretations that are applicable to the Uniform Regulations on rules of origin, and the methodology for currency conversion if necessary to determine the value of goods or materials. E:\FR\FM\01JYR2.SGM 01JYR2 39692 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations General Rules of Origin Appendix A contains the basic rules of origin established in Chapter Four of the USMCA. The provisions apply to the determination of the status of an imported good as an originating good for purposes of preferential tariff treatment and to the determination of the status of a material as an originating material used in a good which is subject to a determination under Appendix A. Specifically, this section identifies goods that are originating goods because they are wholly obtained or produced in one or more of the USMCA countries. This section also identifies goods that are originating goods because the good, which is produced entirely in the territory of one or more of the USMCA countries, is either made of exclusively originating materials or each of the nonoriginating materials used in the production of the good satisfies all applicable requirements of the regulations, including the productspecific rules of origin. This section also sets forth exceptions to the change in the tariff classification requirement and the special rule for certain goods, which provides that the goods listed in Schedule II of Appendix A to part 182 (Table 2.10.1 of Article 2.10 to Chapter 2 of the USMCA) are treated as originating goods regardless of whether they meet the applicable productspecific rule of origin, if they are imported from the territory of a USMCA country. Treatment of Recovered Materials Used in the Production of a Remanufactured Good Appendix A sets forth the treatment of a recovered material derived in one or more USMCA countries when it is used in the production of, and is incorporated into, a remanufactured good. This section provides the requirements and examples illustrating the treatment of recovered materials used in the production of a remanufactured good. De Minimis Appendix A sets forth the de minimis rules for goods to qualify as originating goods even when the goods would fail to qualify as such under the general rules of origin. Unless an exception applies, a good shall be considered to be an originating good where the value of all non-originating materials used in the production of the good is not more than ten percent of the transaction value of the good, or, if applicable, the total cost of the good, provided that the good satisfies any regional value content requirements and all other applicable VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 regulations in Appendix A. The de minimis rules for textile goods established in Chapter Six of the USMCA and examples illustrating the application of the de minimis rules are also provided. Sets of Goods, Kits or Composite Goods A good is classified as a set as a result of the application of rule 3 of the General Rules for the Interpretation of the HTSUS. Under the general rule of origin for such goods, a set is an originating good only if each good in the set is originating, and both the set and the goods in the set meet the other applicable requirements in Appendix A. Several examples, including the application to textile sets, are provided to illustrate when a set is considered an originating good. Regional Value Content The appendix provides the basic rules that apply for purposes of determining whether an imported good satisfies any applicable regional value content requirement. With some exceptions, the regional value content of a good shall be calculated, at the choice of the importer, exporter or producer of the good, on the basis of either the transaction value method or the net cost method. The specifics of the transaction value method and the net cost method, including the formulas used to calculate each method, are also contained in Appendix A. Several examples of the calculations for the regional value content requirement are provided under both the transaction value method and the net cost method. Materials Appendix A sets forth the rules regarding the valuation of materials, the treatment of materials with regard to the change in tariff classification requirement, and the regional value content requirement. Additionally, this section identifies adjustments to the value of materials including certain costs that may be deducted from the value of non-originating material or material of undetermined origin. This section also allows for an optional designation as an intermediate material of self-produced material that is used in the production of the good, and provides the determinations on the value of such intermediate material. Furthermore, it includes provisions for the treatment and value of indirect materials, packaging materials and containers, fungible materials and fungible commingled goods, and accessories, spare parts, tools or instructional or other information materials in determining the originating PO 00000 Frm 00004 Fmt 4701 Sfmt 4700 status of a good. Numerous examples are provided illustrating the provisions on materials. Accumulation The appendix identifies the rules by which an importer, exporter or producer of a good has the option to accumulate the production, by one or more producers in the territory of one or more of the USMCA countries, of materials that are incorporated into that good for the determination of the origin of the good. Several examples of accumulation of production are provided to illustrate the process. Transshipment Generally, an originating good loses its originating status and is considered non-originating if the good is transported outside of the territories of the USMCA countries. Appendix A sets forth the rule that an originating good transported outside the territories of the USMCA countries retains its originating status if the good remains under customs control, and the good does not undergo further production or any other non-specified operation outside the territories of the USMCA countries. Non-Qualifying Operations Appendix A sets forth the rule that a good is not an originating good solely because of its dilution with water or another substance that does not materially alter the characteristics of the good, or by any other production method or pricing practice the purpose of which is to circumvent the rules of origin of Appendix A. Automotive Goods The Appendix to Annex 4–B of Chapter 4 of the USMCA includes additional rules of origin requirements that apply to automotive goods. Automotive goods are passenger vehicles, light trucks, heavy trucks, or other vehicles; or an applicable part, component, or material listed in Tables A.1, A.2, B, C, D, E, F, or G of the Appendix to Annex 4–B of Chapter 4 of the USMCA. In addition to the rules of origin requirements, a passenger vehicle, light truck, or heavy truck is originating only if, during the time period specified, at least seventy percent of a vehicle producer’s purchases of steel and aluminum, by value, in the territories of the USMCA countries are originating. Furthermore, a passenger vehicle, light truck, or heavy truck is originating only if the vehicle producer certifies and can demonstrate that its production meets the applicable labor value content requirement. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Appendix A to part 182 sets forth the rules of origin related to automotive goods. Specifically, Appendix A provides the definitions that are applicable to automotive goods, the regional value content requirements specific to automotive goods, the steel and aluminum purchase requirement, and the labor value content requirement. Schedules Appendix A also contains Schedules I through X. These schedules set forth the most-favored-nation rates of duty on certain goods, and provide much more detail on the calculations of the value of goods and materials, the inventory management methods, the methods of calculating costs, and the Generally Accepted Accounting Principles. IV. Statutory and Regulatory Requirements A. Administrative Procedure Act Under section 553 of the Administrative Procedure Act (APA) (5 U.S.C. 553), agencies generally are required to publish a notice of proposed rulemaking in the Federal Register that solicits public comment on the proposed regulatory amendments, considers public comments in deciding on the content of the final amendments, and publishes the final amendments at least 30 days prior to their effective date. However, section 553(a)(1) of the APA provides that the standard prior notice and comment procedures do not apply to an agency rulemaking to the extent that it involves a foreign affairs function of the United States. CBP has determined that these interim regulations involve a foreign affairs function of the United States because they implement preferential tariff treatment and customs related provisions of the USMCA, a specific international agreement. Therefore, the rulemaking requirements under the APA do not apply and this interim rule will be effective on July 1, 2020. CBP also has determined that there is good cause pursuant to 5 U.S.C. 553(b)(B) to publish this rule without prior public notice and comment procedures. This rule is a nondiscretionary action as it sets forth the uniform regulations that the United States, Mexico, and Canada trilaterally agreed to implement without change. Given CBP’s lack of discretion and that this rule sets forth the rules of origin that the public needs knowledge of to claim USMCA preferential tariff treatment, prior public notice and comment procedures for this rule are VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 impracticable, unnecessary, and contrary to the public interest. For the same reasons, a delayed effective date is not required under 5 U.S.C. 553(d)(3). Pursuant to section 103(b)(2) of the USMCA Act, regulations implementing the USMCA Uniform Regulations regarding rules of origin must be effective no later than the date the USMCA enters into force, which is July 1, 2020. Failure to implement the CBP regulations by the July 1, 2020 entry into force date would be in violation of the USMCA and the USMCA Act, and would result in undesirable international consequences. B. Executive Orders 13563, 12866, and 13771 Executive Orders 13563 and 12866 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 13771 directs agencies to reduce regulation and control regulatory costs, and provides that ‘‘for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.’’ Rules involving the foreign affairs function of the United States are exempt from the requirements of Executive Orders 13563, 12866, and 13771. Because this document involves a foreign affairs function of the United States by implementing a specific international agreement, it is not subject to the provisions of Executive Orders 13563, 12866, and 13771. C. Regulatory Flexibility Act The Regulatory Flexibility Act (5 U.S.C. 601 et seq.), as amended by the Small Business Regulatory Enforcement and Fairness Act of 1996, requires an agency to prepare and make available to the public a regulatory flexibility analysis that describes the effect of a proposed rule on small entities (i.e., small businesses, small organizations, and small governmental jurisdictions) when the agency is required to publish a general notice of proposed rulemaking for a rule. Since a notice of proposed rulemaking is not necessary for this rule, CBP is not required to prepare a PO 00000 Frm 00005 Fmt 4701 Sfmt 4700 39693 regulatory flexibility analysis for this rule. V. Signing Authority This rulemaking is being issued in accordance with 19 CFR 0.1(a)(1), pertaining to the authority of the Secretary of the Treasury (or that of his or her delegate) to approve regulations related to certain customs revenue functions. List of Subjects 19 CFR Part 181 Administrative practice and procedure, Canada, Exports, Mexico, Reporting and recordkeeping requirements, Trade agreements. 19 CFR Part 182 Administrative practice and procedure, Canada, Exports, Mexico, Reporting and recordkeeping requirements, Trade agreements. For the reasons stated above, amend part 181 and add a new part 182 of title 19 of the Code of Federal Regulations (19 CFR parts 181 and 182) as set forth below. PART 181—NORTH AMERICAN FREE TRADE AGREEMENT 1. The general authority citation for part 181 continues to read as follows: ■ Authority: 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized Tariff Schedule of the United States), 1624, 3314; * * § 181.0 * * * [Amended] 2. In § 181.0, add a new second sentence. The revision reads as follows: ■ § 181.0 Scope. * * * This part is not applicable to goods entered for consumption, or withdrawn from warehouse for consumption, on or after July 1, 2020. * * * * * ■ 3. Add part 182 to read as follows: PART 182—UNITED STATES-MEXICOCANADA AGREEMENT Sec. Subpart A—General Provisions 182.0 Scope. 182.1 [Reserved] Subpart B—Import Requirements 182.11–182.16 [Reserved] Subpart C—Export Requirements 182.21 [Reserved] Subpart D—Post-Importation Duty Refund Claims 182.31–182.33 [Reserved] E:\FR\FM\01JYR2.SGM 01JYR2 39694 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Subpart E—Restrictions on Drawback and Duty-Deferral Programs 182.41–182.54 § 182.1 [Reserved] Subpart B—Import Requirements [Reserved] Subpart F—Rules of Origin §§ 182.11–182.16 182.61 182.62 Subpart C—Export Requirements Rules of origin. [Reserved] § 182.21 Subpart G—Origin Verifications and Determinations 182.71–182.74 [Reserved] Subpart D—Post-Importation Duty Refund Claims [Reserved] Subpart H—Textile and Apparel Goods §§ 182.31–182.33 182.81–182.82 [Reserved] 182.82 [Reserved] [Reserved] Subpart E—Restrictions on Drawback and Duty-Deferral Programs Subpart I—Automotive Goods 182.91–182.93 [Reserved] §§ 182.41–182.54 [Reserved] [Reserved] Subpart J—Commercial Samples and Goods Returned after Repair or Alteration Subpart F—Rules of Origin 182.101–182.102 The regulations, implementing the rules of origin provisions of General Note 11, Harmonized Tariff Schedule of the United States (HTSUS), and Chapters Four and Six of the USMCA, are contained in Appendix A to this part. [Reserved] Subpart K—Penalties 182.111–182.114 [Reserved] Appendix A to Part 182—Rules of Origin Regulations Authority: 19 U.S.C. 66, 1202 (General Note 3(i) and General Note 11, Harmonized Tariff Schedule of the United States (HTSUS)), 1624, 4513, 4535; Section 182.61 also issued under 19 U.S.C. 4531, 4532. § 182.61 § 182.62 Rules of origin. [Reserved] Subpart G—Origin Verifications and Determinations Subpart A—General Provisions §§ 182.71–182.74 § 182.0 Subpart H—Textile and Apparel Goods Scope. This part implements the duty preference and related customs provisions applicable to imported and exported goods under the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA), signed on December 10, 2019, and entered into force on July 1, 2020, and under the United StatesMexico-Canada Agreement Implementation Act (134 Stat. 11) (the Act). For goods entered for consumption, or withdrawn from warehouse for consumption, prior to July 1, 2020, please see the NAFTA provisions in part 181 of this chapter. Except as otherwise specified in this part, the procedures and other requirements set forth in this part are in addition to the CBP procedures and requirements of general application contained elsewhere in this chapter. §§ 182.81–182.82 [Reserved] [Reserved] Subpart I—Automotive Goods §§ 182.91–182.93 [Reserved] Subpart J—Commercial Samples and Goods Returned after Repair or Alteration §§ 182.101–182.102 [Reserved] Subpart K—Penalties §§ 182.111–182.114 [Reserved] Appendix A to Part 182—Rules of Origin Regulations Uniform Regulations Regarding the Interpretation, Application, and Administration of Chapter 4 (Rules of Origin) and Related Provisions in Chapter 6 (Textile and Apparel Goods) of the Agreement Between the United States of America, the United Mexican States, and Canada 1 Part I Section 1. Definitions and Interpretations (1) Definitions. The following definitions apply in these Regulations, 1 Please note that the citing conventions in Appendix A might not conform to the ordinary citing conventions in the Code of Federal Regulations (CFR) because the language is added VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00006 Fmt 4701 Sfmt 4700 accessories, spare parts, tools, instructional or other information materials means goods that are delivered with a good, whether or not they are physically affixed to that good, and that are used for the transport, protection, maintenance or cleaning of the good, for instruction in the assembly, repair or use of that good, or as replacements for consumable or interchangeable parts of that good; adjusted to exclude any costs incurred in the international shipment of the good means, with respect to the transaction value of a good, adjusted by (a) deducting the following costs if those costs are included in the transaction value of the good: (i) The costs of transporting the good after it is shipped from the point of direct shipment, (ii) the costs of unloading, loading, handling and insurance that are associated with that transportation, and (iii) the cost of packing materials and containers, and (b) if those costs are not included in the transaction value of the good, adding (i) the costs of transporting the good from the place of production to the point of direct shipment, (ii) the costs of loading, unloading, handling and insurance that are associated with that transportation, and (iii) the costs of loading the good for shipment at the point of direct shipment; Agreement means the United StatesMexico-Canada Agreement; 2 applicable change in tariff classification means, with respect to a non-originating material used in the production of a good, a change in tariff classification specified in a rule established in Schedule I (PSRO Annex) for the tariff provision under which the good is classified; aquaculture means the farming of aquatic organisms, including fish, molluscs, crustaceans, other aquatic invertebrates and aquatic plants from seed stock such as eggs, fry, fingerlings, or larvae, by intervention in the rearing or growth processes to enhance production such as regular stocking, feeding, or protection from predators; costs incurred in packing means, with respect to a good or material, the value of the packing materials and containers in which the good or material is packed for shipment and the labor costs incurred in packing it for shipment, but does not include the costs of preparing and packaging it for retail sale; Customs Valuation Agreement means the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, set out in Annex 1A to the WTO Agreement; customs value means (a) in the case of Canada, value for duty as defined in the Customs Act, except that for the purpose of determining that value the reference in section 55 of that Act to ‘‘in pursuant to an international agreement without revision. 2 Please be aware that, in other contexts, the United States-Mexico-Canada Agreement is referred to by its official name, the Agreement Between the United States of America, the United Mexican States, and Canada. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations accordance with the regulations made under the Currency Act’’ is to be read as a reference to ‘‘in accordance with subsection 2(1) of these CUSMA Rules of Origin Regulations’’, (b) in the case of Mexico, the valor en aduana as determined in accordance with the Ley Aduanera, converted, if such value is not expressed in Mexican currency, to Mexican currency at the rate of exchange determined in accordance with subsection 2(1), and (c) in the case of the United States, the value of imported merchandise as determined by the U.S. Customs and Border Protection in accordance with section 402 of the Tariff Act of 1930, as amended, converted, if that value is not expressed in United States currency, to United States currency at the rate of exchange determined in accordance with subsection 2(1); days means calendar days, and includes Saturdays, Sundays and holidays; direct labor costs means costs, including fringe benefits, that are associated with employees who are directly involved in the production of a good; direct material costs means the value of materials, other than indirect materials and packing materials and containers, that are used in the production of a good; direct overhead means costs, other than direct material costs and direct labor costs, that are directly associated with the production of a good; enterprise means an entity constituted or organized under applicable law, whether or not for profit, and whether privately-owned or governmentally-owned or controlled, including a corporation, trust, partnership, sole proprietorship, joint venture, association or similar organization; excluded costs means, with respect to net cost or total cost, sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and nonallowable interest costs; fungible goods means goods that are interchangeable for commercial purposes with another good and the properties of which are essentially identical; fungible materials means materials that are interchangeable with another material for commercial purposes and the properties of which are essentially identical; Harmonized System means the Harmonized Commodity Description and Coding System, including its General Rules of Interpretation, Section Notes, Chapter Notes and Subheading Notes, as set out in (a) in the case of Canada, the Customs Tariff, (b) in the case of Mexico, the Tarifa de la Ley de los Impuestos Generales de Importacio´n y de Exportacio´n, and (c) in the case of the United States, the Harmonized Tariff Schedule of the United States; identical goods means, with respect to a good, including the valuation of a good, goods that (a) are the same in all respects as that good, including physical characteristics, quality and reputation but excluding minor differences in appearance, (b) were produced in the same country as that good, and VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 (c) were produced (i) by the producer of that good, or (ii) by another producer, if no goods that satisfy the requirements of paragraphs (a) and (b) were produced by the producer of that good; identical materials means, with respect to a material, including the valuation of a material, materials that (a) are the same as that material in all respects, including physical characteristics, quality and reputation but excluding minor differences in appearance, (b) were produced in the same country as that material, and (c) were produced (i) by the producer of that material, or (ii) by another producer, if no materials that satisfy the requirements of paragraphs (a) and (b) were produced by the producer of that material; incorporated means, with respect to the production of a good, a material that is physically incorporated into that good, and includes a material that is physically incorporated into another material before that material or any subsequently produced material is used in the production of the good; indirect material means a material used or consumed in the production, testing or inspection of a good but not physically incorporated into the good, or a material used or consumed in the maintenance of buildings or the operation of equipment associated with the production of a good, including (a) fuel and energy, (b) tools, dies, and molds, (c) spare parts and materials used or consumed in the maintenance of equipment and buildings, (d) lubricants, greases, compounding materials and other materials used or consumed in production or used to operate equipment and buildings, (e) gloves, glasses, footwear, clothing, safety equipment, and supplies, (f) equipment, devices and supplies used or consumed for testing or inspecting the goods, (g) catalysts and solvents, and (h) any other material that is not incorporated into the good but if the use in the production of the good can reasonably be demonstrated to be part of that production; interest costs means all costs paid or payable by a person to whom credit is, or is to be advanced, for the advancement of credit or the obligation to advance credit; intermediate material means a material that is self-produced and used in the production of a good, and designated as an intermediate material under subsection 8(6); location of the producer means, (a) the place where the producer uses a material in the production of the good; or (b) the warehouse or other receiving station where the producer receives materials for use in the production of the good, provided that it is located within a radius of 75 km (46.60 miles) from the production site. material means a good that is used in the production of another good, and includes a part or ingredient; month means a calendar month; PO 00000 Frm 00007 Fmt 4701 Sfmt 4700 39695 national means a natural person who is a citizen or permanent resident of a USMCA 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 means total cost minus sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and non-allowable interest costs that are included in the total cost; net cost of a good means the net cost that can be reasonably allocated to a good using the method set out in subsection 7(3) (Regional Value Content); net cost method means the method of calculating the regional value content of a good that is set out in subsection 7(3) (Regional Value Content); 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 interest rate issued by the federal government for comparable maturities of the country in which the producer is located; non-originating good means a good that does not qualify as originating under these Regulations; non-originating material means a material that does not qualify as originating under these Regulations; originating good means a good that qualifies as originating under these Regulations; originating material means a material that qualifies as originating under these Regulations; 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 aftersales service costs, the costs expensed on the books of a producer, whether or not an actual payment is made; person means a natural person or an enterprise; person of a USMCA country means a national, or an enterprise constituted or organized under the laws of a USMCA 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 engages in the production of a good; production means growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, breeding, extracting, manufacturing, processing, or assembling a good, or aquaculture; reasonably allocate means to apportion in a manner appropriate to the circumstances; E:\FR\FM\01JYR2.SGM 01JYR2 39696 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations recovered material means a material in the form of one or more individual parts that results from: (a) The disassembly of a used good into individual parts; and (b) the cleaning, inspecting, testing or other processing of those parts as necessary for improvement to sound working condition; 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; remanufactured good means a good classified in HS Chapters 84 through 90 or under heading 94.02 except goods classified under HS headings 84.18, 85.09, 85.10, and 85.16, 87.03 or subheadings 8414.51, 8450.11, 8450.12, 8508.11, and 8517.11, that is entirely or partially composed of recovered materials and: (a) Has a similar life expectancy and performs the same as or similar to such a good when new; and (b) has a factory warranty similar to that applicable to such a good when new; 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 the 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 or similar agreements, made as consideration for the use of, or right to use, a copyright, literary, artistic, or scientific work, patent, trademark, design, model, plan, or secret formula or process, excluding those payments under technical assistance or similar agreements that can be related to specific services such as (a) personnel training, without regard to where the training is performed, or (b) if performed in the territory of one or more of the USMCA 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, or sales aid information); establishment and protection of logos and trademarks; sponsorships; wholesale and retail restocking charges; or entertainment; VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 (b) sales and marketing incentives; consumer, retailer or wholesaler rebates; or merchandise incentives; (c) salaries and wages, sales commissions, bonuses, benefits (for example, medical, insurance, or pension), travelling and living expenses, or membership and professional fees for sales promotion, marketing and aftersales service personnel; (d) recruiting and training of sales promotion, marketing and after-sales service personnel, and after-sales training of customers’ employees, if those 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, if those 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, if those 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, if those 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, if 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, PO 00000 Frm 00008 Fmt 4701 Sfmt 4700 (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, if 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 these Regulations that are applied to determine whether the good is an originating good include a regional value content requirement; tariff provision means a heading, subheading or tariff item; territory means: (a) For Canada, the following zones or waters as determined by its domestic law and consistent with international law: (i) The land territory, air space, internal waters, and territorial sea of Canada, (ii) the exclusive economic zone of Canada, and (iii) the continental shelf of Canada; (b) for Mexico, (i) the land territory, including the states of the Federation and Mexico City, (ii) the air space, and (iii) the internal waters, territorial sea, and any areas beyond the territorial seas of Mexico within which Mexico may exercise sovereign rights and jurisdiction, as determined by its domestic law, consistent with the United Nations Convention on the Law of the Sea, done at Montego Bay on December 10, 1982; and (c) for 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) the territorial sea and air space of the United States and any area beyond the territorial sea within which, in accordance with customary international law as reflected in the United Nations Convention on the Law of the Sea, the United States may exercise sovereign rights or jurisdiction. total cost means all product costs, period costs, and other costs incurred in the territory of one or more of the USMCA countries, where: (a) Product costs are costs that are associated with the production of a good and include the value of materials, direct labor costs, and direct overheads; (b) period costs are costs, other than product costs, that are expensed in the period in which they are incurred, such as selling expenses and general and administrative expenses; and (c) other costs are all costs recorded on the books of the producer that are not product costs or period costs, such as interest. 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; transaction value means the customs value as determined in accordance with the Customs Valuation Agreement, that is, the price actually paid or payable for a good or E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations material with respect to a transaction of the producer of the good, adjusted in accordance with the principles of Articles 8(1), 8(3), and 8(4) of the Customs Valuation Agreement, regardless of whether the good or material is sold for export; transaction value method means the method of calculating the regional value content of a good that is set out in subsection 7(2) (Regional Value Content); used means used or consumed in the production of a good; USMCA country means a Party to the Agreement; value means the value of a good or material for the purpose of calculating customs duties or for the purpose of applying these Regulations. verification of origin means a verification of origin of goods under (a) in the case of Canada, paragraph 42.1(1)(a) of the Customs Act, (b) in the case of Mexico, Article 5.9 of the Agreement, and (c) in the case of the United States, section 509 of the Tariff Act of 1930, as amended. (2) Interpretation: ‘‘similar goods’’ and ‘‘similar materials’’. For the 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 the purpose of determining whether goods or materials are similar. (3) Other definitions. For the purposes of these Regulations, (a) chapter, unless otherwise indicated, refers to a chapter of the Harmonized System; (b) heading refers to any four-digit number set out in the ‘‘Heading’’ column in the Harmonized System, or the first four digits of any tariff provision; (c) subheading refers to any six-digit number, set out in the ‘‘H.S. Code’’ column in the Harmonized System or the first six digits of any tariff provision; (d) tariff item refers to the first eight digits in the tariff classification number under the Harmonized System as implemented by each USMCA country; (e) any reference to a tariff item in Chapter Four of the Agreement or these Regulations that includes letters is to be reflected as the appropriate eight-digit number in the Harmonized System as implemented in each USMCA country; and (f) books refers to, (i) with respect to the books of a person who is located in a USMCA 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 X with respect to the territory of the USMCA 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 X with respect to the territory of the USMCA 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 USMCA countries, VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 (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, if there are no such principles, in accordance with the International Accounting Standards, and (B) financial statements, including note disclosures, that are prepared in accordance with generally accepted accounting principles applied in that location or, if there are no such principles, in accordance with the International Accounting Standards. (4) Use of examples. If an example, referred to as an ‘‘Example’’, is set out in these Regulations, the example is for the purpose of illustrating the application of a provision, and if there is any inconsistency between the example and the provision, the provision prevails to the extent of the inconsistency. (5) References to domestic laws. Except as otherwise provided, references in these Regulations to domestic laws of the USMCA countries apply to those laws as they are currently in effect and as they may be amended or superseded. (6) Calculation of Total Cost. For the purposes of subsections 5(11), 7(11) and 8(8), (a) total cost consists of all product costs, period costs and other costs that are recorded, except as otherwise provided in subparagraphs (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, is the value determined in accordance with subsections 8(1) and 8(2), (ii) the value of intermediate materials used in the production of the good or material with respect to which total cost is being calculated must be calculated in accordance with subsection 8(6), (iii) the value of indirect materials and the value of packing materials and containers is to 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), is to 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 must be deducted from total cost, and losses related to currency conversion that are related to the production of the good must be included in total cost; (e) the value of materials with respect to which production is accumulated under section 9 must 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. PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 39697 (7) Period for the calculation of total cost. For the purpose of calculating total cost under subsections 5(11) and 7(11) and 8(8), (a) if the regional value content of the good is calculated on the basis of the net cost method and the producer has elected under subsection 7(15), 16(1) or (3) to calculate the regional value content over a period, the total cost must be calculated over that period; and (b) in any other case, the producer may elect that the total cost be calculated over (i) a one-month period, (ii) any consecutive three-month or sixmonth 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) Election not modifiable. An election 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 election is made. (9) Election considered made with respect to period. If a producer chooses a one, three or six-month period under subsection (7) with respect to a good or material, the producer is 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) Election considered made with respect to cost. With respect to a good exported to a USMCA country, an election to average is considered to have been made (a) in the case of an election referred to in subsection 16(1) or (3), if the election is received by the customs administration of that USMCA country; and (b) in the case of an election referred to in subsection 1(7), 7(15) or 16(10), if the customs administration of that USMCA country is informed in writing during the course of a verification of origin of the good that the election has been made. Section 2. Conversion of Currency 2 (1) Conversion of currency. If the value of a good or a material is expressed in a currency other than the currency of the country where the producer of the good is located, that value must be converted to the currency of the country in which that producer is located, based on the following rates of exchange: (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 the purpose of recording that sale or purchase, or (b) in the case of a material that is acquired by the producer other than by a purchase, (i) if the producer used a rate of exchange for the purpose 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, or (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 E:\FR\FM\01JYR2.SGM 01JYR2 39698 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations the Banco de Mexico in the Diario Oficial de la Federacio´n, under the title ‘‘TIPO de cambio para solventar obligaciones denominadas en moneda extranjera pagaderas en la Repu´blica 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) Information in other currency in statement. If a producer of a good has a statement referred to in section 9 that includes information in a currency other than the currency of the country in which that producer is located, the currency must be converted to the currency of the country in which the producer is located based on the following rates of exchange: (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 must be the rate used by the producer for the purpose of recording the purchase; or (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) and the producer used a rate of exchange for the purpose of recording a transaction in that other currency that occurred within 30 days of the date on which the producer acquired the material, the rate of exchange must be that rate, or (ii) in any other case, (A) with respect to a producer located in Canada, the rate of exchange is the rate 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 is the rate 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 is the rate 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) if the producer used a rate of exchange for the purpose of recording a transaction in that other currency that occurred within 30 days of the date on which the producer acquired the material, the rate of exchange must be that rate, and (ii) in any other case, (A) with respect to a producer located in Canada, the rate of exchange must be the rate 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 must be the rate VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 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 must be the rate referred to in 31 U.S.C. 5151 for the date on which the material was shipped directly to the producer. Part II Section 3. Originating Goods 3(1) Wholly obtained goods. A good is originating in the territory of a USMCA country if the good satisfies all other applicable requirements of these Regulations and is: (a) A mineral good or other naturally occurring substance extracted in or taken from the territory of one or more of the USMCA countries; (b) a plant, plant good, vegetable, or fungus, grown, harvested, picked, or gathered in the territory of one or more of the USMCA countries; (c) a live animal born and raised in the territory of one or more of the USMCA countries; (d) a good obtained from a live animal in the territory of one or more of the USMCA countries; (e) an animal obtained from hunting, trapping, fishing, gathering or capturing in the territory of one or more of the USMCA countries; (f) a good obtained from aquaculture in the territory of one or more of the USMCA countries; (g) fish, shellfish or other marine life taken from the sea, seabed or subsoil outside the territories of the USMCA countries and, under international law, outside the territorial sea of non-USMCA countries, by vessels that are registered, listed, or recorded with a USMCA country and entitled to fly the flag of that USMCA country; (h) a good produced from goods referred to in paragraph (g) on board a factory ship where the factory ship is registered, listed, or recorded with a USMCA country and entitled to fly the flag of that USMCA country; (i) a good, other than fish, shellfish or other marine life, taken by a USMCA country or a person of a USMCA country from the seabed or subsoil outside the territories of the USMCA countries, if that USMCA country has the right to exploit that seabed or subsoil; (j) waste and scrap derived from: (i) Production in the territory of one or more of the USMCA countries, or (ii) used goods collected in the territory of one or more of the USMCA countries, provided the goods are fit only for the recovery of raw materials; or (k) a good produced in the territory of one or more of the USMCA countries, exclusively from a good referred to in any of paragraphs (a) through (j), or from their derivatives, at any stage of production. (2) Goods produced from non-originating materials. A good, produced entirely in the territory of one or more of the USMCA PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 countries, is originating in the territory of a USMCA country if each of the nonoriginating materials used in the production of the good satisfies all applicable requirements of Schedule I (PSRO Annex), and the good satisfies all other applicable requirements of these Regulations. (3) Goods produced exclusively from originating materials. A good is originating in the territory of a USMCA country if the good is produced entirely in the territory of one or more of the USMCA countries exclusively from originating materials and the good satisfies all other applicable requirements of these Regulations. (4) Exceptions to the change in tariff classification requirement. Except in the case of a good of any of Chapters 61 through 63, a good is originating in the territory of a USMCA country if: (a) One or more of the non-originating materials used in the production of that good cannot satisfy the change in tariff classification requirements set out in Schedule I (PSRO Annex) because both the good and its materials are classified in the same subheading or same heading that is not further subdivided into subheadings, and, (i) the good is produced entirely in the territory of one or more of the USMCA countries; (ii) the regional value content of the good, calculated in accordance with section 7 (Regional Value Content), is not less than 60 percent if the transaction value method is used, or not less than 50 percent if the net cost method is used; and (iii) the good satisfies all other applicable requirements of these Regulations; or (b) it was imported into the territory of a USMCA country in an unassembled or a disassembled form but classified as an assembled good in accordance with rule 2(a) of the General Rules of Interpretation for the Harmonized System and, (i) the good is produced entirely in the territory of one or more of the USMCA countries; (ii) the regional value content of the good, calculated in accordance with section 7 (Regional Value Content), is not less than 60 percent if the transaction value method is used, or not less than 50 percent if the net cost method is used; and (iii) the good satisfies all other applicable requirements of these Regulations. (5) Interpretation of goods and parts of goods. For the purposes of paragraph (4)(a), (a) the determination of whether a heading or subheading provides for a good and its parts is to 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) if, 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 is to be considered to cover only the goods and parts of the goods that are themselves classified under that subheading. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations (6) Requirement to meet one rule. For the purposes of subsection (2), if Schedule I (PSRO Annex) 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. (7) Special rule for certain goods. A good is originating in the territory of a USMCA country if the good is referred to in Schedule II and is imported from the territory of a USMCA country. (8) Self-produced material considered as a material. For the purpose 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 that material, be considered as a material used in the production of a good into which the selfproduced material is incorporated. (9) Each of the following examples is an ‘‘Example’’ as referred to in subsection 1(4). Example 1: Subsection 3(2) Regarding the ‘component that determines the tariff classification’ of a textile or apparel good) Producer A, located in a USMCA country, produces women´s wool overcoats of subheading 6202.11 from two different fabrics, one for the body and another for the sleeves. Both fabrics are produced using originating and non-originating materials. The overcoat´s body is made of woven wool and silk fabric, and the sleeves are made of knit cotton fabric. For the purpose of determining if the women´s wool overcoats are originating goods, Producer A must take into account Note 2 of Chapter 62 of Schedule I, which indicates that the applicable rule will apply only to the component that determines the tariff classification of the good and that the component must satisfy the tariff change requirements set out in the rule for that good. The woven fabric (80% wool and 20% silk) used for the body is the component of the women´s wool overcoat that determines its tariff classification under subheading 6202.11, because it constitutes the predominant material by weight and makes up the largest surface area of the overcoat. This fabric is made by Producer A from originating wool yarn classified in heading 51.06 and non-originating silk yarn classified in heading 50.04. Since the knit cotton fabric used in the sleeves is not the component that determines the tariff classification of the good, it does not need to meet the requirements set out in the rule for the good. Producer A must determine whether the non-originating materials used in the production of the component that determines the tariff classification of the women´s wool overcoats (the woven fabric) satisfy the requirements established in the productspecific rule of origin, which requires both a change in tariff classification from any other chapter, except from some headings and chapters under which certain yarns and fabrics are classified, and a requirement that the good be cut or knit to shape and sewn or otherwise assembled in the territory of one or more of the USMCA countries. The non- VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 originating silk yarn of heading 50.04 used by Producer A satisfies the change in tariff classification requirement, since heading 50.04 is not excluded under the productspecific rule of origin. Additionally, the overcoats are cut and sewn in the territory of one of the USMCA countries, and therefore the women´s wool overcoats would be considered to be originating goods. Example 2: (Subsection 3(2)) Producer A, located in a USMCA country, produces T-shirts of subheading 6109.10 from knit cotton and polyester fabric (60% cotton and 40% polyester), which is also produced by Producer A using originating cotton yarn of heading 52.05 and polyester yarn made of non-originating filaments of heading 54.02. As the t-shirt is made of a single fabric and classified under GRI 1 in subheading 6109.10, this fabric is the component that determines tariff classification. Therefore, to be considered originating by application of the tariff-shift rule for subheading 6109.10, each of the non-originating materials used in the production of the t-shirt must undergo the required change in tariff classification. In this case, the non-originating polyester filaments of heading 54.02 used in the production of the T-shirts do not satisfy the change in tariff classification set out in the product-specific rule of origin. In addition, the weight of the non-originating polyester is over the ‘‘de minimis’’ allowance. Therefore, the T-shirts do not qualify as originating goods. Example 3: (subsection 3(2))—Note 2 contained in Section XI—Textiles and Textile Articles (Chapter 50–63) Producer A, located in a USMCA country, produces fabrics of subheading 5211.42 from originating cotton and polyester yarns, and non-originating rayon filament. For the purpose of determining if the fabrics are originating goods, Producer A must consider Note 2 of Section XI of Schedule I, which indicates a good of Chapter 50 through 63 is considered as originating, regardless of whether the rayon filaments used in its production are non-originating materials, provided that the good meets the requirements of the applicable productspecific rule of origin. With the exception of the rayon filaments of heading 54.03, that Note 2 of Section XI of Schedule I allows, all of the materials used in the production of the fabrics are originating materials, and since General Interpretative Note (d) of Schedule I provides that a change in tariff classification of a product-specific rule of origin applies only to non-originating materials, the fabrics are considered to be originating goods. Example 4: Subsection 3(2) Note 2 and 5 of Chapter 62 regarding the interpretation of the component that determines the tariff classification and the requirement for pockets. Producer A, located in a USMCA country, produces men´s suits classified in subheading 6203.12, which are made of three fabrics: A non-originating fabric of subheading 5407.61 used to make a visible lining, an originating fabric of 5514.41 used to make the outer part of the suit and a non- PO 00000 Frm 00011 Fmt 4701 Sfmt 4700 39699 originating fabric of subheading 5513.21 used to make pocket bags. For the purpose of determining if the men´s suits are originating goods, Producer A should take into account Note 2 of Chapter 62 of Schedule I, which indicates that the applicable rule will only apply to the component that determines the tariff classification of the good and that the component must satisfy the tariff change requirements set out in the rule for that good. The originating fabric used to make the outer part of the suit is the component of the suit that determines the tariff classification under subheading 6203.12, because it constitutes the predominant material by weight and is the largest surface area of the suit. The origin of the fabric used as visible lining is disregarded for the purpose of determining whether the suit is an originating good since that fabric is not considered the component that determines the tariff classification, and there are no Chapter notes related to visible lining for apparel goods. Additionally, Producer A uses a nonoriginating fabric of subheading 5513.21 for the pocket bags of the suits, so it should take into account the second paragraph of Note 5 of Chapter 62 of Schedule I, which requires that the pocket bag fabric must be formed and finished in the territory of one or more USMCA countries from yarn wholly formed in one or more USMCA countries. In this case, for the production of men´s suits, Producer A uses non-originating fabric for the pockets, and such fabric was not formed and finished in the territory of one or more Parties, therefore the suits would be considered to be non-originating goods. Example 5 (subsection 3(7)): A wholesaler located in USMCA Country A imports nonoriginating storage units provided for in subheading 8471.70 from outside the territory of the USMCA countries. The wholesaler resells the storage units to a buyer in USMCA Country B. While in the territory of Country A, the storage units do not undergo any production and therefore do not meet the rule in Schedule I for goods of subheading 8471.70 when imported into the territory of USMCA Country B. Notwithstanding the rule in Schedule I, the storage units of subheading 8471.70 are considered originating goods when they are imported to the territory of USMCA Country B because they are referred to in Schedule II and were imported from the territory of another USMCA country. The buyer in USMCA Country B subsequently uses the storage units provided for in subheading 8471.70 as a material in the production of another good. For the purpose of determining whether the other good originates, the buyer in USMCA Country B may treat the storage units of subheading 8471.70 as originating materials. Example 6 subsection 3(8): Self-produced Materials as Materials for the purpose of Determining Whether Non-originating Materials Undergo an Applicable Change in Tariff Classification Producer A, located in a USMCA 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 E:\FR\FM\01JYR2.SGM 01JYR2 39700 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations 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 the purpose 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 4. Treatment of Recovered Materials Used in the Production of a Remanufactured Good 4(1) Treatment of recovered materials used in the production of remanufactured goods. A recovered material derived in the territory of one or more of the USMCA countries, will be treated as originating, provided that: (a) It is the result of a disassembly process of a used good into individual parts; (b) It has undergone certain processing, such as cleaning, inspection, testing or other improvement processing, to sound working condition; and (c) It is used in the production of, and incorporated into, a remanufactured good. (2) Recovered material not used in remanufactured good. In the case that the recovered material is not used or incorporated in the production of a remanufactured good, it is originating only if it satisfies the requirements established in Section 3, and satisfies all other applicable requirements in these Regulations. (3) Requirements of Schedule I (PSRO Annex). A remanufactured good is originating in the territory of a USMCA country only if it satisfies the applicable requirements established in Schedule I (PSRO Annex), and satisfies all other applicable requirements in these Regulations. (4) Each of the following examples is an ‘‘Example’’ as referred to in subsection 1(4) Example 1: (Section 4) In July 2023, Producer A located in a USMCA country manufactures water pumps of subheading 8413.30 for use in automotive engines. In addition to selling new water pumps, Producer A also sells water pumps that incorporate used parts. To obtain the used parts, Producer A disassembles used water pumps in a USMCA country and cleans, inspects, and tests the individual parts. Accordingly, these parts qualify as recovered materials. The water pumps that Producer A manufactures incorporate the recovered materials, have the same life expectancy and performance as new water pumps, and are sold with a warranty that is similar to the warranty for new water pumps. The water pumps therefore qualify as remanufactured goods, and the recovered materials are treated as originating materials when VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 determining whether the good qualifies as an originating good. In this case, because the water pumps are for use in an automotive good, the provisions of Part VI apply. Because the water pump is a part listed in Table B, the RVC required is 70% under the net cost method or 80% under the transaction value method. The producer chooses to calculate the RVC using net cost as follows: Water pump net cost = $1,000 Value of recovered materials = $600 Value other originating materials = $20 Value of non-originating materials = $280 RVC = (NC¥VNM)/NC × 100 RVC = (1,000¥280)/1,000 × 100 = 72% The remanufactured water pumps are originating goods because their regional value content exceeds the 70% requirement by net cost method. Example 2: Section 4 Producer A located in a USMCA country, uses recovered materials derived in the territory of a USMCA country in the production of self-propelled ‘‘bulldozers’’ classified in subheading 8429.11. In the production of the bulldozers, Producer A uses recovered engines, classified in heading 84.07. The engines are recovered materials because they are disassembled from used bulldozers in a USMCA country and then subject to cleaning, inspecting and technical tests to verify their sound working condition. In addition to the recovered materials, other non-originating materials, classified in subheading 8413.91, are also used in the production of the bulldozers. Producer A’s bulldozers are considered a ‘‘remanufactured good’’ because they are classified in a tariff provision set out in the definition of a remanufactured good, are partially composed of recovered materials, have a similar life expectancy and perform the same as or similar to new self-propelled bulldozers, and have a factory warranty similar to new self-propelled bulldozers. Once the recovered engines are used in the production of, and incorporated into, the remanufactured bulldozers, the recovered engines would be treated considered as originating materials for the purpose of determining if the remanufactured bulldozers are originating. The rule of origin set out in in Schedule I for subheading 8429.11 specifies a change in tariff classification from any other subheading. In this case, because the recovered engines are treated as originating materials, and the non-originating materials, classified in subheading 8413.91, satisfy the requirements set out in Schedule I, the remanufactured bulldozers are originating goods. Section 5. De Minimis 5(1) De minimis rule for non-originating materials. Except as otherwise provided in subsection (3) (Exceptions), a good is originating in the territory of a USMCA country if (a) 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 PO 00000 Frm 00012 Fmt 4701 Sfmt 4700 territory of one or more of the USMCA countries is not more than ten percent (i) of the transaction value of the good, determined in accordance with Schedule III (Value of Goods), and adjusted to exclude any costs incurred in the international shipment of the good, or (ii) of the total cost of the good; (b) if the good is also subject to a regional content requirement under the rule in which the applicable change in tariff classification is specified, the value of those nonoriginating materials is to be taken into account in calculating the regional value content of the good in accordance with the method set out for that good; and (c) the good satisfies all other applicable requirements of these Regulations. (2) Only one rule to satisfy. If Schedule I (PSRO Annex) sets out two or more alternative rules for the tariff provision under which the good is classified, and the good is considered an originating good under one of those rules in accordance with subsection (1), it need not satisfy the requirements of any alternative rule to be originating. (3) Exceptions. Subsections (1) and (2) do not apply to: (a) A non-originating material of heading 04.01 through 04.06, or a non-originating material that is a dairy preparation containing over 10 percent by dry weight of milk solids of subheading 1901.90 or 2106.90, used in the production of a good of heading 04.01 through 04.06; (b) a non-originating material of heading 04.01 through 04.06, or a non-originating material that is a dairy preparation containing over 10 percent by dry weight of milk solids of subheading 1901.90 or 2106.90, used in the production of a good of: (i) Infant preparations containing over 10 percent by dry weight of milk solids of subheading 1901.10, (ii) mixes and doughs, containing over 25 percent by dry weight of butterfat, not put up for retail sale of subheading 1901.20, (iii) dairy preparations containing over 10 percent by dry weight of milk solids of subheading 1901.90 or 2106.90, (iv) goods of heading 21.05, (v) beverages containing milk of subheading 2202.90, or (vi) animal feeds containing over 10 percent by dry weight of milk solids of subheading 2309.90; (c) a non-originating material of any of heading 08.05 and subheadings 2009.11 through 2009.39 that is used in the production of a good of any of subheadings 2009.11 through 2009.39 or a fruit or vegetable juice of any single fruit or vegetable, fortified with minerals or vitamins, concentrated or unconcentrated, of subheading 2106.90 or 2202.90; (d) a non-originating material of Chapter 9 that is used in the production of instant coffee, not flavored, of subheading 2101.11; (e) a non-originating material of Chapter 15 that is used in the production of a good of any of headings 15.01 through 15.08, 15.12, 15.14 or 15.15; (f) a non-originating material of heading 17.01 that is used in the production of a good of any of headings 17.01 through 17.03; E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations (g) a non-originating material of Chapter 17 or heading 18.05 that is used in the production of a good of subheading 1806.10; (h) a non-originating material that is pears, peaches or apricots of Chapter 8 or 20 that is used in the production of a good of heading 20.08; (i) a non-originating material that is a single juice ingredient of heading 20.09 that is used in the production of a good of any of subheading 2009.90, or tariff item 2106.90.cc or 2202.90.bb; (j) a non-originating material of heading 22.03 through 22.08 that used in the production of a good provided for in any of heading 22.07 or 22.08; (k) a non-originating material that is used in the production of a good of any of Chapters 1 through 27, unless the nonoriginating material is of a different subheading than the good for which origin is being determined under this section; or (l) a non-originating material that is used in the production of a good of any of Chapters 50 through 63. (4) De minimis rule for regional value content requirement. A good that is subject to a regional value content requirement is originating in the territory of a USMCA country and is not required to satisfy that requirement if (a) the value of all non-originating materials used in the production of the good is not more than ten per cent (i) of the transaction value of the good, determined in accordance with Schedule III (Value of the Good), and adjusted to exclude any costs incurred in the international shipment of the good, or (ii) of the total cost of the good, and (b) the good satisfies all other applicable requirements of these Regulations. (5) Value of non-originating materials for subsections (1) and (4). For the purposes of subsections (1) and (4), the value of nonoriginating materials is to be determined in accordance with subsections 8(1) through (6). (6) De minimis rule for textile goods. A good of any of Chapters 50 through 60 or heading 96.19, that contains non-originating materials that do not satisfy the applicable change in tariff classification requirements, will be considered originating in the territory of a USMCA country if: (a) The total weight of all those nonoriginating materials is not more than ten per cent of the total weight of the good, of which the total weight of elastomeric content may not exceed seven per cent of the total weight of the good; and (b) the good satisfies all other applicable requirements of these Regulations. (7) A good of any of Chapters 61 through 63, that contains non-originating fibers or yarns in the component of the good that determines the tariff classification that do not undergo the applicable change in tariff classification requirements, will be considered originating in the territory of a USMCA country if: (a) The total weight of all those nonoriginating materials is not more than ten per cent of the total weight of that component, of which the elastomeric content may not exceed seven per cent; and (b) the good satisfies all other applicable requirements of these Regulations. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 (8) For purposes of subsection (7), (a) the component of a good that determines the tariff classification of that good is identified in accordance with the first of the following General Rules for the Interpretation of the Harmonized System under which the identification can be determined, namely, Rule 3(b), Rule 3(c) and Rule 4; and (b) if the component of the good that determines the tariff classification of the good is a blend of two or more yarns or fibers, all yarns and fibers used in the production of the component must be taken into account in determining the weight of fibers and yarns in that component. (9) For the purpose of determining if a good of Chapter 61 through 63 is originating, the requirements set out in Schedule I (PSRO Annex) only apply to the component that determines the tariff classification of the good. Materials that are not part of the component that determines the tariff classification of the good are disregarded when determining if a good is originating. Similarly, for the purposes of Section 5 as applicable to a good of Chapters 61 through 63, only the materials used in the component that determines the tariff classification are taken into account in the de minimis calculation. (10) Subsection (6) does not apply to sewing thread, narrow elastic bands, and pocket bag fabric subject to the requirements set out in Chapter 61 Notes 2 through 4, Chapter 62 Notes 3 through 5 or for coated fabric as set out in Chapter 63 Note 2 of Schedule I (PSRO Annex). (11) Calculation of ‘‘Total Cost’’, choice of methods. For the purposes of paragraph (1)(a)(ii) and subparagraph (4)(a)(ii), the total cost of a good is, at the choice of the producer of the good, (a) the total cost incurred with respect to all goods produced by the producer that can be reasonably allocated to that good in accordance with Schedule V; or (b) the aggregate of each cost that forms part of the total cost incurred with respect to that good that can be reasonably allocated to that good in accordance with Schedule V. (12) Calculation of total cost. Total cost under subsection (11) consists of the costs referred to in subsection 1(6), and is calculated in accordance with that subsection and subsection 1(7). (13) Value of non-originating materials— other methods. For the purpose of determining the value under subsection (1) of non-originating materials that do not undergo an applicable change in tariff classification, if an inventory management method either recognized in the Generally Accepted Accounting Principles (GAAP) of the USMCA country where the production was performed or a method set out in Schedule VIII, is not being used to determine the value of those non-originating materials, the following methods are to be used: (a) If the value of those non-originating materials is being determined as a percentage of the transaction value of the good and the producer chooses under subsection 7(10) to use one of the methods recognized in the GAAP of the USMCA country where the material was produced, or a method set out PO 00000 Frm 00013 Fmt 4701 Sfmt 4700 39701 in Schedule VII to determine the value of those non-originating materials for the purpose of calculating the regional value content of the good, the value of those nonoriginating materials must be determined in accordance with that method; (b) if the following conditions are met and if the value of those non-originating materials is equal to the sum of the values of nonoriginating materials, determined in accordance with the election under subparagraph (iv), divided by the number of units of the goods with respect to which the election is made (i) the value of those non-originating materials is being determined as a percentage of the total cost of the good, (ii) under the rule in which the applicable change in tariff classification is specified, the good is also subject to a regional value content requirement and paragraph (5)(a) does not apply with respect to that good, (iii) the regional value content of the good is calculated on the basis of the net cost method, and (iv) the producer elects under subsection 7(15), 16(1) or (10) that the regional value content of the good be calculated over a period; (c) if the conditions below are met the value of those non-originating materials is the sum of the values of non-originating materials divided by the number of units produced during the period under subparagraph (iii): (i) The value of those non-originating materials is being determined as a percentage of the total cost of the good, (ii) under the rule in which the applicable change in tariff classification is specified, the good is not also subject to a regional value content requirement or paragraph (6)(a) applies with respect to that good, and (iii) the producer elects under paragraph 1(7)(b) that, for the purposes of subsection 5(11), the total cost of the good be calculated over a period; and (d) in any other case, the value of those non-originating materials may, at the choice of the producer, be determined in accordance with an inventory management method recognized in the GAAP of the USMCA country where the production was performed or one of the methods set out in Schedule VII. (14) Value of non-originating materials— production of the good. For the purposes of subsection (4), the value of the nonoriginating materials used in the production of the good may, at the choice of the producer, be determined in accordance with an inventory management method recognized in the GAAP of the USMCA country where the production was performed or one of the methods set out in Schedule VII (15) Examples illustrating de minimis rules. Each of the following examples is an ‘‘Example’’ as referred to in subsection 1(4). Example 1: Subsection 5(1) Producer A, located in a USMCA country, uses originating materials and nonoriginating materials in the production of aluminum powder of heading 76.03. The product-specific rule of origin set out in Schedule I for heading 76.03 specifies a change in tariff classification from any other E:\FR\FM\01JYR2.SGM 01JYR2 39702 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations chapter. There is no applicable regional value content requirement for this heading. Therefore, in order for the aluminum powder to qualify as an originating good under the rule set out in Schedule I, Producer A may not use any non-originating material of Chapter 76 in the production of the aluminum powder. All of the materials used in the production of the aluminum powder are originating materials, with the exception of a small amount of aluminum scrap of heading 76.02, that is in the same chapter as the aluminum powder. Under subsection 5(1), if the value of the non-originating aluminum scrap does not exceed ten per cent of the transaction value of the aluminum powder or the total cost of the aluminum powder, whichever is applicable, the aluminum powder would be considered an originating good. Example 2: Subsection 5(2) Producer A, located in a USMCA country, uses originating materials and nonoriginating materials in the production of fans of subheading 8414.59. There are two alternative rules set out in Schedule I for subheading 8414.59, one of which specifies a change in tariff classification from any other heading. The other rule specifies both a change in tariff classification from the subheading under which parts of the fans are classified and a regional value content requirement. In order for the fan to qualify as an originating good under the first of the alternative rules, all of the materials that are classified under the subheading for parts of fans and used in the production of the completed fan must be originating materials. In this case, all of the non-originating materials used in the production of the fan satisfy the change in tariff classification set out in the rule that specifies a change in tariff classification from any other heading, with the exception of one non-originating material that is classified under the subheading for parts of fans. Under subsection 5(1), if the value of the non-originating material that does not satisfy the change in tariff classification specified in the first rule does not exceed ten per cent of the transaction value of the fan or the total cost of the fan, whichever is applicable, the fan would be considered an originating good. Therefore, under subsection 5(2), the fan would not be required to satisfy the alternative rule that specifies both a change in tariff classification and a regional value content requirement. Example 3: Subsection 5(2) Producer A, located in a USMCA country, uses originating materials and nonoriginating materials in the production of copper anodes of heading 74.02. The product-specific rule of origin set out in Schedule I for heading 74.02 specifies both a change in tariff classification from any other heading, except from heading 74.04, under which certain copper materials are classified, and a regional value content requirement. With respect to that part of the rule that specifies a change in tariff classification, in order for the copper anode to qualify as an originating good, any copper materials that are classified under heading 74.02 or 74.04 and that are used in the production of the copper anode must be originating materials. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 In this case, all of the non-originating materials used in the production of the copper anode satisfy the specified change in tariff classification, with the exception of a small amount of copper materials classified under heading 74.04. Subsection 5(1) provides that the copper anode can be considered an originating good if the value of the non-originating copper materials that do not satisfy the specified change in tariff classification does not exceed ten per cent of the transaction value of the copper anode or the total cost of the copper anode, whichever is applicable. In this case, the value of those non-originating materials that do not satisfy the specified change in tariff classification does not exceed the ten per cent limit. However, the rule set out in Schedule I for heading 74.02 specifies both a change in tariff classification and a regional value content requirement. Under paragraph 5(1)(b), in order to be considered an originating good, the copper anode must also, except as otherwise provided in subsection 5(4), satisfy the regional value content requirement specified in that rule. As provided in paragraph 5(1)(b), the value of the non-originating materials that do not satisfy the specified change in tariff classification, together with the value of all other non-originating materials used in the production of the copper anode, will be taken into account in calculating the regional value content of the copper anode. Example 4: Subsection 5(4) Producer A, located in a USMCA country, primarily uses originating materials in the production of shoes of heading 64.05. The product-specific rule of origin set out in Schedule I for heading 64.05 specifies both a change in tariff classification from any heading other than headings 64.01 through 64.05 or subheading 6406.10 and a regional value content requirement. With the exception of a small amount of materials of Chapter 39, all of the materials used in the production of the shoes are originating materials. Under subsection 5(4), if the value of all of the non-originating materials used in the production of the shoes does not exceed ten per cent of the transaction value of the shoes or the total cost of the shoes, whichever is applicable, the shoes are not required to satisfy the regional value content requirement specified in the rule set out in Schedule I in order to be considered originating goods. Example 5: Subsection 5(4) Producer A, located in a USMCA country, produces barbers’ chairs of subheading 9402.10. The product-specific rule of origin set out in Schedule I for goods of subheading 9402.10 specifies a change in tariff classification from any other subheading. All of the materials used in the production of these chairs are originating materials, with the exception of a small quantity of nonoriginating materials that are classified as parts of barbers’ chairs. These parts undergo no change in tariff classification because subheading 9402.10 provides for both barbers’ chairs and their parts. Although Producer A’s barbers’ chairs do not qualify as originating goods under the rule set out in Schedule I, paragraph 3(4)(a) PO 00000 Frm 00014 Fmt 4701 Sfmt 4700 provides, among other things, that, if there is no change in tariff classification from the non-originating materials to the goods because the subheading under which the goods are classified provides for both the goods and their parts, the goods will qualify as originating goods if they satisfy a specified regional value content requirement. However, under subsection 5(4), if the value of the non-originating materials does not exceed ten per cent of the transaction value of the barbers’ chairs or the total cost of the barbers’ chairs, whichever is applicable, the barbers’ chairs will be considered originating goods and are not required to satisfy the regional value content requirement set out in subparagraph 3(4)(a)(ii). Example 6: Subsection 5(6): Producer A, located in a USMCA country, manufactures an infant diaper, classified in heading 96.19, consisting of an outer shell of 94 percent nylon and 6 percent elastomeric fabric, by weight, and a terry knit cotton absorbent crotch. All materials used are produced in a USMCA country, except for the elastomeric fabric, which is from a nonUSMCA country. The elastomeric fabric is only 6 percent of the total weight of the diaper. The product otherwise satisfies all other applicable requirements of these Regulations. Therefore, the product is considered originating from a USMCA country as per subsection (6). Example 7: Subsection 5(6) Producer A, located in a USMCA country, produces cotton fabric of subheading 5209.11 from cotton yarn of subheading 5205.11. This cotton yarn is also produced by Producer A. The product-specific rule of origin set out in Schedule I for subheading 5209.11, under which the fabric is classified, specifies a change in tariff classification from any other heading outside 52.08 through 52.12, except from certain headings under which certain yarns are classified, including cotton yarn of subheading 5205.11. Therefore, with respect to that part of the rule that specifies a change in tariff classification, in order for the fabric to qualify as an originating good, the cotton yarn that is used by Producer A in the production of the fabric must be an originating material. At one point Producer A uses a small quantity of non-originating cotton yarn in the production of the cotton fabric. Under subsection 5(6), if the total weight of the nonoriginating cotton yarn does not exceed ten per cent of the total weight of the cotton fabric, it would be considered an originating good. Example 8: Subsections 5(7) and (8) Producer A, located in a USMCA country, produces women’s dresses of subheading 6204.41 from fine wool fabric of heading 51.12. This fine wool fabric, also produced by Producer A, is the component of the dress that determines its tariff classification under subheading 6204.41. The product-specific rule of origin set out in Schedule I for subheading 6204.41, under which the dress is classified, specifies both a change in tariff classification from any other chapter, except from those headings and chapters under which certain yarns and E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations fabrics, including combed wool yarn and wool fabric, are classified, and a requirement that the good be cut and sewn or otherwise assembled in the territory of one or more of the USMCA countries. In addition, narrow elastics classified in subheading 5806.20 or heading 60.02 and sewing thread classified in heading 52.04, 54.01 or 55.08 or yarn classified in heading 54.02 that is used as sewing thread, must be formed and finished in the territory of one or more of the USMCA countries for the dress to be originating. Furthermore, if the dress has a pocket, the pocket bag fabric must be formed and finished in the territory of one or more of the USMCA countries for the dress to be originating. Therefore, with respect to that part of the rule that specifies a change in tariff classification, in order for the dress to qualify as an originating good, the combed wool yarn and the fine wool fabric made therefrom that are used by Producer A in the production of the dress must be originating materials. In addition, the sewing thread, narrow elastics and pocket bags that are used by Producer A in the production of the dress must also be formed and finished in the territory of one or more of the USMCA countries. At one point Producer A uses a small quantity of non-originating combed wool yarn in the production of the fine wool fabric. Under subsection 5(7), if the total weight of the non-originating combed wool yarn does not exceed ten per cent of the total weight of all the yarn used in the production of the component of the dress that determines its tariff classification, that is, the wool fabric, the dress would be considered an originating good. Example 9: Subsection 5(7) Producer A, located in a USMCA country, manufactures women’s knit sweaters, which have knit bodies and woven sleeves. The knit body is composed of 95 percent polyester and 5 percent spandex, by weight. The sleeves are made of non-USMCA woven fabric that is 100 percent polyester. All materials of the knit body are from a USMCA country, except for the spandex, which is from a non-USMCA country. The sweater is cut and sewn in a USMCA country. Since the knit body gives the garment its essential character, the sweater is classified in subheading 6110.30. The product-specific rule of origin set out in Schedule I for subheading 6110.30 is that the product is both cut (or knit to shape) and sewn or otherwise assembled in the territory of one or more of the USMCA countries. The sleeves are disregarded in determining whether the sweater originates in a USMCA country because only the component that determines the tariff classification of the good must be originating and the de minimis provision is applied to that component. Moreover, the total weight of the spandex is less than 10 percent of the total weight of the knit body fabric, which is the component that determines the tariff classification of the sweater, and the spandex does not exceed seven percent of the total weight of good. Assuming that the women’s knit sweater satisfies all other applicable requirements of these Regulations, the women’s knit sweater is originating from the USMCA country. Example 10: Subsection 5(9) VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 A men’s shirt of Chapter 61 is made using two different fabrics; one for the body and another for the sleeves. The component that determines the tariff classification of the men’s shirt would be the fabric used for the body, as it constitutes the material that predominates by weight and makes up the largest surface area of the shirt‘s exterior. If this fabric is produced using non-originating fibers and yarns that do not satisfy a tariff change rule, the de minimis provision would be calculated on the basis of the total weight of the non-originating fibers or yarns used in the production of the fabric that makes up the body of the shirt. The weight of these non-originating fibers or yarns must be ten percent or less of the total weight of that fabric and any elastomeric content must be seven per cent or less of the total weight of that fabric. Alternatively, if the shirt is made entirely of the same fabric, the component that determines the tariff classification of that shirt would be that fabric, as the shirt is made out of the same material throughout. Therefore, under this second scenario, the total weight of all non-originating fibers and yarns used in the production of the shirt that do not satisfy a tariff change rule, must be ten percent or less of the total weight of the shirt, and any elastomeric content must be seven per cent or less of the total weight of that shirt, for the shirt to be considered as an originating good. Example 11: Subsection 5(9) Producer A, located in a USMCA country, produces women´s blouses of subheading 6206.40 from a fabric also produced by Producer A using 90% by weight originating polyester yarns of subheading 5402.33, 3% by weight non-originating lyocell yarn of subheading 5403.49 and 7% by weight nonoriginating elastomeric filament yarn of subheading 5402.44. This fabric is the component of the women´s blouses that determines its tariff classification under subheading 6206.40. The product-specific rule of origin of Schedule I applicable to the women´s blouses of subheading 6206.40 requires a change in tariff classification from any other chapter, except from those headings and chapters under which certain yarns and fabrics, including polyester, lyocell and elastomeric filament yarns, are classified and a requirement that the good is cut and sewn or otherwise assembled in the territory of one or more of the USMCA countries. In this case, the non-originating lyocell yarns of subheading 5403.49 and the nonoriginating elastomeric filament yarn of subheading 5402.44 do not satisfy the change in tariff classification required by the product-specific rule of origin of Schedule I, because the product specific rule of origin for heading 62.06 excludes a change from Chapter 54 to heading 62.06.’’ However, according to subsection (7), a textile or apparel good classified in Chapters 61 through 63 of the Harmonized System that contains non-originating fibers or yarns in the component of the good that determines its tariff classification that do not satisfy the applicable change in tariff classification, will nonetheless be considered an originating good if the total weight of all those fibers or PO 00000 Frm 00015 Fmt 4701 Sfmt 4700 39703 yarns is not more than 10 percent of the total weight of that component, of which the total weight of elastomeric content may not exceed 7 percent of the total weight of the component, and such good meets all the other applicable requirements of these Regulations. Since the weight of the non-originating materials used by Producer A does not exceed 10 percent of the total weight of the component that determines the tariff classification of the women´s blouses, and the weight of elastomeric content also does not exceed 7 percent of such total weight, the women´s blouses qualify as originating goods. Example 12: Subsection 5(10) A producer located in a USMCA country manufactures boys’ swimwear of subheading 6211.11 from fabric that has been woven in a USMCA country from yarn spun in a USMCA country; however, the producer uses non-originating narrow elastic of heading 60.02 in the waist-band of the swimwear. As a result of the use of non-originating narrow elastic of heading 60.02 in the waistband, and provided the garment is imported into a USMCA country at least 18 months after the Agreement enters into force, the swimwear is considered non-originating because it does not satisfy the requirement set out in Note 3 of Chapter 62. In addition, subsection 5(7) is not applicable regarding the narrow elastic of 60.02 and the good is therefore a nonoriginating good. Section 6. Sets of Goods, Kits or Composite Goods 6 (1) This section applies to a good that is classified as a set as a result of the application of rule 3 of the General Rules for the Interpretation of the Harmonized System. (2) Requirements. Except as otherwise provided in Schedule I (PSRO Annex), a set is originating in the territory of one or more of the USMCA countries only if each good in the set is originating and both the set and the goods meet the other applicable requirements of these Regulations. (3) Exceptions. Notwithstanding, subsection 2, a set is only originating if the value of all the non-originating goods included in the set does not exceed 10 percent of the value of the set. (4) Value. For the purposes of subsection 3, the value of non-originating goods in the set and the value of the set is to be calculated in the same manner as the value of nonoriginating materials determined in accordance with section 8 and the value of the good determined in accordance with section 7. (5) Examples. Each of the following examples is an ‘‘Example’’ as referred to in subsection 1(4). Example 1 (paint set) Producer A assembles a paint set for arts and crafts. The set includes tubes of paint, paint brushes, and paper all presented in a reusable wooden box. The paint set for arts and crafts is classified in subheading 3210.00 as a result of the application of Rule 3 of the General Rules for the Interpretation of the Harmonized System and, as a result, Section 6 will apply with respect to such set. The paint, paper and wooden box are all originating as they each undergo the changes E:\FR\FM\01JYR2.SGM 01JYR2 39704 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations required in the product-specific rules of origin in Schedule I. The paint brushes, which represent four percent of the value of the set, are produced in the territory of a nonUSMCA country and are therefore nonoriginating. The set is nonetheless originating. Example 2: Subsection 6(2) Producer A, located in a USMCA country, uses originating materials and nonoriginating materials to assemble a manicure set of subheading 8214.20. The set includes a nail nipper, cuticle scissors, a nail clipper and a nail file with cardboard support, all presented in a plastic case with zipper. The items are not classified as a set as a result of the application of rule 3 of the General Rules for the Interpretation of the Harmonized System. The Harmonized System specifies that manicure sets are classified in subheading 8214.20. This means that the specific rule of origin set out in Schedule I is applied. This rule requires a change in tariff classification from any other chapter. In order for the manicure set to qualify as an originating good under the rule set out in Schedule I, Producer A may not use any non-originating material of Chapter 82 in the assembly of the manicure set. In this case, Producer A, located in a USMCA country, produces the nail nipper, the cuticle scissors and the nail clipper included in the set, and all qualify as originating. Despite being classified in the same chapter as the manicure set (chapter 82), the originating nail nipper, the cuticle scissors and the nail clipper satisfy the change in tariff classification applicable to the manicure set. The nail file with cardboard support (6805.20) and the plastic case with zipper (4202.12) are imported from outside the territories of the USMCA countries; however, these items are not classified in chapter 82, so they satisfy the applicable change in tariff classification. Therefore, the manicure set is an originating good. Example 3: Pants set Section 6(2) Producer A makes a pants set, containing men’s cotton denim trousers and a polyester belt, packed together for a retail sale. The trousers are made of cotton fabric formed and finished from yarn in a USMCA country. The sewing thread is formed and finished in a USMCA country. The pocket bag fabric is formed and finished in a USMCA country, of yarn wholly formed in a USMCA country. The trousers are cut and sewn in USMCA country A. A polyester webbing belt with a metal buckle is made in a non-USMCA country and shipped to USMCA country A, where it is threaded through the belt loops of the trousers. The value of the belt is 8% of the value of the trousers and belt combined. The men’s trousers are classified under subheading 6203.42. The rule of origin set out in Schedule I for subheading 6203.42 requires that the trousers be made from fabric produced in a USMCA country from yarn produced in a USMCA country. The trousers satisfy the product-specific rules provided in Schedule I and are considered originating. However, the belt does not satisfy the rules and would not be considered originating. The set is nonetheless an originating good if the belt value is 10% or less of the value of the VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 set. Since the value of the belt is 8% of the value of the set, the men’s trousers and belt set would be treated as an originating good under the USMCA. Example 4: Shirt and Tie Set Section 6(2) Producer A makes a boys’ shirt and tie set in a USMCA country. The shirt is constructed from 55% cotton, 45% polyester, solid color, dyed, woven fabric, classified in subheading 5210.31. The fabric contains 73.2 total yarns per square centimeter and 76 metric yarns. The shirt is packaged in a retail polybag with a coordinating color, 100% polyester, woven fabric tie. The yarns used in the shirt fabric are spun in non-USMCA country and the fabric is woven and dyed in the same nonUSMCA country. The shirt fabric is sent to the USMCA country where it is cut and sewn into finished garments. The coordinating tie is made in a non-USMCA country from fabric that is woven in that country from yarns that are spun in that country. The value of the coordinating tie is approximately 13% of the value of the set. The shirt is classified under heading 62.05. The shirt satisfies the product-specific rule for subheading 62.05 set out in Schedule I and is considered originating because it is wholly made from fabric of heading 5210.31 (not of square construction, containing more than 70 warp ends and filling picks per square centimeter, of average yarn number exceeding 70 metric) and cut and sewn into finished garments in the USMCA country. On the other hand, the tie does not satisfy the product specific rule for heading 62.15 and would not be considered originating. For purposes of the sets rule, provided the tie is valued at 10% or less of the value of the set, the set will be treated as originating. However, since the value of the coordinating tie is approximately 13% of the value of the set, the shirt and tie set would not be treated as an originating good under the USMCA. Example 5: Chef set Section 6(2) Producer A, located in a USMCA country, produces a chef set for retail sale using originating and non-originating materials. This set includes an apron, cooking gloves and a chef hat. The chef set is classified in heading 62.11 as a result of the application of rule 3 of the General Rules for the Interpretation of the Harmonized System. For this reason, subsection (3) applies to this set. Both the apron and cooking gloves meet the product-specific rules of origin for their respective product categories and are therefore considered to be originating. The chef hat, which represents 9.7 percent of the value of the set, is produced in the territory of a non-USMCA country and is therefore non-originating. The set is nonetheless an originating good because less than ten percent of the value of the set is nonoriginating. Part III Section 7. Regional Value Content 7 (1) Calculation. Except as otherwise provided in subsection (6), the regional value content of a good is to be calculated, at the choice of the importer, exporter or producer of the good, on the basis of either the transaction value method or the net cost method. PO 00000 Frm 00016 Fmt 4701 Sfmt 4700 (2) Transaction value method. The transaction value method for calculating the regional value content of a good is as follows: RVC = (TV¥VNM)/TV * 100 Where RVC is the regional value content of the good, expressed as a percentage; TV is the transaction value of the good, determined in accordance with Schedule III with respect to the transaction in which the producer of the good sold the good, adjusted to exclude any costs incurred in the international shipment of the good; and VNM is the value of non-originating materials used by the producer in the production of the good, determined in accordance with section 8. (3) Net cost method. The net cost method for calculating the regional value content of a good is as follows: RVC = (NC¥VNM)/NC * 100 Where RVC is the regional value content of the good, expressed as a percentage; NC is the net cost of the good, calculated in accordance with subsection (11); and VNM is the value of non-originating materials used by the producer in the production of the good, determined, except as otherwise provided in sections 14 and 15 and, in accordance with section 8. (4) Non-originating materials—values not included. For the purpose of calculating the regional value content of a good under subsection (2) or (3), the value of nonoriginating materials used by a producer in the production of the good must not include (a) the value of any non-originating materials used by another producer in the production of originating materials that are subsequently acquired and used by the producer of the good in the production of that good; or (b) the value of any non-originating materials used by the producer in the production of a self-produced material that is an originating material and is designated as an intermediate material. (5) Self-produced material. For the purposes of subsection (4), (a) in the case of any self-produced material that is not designated as an intermediate material, only the value of any non-originating materials used in the production of the self-produced material is to be included in the value of non-originating materials used in the production of the good; and (b) if a self-produced material that is designated as an intermediate material and is an originating material is used by the producer of the good with non-originating materials (whether or not those nonoriginating materials are produced by that producer) in the production of the good, the value of those non-originating materials is to be included in the value of non-originating materials. (6) Net cost method—when required. The regional value content of a good is to be calculated only on the basis of the net cost method if the rule set in Schedule I (PSRO Annex) does not provide a rule based on the transaction value method; E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations (7) Net cost method—when change permitted. If the importer, exporter or producer of a good calculates the regional value content of the good on the basis of the transaction value method and the customs administration of a USMCA country subsequently notifies that importer, exporter or producer in writing, during the course of a verification of origin, that (a) the transaction value of the good, as determined by the importer, exporter or producer, is required to be adjusted under section 4 of Schedule III, or (b) the value of any material used in the production of the good, as determined by the importer, exporter or producer, is required to be adjusted under section 5 of Schedule VI, the importer, exporter or producer may choose that the regional value content of the good be calculated on the basis of the net cost method, in which case the calculation must be made within 30 days after receiving the notification, or such longer period as that customs administration specifies. (8) Net cost method—no change permitted. If the importer, exporter or producer of a good chooses that the regional value content of the good be calculated on the basis of the net cost method and the customs administration of a USMCA country subsequently notifies that importer, exporter or producer in writing, during the course of a verification of origin, that the good does not satisfy the applicable regional value content requirement, the importer, exporter or producer of the good may not recalculate the regional value content on the basis of the transaction value method. (9) Clarification. Nothing in subsection (7) is to be construed as preventing any review and appeal under Article 5.15 of the Agreement, as implemented in each USMCA country, of an adjustment to or a rejection of (a) the transaction value of the good; or (b) the value of any material used in the production of the good. (10) Value of identical non-originating materials. For the purposes of the transaction value method, if non-originating materials that are the same as one another in all respects, including physical characteristics, quality and reputation but excluding minor differences in appearance, are used in the production of a good, the value of those nonoriginating materials may, at the choice of the producer of the good, be determined in accordance with one of the methods set out in Schedule VII. (11) Calculating the net cost of a good. For the purposes of subsection (3), the net cost of a good may be calculated, at the choice of the producer of the good, by (a) calculating the total cost incurred with respect to all goods produced by that producer, subtracting any excluded costs that are included in that total cost, and reasonably allocating, in accordance with Schedule V, the remainder to the good; (b) calculating the total cost incurred with respect to all goods produced by that producer, reasonably allocating, in accordance with Schedule V, that total cost to the good, and subtracting any excluded costs that are included in the amount allocated to that good; or (c) reasonably allocating, in accordance with Schedule V, each cost that forms part VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 of the total cost incurred with respect to the good so that the aggregate of those costs does not include any excluded costs. (12) Calculation of total cost. Total cost under subsection (11) consists of the costs referred to in subsection 1(6), and is calculated in accordance with that subsection and subsection 1(7). (13) Calculation of net cost of a good. For the purpose of calculating the net cost under subsection (11), (a) excluded costs must be the excluded costs that are recorded on the books of the producer of the good; (b) excluded costs that are included in the value of a material that is used in the production of the good must not be subtracted from or otherwise excluded from the total cost; and (c) excluded costs do not include any amount paid for research and development services performed in the territory of a USMCA country. (14) Non-allowable interest. For the purpose of calculating non-allowable interest costs, the determination of whether interest costs incurred by a producer are more than 700 basis points above the interest rate of comparable maturities issued by the federal government of the country in which the producer is located is to be made in accordance with Schedule IX. (15) Use of ‘‘averaging’’ over a period. For the purposes of the net cost method, the regional value content of the good, other than a good with respect to which an election to average may be made under subsection 16(1) or (10), may be calculated, if the producer elects to do so, by (a) calculating the sum of the net costs incurred and the sum of the values of nonoriginating materials used by the producer of the good with respect to the good and identical goods or similar goods, or any combination thereof, produced in a single plant by the producer over (i) a one-month period, (ii) any consecutive three-month or sixmonth period that falls within and is evenly divisible into the number of months of the producer’s fiscal year remaining at the beginning of that period, or (iii) the producer’s fiscal year; and (b) using the sums referred to in paragraph (a) as the net cost and the value of nonoriginating materials, respectively. (16) Application. The calculation made under subsection (15) applies with respect to all units of the good produced during the period chosen by the producer under paragraph (15)(a). (17) No change to the goods or period. An election made under subsection (15) may not be rescinded or modified with respect to the goods or the period with respect to which the election is made. (18) Period considered to be chosen. If a producer chooses a one, three or six-month period under subsection (15) with respect to a good, the producer will 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 this good. (19) Method and period for remainder of fiscal year. If the net cost method is required PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 39705 to be used or has been chosen and an election has been made under subsection (15), the regional value content of the good is to be calculated on the basis of the net cost method over the period chosen under that subsection and for the remainder of the producer’s fiscal year. (20) Analysis of actual costs. Except as otherwise provided in subsections 16(9), if the producer of a good has calculated the regional value content of the good under the net cost method on the basis of estimated costs, including standard costs, budgeted forecasts or other similar estimating procedures, before or during the period chosen under paragraph (15)(a), the producer must conduct an analysis at the end of the producer’s fiscal year of the actual costs incurred over the period with respect to the production of the good. (21) Option to treat any material as nonoriginating. For the purpose of calculating the regional value content of a good, the producer of that good may choose to treat any material used in the production of that good as a non-originating material. (22) Examples. Each of the following examples is an ‘‘Example’’ as referred to in subsection 1(4). Example 1: Example of point of direct shipment (with respect to adjusted to exclude any costs incurred in the international shipment of the good) A producer has only one factory, at which the producer manufactures finished office chairs. Because the factory is located close to transportation facilities, all units of the finished good are stored in a factory warehouse 200 meters from the end of the production line. Goods are shipped worldwide from this warehouse. The point of direct shipment is the warehouse. Example 2: Examples of point of direct shipment (with respect to adjusted to exclude any costs incurred in the international shipment of the good) A producer has six factories, all located within the territory of one of the USMCA countries, at which the producer produces garden tools of various types. These tools are shipped worldwide, and orders usually consist of bulk orders of various types of tools. Because different tools are manufactured at different factories, the producer decided to consolidate storage and shipping facilities and ships all finished products to a large warehouse located near the seaport, from which all orders are shipped. The distance from the factories to the warehouse varies from 3 km to 130 km. The point of direct shipment for each of the goods is the warehouse. Example 3: Examples of point of direct shipment (with respect to adjusted to exclude any costs incurred in the international shipment of the good) A producer has only one factory, located near the center of one of the USMCA countries, at which the producer manufactures finished office chairs. The office chairs are shipped from that factory to three warehouses leased by the producer, one on the west coast, one near the factory and one on the east coast. The office chairs are shipped to buyers from these warehouses, the shipping location depending on the shipping E:\FR\FM\01JYR2.SGM 01JYR2 39706 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations distance from the buyer. Buyers closest to the west coast warehouse are normally supplied by the west coast warehouse, buyers closest to the east coast are normally supplied by the warehouse located on the east coast and buyers closest to the warehouse near the factory are normally supplied by that warehouse. In this case, the point of direct shipment is the location of the warehouse from which the office chairs are normally shipped to customers in the location in which the buyer is located. Example 4: Subsection 7(3), net cost method A producer located in USMCA country A sells Good A that is subject to a regional value content requirement to a buyer located in USMCA country B. The producer of Good A chooses that the regional value content of that good be calculated using the net cost method. All applicable requirements of these Regulations, other than the regional value content requirement, have been met. The applicable regional value content requirement is 50 per cent. In order to calculate the regional value content of Good A, the producer first calculates the net cost of Good A. Under paragraph 6(11)(a), the net cost is the total cost of Good A (the aggregate of the product costs, period costs and other costs) per unit, minus the excluded costs (the aggregate of the sales promotion, marketing and aftersales service costs, royalties, shipping and packing costs and non-allowable interest costs) per unit. The producer uses the following figures to calculate the net cost: Product costs: Value of originating materials $30.00 Value of non-originating materials 40.00 Other product costs 20.00 Period costs 10.00 Other costs 0.00 Total cost of Good A, per unit $100.00 Excluded costs: Sales promotion, marketing and after-sales service cost $5.00 Royalties 2.50 Shipping and packing costs 3.00 Non-allowable interest costs 1.50 Total excluded costs $12.00 The net cost is the total cost of Good A, per unit, minus the excluded costs. Total cost of Good A, per unit: $100.00 Excluded costs:—12.00 Net cost of Good A, per unit: $ 88.00 The value for net cost ($88) and the value of non-originating materials ($40) are needed in order to calculate the regional value content. The producer calculates the regional value content of Good A under the net cost method in the following manner: RVC = (NC¥VNM)/NC*100 = (88–40)/88*100 = 54.5% Therefore, under the net cost method, Good A qualifies as an originating good, with a regional value content of 54.5 per cent. Example 5: Paragraph 7(11)(a) A producer in a USMCA country produces Good A and Good B during the producer’s fiscal year. The producer uses the following figures, which are recorded on the producer’s books and represent all of the costs incurred with respect to both Good A and Good B, to calculate the net cost of those goods: VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 Product costs: Value of originating materials $2,000 Value of non-originating materials 1,000 Other product costs 2,400 Period costs: (including $1,200 in excluded costs) 3,200 Other costs: 400 Total cost of Good A and Good B: $9,000 The net cost is the total cost of Good A and Good B, minus the excluded costs incurred with respect to those goods. Total cost of Good A and Good B: $9,000 Excluded costs:—1,200 Net cost of Good A and Good B: $7,800 The net cost must then be reasonably allocated, in accordance with Schedule V, to Good A and Good B. Example 6: Paragraph 7(11)(b)) A producer located in a USMCA country produces Good A and Good B during the producer’s fiscal year. In order to calculate the regional value content of Good A and Good B, the producer uses the following figures that are recorded on the producer’s books and incurred with respect to those goods: Product costs: Value of originating materials $2,000 Value of non-originating materials 1,000 Other product costs 2,400 Period costs: (including $1,200 in excluded costs) 3,200 Other costs: 400 Total cost of Good A and Good B: $9,000 Under paragraph 6(11)(b), the total cost of Good A and Good B is then reasonably allocated, in accordance with Schedule VII, to those goods. The costs are allocated in the following manner: Allocated to Good A 5,220 Allocated to Good B 3,780 Total cost ($9,000 for both Good A and Good B) The excluded costs ($1,200) that are included in total cost allocated to Good A and Good B, in accordance with Schedule VII, are subtracted from that amount. Total Excluded costs: Sales promotion, marketing and after-sale service costs 500 Royalties 200 Shipping and packing costs 500 Excluded Cost Allocated to Good A: Sales promotion, marketing and after-sale service costs 290 Royalties 116 Shipping and packing costs 290 Net cost (total cost minus excluded costs): $4,524 Excluded Cost Allocated to Good B: Sales promotion, marketing and after-sale service costs 210 Royalties 84 Shipping and packing costs 210 Net cost (total cost minus excluded costs): $3,276 The net cost of Good A is thus $4,524, and the net cost of Good B is $3,276. Example 7: Paragraph 7(11)(c) A producer located in a USMCA country produces Good C and Good D. The following costs are recorded on the producer’s books for the months of January, February and March, and each cost that forms part of the PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 total cost are reasonably allocated, in accordance with Schedule VII, to Good C and Good D. Total cost: Good C and Good D (in thousands of dollars) Product costs: Value of originating materials 100 Value of non-originating materials 900 Other product costs 500 Period costs: (including $420 in excluded costs) 5,679 Minus Excluded costs 420 Other costs: 0 Total cost (aggregate of product costs, period costs and other costs): 6,759 Allocated to Good C (in thousands of dollars): Product costs: Value of originating materials 0 Value of non-originating materials 800 Other product costs 300 Period costs: (including $420 in excluded costs) 3,036 Minus Excluded costs 300 Other costs: 0 Total cost (aggregate of product costs, period costs and other costs): 3,836 Allocated to Good D (in thousands of dollars): Product costs: Value of originating materials 100 Value of non-originating materials 100 Other product costs 200 Period costs: (including $420 in excluded costs) 2,643 Minus Excluded costs 120 Other costs: 0 Total cost (aggregate of product costs, period costs and other costs): 2,923 Example 8: Subsection 7(12) Producer A, located in a USMCA country, produces Good A that is subject to a regional value content requirement. The producer chooses that the regional value content of that good be calculated using the net cost method. Producer A buys Material X from Producer B, located in a USMCA country. Material X is a non-originating material and is used in the production of Good A. Producer A provides Producer B, at no charge, with molds to be used in the production of Material X. The cost of the molds that is recorded on the books of Producer A has been expensed in the current year. Pursuant to subparagraph 4(1)(b)(ii) of Schedule VI, the value of the molds is included in the value of Material X. Therefore, the cost of the molds that is recorded on the books of Producer A and that has been expensed in the current year cannot be included as a separate cost in the net cost of Good A because it has already been included in the value of Material X. Example 9: Subsection 7(12) Producer A, located in a USMCA country, produces Good A that is subject to a regional value content requirement. The producer chooses that the regional value content of that good be calculated using the net cost method and averages the calculation over the producer’s fiscal year under subsection 7(15). Producer A determines that during that fiscal year Producer A incurred a gain on foreign currency conversion of $10,000 and a loss on foreign currency conversion of $8,000, E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations resulting in a net gain of $2,000. Producer A also determines that $7,000 of the gain on foreign currency conversion and $6,000 of the loss on foreign currency conversion is related to the purchase of non-originating materials used in the production of Good A, and $3,000 of the gain on foreign currency conversion and $2,000 of the loss on foreign currency conversion is not related to the production of Good A. The producer determines that the total cost of Good A is $45,000 before deducting the $1,000 net gain on foreign currency conversion related to the production of Good A. The total cost of Good A is therefore $44,000. That $1,000 net gain is not included in the value of nonoriginating materials under subsection 8(1). Example 10: Subsection 7(12) Given the same facts as in example 9, except that Producer A determines that $6,000 of the gain on foreign currency conversion and $7,000 of the loss on foreign currency conversion is related to the purchase of non-originating materials used in the production of Good A. The total cost of Good A is $45,000, which includes the $1,000 net loss on foreign currency conversion related to the production of Good A. That $1,000 net loss is not included in the value of non-originating materials under subsection 8(1). Part IV Section 8. Materials 8 (1) Value of material used in production. Except as otherwise provided for nonoriginating materials used in the production of a good referred to in section 14 or subsection 15(1), and except in the case of indirect materials, intermediate materials and packing materials and containers, for the purpose of calculating the regional value content of a good and for the purposes of subsection 5(1) and (4), the value of a material that is used in the production of the good is to be (a) except as otherwise provided in subsection (4), if the material is imported by the producer of the good into the territory of the USMCA country in which the good is produced, the transaction value of the material at the time of importation, including the costs incurred in the international shipment of the material, (b) if the material is acquired by the producer of the good from another person located in the territory of the USMCA country in which the good is produced (i) the price paid or payable by the producer in the USMCA country where the producer is located, (ii) the value as determined for an imported material in subparagraph (a), or (iii) the earliest ascertainable price paid or payable in the territory of the USMCA country where the good is produced, or (c) for a material that is self-produced (i) all the costs incurred in the production of the material, which includes general expenses, and (ii) an amount equivalent to the profit added in the normal course of trade, or equal to the profit that is usually reflected in the sale of goods of the same class or kind as the self-produced material that is being valued provided that no self-produced material that VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 has been used in its production has been valued including the amount equivalent or equal to the profit according to this paragraph. (2) Adjustments to the value of materials. The following costs may be deducted from the value of a non-originating material or material of undetermined origin, if they are included under subsection (1): (a) the costs of freight, insurance and packing and all other costs incurred in transporting the material to the location of the producer; (b) duties and taxes paid or payable with respect to the material in the territory of one or more of the USMCA countries, other than duties and taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable, (c) customs brokerage fees, including the cost of in-house customs brokerage services, incurred with respect to the material in the territory of one or more of the USMCA countries, and (d) the cost of waste and spoilage resulting from the use of the material in the production of the good, minus the value of any reusable scrap or by-product. (3) Documentary evidence required. If the cost or expense listed in subsection (2) is unknown or documentary evidence of the amount of the adjustment is not available, then no adjustment is allowed for that particular cost or expense. (4) Transaction value not acceptable. For the purposes of paragraph (1)(a), if the transaction value of the material referred to in that paragraph is not acceptable or if there is no transaction value in accordance with Schedule IV (Unacceptable Transaction Value), the value of the material must be determined in accordance with Schedule VI (Value of Materials) and, if the costs referred to in subsection (2) are included in that value, those costs may be deducted from that value. (5) Costs recorded on books. For the purposes of subsection (1), the costs referred to in paragraph (1)(c) are to be the costs referred to in those paragraphs that are recorded on the books of the producer of the good. (6) Designation of self-produced material as an intermediate material. For the purpose of calculating the regional value content of a good the producer of the good may designate as an intermediate material any selfproduced material that is used in the production of the good, provided that if an intermediate material is subject to a regional value content requirement, no other selfproduced material that is subject to a regional value content requirement and is incorporated into that intermediate material is also designated by the producer as an intermediate material. (7) Particulars. For the purposes of subsection (6), (a) in order to qualify as an originating material, a self-produced material that is designated as an intermediate material must qualify as an originating material under these Regulations; (b) the designation of a self-produced material as an intermediate material is to be PO 00000 Frm 00019 Fmt 4701 Sfmt 4700 39707 made solely at the choice of the producer of that self-produced material; and (c) except as otherwise provided in subsection 9(4), the proviso set out in subsection (6) does not apply with respect to an intermediate material used by another producer in the production of a material that is subsequently acquired and used in the production of a good by the producer referred to in subsection (6). (8) Value of an intermediate material. The value of an intermediate material will be, at the choice of the producer of the good, (a) the total cost incurred with respect to all goods produced by the producer that can be reasonably allocated to that intermediate material in accordance with Schedule V; or (b) the aggregate of each cost that forms part of the total cost incurred with respect to that intermediate material that can be reasonably allocated to that intermediate material in accordance with Schedule V. (9) Calculation of total cost. Total cost under subsection (8) consists of the costs referred to in subsection 1(6), and is calculated in accordance with that subsection and subsection 1(7). (10) Rescission of a designation. If a producer of a good designates a selfproduced material as an intermediate material under subsection (6) and the customs administration of a USMCA country into which the good is imported determines during a verification of origin of the good that the intermediate material is a non-originating material and notifies the producer of this in writing before the written determination of whether the good qualifies as an originating good, the producer may rescind the designation, and the regional value content of the good must be calculated as though the self-produced material were not so designated. (11) Effect of a rescission. A producer of a good who rescinds a designation under subsection (10) may, not later than 30 days after the customs administration referred to in subsection (10) notifies the producer in writing that the self-produced material referred to in paragraph (a) is a nonoriginating material, designate as an intermediate material another self-produced material that is incorporated into the good, subject to the provision set out in subsection (6). (12) Second rescission. If a producer of a good designates another self-produced material as an intermediate material under subsection (6) and the customs administration referred to in subsection (10) determines during the verification of origin of the good that that self-produced material is a non-originating material, (a) the producer may rescind the designation, and the regional value content of the good will be calculated as though the self-produced material were not so designated; and, (b) the producer may not designate another self-produced material that is incorporated into the good as an intermediate material. (13) Indirect materials. For the purpose of determining whether a good is an originating good, an indirect material that is used in the production of the good E:\FR\FM\01JYR2.SGM 01JYR2 39708 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations (a) will be considered to be an originating material, regardless of where that indirect material is produced; and (b) if the good is subject to a regional value content requirement, for the purpose of calculating the net cost under the net cost method, the value of the indirect material is to be the costs of that material that are recorded on the books of the producer of the good. (14) Packaging materials and containers. Packaging materials and containers, if classified under the Harmonized System with the good that is packaged therein, will be disregarded for the purpose of (a) determining whether all of the nonoriginating materials used in the production of the good undergo an applicable change in tariff classification; (b) determining whether a good is wholly obtained or produced; and (c) determining under subsection 5(1) the value of non-originating materials that do not undergo an applicable change in tariff classification. (15) Value of packaging materials and containers—cases where taken into account. If packaging materials and containers in which a good is packaged for retail sale are classified under the Harmonized System with the good that is packaged therein and that good is subject to a regional value content requirement, the value of those packaging materials and containers will be taken into account as originating materials or nonoriginating materials, as the case may be, for the purpose of calculating the regional value content of the good. (16) Packaging materials and containers— self-produced. For the purposes of subsection (15), if packaging materials and containers are self-produced materials, the producer may choose to designate those materials as intermediate materials under subsection (6). (17) Packing materials and containers. For the purpose of determining whether a good is an originating good, packing materials and containers are disregarded. (18) Fungible materials and fungible goods. A fungible material or good is originating if: (a) when originating and non-originating fungible materials (i) are withdrawn from an inventory in one location and used in the production of the good, or (ii) are withdrawn from inventories in more than one location in the territory of one or more of the USMCA countries and used in the production of the good at the same production facility, the determination of whether the materials are originating is made on the basis of an inventory management method recognized in the Generally Accepted Accounting Principles of, or otherwise accepted by, the USMCA country in which the production is performed or an inventory management method set out in Schedule VIII; or (b) when originating and non-originating fungible goods are commingled and exported in the same form, the determination of whether the goods are originating is made on the basis of an inventory management method recognized in the Generally Accepted Accounting Principles of, or otherwise accepted by, the USMCA country VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 from which the good is exported or an inventory management method set out in Schedule VIII. (19) The inventory management method selected under subsection 18 must be used throughout the fiscal year of the producer or the person that selected the inventory management method. (20) An importer may claim that a fungible material or good is originating if the importer, producer, or exporter has physically segregated each fungible material or good as to allow their specific identification. (21) Choice of inventory management method. If fungible materials referred to in paragraph (18)(a) and fungible goods referred to in paragraph (18)(b) are withdrawn from the same inventory, the inventory management method used for the materials must be the same as the inventory management method used for the goods, and if the averaging method is used, the respective averaging periods for fungible materials and fungible goods are to be used. (22) Written notice. A choice of inventory management methods under subsection (18) will be considered to have been made when the customs administration of the USMCA country into which the good is imported is informed in writing of the choice during the course of a verification of origin of the good. (23) Accessories, spare parts, tools or instructional or other information materials. For the purposes of subsections (24) through (27), ‘‘accessories, spare parts, tools, or instructional or other information materials’’ are covered when (a) they are classified with, delivered with, but not invoiced separately from the good, and (b) their type, quantity and value are customary for the good, within the industry that produces the good. (24) Exclusion. Accessories, spare parts, tools, or instructional or other information materials are to be disregarded for the purpose of determining (a) whether a good is wholly obtained; (b) whether all the non-originating materials used in the production of the good satisfy a process or applicable change in tariff classification requirement established in Schedule I (PSRO Annex); or, (c) under subsection 5(1), the value of nonoriginating materials that do not undergo an applicable change in tariff classification. (25) Value for regional value content requirement. If a good is subject to a regional value content requirement, the value of accessories, spare parts, tools, or instructional or other information materials is to be taken into account as originating materials or non-originating materials, as the case may be, in calculating the regional value content of the good. (26) Designation. For the purposes of subsection (25), if accessories, spare parts, tools, or instructional or other information materials are self-produced materials, the producer may choose to designate those materials as intermediate materials under subsection (6). (27) Originating status. A good’s accessories, spare parts, tools, or instructional or other information materials PO 00000 Frm 00020 Fmt 4701 Sfmt 4700 have the originating status of the good with which they are delivered. (28) Examples illustrating the provisions on materials. Each of the following examples is an ‘‘Example’’ as referred to in subsection 1(4). Example 1: Subsection 8(4), Transaction Value not Determined in a Manner Consistent with Schedule VI Producer A, located in USMCA country A, imports a bicycle chainring into USMCA country A. Producer A purchased the chainring from a middleman located in country B. The middleman purchased the chainring from a manufacturer located in country B. Under the laws in USMCA country A that implement the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, the customs value of the chainring was based on the price actually paid or payable by the middleman to the manufacturer. Producer A uses the chainring to produce a bicycle, and exports the bicycle to USMCA country C. The bicycle is subject to a regional value content requirement. Under subsection 3(1) of Schedule VI (Value of Materials), the price actually paid or payable is the total payment made or to be made by the producer to or for the benefit of the seller of the material. Section 1 of that Schedule defines producer and seller for the purposes of the Schedule. A producer is the person who uses the material in the production of a good that is subject to a regional value content requirement. A seller is the person who sells the material being valued to the producer. The transaction value of the chainring was not determined in a manner consistent with Schedule VI because it was based on the price actually paid or payable by the middleman to the manufacturer, rather than on the price actually paid or payable by Producer A to the middleman. Thus, subsection 8(4) applies and the chainring is valued in accordance with Schedule IV. Example 2: Subsection 8(7), Value of Intermediate Materials A producer located in a USMCA country produces a bicycle, which is subject to a regional value content requirement under section 3(2). The producer also produces a chain ring, which is used in the production of the bicycle. Both originating materials and non-originating materials are used in the production of the chainring. The chainring is subject to a change in tariff classification requirement under section 3(2). The costs to produce the chainring are the following: Product costs: Value of originating materials $ 1.00 Value of non-originating materials 7.50 Other product costs 1.50 Period costs (including $0.30 in royalties): 0.50 Other costs: 0.10 Total cost of the chainring: $10.60 The producer designates the chainring as an intermediate material and determines that, because all of the non-originating materials that are used in the production of the chainring undergo an applicable change in tariff classification set out in Schedule I, the chainring would, under section 3(2) qualify as an originating material. The cost E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations of the non-originating materials used in the production of the chainring is therefore not included in the value of non-originating materials that are used in the production of the bicycle for the purpose of determining its regional value content of the bicycle. Because the chainring has been designated as an intermediate material, the total cost of the chainring, which is $10.60, is treated as the cost of originating materials for the purpose of calculating the regional value content of the bicycle. The total cost of the bicycle is determined in accordance with the following figures: Product costs: Value of originating materials —intermediate materials $10.60 —other materials 3.00 Value of non-originating materials 5.50 Other product costs 6.50 Period costs: 2.50 Other costs: 0.10 Total cost of the bicycle: $28.20 Example 3: Subsection 8(7), Effects of the Designation of Self-produced Materials on Net Cost The ability to designate intermediate materials helps to put the vertically integrated producer who is self-producing materials that are used in the production of a good on par with a producer who is purchasing materials and valuing those materials in accordance with subsection 8(1). The following situations demonstrate how this is achieved: Situation 1 A producer located in a USMCA country produces a bicycle, which is subject to a regional value content requirement of 50 per cent under the net cost method. The bicycle satisfies all other applicable requirements of these Regulations. The producer purchases a bicycle frame, which is used in the production of the bicycle, from a supplier located in a USMCA country. The value of the frame determined in accordance with subsection 8(1) is $11.00. The frame is an originating material. All other materials used in the production of the bicycle are nonoriginating materials. The net cost of the bicycle is determined as follows: Product costs: Value of originating materials (bicycle frame) $11.00 Value of non-originating materials 5.50 Other product costs 6.50 Period costs: (including $0.20 in excluded costs) 0.50 Other costs: 0.10 Total cost of the bicycle: $23.60 Excluded costs: (included in period costs) 0.20 Net cost of the bicycle: $23.40 The regional value content of the bicycle is calculated as follows: RVC = (NC¥VNM)/NC*100 = ($23.40¥$5.50)/$23.50*100 = 76.5% 39709 The regional value content of the bicycle is 76.5 per cent, and the bicycle, therefore, qualifies as an originating good. Situation 2 A producer located in a USMCA country produces a bicycle, which is subject to a regional value content requirement of 50 per cent under the net cost method. The bicycle satisfies all other applicable requirements of these Regulations. The producer selfproduces the bicycle frame which is used in the production of the bicycle. The costs to produce the frame are the following: Product costs: Value of originating materials $ 1.00 Value of non-originating materials 7.50 Other product costs 1.50 Period costs: (including $0.20 in excluded costs) 0.50 Other costs: 0.10 Total cost of the bicycle frame: $10.60 Additional costs to produce the bicycle are the following: Product costs: Value of originating materials $ 0.00 Value of non-originating materials 5.50 Other product costs 6.50 Period costs: (Including $0.20 in excluded costs) 0.50 Other costs: 0.10 Total additional costs: $12.60 The producer does not designate the bicycle frame as an intermediate material under subsection 8(4). The net cost of the bicycle is calculated as follows: Costs of the bicycle frame (not designated as an intermediate material) Additional costs to produce the bicycle Total Product costs: Value of originating materials ............................................................................................... Value of non-originating materials ........................................................................................ Other product costs .............................................................................................................. Period costs (including $0.20 in excluded costs) ........................................................................ Other costs .................................................................................................................................. $ 1.00 7.50 1.50 0.50 0.10 $ 0.00 5.50 6.50 0.50 0.10 $ 1.00 13.00 8.00 1.00 0.20 Total cost of the bicycle ....................................................................................................... Excluded costs (in period costs) ................................................................................................. 10.60 0.20 12.60 0.20 23.20 0.40 Net cost of the bicycle (total cost minus excluded costs): ................................................... ........................ ........................ 22.80 The regional value content of the bicycle is calculated as follows: RVC = (NC¥VNM)/NC*100 = ($22.80¥$13.00)/$22.80*100 = 42.9% The regional value content of the bicycle is 42.9 per cent, and the bicycle, therefore, does not qualify as an originating good. Situation 3 A producer located in a USMCA country produces the bicycle, which is subject to a regional value content requirement of 50 per cent under the net cost method. The bicycle satisfies all other applicable requirements of these Regulations. The producer self- VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 produces the bicycle frame, which is used in the production of the bicycle. The costs to produce the frame are the following: Product costs: Value of originating materials $ 1.00 Value of non-originating materials 7.50 Other product costs 1.50 Period costs: (Including $0.20 in excluded costs) 0.50 Other costs: 0.10 Total cost of the bicycle frame: $10.60 Additional costs to produce the bicycle are the following: Product costs: 0.10 Product costs: Value of originating materials $ 0.00 Value of non-originating materials 5.50 PO 00000 Frm 00021 Fmt 4701 Sfmt 4700 Other product costs 6.50 Period costs: (including $0.20 in excluded costs) 0.50 Other costs: 0.10 Total additional costs: $12.60 The producer designates the frame as an intermediate material under subsection 8(6). The frame qualifies as an originating material under section 3(2). Therefore, the value of non-originating materials used in the production of the frame is not included in the value of non-originating materials for the purpose of calculating the regional value content of the bicycle. The net cost of the bicycle is calculated as follows: E:\FR\FM\01JYR2.SGM 01JYR2 39710 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Costs of the bicycle frame (not designated as an intermediate material) Additional costs to produce the bicycle Total Product costs: Value of originating materials ............................................................................................... Value of non-originating materials ........................................................................................ Other product costs .............................................................................................................. Period costs (including $0.20 in excluded costs) ........................................................................ Other costs .................................................................................................................................. $10.60 ........................ ........................ ........................ ........................ $0.00 5.50 6.50 0.50 0.10 $10.60 5.50 6.50 0.50 0.10 Total cost of the bicycle ....................................................................................................... Excluded costs (in period costs) ................................................................................................. 10.60 ........................ 12.60 0.20 23.20 0.20 Net cost of the bicycle (total cost minus excluded costs): ................................................... ........................ ........................ 23.00 The regional value content of the bicycle is calculated as follows: RVC = (NC¥VNM)/NC*100 = ($23.00¥$5.50)/$23.00*100 = 76.1% The regional value content of the bicycle is 76.1 per cent, and the bicycle, therefore, qualifies as an originating good. Example 4: Originating Materials Acquired from a Producer Who Produced Them Using Intermediate Materials Producer A, located in USMCA country A, produces switches. In order for the switches to qualify as originating goods, Producer A designates subassemblies of the switches as intermediate materials. The subassemblies are subject to a regional value content requirement. They satisfy that requirement, and qualify as originating materials. The switches are also subject to a regional value content requirement, and, with the subassemblies designated as intermediate materials, are determined to have a regional value content of 65 per cent. Producer A sells the switches to Producer B, located in USMCA country B, who uses them to produce switch assemblies that are used in the production of Good B. The switch assemblies are subject to a regional value content requirement. Producers A and B are not accumulating their production within the meaning of section 9. Producer B is therefore able, under subsection 8(6), to designate the switch assemblies as intermediate materials. If Producers A and B were accumulating their production within the meaning of section 9, Producer B would be unable to designate the switch assemblies as intermediate materials, because the production of both producers would be considered to be the production of one producer. Example 5: Single Producer and Successive Designations of Materials Subject to a Regional Value Content Requirement as Intermediate Materials Producer A, located in USMCA country, produces Material X and uses Material X in the production of Good B. Material X qualifies as an originating material because it satisfies the applicable regional value content requirement. Producer A designates Material X as an intermediate material. Producer A uses Material X in the production of Material Y, which is also used in the production of Good B. Material Y is VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 also subject to a regional value content requirement. Under the proviso set out in subsection 8(6), Producer A cannot designate Material Y as an intermediate material, even if Material Y satisfies the applicable regional value content requirement, because Material X was already designated by Producer A as an intermediate material. Example 6: Single Producer and Multiple Designations of Materials as Intermediate Materials Producer X, who is located in USMCA country X, uses non-originating materials in the production of self-produced materials A, B and C. None of the self-produced materials are used in the production of any of the other self-produced materials. Producer X uses the self-produced materials in the production of Good O, which is exported to USMCA country Y. Materials A, B and C qualify as originating materials because they satisfy the applicable regional value content requirements. Because none of the self-produced materials are used in the production of any of the other self-produced materials, then even though each self-produced material is subject to a regional value content requirement, Producer X may, under subsection 8(6), designate all of the selfproduced materials as intermediate materials. The proviso set out in subsection 8(6) only applies if self-produced materials are used in the production of other selfproduced materials and both are subject to a regional value content requirement. Example 7: Subsection 8(23) Accessories, Spare Parts, Tools, Instruction or Other Information Materials The following are examples of accessories, spare parts, tools, instructional or other information materials that are delivered with a good and form part of the good’s standard accessories, spare parts, tools, instructional or other information materials: (a) Consumables that must be replaced at regular intervals, such as dust collectors for an air-conditioning system, (b) a carrying case for equipment, (c) a dust cover for a machine, (d) an operational manual for a vehicle, (e) brackets to attach equipment to a wall, (f) a bicycle tool kit or a car jack, (g) a set of wrenches to change the bit on a chuck, PO 00000 Frm 00022 Fmt 4701 Sfmt 4700 (h) a brush or other tool to clean out a machine, and (i) electrical cords and power bars for use with electronic goods. Example 8: Value of Indirect Materials that are Assists Producer A, located in a USMCA country, produces a well-water pump that is subject to a regional value content requirement. The producer chooses that the regional value content of that good be calculated using the net cost method. Producer A buys a moldinjected plastic water flow sensor from Producer B, located in the same USMCA country, and uses it in the production of the well-water pump. Producer A provides to Producer B, at no charge, molds to be used in the production of the water flow sensor. The molds have a value of $100 which is expensed in the current year by Producer A. The water flow sensor is subject to a regional value content requirement which Producer B chooses to calculate using the net cost method. For the purpose of determining the value of non-originating materials in order to calculate the regional value content of the water flow sensor, the molds are considered to be an originating material because they are an indirect material. However, pursuant to subsection 8(13) they have a value of nil because the cost of the molds with respect to the water flow sensor is not recorded on the books of Producer B. It is determined that the water flow sensor is a non-originating material. The cost of the molds that is recorded on the books of producer A is expensed in the current year. Pursuant to section 4 of Schedule VI (Value of Materials), the value of the molds (see subparagraph 4(1)(b)(ii) of Schedule VI) must be included in the value of the water flow sensor by Producer A when calculating the regional value content of the well-water pump. The cost of the molds, although recorded on the books of producer A, cannot be included as a separate cost in the net cost of the well-water pump because it is already included in the value of the water flow sensor. The entire cost of the water flow sensor, which includes the cost of the molds, is included in the value of non-originating materials for the purposes of the regional value content of the well-water pump. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Part V General Provisions Section 9. Accumulation (9) (1) Subject to subsections (2) through (5) (a) a good is originating if the good is produced in the territory of one or more of the USMCA countries by one or more producers, provided that the good satisfies the requirements of section 3 and all other applicable requirements of these Regulations; (b) an originating good or material of one or more of the USMCA countries is considered as originating in the territory of another USMCA country when used as a material in the production of a good in the territory of another USMCA country; and (c) production undertaken on a nonoriginating material in the territory of one or more of the USMCA countries may contribute toward the originating status of a good, regardless of whether that production was sufficient to confer originating status to the material itself. (2) Accumulation using the net cost method. If a good is subject to a regional value content requirement based on the net cost method and an exporter or producer of the good has a statement signed by a producer of a material that is used in the production of the good that states (a) the net cost incurred and the value of non-originating materials used by the producer of the material in the production of that material, (i) net cost incurred by the producer of the good with respect to the material is to be the net cost incurred by the producer of the material plus, if not included in the net cost incurred by the producer of the material, the costs referred to in paragraphs 8(2)(a) through (c), and (ii) the value of non-originating materials used by the producer of the good with respect to the material is to be the value of non-originating materials used by the producer of the material; or (b) any amount, other than an amount that includes any of the value of non-originating materials, that is part of the net cost incurred by the producer of the material in the production of that material, (i) the net cost incurred by the producer of the good with respect to the material is to be the value of the material, determined in accordance with subsection 8(1), and (ii) the value of non-originating materials used by the producer of the good with respect to the material is to be the value of the material, determined in accordance with subsection 8(1), minus the amount stated in the statement. (3) Accumulation using the transaction value method. If a good is subject to a regional value content requirement based on the transaction value method and an exporter or producer of the good has a statement signed by a producer of a material that is used in the production of the good that states the value of non-originating materials used by the producer of the material in the production of that material, the value of nonoriginating materials used by the producer of the good with respect to the material is the VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 value of non-originating materials used by the producer of the material. (4) Averaging of costs—net cost method. If a good is subject to a regional value content requirement based on the net cost method and an exporter or producer of the good does not have a statement described in subsection (2) but has a statement signed by a producer of a material that is used in the production of the good that (a) states the sum of the net costs incurred and the sum of the values of non-originating materials used by the producer of the material in the production of that material and identical materials or similar materials, or any combination thereof, produced in a single plant by the producer of the material over a month or any consecutive three, six or twelve month period that falls within the fiscal year of the producer of the good, divided by the number of units of materials with respect to which the statement is made, (i) the net cost incurred by the producer of the good with respect to the material is to be the sum of the net costs incurred by the producer of the material with respect to that material and the identical materials or similar materials, divided by the number of units of materials with respect to which the statement is made, plus, if not included in the net costs incurred by the producer of the material, the costs referred to in paragraphs 8(2)(a) through (c), and (ii) the value of non-originating materials used by the producer of the good with respect to the material is to be the sum of the values of non-originating materials used by the producer of the material with respect to that material and the identical materials or similar materials divided by the number of units of materials with respect to which the statement is made; or (b) states any amount, other than an amount that includes any of the values of non-originating materials, that is part of the sum of the net costs incurred by the producer of the material in the production of that material and identical materials or similar materials, or any combination thereof, produced in a single plant by the producer of the material over a month or any consecutive three, six or twelve month period that falls within the fiscal year of the producer of the good, divided by the number of units of materials with respect to which the statement is made, (i) the net cost incurred by the producer of the good with respect to the material is to be the value of the material, determined in accordance with subsection 8(1), and (ii) the value of non-originating materials used by the producer of the good with respect to the material is to be the value of the material, determined in accordance with subsection 8(1), minus the amount stated in the statement. (5) Averaging of costs—transaction value method. If a good is subject to a regional value content requirement based on the transaction value method and an exporter or producer of the good does not have a statement described in subsection (3) but has a statement signed by a producer of a material that is used in the production of the PO 00000 Frm 00023 Fmt 4701 Sfmt 4700 39711 good that states the sum of the values of nonoriginating materials used by the producer of the material in the production of that material and identical materials or similar materials, or any combination thereof, produced in a single plant by the producer of the material over a month or any consecutive three, six or twelve month period that falls within the fiscal year of the producer of the good, divided by the number of units of materials with respect to which the statement is made, the value of nonoriginating materials used by the producer of the good with respect to the material is the sum of the values of non-originating materials used by the producer of the material with respect to that material and the identical materials or similar materials divided by the number of units of materials with respect to which the statement is made. (6) Single producer. For the purposes of subsection 8(6), if a producer of the good chooses to accumulate the production of materials under subsection (1), that production will be considered to be the production of the producer of the good. (7) Particulars. For the purposes of this section, (a) in order to accumulate the production of a material, (i) if the good is subject to a regional value content requirement, the producer of the good must have a statement described in subsection (2) through (5) that is signed by the producer of the material, and (ii) if an applicable change in tariff classification is applied to determine whether the good is an originating good, the producer of the good must have a statement signed by the producer of the material that states the tariff classification of all nonoriginating materials used by that producer in the production of that material and that the production of the material took place entirely in the territory of one or more of the USMCA countries; (b) a producer of a good who chooses to accumulate is not required to accumulate the production of all materials that are incorporated into the good; and (c) any information set out in a statement referred to in subsection (2) through (5) that concerns the value of materials or costs is to be in the same currency as the currency of the country in which the person who provided the statement is located. (8) Examples of accumulation of production. Each of the following examples is an ‘‘Example’’ as referred to in subsection 1(4). Example 1: Subsection 9(1) Producer A, located in USMCA country A, imports unfinished bearing rings provided for in subheading 8482.99 into USMCA country A from a non-USMCA territory. Producer A further processes the unfinished bearing rings into finished bearing rings, which are of the same subheading. The finished bearing rings of Producer A do not satisfy an applicable change in tariff classification and therefore do not qualify as originating goods. The net cost of the finished bearing rings (per unit) is calculated as follows: E:\FR\FM\01JYR2.SGM 01JYR2 39712 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Product costs: Value of originating materials ....................................................................................................................................................... Value of non-originating materials ................................................................................................................................................ Other product costs ...................................................................................................................................................................... Period costs: (including $0.05 in excluded costs) ............................................................................................................................... Other costs: ......................................................................................................................................................................................... $0.15 0.75 0.35 0.15 0.05 Total cost of the finished bearing rings, per unit: ........................................................................................................................ Excluded costs: (included in period costs) .......................................................................................................................................... 1.45 0.05 Net cost of the finished bearing rings, per unit: ........................................................................................................................... 1.40 Producer A sells the finished bearing rings to Producer B who is located in USMCA country A for $1.50 each. Producer B further processes them into bearings, and intends to export the bearings to USMCA country B. Although the bearings satisfy the applicable change in tariff classification, the bearings are subject to a regional value content requirement. Situation A: Producer B does not choose to accumulate costs incurred by Producer A with respect to the bearing rings used in the production of the bearings. The net cost of the bearings (per unit) is calculated as follows: Product costs: Value of originating materials ....................................................................................................................................................... Value of non-originating materials (value, per unit, of the bearing rings purchased from Producer A) ...................................... Other product costs ...................................................................................................................................................................... Period costs: (Including $0.05 in excluded costs) ............................................................................................................................... Other costs .......................................................................................................................................................................................... $0.45 1.50 0.75 0.15 0.05 Total cost of the bearings, per unit: .................................................................................................................................................... Excluded costs: (Included in period costs) .......................................................................................................................................... 2.90 0.05 Net cost of the bearings, per unit: ................................................................................................................................................ 2.85 Under the net cost method, the regional value content of the bearings is Therefore, the bearings are non-originating goods. Situation B: Producer B chooses to accumulate costs incurred by Producer A with respect to the bearing rings used in the production of the bearings. Producer A provides a statement described in paragraph 9(2)(a) to Producer B. The net cost of the bearings (per unit) is calculated as follows: Product costs: Value of originating materials ($0.45 + $0.15) ............................................................................................................................. Value of non-originating materials (value, per unit, of the unfinished bearing rings imported by Producer A) .......................... Other product costs ($0.75 + $0.35) ............................................................................................................................................ Period costs: (($0.15 + $0.15), including $0.10 in excluded costs) .................................................................................................... Other costs: ($0.05 + $0.05) ............................................................................................................................................................... $0.60 0.75 1.10 0.30 0.10 Total cost of the bearings, per unit: ............................................................................................................................................. Excluded costs: (Included in period costs) .......................................................................................................................................... 2.85 0.10 Net cost of the bearings, per unit: ................................................................................................................................................ 2.75 Therefore, the bearings are originating goods. Situation C: Producer B chooses to accumulate costs incurred by Producer A with respect to the bearing rings used in the production of the bearings. Producer A provides to Producer B a statement described in paragraph 9(2)(b) that specifies an amount equal to the net cost minus the value of non-originating materials used to produce the finished bearing rings ($1.40¥0.75 = $0.65). The net cost of the bearings (per unit) is calculated as follows: VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00024 Fmt 4701 Sfmt 4700 E:\FR\FM\01JYR2.SGM 01JYR2 ER01JY20.000</GPH> ER01JY20.001</GPH> Under the net cost method, the regional value content of the bearings is Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations 39713 Product costs: Value of originating materials ($0.45 + $0.65) ............................................................................................................................. Value of non-originating materials ($1.50 ¥ $0.65) .................................................................................................................... Other product costs ...................................................................................................................................................................... Period costs: (Including $0.05 in excluded costs) ............................................................................................................................... Other costs .......................................................................................................................................................................................... $1.10 0.85 0.75 0.15 0.05 Total cost of the bearings, per unit: ............................................................................................................................................. Excluded costs: (Included in period costs) .......................................................................................................................................... 2.90 0.05 Net cost of the bearings, per unit: ................................................................................................................................................ 2.85 Under the net cost method, the regional value content of the bearings is Therefore, the bearings are originating goods. Situation D: Producer B chooses to accumulate costs incurred by Producer A with respect to the bearing rings used in the production of the bearings. Producer A provides to Producer B a statement described in paragraph 9(2)(b) that specifies an amount equal to the value of other product costs used in the production of the finished bearing rings ($0.35). The net cost of the bearings (per unit) is calculated as follows: Product costs: Value of originating materials ....................................................................................................................................................... Value of non-originating materials ($1.50 ¥ $0.35) .................................................................................................................... Other product costs ($0.75 + $0.35) ............................................................................................................................................ Period costs: (Including $0.05 in excluded costs) ............................................................................................................................... Other costs .......................................................................................................................................................................................... $0.45 1.15 1.10 0.15 0.05 Total cost of the bearings, per unit: ............................................................................................................................................. Excluded costs: (Included in period costs) .......................................................................................................................................... 2.90 0.05 Net cost of the bearings, per unit: ................................................................................................................................................ 2.85 Under the net cost method, the regional value content of the bearings is from carded or combed cotton provided for in heading 52.03 to the woven fabric of cotton provided for in heading 52.08 would satisfy the applicable change of tariff classification for heading 52.08. The woven fabric of cotton would be considered as an originating good. Producer B, in order to choose to accumulate Producer A’s production, must have a statement described in subsection 9(7). Situation E: Producer B chooses to accumulate costs incurred by Producer A with respect to the bearing rings used in the production of the bearings. Producer A provides to Producer B a signed statement described in subsection 9(3) that specifies the value of nonoriginating materials used in the production of the finished bearing rings ($0.75). Producer B chooses to calculate the regional value content of the bearings under the transaction value method. The regional value content of the bearings (per unit) is calculated as follows: VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 E:\FR\FM\01JYR2.SGM 01JYR2 ER01JY20.002</GPH> ER01JY20.003</GPH> Therefore, the bearings are originating goods. Example 2: Section 9(1) Producer A, located in USMCA country A, imports non-originating cotton, carded or combed, provided for in heading 52.03 for use in the production of cotton yarn provided for in heading 52.05. Because the change from cotton, carded or combed, to cotton yarn is a change within the same chapter, the cotton does not satisfy the applicable change in tariff classification for heading 52.05, which is a change from any other chapter, with certain exceptions. Therefore, the cotton yarn that Producer A produces from nonoriginating cotton is a non-originating good. Producer A then sells the non-originating cotton yarn to Producer B, also located in USMCA country A, who uses the cotton yarn in the production of woven fabric of cotton provided for in heading 52.08. The change from non-originating cotton yarn to woven fabric of cotton is insufficient to satisfy the applicable change in tariff classification for heading 52.08, which is a change from any heading outside headings 52.08 through 52.12, except from certain headings, under which various yarns, including cotton yarn provided for in heading 52.05, are classified. Therefore, the woven fabric of cotton that Producer B produces from non-originating cotton yarn produced by Producer A is a nonoriginating good. However, Producer B can choose to accumulate the production of Producer A. The rule for heading 52.08, under which the cotton fabric is classified, does not exclude a change from heading 52.03, under which carded or combed cotton is classified. Therefore, under section 15(1), the change 39714 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Transaction value of the bearings, per unit ......................................................................................................................................... Costs incurred, per unit, in the international shipment of the good (included in transaction value of the bearings) ......................... Transaction value, per unit, adjusted to exclude any costs incurred in the international shipment of the good ............................... Value of non-originating materials (value, per unit, of the unfinished bearing rings imported by Producer A) ................................. Under the transaction value method, the regional value content of the bearings is RVC = (TV¥VNM)/TV × 100 = ($3.00¥$0.75)/$3.00 × 100 = 75% Therefore, because the bearings have a regional value content of at least 60 percent under transaction value method, the bearings are originating goods. Section 10. Transshipment 10 (1) Transport requirements to retain originating status. If an originating good is transported outside the territories of the USMCA countries, the good retains its originating status if (a) the good remains under customs control outside the territories of the USMCA countries; and (b) the good does not undergo further production or any other operation outside the territories of the USMCA countries, other than unloading; reloading; separation from a bulk shipment; storing; labeling or other marking required by the importing USMCA country; or any other operation necessary to transport the good to the territory of the importing USMCA country or to preserve the good in good condition, including: (i) Inspection; (ii) removal of dust that accumulates during shipment; (iii) ventilation; (iv) spreading out or drying; (v) chilling; (vi) replacing salt, sulphur dioxide or other aqueous solutions; or (vii) replacing damaged packing materials and containers and removal of units of the good that are spoiled or damaged and present a danger to the remaining units of the good. (2) Good entirely non-originating. A good that is a non-originating good by application of subsection (1) is considered to be entirely non-originating for the purposes of these Regulations. (3) Exceptions for certain goods. Subsection (1) does not apply with respect to (a) a ‘‘smart card’’ of subheading 8523.52 containing a single integrated circuit, if any further production or other operation that that good undergoes outside the territories of the USMCA countries does not result in a change in the tariff classification of the good to any other subheading; (b) a good of any of subheadings 8541.10 through 8541.60 or 8542.31 through 8542.39, if any further production or other operation that that good undergoes outside the territories of the USMCA countries does not result in a change in the tariff classification of the good to a subheading outside of that group; (c) an electronic microassembly of subheading 8543.90, if any further production or other operation that that good undergoes outside the territories of the USMCA countries does not result in a change VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 in the tariff classification of the good to any other subheading; or (d) an electronic microassembly of subheading 8548.90, if any further production or other operation that that good undergoes outside the territories of the USMCA countries does not result in a change in the tariff classification of the good to any other subheading. Section 11. Non-Qualifying Operations 11 A good is not an originating good merely by reason of (a) mere dilution with water or another substance that does not materially alter the characteristics of the good; or (b) any production or pricing practice with respect to which it may be demonstrated, on the basis of a preponderance of evidence, that the object was to circumvent these Regulations. Part VI Automotive Goods Section 12. Definitions and Interpretation (1) For purposes of this part, aftermarket part means a good that is not for use as original equipment in the production of passenger vehicles, light trucks or heavy trucks as defined in these Regulations; all-terrain vehicle means a vehicle that does not meet United States federal safety and emissions standards permitting unrestricted on-road use or the equivalent Mexican and Canadian on-road standards; annual purchase value (APV) means the sum of the values of high-wage materials purchased annually by a producer for use in the production of passenger vehicles, light trucks or heavy trucks in a plant located in the territory of a USMCA country; average base hourly wage rate means the average hourly rate of pay based on all the hours performed on direct production work at a plant or facility, even if such workers performing that work are paid on a salary, piece-rate, or day-rate basis. This includes all hours performed by full-time, part time, temporary, and seasonal workers. The rate of pay does not include benefits, bonuses or shift-premiums, or premium pay for overtime, holidays or weekends. If a worker is paid by a third party, such as a temporary employment agency, only the wages received by the worker are included in the average base hourly wage rate calculation. For direct production workers, the average base hourly wage rate of pay is calculated based on all their working hours. For other workers performing direct production work, the average base hourly rate is calculated based on the number of hours performing direct production work. The rate also does not include any hours worked by interns, trainees, students, or any worker that does not have an express or implied compensation agreement with the employer. If any direct production worker or worker performing direct production work is PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 $3.15 0.15 3.00 0.75 compensated by a method other than hourly, such as a salary, piece-rate, or day-rate basis, the worker’s hourly base wage rate-is calculated by converting the salary, piecerate, or day-rate to an hourly equivalent. This hourly equivalent is then multiplied by the number of hours worked in direct production for purposes of calculating the average base hourly wage rate. class of motor vehicles means one of the following categories of motor vehicles: (a) Road tractors for semi-trailers of subheading 8701.20, vehicles for the transport of 16 or more persons of subheading 8702.10 or 8702.90, motor vehicles for the transport of goods of subheading 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, special purpose motor vehicles of heading 87.05, or chassis fitted with engines of heading 87.06; (b) tractors of subheading 8701.10 or 8701.30 through 8701.90; (c) vehicles for the transport of 15 or fewer persons of subheading 8702.10 or 8702.90, or light trucks of subheading 8704.21 or 8704.31; or (d) passenger vehicles of subheading 8703.21 through 8703.90; complete motor vehicle assembly process means the production of a motor vehicle from separate constituent parts, including the following: (a) A structural frame or unibody (b) body panels (c) an engine, a transmission and a drive train (d) brake components (e) steering and suspension components (f) seating and internal trim (g) bumpers and external trim (h) wheels and (i) electrical and lighting components; direct production work means work by any employee directly involved in the production of passenger vehicles, light trucks, heavy trucks, or parts used in the production of these vehicles in the territory of a USMCA country. It also includes work by an employee directly involved in the set-up, operation, or maintenance of tools or equipment used in the production of those vehicles or parts. Direct production work may take place on a production line, at a workstation, on the shop floor, or in another production area. Direct production work also includes: (a) Material handling of vehicles or parts; (b) inspection of vehicles or parts, including inspections that are normally categorized as quality control and, for heavy trucks, pre-sale inspections carried out at the place where the vehicle is produced; (c) work performed by skilled tradespeople, such as process or production engineers, mechanics, technicians and other employees responsible for maintaining and ensuring the operation of the production line or tools and equipment used in the production of vehicles or parts; and (d) on-the-job training regarding the execution of a specific production task. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Direct production work does not include any work by executive or management staff that have the authority to make final decisions to hire, fire, promote, transfer and discipline employees; workers engaged in research and development, or work by engineering or other personnel that are not responsible for maintaining and ensuring the operation of the production line or tools and equipment used in the production of vehicles or parts. It also does not include any work by interns, trainees, students, or any worker that does not have an express or implied compensation agreement with the employer. direct production worker means any worker whose primary responsibilities are direct production work, meaning at least 85% of the worker’s time is spent performing direct production work. first motor vehicle prototype means the first motor vehicle that (a) is produced using tooling and processes intended for the production of motor vehicles to be offered for sale, and (b) follows the complete motor vehicle assembly process in a manner not specifically designed for testing purposes; heavy truck means a vehicle other than a vehicle that is solely or principally for offroad use of subheading 8701.20, 8704.22, 8704.23, 8704.32 or 8704.90, or a chassis fitted with an engine of heading 87.06 that is for use in such a vehicle; high-wage assembly plant for passenger vehicle or light truck parts means a qualifying wage-rate production plant, operated by a corporate producer, or by a supplier with whom the producer has a contract of at least 3 years for the materials listed in sub-paragraphs (a) through (c), provided that the plant is located in the territory of a USMCA country and that it has a production capacity of: (a) 100,000 or more engines of heading 84.07 or 84.08, (b) 100,000 or more transmissions of subheading 8708.40, or (c) 25,000 or more advanced battery packs; Such engines, transmissions, or advanced battery packs are not required to qualify as originating; high-wage assembly plant for heavy truck parts means a qualifying wage rate production plant, operated by a corporate producer, or by a supplier with whom the producer has a contract of at least 3 years for the materials listed in sub-paragraphs (a) through (c), provided that the plant is located in the territory of a USMCA country and that it has a production capacity of: (a) 20,000 or more engines of heading 84.07 or 84.08, (b) 20,000 or more transmissions of subheading 8708.40, or (c) 20,000 or more advanced battery packs; Such engines, transmissions, or advanced battery packs are not required to qualify as originating; high-wage labor costs (HWLC) means the sum of wage expenditures, not including benefits, for workers who perform direct production work at a qualifying wage-rate vehicle assembly plant; high-wage material (HWM) means a material that is produced in a qualifying wage-rate production plant; VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 high-wage technology expenditures means wage expenditures—expressed as a percentage of a passenger vehicle, light truck, or heavy truck producer’s total production wage expenditures—at a corporate level in the territory of one or more of the USMCA countries on: (a) Research and development, including prototype development, design, engineering, or testing operations and any work undertaken by a producer for the purpose of creating new, or improving existing, materials, parts, vehicles or processes, including incremental improvements thereto, and (b) information technology, including software development, technology integration, vehicle communications, or information technology support operations, Expenditures on capital or other non-wage costs for R&D or IT are not included. For greater certainty, there is no minimum wage rate associated with high-wage technology expenditures; high-wage transportation or related costs for shipping means costs incurred by a producer for transportation, logistics, or material handling associated with the movement of high-wage parts or materials within the territories of the USMCA countries, provided that the transportation, logistics, or material handling provider pays an average base hourly wage rate to direct production employees performing these services of at least: (a) US$16 in the United States; (b) CA$20.88 in Canada; and (c) MXN$294.22 in Mexico; High-wage transportation or related costs for shipping may be included in high wage material and manufacturing expenses if those costs are not otherwise included; light truck means a vehicle of subheading 8704.21 or 8704.31, except for a vehicle that is solely or principally for off-road use; marque means the trade name used by a separate marketing division of a motor vehicle assembler; model line means a group of motor vehicles having the same platform or model name; model name means the word, group of words, letter, number or similar designation assigned to a motor vehicle by a marketing division of a motor vehicle assembler to: (a) Differentiate the motor vehicle from other motor vehicles that use the same platform design, (b) associate the motor vehicle with other motor vehicles that use different platform designs, or (c) denote a platform design; motorhome or entertainer coach means a vehicle of heading 87.02 or 87.03 built on a self-propelled motor vehicle chassis that is solely or principally designed as temporary living quarters for recreational, camping, entertainment, corporate or seasonal use; motor vehicle assembler means a producer of motor vehicles and any related persons or joint ventures in which the producer participates; new building means a new construction, including at least the pouring or construction of a new foundation and floor, the erection of a new structure and roof and installation PO 00000 Frm 00027 Fmt 4701 Sfmt 4700 39715 of new plumbing, electrical and other utilities to house a complete vehicle assembly process; passenger vehicle means a vehicle of subheading 8703.21 through 8703.90, except for: (a) A vehicle with a compression-ignition engine of subheading 8703.31 through 8703.33 or a vehicle of subheading 8703.90 with both a compression-ignition engine and an electric motor for propulsion, (b) a three- or four-wheeled motorcycle, (c) an all-terrain vehicle, (d) a motorhome or entertainer coach, or (e) an ambulance, hearse or prison van; plant means a building, or buildings in close proximity but not necessarily contiguous, machinery, apparatus and fixtures that are under the control of a producer and are used in the production of any of the following: (a) Passenger vehicles, light trucks or heavy trucks, (b) a good listed in Table A.1, A.2, B, C, D, E, F or G; platform means the primary load-bearing structural assembly of a motor vehicle that determines the basic size of the motor vehicle, and is the structural base that supports the driveline and links the suspension components of the motor vehicle for various types of frames, such as the bodyon-frame or space-frame, and monocoques; qualifying wage-rate production plant means a plant that produces materials for passenger vehicles, light trucks or heavy trucks located in the territory of a USMCA country, at which the average base hourly wage rate is at least: (a) US$16 in the United States; (b) CA$20.88 in Canada; and (c) MXN$294.22 in Mexico; qualifying wage-rate vehicle assembly plant means a passenger vehicle, light truck or heavy truck assembly plant located in the territory of a USMCA country, at which the average base hourly wage rate is at least: (a) US$16 in the United States; (b) CA$20.88 in Canada; and (c) MXN$294.22 in Mexico; refit means a plant closure, for purposes of plant conversion or retooling, that lasts at least three months; size category, with respect to a light-duty vehicle, means that the total of the interior volume for passengers and the interior volume for luggage is (a) 85 cubic feet (2.38 m3) or less, (b) more than 85 cubic feet (2.38 m3) but less than 100 cubic feet (2.80 m3), (c) 100 cubic feet (2.80 m3) or more but not more than 110 cubic feet (3.08 m3), (d) more than 110 cubic feet (3.08 m3) but less than 120 cubic feet (3.36 m3), or (e) 120 cubic feet (3.36 m3) or more; super-core means the parts listed in column 1 of Table A.2 of this Part, which are considered as a single part for the purpose of performing a Regional Value Content calculation in accordance with subsections 14(10), 14(11), 14(13) and 16(10); total vehicle plant assembly annual purchase value (TAPV) means the sum of the values of all parts or materials purchased, on an annual basis, for use in the production of passenger vehicles, light trucks or heavy E:\FR\FM\01JYR2.SGM 01JYR2 39716 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations trucks in a plant located in the territory of a USMCA country; underbody means a component, comprising a single part or two or more parts joined together, with or without additional stiffening members, that forms the base of a motor vehicle, beginning at the fire-wall or bulkhead of the motor vehicle and ending: (a) If there is a luggage floor panel in the motor vehicle, at the place where that luggage floor panel begins, or (b) if there is no luggage floor panel in the motor vehicle, at the place where the passenger compartment of the motor vehicle ends; vehicle that is solely or principally for offroad use means a vehicle that does not meet U.S. federal safety and emissions standards permitting unrestricted on-road use or the equivalent Mexican and Canadian on-road standards. Section 13: Product-Specific Rules of Origin for Vehicles and Certain Auto Parts (1) Except as provided for in section 19 (Alternative Staging Regimes), the productspecific rule of origin for a good of heading 87.01 through 87.08 is: 8701.10 A change to a good of subheading 8701.10 from any other heading, provided there is a regional value content of not less than 60 percent under the net cost method. 8701.20 A change to a good of subheading 8701.20 from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; or (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. 8701.30–8701.90 A change to a good of subheading 8701.30 through 8701.90 from any other heading, provided there is a regional value content of not less than 60 percent under the net cost method. 8702.10–8702.90 (1) A change to a motor vehicle for the transport of 15 or fewer persons of subheading 8702.10 through 8702.90 from any other heading, provided there is a regional value content of not less than 62.5 percent under the net cost method; or (2) A change to a motor vehicle for the transport of 16 or more persons of subheading 8702.10 through 8702.90 from any other heading, provided there is a regional value content of not less than 60 percent under the net cost method. 8703.10 A change to subheading 8703.10 from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the transaction value method, or (b) 50 percent under the net cost method. 8703.21–8703.90 (1) A change to a passenger vehicle of subheading 8703.21 through 8703.90 from any other heading, provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter; or (2) A change to any other good of subheading 8703.21 through 8703.90 from any other heading, provided there is a regional value content of not less than 62.5 percent under the net cost method. 8704.10 A change to a good of subheading 8704.10 from any other heading, provided there is a regional value content of not less than 60 percent under the net cost method. 8704.21 (1) A change to a light truck of subheading 8704.21 from any other heading, provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter; or (2) A change to a vehicle that is solely or principally for off-road use subheading 8704.21 from any other heading, provided there is a regional value content of not less than 62.5 percent under the net cost method. 8704.22–8704.23 (1) A change to a heavy truck of subheading 8704.22 through 8704.23 from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter; or (2) A change to a vehicle that is solely or principally for off-road use subheading 8704.22 through 8704.23 from any other heading, provided there is a regional value content of not less than 60 percent under the net cost method. 8704.31 (1) A change to a light truck of subheading 8704.31 from any other heading, provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter; or (2) A change to a vehicle that is solely or principally for off-road use subheading 8704.31 from any other heading, provided there is a regional value content of not less than 62.5 percent under the net cost method. 8704.32–8704.90 (1) A change to a heavy truck of subheading 8704.32 through 8704.90 from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter; or (2) A change to a vehicle that is solely or principally for off-road use of subheading PO 00000 Frm 00028 Fmt 4701 Sfmt 4700 8704.32 through 8704.90 from any other heading, provided there is a regional value content of not less than 60 percent under the net cost method. 87.05 A change to heading 87.05 from any other heading, provided there is a regional value content of not less than 60 percent under the net cost method. 87.06 For a good of heading 87.06 for use as original equipment in a passenger vehicle or light truck: (1) No required change in tariff classification provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of heading 87.06 for use as original equipment in a heavy truck: (2) No required change in tariff classification provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of heading 87.06 for use as original equipment in any other vehicle, or as an aftermarket part: (3) No required change in tariff classification provided there is a regional value content of not less than 60 percent under the net cost method. 87.07 For a good of heading 87.07 for use as original equipment in a passenger vehicle or light truck: (1) No required change in tariff classification provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of heading 87.07 for use as original equipment in a heavy truck: (2) A change to heading 87.07 from any other chapter; or (3) No required change in tariff classification provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of heading 87.07 for use as original equipment in any other vehicle or as an aftermarket part: (4) A change to heading 87.07 from any other chapter; or (5) No required change in tariff classification provided there is a regional value content of not less than 60 percent under the net cost method. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations 8708.10 For a good of subheading 8708.10 for use as original equipment in a passenger vehicle or light truck: (1) A change to subheading 8708.10 from any other heading; or (2) A change to subheading 8708.10 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.10 for use as original equipment in a heavy truck: (3) A change to subheading 8708.10 from any other heading; or (4) A change to subheading 8708.10 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.10 for use as original equipment in any other vehicle or as an aftermarket part: (5) A change to subheading 8708.10 from any other heading; or (6) A change to subheading 8708.10 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method. 8708.21 For a good of subheading 8708.21 for use as original equipment in a passenger vehicle or light truck: (1) A change to subheading 8708.21 from any other heading; or (2) A change to subheading 8708.21 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.21 for use as original equipment in a heavy truck: (3) A change to subheading 8708.21 from any other heading; or (4) A change to subheading 8708.21 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 For any other good of subheading 8708.21 for use as original equipment in any other vehicle or as an aftermarket part: (5) A change to subheading 8708.10 from any other heading; or (6) A change to subheading 8708.10 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method. 8708.29 For a body stamping of subheading 8708.29 for use as original equipment in a passenger vehicle or light truck: (1) No required change in tariff classification to a body stamping of subheading 8708.29, provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter. For any other good of subheading 8708.29 for use as original equipment in a passenger vehicle or light truck: (2) A change to subheading 8708.29 from any other heading; or (3) No required change in tariff classification to subheading 8708.29, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.29 for use as original equipment in a heavy truck: (4) A change to subheading 8708.29 from any other heading; or (5) No required change in tariff classification to subheading 8708.29, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.29 for use as original equipment in any other vehicle or as an aftermarket part: (6) A change to subheading 8708.29 from any other heading; or (7) No required change in tariff classification to subheading 8708.29, provided there is a regional value content of not less than 50 percent under the net cost method. 8708.30 For a good of subheading 8708.30 for use as original equipment in a passenger vehicle or light truck: (1) A change to subheading 8708.30 from any other heading; or (2) No required change in tariff classification to subheading 8708.30, provided there is a regional value content of not less than: PO 00000 Frm 00029 Fmt 4701 Sfmt 4700 39717 (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.30 for use as original equipment in a heavy truck: (3) A change to subheading 8708.30 from any other heading; or (4) No required change in tariff classification to subheading 8708.30, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.30 for use as original equipment in any other vehicle or as an aftermarket part: (5) A change to mounted brake linings of subheading 8708.30 from any other heading; or (6) A change to mounted brake linings of subheading 8708.30 from parts of mounted brake linings, brakes or servo-brakes of subheading 8708.30 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method; (7) A change to any other good of subheading 8708.30 from any other heading; or (8) A change to any other good of subheading 8708.30 from mounted brake linings or parts of brakes or servo-brakes of subheading 8708.30, or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method. 8708.40 For a good of subheading 8708.40 for use as original equipment in a passenger vehicle or light truck: (1) No required change in tariff classification to subheading 8708.40, provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.40 for use as original equipment in a heavy truck: (2) A change to subheading 8708.40 from any other heading; or (3) No required change in tariff classification to subheading 8708.40, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. E:\FR\FM\01JYR2.SGM 01JYR2 39718 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations For a good of subheading 8708.40 for use as original equipment in any other vehicle or as an aftermarket part: (4) A change to gear boxes of subheading 8708.40 from any other heading; or (5) A change to gear boxes of subheading 8708.40 from any other good of subheading 8708.40 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method; (6) A change to any other good of subheading 8708.40 from any other heading; or (7) No required change in tariff classification to any other good of subheading 8708.40, provided there is a regional value content of not less than 50 percent under the net cost method. 8708.50 For a good of subheading 8708.50 for use as original equipment in a passenger vehicle or light truck: (1) No required change in tariff classification to subheading 8708.50, provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.50 for use as original equipment in a heavy truck: (2) A change to drive-axles with differential, whether or not provided with other transmission components, for vehicles of heading 87.03, of subheading 8708.50 from any other heading, except from subheading 8482.10 through 8482.80; or (3) A change to drive-axles with differential, whether or not provided with other transmission components, for vehicles of heading 87.03, of subheading 8708.50 from subheading 8482.10 through 8482.80 or parts of drive-axles of subheading 8708.50, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. (4) A change to other drive-axles with differential, whether or not provided with other transmission components, of subheading 8708.50 from any other heading; or (5) A change to other drive-axles with differential, whether or not provided with other transmission components, of subheading 8708.50 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 (6) A change to non-driving axles and parts thereof, for vehicles of heading 87.03, of subheading 8708.50 from any other heading, except from subheading 8482.10 through 8482.80; or (7) A change to non-driving axles and parts thereof, for vehicles of heading 87.03, of subheading 8708.50 from subheading 8482.10 through 8482.80 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter; (8) A change to other non-driving axles and parts thereof of subheading 8708.50 from any other heading; or (9) A change to other non-driving axles and parts thereof of subheading 8708.50 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. (10) A change to any other good of subheading 8708.50 from any other heading; or (11) No required change in tariff classification to any other good of subheading 8708.50, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For a good of subheading 8708.50 for use as original equipment in any other vehicle or as an aftermarket part: (12) A change to drive-axles with differential, whether or not provided with other transmission components, for vehicles of heading 87.03, of subheading 8708.50 from any other heading, except from subheading 8482.10 through 8482.80; or (13) A change to drive-axles with differential, whether or not provided with other transmission components, for vehicles of heading 87.03, of subheading 8708.50 from subheading 8482.10 through 8482.80 or parts of drive-axles of subheading 8708.50, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method; (14) A change to other drive-axles with differential, whether or not provided with other transmission components, of subheading 8708.50 from any other heading; or (15) A change to other drive-axles with differential, whether or not provided with other transmission components, of subheading 8708.50 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a PO 00000 Frm 00030 Fmt 4701 Sfmt 4700 regional value content of not less than 50 percent under the net cost method; (16) A change to non-driving axles and parts thereof, for vehicles of heading 87.03, of subheading 8708.50 from any other heading, except from subheading 8482.10 through 8482.80; or (17) A change to non-driving axles and parts thereof, for vehicles of heading 87.03, of subheading 8708.50 from subheading 8482.10 through 8482.80 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method; (18) A change to other non-driving axles and parts thereof of subheading 8708.50 from any other heading; or (19) A change to other non-driving axles and parts thereof of subheading 8708.50 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method; (20) A change to any other good of subheading 8708.50 from any other heading; or (21) No required change in tariff classification to any other good of subheading 8708.50, provided there is a regional value content of not less than 50 percent under the net cost method. 8708.70 For a good of subheading 8708.70 for use as original equipment in a passenger vehicle or light truck: (1) A change to subheading 8708.70 from any other heading; or (2) A change to subheading 8708.70 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method. (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.70 for use as original equipment in a heavy truck: (3) A change to subheading 8708.70 from any other heading; or (4) A change to subheading 8708.70 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method. (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.70 for use as original equipment in any other vehicle or as an aftermarket part: (5) A change to subheading 8708.70 from any other heading; or (6) A change to subheading 8708.70 from subheading 8708.99, whether or not there is also a change from any other heading, E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations provided there is a regional value content of not less than 50 percent under the net cost method. 8708.80 For a good of subheading 8708.80 for use as original equipment in a passenger vehicle or light truck: (1) No required change in tariff classification to subheading 8708.80, provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.80 for use as original equipment in a heavy truck: (2) A change to McPherson struts of subheading 8708.80 from parts thereof of subheading 8708.80 or any other subheading, provided there is a regional value content of not less than 50 percent under the net cost method; (3) A change to any other good of subheading 8708.80 from any other heading; or (4) A change to suspension systems (including shock absorbers) of subheading 8708.80 from parts thereof of subheading 8708.80 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter; or (5) No required change in tariff classification to parts of suspension systems (including shock absorbers) of subheading 8708.80, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.80 for use as original equipment in any other vehicle or as an aftermarket part: (6) A change to McPherson struts of subheading 8708.80 from parts thereof of subheading 8708.80 or any other subheading, provided there is a regional value content of not less than 50 percent under the net cost method; (7) A change to subheading 8708.80 from any other heading; (8) A change to suspension systems (including shock absorbers) of subheading 8708.80 from parts thereof of subheading 8708.80 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method; or (9) No required change in tariff classification to parts of suspension system (including shock absorbers) of subheading 8708.80, provided there is a regional value VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 content of not less than 50 percent under the net cost method. 8708.91 For a good of subheading 8708.91 for use as original equipment in a passenger vehicle or light truck: (1) A change to radiators of subheading 8708.91 from any other heading; (2) A change to radiators of subheading 8708.91 from any other good of subheading 8708.91, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; or (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. (3) No required change in tariff classification to any other good of subheading 8708.91, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; or (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.91 for use as original equipment in a heavy truck: (4) No required change in tariff classification to any other good of subheading 8708.91, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; or (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. (5) A change to radiators of subheading 8708.91 from any other heading; (6) A change to radiators of subheading 8708.91 from any other good of subheading 8708.91, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.91 for use as original equipment in any other vehicle or as an aftermarket part: (7) A change to radiators of subheading 8708.91 from any other heading; (8) A change to radiators of subheading 8708.91 from any other good of subheading 8708.91, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method; or (9) No required change in tariff classification to any other good of subheading 8708.91, provided there is a PO 00000 Frm 00031 Fmt 4701 Sfmt 4700 39719 regional value content of not less than 50 percent under the net cost method. 8708.92 For a good of subheading 8708.92 for use as original equipment in a passenger vehicle or light truck: (1) A change to silencers (mufflers) or exhaust pipes of subheading 8708.92 from any other heading; (2) A change to silencers (mufflers) or exhaust pipes of subheading 8708.92 from any other good of subheading 8708.92, whether or not there is also a change from any other heading, provided there is a regional value content of not less than; or (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. (3) No required change in tariff classification to any other good of subheading 8708.92, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; or (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.92 for use as original equipment in a heavy truck: (4) A change to silencers (mufflers) or exhaust pipes of subheading 8708.92 from any other heading; (5) A change to silencers (mufflers) or exhaust pipes of subheading 8708.92 from any other good of subheading 8708.92, whether or not there is also a change from any other heading, provided there is a regional value content of not less than; or (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. (6) No required change in tariff classification to any other good of subheading 8708.92, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; or (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. For any other good of subheading 8708.92 for use as original equipment in any other vehicle or as an aftermarket part: (7) A change to silencers (mufflers) or exhaust pipes of subheading 8708.92 from any other heading; (8) A change to silencers (mufflers) or exhaust pipes of subheading 8708.92 from any other good of subheading 8708.92, whether or not there is also a change from any other heading, provided there is a E:\FR\FM\01JYR2.SGM 01JYR2 39720 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations regional value content of not less than 50 percent under the net cost method; or (9) No required change in tariff classification to any other good of subheading 8708.92, provided there is a regional value content of not less than 50 percent under the net cost method. 8708.93 For a good of subheading 8708.93 for use as original equipment in a passenger vehicle or light truck: (1) A change to subheading 8708.93 from any other heading; (2) A change to subheading 8708.93 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 70 percent under the net cost method; or (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.93 for use as original equipment in a heavy truck: (3) A change to subheading 8708.93 from any other heading; (4) A change to subheading 8708.93 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 70 percent under the net cost method; or (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.93 for use as original equipment in any other vehicle or as an aftermarket part: (5) A change to subheading 8708.93 from any other heading; (6) A change to subheading 8708.93 from subheading 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method. 8708.94 For a good of subheading 8708.94 for use as original equipment in a passenger vehicle or light truck: (1) No required change in tariff classification to subheading 8708.94, provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.94 for use as original equipment in a heavy truck: (2) A change to subheading 8708.94 from any other heading; or (3) A change to steering wheels, steering columns or steering boxes of subheading 8708.94 from parts thereof of subheading 8708.94 or 8708.99, whether or not there is VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 also a change from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter; (4) No required change in tariff classification to parts of steering wheels, steering columns or steering boxes of subheading 8708.94, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.94 for use as original equipment in any other vehicle or as an aftermarket part: (5) A change to subheading 8708.94 from any other heading; or (6) A change to steering wheels, steering columns or steering boxes of subheading 8708.94 from parts thereof of subheading 8708.94 or 8708.99, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 percent under the net cost method; (7) No required change in tariff classification to parts of steering wheels, steering columns or steering boxes of subheading 8708.94, provided there is a regional value content of not less than 50 percent under the net cost method. 8708.95 For a good of subheading 8708.95 for use as original equipment in a passenger vehicle or light truck: (1) A change to subheading 8708.95 from any other heading; or (2) No required change in tariff classification to subheading 8708.95, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a good of subheading 8708.95 for use as original equipment in a heavy truck: (1) A change to subheading 8708.95 from any other heading; or (2) No required change in tariff classification to subheading 8708.95, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.95 for use as original equipment in any other vehicle or as an aftermarket part: (3) A change to subheading 8708.95 from any other heading; or (4) No required change in tariff classification to subheading 8708.95, PO 00000 Frm 00032 Fmt 4701 Sfmt 4700 provided there is a regional value content of not less than 50 percent under the net cost method. 8708.99 For a chassis frame of subheading 8708.99 for use as original equipment in a passenger vehicle or light truck: (1) No required change in tariff classification to subheading 8708.99, provided there is a regional value content of not less than: (a) 66 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 75 percent under the net cost method, beginning on July 1, 2023, and thereafter. For a chassis of subheading 8708.99 for use as original equipment in a heavy truck: (2) No required change in tariff classification to subheading 8708.99, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.99 for use as original equipment in a passenger vehicle or light truck: 8708.99.aa A change to tariff item 8708.99.aa from any other subheading, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. 8708.99.bb A change to tariff item 8708.99.bb from any other heading, except from subheading 8482.10 through 8482.80 or tariff item 8482.99.aa; or A change to tariff item 8708.99.bb from subheadings 8482.10 through 8482.80 or tariff item 8482.99.aa, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. 8708.99 A change to subheading 8708.99 from any other heading; or No required change in tariff classification to subheading 8708.99, provided there is a regional value content of not less than: (a) 62.5 percent under the net cost method, beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method, beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method, beginning on July 1, 2022 until June 30, 2023; (d) 70 percent under the net cost method, beginning on July 1, 2023, and thereafter. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations For any other good of subheading 8708.99 for use as original equipment in a heavy truck: 8708.99.aa A change to tariff item 8708.99.aa from any other subheading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. 8708.99.bb A change to tariff item 8708.99.bb from any other heading, except from subheading 8482.10 through 8482.80 or tariff item 8482.99.aa; or A change to tariff item 8708.99.bb from subheadings 8482.10 through 8482.80 or tariff item 8482.99.aa, whether or not there is also a change from any other heading, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. 8708.99 A change to subheading 8708.99 from any other heading; or No required change in tariff classification to subheading 8708.99, provided there is a regional value content of not less than: (a) 60 percent under the net cost method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method, beginning on July 1, 2024 until June 30, 2027; (c) 70 percent under the net cost method, beginning on July 1, 2027, and thereafter. For any other good of subheading 8708.99 for use as original equipment in any other vehicle or as an aftermarket part: 8708.99.aa A change to tariff item 8708.99.aa from any other subheading, provided there is a regional value content of not less than 50 per cent under the net cost method. 8708.99.bb A change to tariff item 8708.99.bb from any other heading, except from subheading 8482.10 through 8482.80 or tariff item 8482.99.aa; or A change to tariff item 8708.99.bb from subheadings 8482.10 through 8482.80 or tariff item 8482.99.aa, whether or not there is also a change from any other heading, provided there is a regional value content of not less than 50 per cent under the net cost method. 8708.99 A change to subheading 8708.99 from any other heading; or No required change in tariff classification to subheading 8708.99, provided there is a regional value content of not less than 50 percent under the net cost method. Section 14: Further Requirements Related to the Regional Value Content for Passenger Vehicles, Light Trucks, and Parts Thereof Roll-Up of Originating Materials (1) The value of non-originating materials used by the producer in the production of a passenger vehicle, light truck and parts thereof must not, for the purpose of calculating the regional value content of the good, include the value of non-originating VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 materials used to produce originating materials that are subsequently used in the production of the good. For greater certainty, if the production undertaken on nonoriginating materials results in the production of a good that qualifies as originating, no account is to be taken of the non-originating material contained therein if that good is used in the subsequent production of another good. Requirements Related to Core Parts Listed in Table A.1 (2) A part listed in Table A.1 that is for use as original equipment in the production of a passenger vehicle or light truck, except for batteries of subheading 8507.60 that are used as the primary source of electrical power for the propulsion of an electric passenger vehicle or an electric light truck, is originating only if it satisfies the regional value content requirement in sections 13 or 14 or Schedule I (PSRO Annex). (3) A battery of subheading 8507.60 that is used as the primary source of electrical power for the propulsion of an electric passenger vehicle or an electric light truck is originating if it meets the applicable requirements set out in section 14 or Schedule I (PSRO Annex). Parts Listed in Column 1 of Table A.2 Must Be Originating for Passenger Vehicle or Light Truck To Be Originating (4) In addition to other applicable requirements set out in these Regulations, a passenger vehicle or light truck is only originating if the parts listed in column 1 of Table A.2 used in its production are originating. The value of non-originating materials (VNM) for such parts must be calculated in accordance with subsections 14(7) through 14(8), or, at the choice of the vehicle producer or exporter, subsections 14(9) through 14(11). The net cost of a part must be calculated in accordance with section 7 (Regional Value Content), without regard to the VNM calculation method chosen. Parts Listed in Column 1 of Table A.2 Must Meet an RVC Requirement; Advanced Batteries May Meet an RVC or Tariff Shift Requirement (5) Except for an advanced battery of subheading 8507.60, a part listed in column 1 of Table A.2, that is for use in a passenger vehicle or light truck, must meet the regional value content requirement of section 13 or Schedule I (PSRO Annex) to be considered originating. (6) An advanced battery of subheading 8507.60, that is for use in a passenger vehicle or light truck, is originating if it meets the applicable change in tariff classification or regional value content requirements set out in Schedule I (PSRO Annex). VNM for Core Parts May Include All NonOriginating Materials, or Only Materials Listed in Column 2 of Table A.2 (7) For the purpose of satisfying the requirement specified in subsections (4) through (6), the regional value content of a part listed in column 1 of Table A.2, the value of non-originating materials (VNM) may be determined, at the choice of the PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 39721 vehicle producer or exporter, taking into consideration: (a) The value of all non-originating materials used in the production of the part; or (b) the value of non-originating components that are listed in column 2 of Table A.2 that are used in the production of the part. (8) For the purposes of a regional value content calculation for a good listed in column 1 of Table A.2, based on paragraph (7)(b), any non-originating materials used in the production of the good that are not listed in column 2 of Table A.2 may be disregarded. For greater certainty, any non-originating parts listed in column 2 of Table A.2 must be included in the VNM calculation. Any parts not listed in column 2 of Table A.2 or materials or components used to produce such parts should also not be part of the VNM calculation. (9) Subsections (7) and (8) do not apply when calculating the regional value content of a part listed in Column 1 of Table A.2 traded on its own. The rules for such parts are listed in section 13 or Schedule I of these Regulations. Parts Listed in Column 1 of Table A.2 May Be Treated as a Single, Super-Core Part (10) For the purpose of satisfying the requirement specified in subsections (4) through (6) and as an alternative to determining the VNM based on the method in subsection (7), the regional value content of the parts listed in column 1 of Table A.2 of these Regulations may be determined, at the choice of the vehicle producer or exporter, by treating these parts as a single part, which may be referred to as a super-core part, using the sum of the net cost of each part listed under column 1 of Table A.2 of these Regulations, and when calculating the VNM taking into consideration: (a) The sum of the value of all nonoriginating materials used in the production of the parts listed under column 1 of table A.2; or (b) the sum of the value of the nonoriginating components that are listed in column 2 of Table A.2 that are used in the production of the parts listed in column 1 of Table A.2. (11) If a non-originating material used in the production of a component listed in column 2 of Table A.2 undergoes further production such that it satisfies the requirements of these Regulations, the component is treated as originating when determining the originating status of the subsequently produced part listed in column 1 of Table A.2, regardless of whether that component was produced by the producer of the part. (12) The regional value content requirement for the parts listed in column 1 of Table A.2 may be averaged in accordance with the provisions in Section 16. Such an average may be calculated using the average regional value content for each individual parts category in the left hand column of Table A.2, or by calculating the average regional value content for all parts in the left hand column of Table A by treating them as a single part, defined as a super-core. Once E:\FR\FM\01JYR2.SGM 01JYR2 39722 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations this average, by either methodology, exceeds the required thresholds listed in subsection (13), all parts used to calculate this average are considered originating. RVC Requirements Related to Parts Listed in Tables A.1 and A.2 (13) Further to subsections (2), (7) and (10), the following regional value content thresholds apply to parts for use as original equipment listed under Table A.1 and column 1 of Table A.2: (a) 66 percent under the net cost method or 76 percent under the transaction value method beginning on July 1, 2020 until June 30, 2021; (b) 69 percent under the net cost method or 79 percent under the transaction value method beginning on July 1, 2021 until June 30, 2022; (c) 72 percent under the net cost method or 82 percent under the transaction value method, beginning on July 1, 2022 until June 30, 2023; or (d) 75 percent under the net cost method or 85 percent under the transaction value method, beginning on July 1, 2023, and thereafter. Requirements Related to Principal and Complementary Parts Listed in Tables B and C (14) Notwithstanding the regional value content requirements set out in Schedule I (PSRO Annex), a material listed in Table B is considered originating if it satisfies the applicable change in tariff classification requirement or the applicable regional valuecontent requirement provided in Schedule I (PSRO Annex). (15) Further to subsection (14), the following regional value content thresholds apply to parts for use as original equipment listed under Table B: (a) 62.5 percent under the net cost method or 72.5 percent under the transaction value method beginning on July 1, 2020 until June 30, 2021; (b) 65 percent under the net cost method or 75 percent under the transaction value method beginning on July 1, 2021 until June 30, 2022; (c) 67.5 percent under the net cost method or 77.5 percent under the transaction value method, beginning on July 1, 2022 until June 30, 2023; or (d) 70 percent under the net cost method or 80 percent under the transaction value method, beginning on July 1, 2023, and thereafter. (16) Notwithstanding the regional value content requirements set out in Schedule I (PSRO Annex), a material listed in Table C is originating if it meets the applicable change in tariff classification requirement or the applicable regional value-content requirement provided in Schedule I (PSRO Annex). (17) Further to subsection (16), the following regional value content thresholds apply to parts for use as original equipment listed under Table C: (a) 62 percent under the net cost method or 72 percent under the transaction value method beginning on July 1, 2020 until June 30, 2021; VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 (b) 63 percent under the net cost method or 73 percent under the transaction value method beginning on July 1, 2021 until June 30, 2022; (c) 64 percent under the net cost method or 74 percent under the transaction value method, beginning on July 1, 2022 until June 30, 2023; or (d) 65 percent under the net cost method or 75 percent under the transaction value method, beginning on July 1, 2023, and thereafter. (18) For greater certainty, subsections (13), (15) or (17) do not apply to aftermarket parts. Section 15: Further Requirements Related to the Regional Value Content for Heavy Trucks and Parts Thereof (1) The value of non-originating materials used by the producer in the production of a heavy truck and parts thereof must not, for the purpose of calculating the regional value content of the good, include the value of nonoriginating materials used to produce originating materials that are subsequently used in the production of the good. (2) Notwithstanding the Product-Specific Rules of Origin in Schedule I (PSRO Annex), the regional value content requirement for a part listed in Table D that is for use in a heavy truck is: (a) 60 percent under the net cost method or 70 percent under the transaction value method, if the corresponding rule includes a transaction value method, beginning on July 1, 2020 until June 30, 2024; (b) 64 percent under the net cost method or 74 percent under the transaction value method, if the corresponding rule includes a transaction value method beginning on July 1, 2024 until June 30, 2027; or (c) 70 percent under the net cost method or 80 percent under the transaction value method, if the corresponding rule includes a transaction value method, beginning on July 1, 2027, and thereafter. (3) Notwithstanding the Product-Specific Rules of Origin in Schedule I (PSRO Annex), the regional value content requirement for a part listed in Table E that is for use in a heavy truck is: (a) 50 percent under the net cost method or 60 percent under the transaction value method, if the corresponding rule includes a transaction value method, beginning on July 1, 2024 until June 30, 2027; or (b) 54 percent under the net cost method or 64 percent under the transaction value method, if the corresponding rule includes a transaction value method beginning on July 1, 2024 until June 30, 2027; or (c) 60 percent under the net cost method or 70 percent under the transaction value method, if the corresponding rule includes a transaction value method, beginning on July 1, 2027, and thereafter. (4) Notwithstanding section 13 (ProductSpecific Rules of Origin for Vehicles) or Schedule I (PSRO Annex), an engine of heading 84.07 or 84.08, or a gear box (transmission) of subheading 8708.40, or a chassis classified in 8708.99, that is for use in a heavy truck, is originating only if it satisfies the applicable regional value content requirement in subsection (2). PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 Section 16: Averaging for Passenger Vehicles, Light Trucks and Heavy Trucks (1) For the purpose of calculating the regional value content of a passenger vehicle, light truck, or heavy truck, the calculation may be averaged over the producer’s fiscal year, using any one of the following categories, on the basis of either all motor vehicles in the category or only those motor vehicles in the category that are exported to the territory of one or more of the other USMCA countries: (a) The same model line of motor vehicles in the same class of vehicles produced in the same plant in the territory of a USMCA country; (b) the same class of motor vehicles produced in the same plant in the territory of a USMCA country; (c) the same model line or same class of motor vehicles produced in the territory of a USMCA country; or (d) any other category as the USMCA countries may decide. (2) For the purposes of paragraph (1)(c), vehicles within the same model line or class may be averaged separately if such vehicles are subject to different regional value content requirements. (3) If a producer chooses to use averaging for the purpose of calculating regional value content, the producer must state the category it has chosen, and: (a) If the category referred to in paragraph (1)(a) is chosen, state the model line, model name, class of passenger vehicle, light truck, or heavy truck and tariff classification of the motor vehicles in that category, and the location of the plant at which the motor vehicles are produced, (b) if the category referred to in paragraph (1)(b) is chosen, state the model name, class of passenger vehicle, light truck, or heavy truck and tariff classification of the motor vehicles in that category, and the location of the plant at which the motor vehicles are produced, (c) if the category referred to in paragraph (1)(c) is chosen, state the model line, model name, class of motor vehicle and tariff classification of the passenger vehicle, light truck, or heavy truck in that category, and the locations of the plants at which the motor vehicles are produced, (d) if the category referred to in paragraph (1)(d) is chosen, state the model lines, model names, classes of motor vehicles and tariff classifications of the passenger vehicles, light trucks, or heavy trucks, and the location of the plants at which the motor vehicles are produced, or (e) if the category referred to in paragraph (1)(e) is chosen, state the model lines, model names, classes of motor vehicles and tariff classifications of the passenger vehicles, light trucks, or heavy trucks, the location of the plants at which the motor vehicles are produced and the party or parties to which the vehicles are exported; Averaging Period (4) If the fiscal year of a producer begins after July 1, 2020, but before July 1, 2021, the producer may calculate its regional value content for passenger vehicles, light trucks, heavy trucks, other vehicles, core parts listed E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations in Table A.2 used in the production of passenger vehicles, light trucks or heavy trucks, an automotive good listed in Tables A.1, B, C, D or E, steel and aluminum purchasing requirement and labor value content, for the period beginning on July 1, 2020 and ending at the end of the following fiscal year. Averaging After Entry Into Force + D133 (5) For the period July 1, 2020 to June 30, 2023, the producer may calculate its regional value content for passenger vehicles, light trucks, heavy trucks, other vehicles, core parts listed in Table A.2 used in the production of passenger vehicles, light trucks or heavy trucks, an automotive good listed in Tables A.1, B, C, D or E, steel and aluminum purchasing requirement and labor value content, for the following periods: (a) July 1, 2020 to June 30, 2021 (b) July 1, 2021 to June 30, 2022 (c) July 1, 2022 to June 30, 2023, and (d) July 1, 2023 to the end of the producer’s fiscal year. Additionally, a producer may calculate its regional value content for heavy trucks and parts listed in Table D or E, steel and aluminum purchasing requirement and labor value content, for the following periods: (a) July 1, 2023 to June 30, 2024 (b) July 1 2024 to June 30, 2025 (c) July 1 2025 to June 30, 2026 (d) July 1 2026 to June 30, 2027 and (e) July 1, 2027 to the end of the producer’s fiscal year. Timely Filing of Choice to Average (6) If a producer chooses to average its regional value content calculations the producer must notify the customs administration of the USMCA country to which passenger vehicles, light trucks, heavy trucks or other vehicles are to be exported, by July 31, 2020 and subsequently at least 10 days before the first day of the producer’s fiscal year during which the vehicles will be exported, or such shorter period as the customs administration may accept. Choice to Average May Not Be Rescinded (7) The producer may not modify or rescind the category of passenger vehicles, light trucks, heavy trucks or other vehicles or the period that they have notified the customs authority they intend to use for their averaged regional value calculation. Averaged Net Cost and VNM Included in Calculation of RVC on the Basis of Producer’s Option To Include All Vehicles of Category or Only Certain Exported Vehicles of Category (8) For purposes of sections 13 through 15, if a producer chooses to average its net cost calculation, the net costs incurred and the values of non-originating materials used by the producer, with respect to (a) all passenger vehicles, light trucks, or heavy trucks that fall within the category chosen by the producer and that are produced during the fiscal year, or partial fiscal year if the producer’s fiscal year begins after July 1, 2020, or (b) those passenger vehicles, light trucks, or heavy trucks to be exported to the territory of one or more of the USMCA countries that VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 fall within the category chosen by the producer and that are produced during the fiscal year or, or partial fiscal year if the producer’s fiscal year begins after July 1, 2020, must be included in the calculation of the regional value content under any of the categories set out in subsection (1). Year-End Analysis Required if Averaging Based of Estimated Costs; Obligation To Notify of Change in Status (9) If the producer of a passenger vehicle, light truck, heavy truck or other vehicle has calculated the regional value content of the motor vehicle on the basis of estimated costs, including standard costs, budgeted forecasts or other similar estimating procedures, before or during the producer’s fiscal year, the producer must conduct an analysis at the end of the producer’s fiscal year of the actual costs incurred over the period with respect to the production of the motor vehicle, and, if the passenger vehicle, light truck, or heavy truck does not satisfy the regional value content requirement on the basis of the actual costs, immediately inform any person to whom the producer has provided a Certificate of Origin for the motor vehicle, or a written statement that the motor vehicle is an originating good, that the motor vehicle is a non-originating good. (10) For the purpose of calculating the regional value content for an automotive good listed in Tables A.1, B, C, D, or E, produced in the same plant, a core part listed in Table A.2, or when treating the parts listed in column 1 of Table A.2 as a super-core, for use in a passenger vehicle or light truck, the calculation may be averaged: (a) Over the fiscal year of the motor vehicle producer to whom the good is sold; (b) over any quarter or month; (c) over the fiscal year of the producer of the automotive material; or (d) over any of the categories in paragraph (1)(a) through (d), provided that the good was produced during the fiscal year, quarter, or month forming the basis for the calculation, in which: (i) The average in paragraph (9)(a) is calculated separately for those goods sold to one or more passenger vehicle, light truck, or heavy truck producer, or (ii) the average in paragraph (9)(a) or (d) is calculated separately for those goods that are exported to the territory of another USMCA country. Example Relating to the Fiscal Year of a Producer Not Coinciding With the Entry Into Force of The Agreement (11) The following example is an ‘‘Example’’ as referred to in subsection 1(4). Example: Subsection (4) The agreement enters into force on July 1, 2020. A producer’s fiscal year begins on January 1, 2021. The producer may calculate their regional value content over the 18month period beginning on July 1, 2020 and ending on December 31, 2021. Section 17: Steel and Aluminum (1) In addition to meeting the requirements of sections 13 through 16 or Schedule I (PSRO Annex), a passenger vehicle, light truck, or heavy truck is originating only if, PO 00000 Frm 00035 Fmt 4701 Sfmt 4700 39723 during a time period provided for in subsection (2), at least 70 percent, by value, of the vehicle producer’s purchases at the corporate level in the territories of one or more of the USMCA countries of: (a) Steel listed in Table S; and (b) aluminum listed in Table S; are of originating goods. (2) For the purposes of subsection (1), only the value of the steel or aluminum listed in Table S that is used in the production of the part will be taken into consideration for a part of subheading 8708.29 or 8708.99 listed in Table S. (3) The requirement set out in subsection (1) applies to steel and aluminum purchases made by the producer of passenger vehicles, light trucks or heavy trucks, including purchases made directly by the vehicle producer from a steel producer, purchases by the vehicle producer from a steel service center or a steel distributor. Subsection (1) also applies to steel or aluminum covered by a contractual arrangement in which a producer of passenger vehicles, light trucks, or heavy trucks negotiates the terms under which steel or aluminum will be supplied to a parts producer by a steel producer or supplier selected by the vehicle producer, for use in the production of parts that are supplied by the parts producer to a producer of passenger vehicles, light trucks, or heavy trucks. Such purchases must also include steel and aluminum purchases for major stampings that form the ‘‘body in white’’ or chassis frame, regardless of whether the vehicle producer or parts producer makes such purchases. (4) The requirement set out in subsection (1) applies to steel and aluminum purchased for use in the production of passenger vehicles, light trucks or heavy trucks. Subsection (1) does not apply to steel and aluminum purchased by a producer for other uses, such as the production of other vehicles, tools, dies or molds. (5) For the purpose subsection (1), as it applies to a steel good set out in Table S, a good is originating if: (a) Beginning on July 1, 2020 until June 30, 2027 the good satisfies the applicable requirements established in Schedule I (PSRO Annex) or section 13 and all other applicable requirements of these Regulations; or (b) beginning on July 1, 2027 the good satisfies all other applicable requirements of these Regulations, and provided that all steel manufacturing processes occur in one or more of the USMCA countries, except for metallurgical processes involving the refinement of steel additives. Such steel manufacturing processes include the initial melting and mixing and continues through the coating stage. This requirement does not apply to raw materials of used in the steel manufacturing process, including iron ore or reduced, processed, or pelletized iron ore of heading 26.01, pig iron of heading 72.01, raw alloys of heading 72.02 or steel scrap of heading 72.04. (6) The vehicle producer may calculate the value of steel and aluminum purchases in subsection (1) by the following methods: (a) For steel or aluminum imported or acquired in the territory of a USMCA country: E:\FR\FM\01JYR2.SGM 01JYR2 39724 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations (i) The price paid or payable by the producer in the USMCA country where the producer is located; (ii) the net cost of the material at the time of importation; or (iii) the transaction value of the material at the time of importation. (b) For steel or aluminum that is selfproduced: (i) All costs incurred in the production of materials, which includes general expenses, and (ii) an amount equivalent to the profit added in the normal course of trade, or equal to the profit that is usually reflected in the sale of goods of the same class or kind as the self-produced material that is being valued. (7) For the purpose of determining the vehicle producer’s purchases of steel or aluminum in subsection 17(1), the producer may calculate the purchases: (a) Over the previous fiscal year of the producer; (b) over the previous calendar year; (c) over the quarter or month to date in which the vehicle is exported; (d) over the producer’s fiscal year to date in which the vehicle is exported; or (e) over the calendar year to date in which the vehicle is exported. (8) If the producer chooses to base a steel or aluminum calculation on paragraph (7)(c), (d) or (e), that calculation may be based on the producer’s estimated purchases for the applicable period. (9) For the purpose of determining the vehicle producer’s purchases of steel or aluminum in subsection (1), the producer may calculate the purchases on the basis of: (a) All motor vehicles produced in one or more plants in the territory of one or more USMCA countries; (b) all motor vehicles exported to the territory of one or more USMCA countries; (c) all motor vehicles in a category set out in subsection 16(1) that are produced in one or more plants in the territory of one or more USMCA countries; or, (d) all motor vehicles in a category set out in subsection 16(1) exported to the territory of one or more USMCA countries. (10) The producer may choose different periods for the purpose of its steel and aluminum calculations. (11) If the producer of a passenger vehicle, light truck, or heavy truck has calculated steel or aluminum purchases on the basis of estimates before or during the applicable period, the producer must conduct an analysis at the end of the producer’s fiscal year of the actual purchases made over the period with respect to the production of the vehicle, and, if the passenger vehicle, light truck, or heavy truck does not satisfy the steel or aluminum requirement on the basis of the actual purchases, immediately inform any person to whom the producer has provided a certification of origin for the vehicle, or a written statement that the vehicle is an originating good, that the vehicle is a non-originating good. Section 18: Labor Value Content Labor Value Content Requirements for Passenger Vehicles (1) In addition to the requirements in sections 13 through 17 and Schedule I (PSRO Annex), a passenger vehicle is originating only if the vehicle producer certifies that the passenger vehicle meets a Labor Value Content (LVC) requirement of: (a) 30 percent, consisting of at least 15 percentage points of high-wage material and labor expenditures, no more than 10 percentage points of technology expenditures, and no more than 5 percentage points of high-wage assembly expenditures, beginning on July 1, 2020 until June 30, 2021; (b) 33 percent, consisting of at least 18 percentage points of high-wage material and labor expenditures, no more than 10 percentage points of technology expenditures, and no more than 5 percentage points of high-wage assembly expenditures, beginning on July 1, 2021 until June 30, 2022; (c) 36 percent, consisting of at least 21 percentage points of high-wage material and labor expenditures, no more than 10 percentage points of technology expenditures, and no more than 5 percentage points of high-wage assembly expenditures, beginning on July 1, 2022 until June 30, 2023; or (d) 40 percent, consisting of at least 25 percentage points of high-wage material and labor expenditures, no more than 10 percentage points of technology expenditures, and no more than 5 percentage points of high-wage assembly expenditures, beginning on July 1, 2023, and thereafter. LVC Requirement Related to Light Trucks or Heavy Trucks (2) In addition to the requirements set out in sections 13 through 17 and Schedule I (PSRO Annex), a light truck or heavy truck is originating only if the vehicle producer certifies that the truck meets an LVC requirement of 45 percent, consisting of at least 30 percentage points based on highwage material and labor expenditures, no more than 10 percentage points based on technology expenditures, and no more than 5 percentage points based on high-wage assembly expenditures. Calculation of LVC Requirement (3) For purposes of an LVC calculation for a passenger vehicle, light truck or heavy truck, a producer may include: (a) An amount for high-wage materials used in production; (b) an amount for high-wage labor costs incurred in the assembly of the vehicle; (c) an amount for high-wage transportation or related costs for shipping materials to the location of the vehicle producer, if not included in the amount for high-wage materials; (d) a credit for technology expenditures; and (e) a credit for high-wage assembly expenditures. (4) High wage materials. The amount that may be included for high-wage materials used in production is the net cost or the annual purchase value of materials that undergo production in a qualifying-wage-rate production plant and that are used in the production of passenger vehicles, light trucks or heavy trucks in a plant located in the territory of a USMCA country. (5) A plant engaged in the production of vehicles or parts may be certified as a qualifying wage-rate vehicle assembly plant or a qualifying-wage-rate production plant based on the average wage paid to direct production workers at the plant for July 1 to December 31, 2020, or for July 1 to June 30, 2021. In subsequent periods, the certification of a qualifying-wage-rate production plant based on period less than 12 months is valid for the following period of the same length. The certification of a qualifying-wage-rate production plant based on a 12-month period is valid for the following 12 months. (6) For the purpose of meeting the Labor Value Content requirement a producer may use one of the following formulas: (a) Formula based on net cost VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00036 Fmt 4701 Sfmt 4725 E:\FR\FM\01JYR2.SGM 01JYR2 ER01JY20.004</GPH> ER01JY20.005</GPH> (b) Formula based on total annual purchase value Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations 39725 *HWLC is included in the numerator at the choice of the producer and, if included, must also be included in the denominator Where: APV is the annual purchase value of highwage material expenditures HWAC is the credit for high-wage assembly expenditures; HWLC is the sum of the high-wage labor costs incurred in the assembly of the vehicle; HWM is the sum or the high-wage material expenditures used in production; HWTC is the credit for high-wage technology expenditures; HWT is the high-wage transportation or related costs for shipping materials used in production, if not included in the amount for HWM; NC is the net cost of the vehicle, and TAPV is the total vehicle plant assembly annual purchase value of parts and materials for use in the production of the vehicle High Wage Material Expenditures (7) The high wage material expenditures may be calculated as sum of the following values: (a) The annual purchase value (APV) or net cost, depending on the formula used, of a self-produced high-wage material used in the production of a vehicle; (b) the APV or net cost, depending on the formula used, of an imported or acquired high-wage material used in the production of a vehicle; (c) the APV or net cost, depending on the formula used, of a high-wage material used in the production of a part or material that is used in the production of an intermediate or self-produced part that is subsequently used in the production of a vehicle; and (d) the APV or net cost depending on the formula used of a high wage material used in the production of a part or material that is subsequently used in the production of a vehicle. (8) It is suggested, but not required, that the vehicle producer calculate the high-wage material and labor expenditures in the order described in paragraph (7). A vehicle producer need not calculate the elements in paragraphs 7(b) to (d) if the previous element or elements is sufficient to meet the LVC requirement. Where HWTC is the credit for high-wage technology expenditures, expressed as a percentage; in the category or only those vehicles in the category that are exported to the territory of one or more of the other USMCA countries: (a) The same model line of vehicles in the same class of vehicles produced in the same plant in the territory of a USMCA country; (b) the same class of vehicles produced in the same plant in the territory of a USMCA country; (c) the same model line of vehicles or same class of vehicles produced in the territory of a USMCA country; (d) any other category as the USMCA countries may decide. (16) An election made under subsection (15) must (a) state the category chosen by the producer, and (i) if the category referred to in paragraph (15)(a) is chosen, state the model line, model name, class of vehicle and tariff classification of the vehicles in that category, and the location of the plant at which the vehicles are produced, (ii) if the category referred to in paragraph (15)(b) is chosen, state the model name, class of vehicle and tariff classification of the vehicles in that category, and the location of the plant at which the vehicles are produced, and (iii) if the category referred to in paragraph (15)(c) is chosen, state the model line, model name, class of vehicle and tariff classification of the vehicles in that category, and the locations of the plants at which the vehicles are produced; (b) state whether the basis of the calculation is all vehicles in the category or only those vehicles in the category that are exported to the territory of one or more of the other USMCA countries; (c) state the producer’s name and address; (d) state the period with respect to which the election is made, including the starting and ending dates; (e) state the estimated labor value content of vehicles in the category on the basis stated under paragraph (b); (f) be dated and signed by an authorized officer of the producer; and (g) be filed with the customs administration of each USMCA country to which vehicles in that category are to be exported during the period covered by the election, by July 31, 2020, and subsequently at least 10 days before the first day of the producer’s fiscal year, or such shorter period as that customs administration may accept. (17) An election filed for the vehicles referred to in subsection (16) may not be (a) rescinded; or (b) modified with respect to the category or basis of calculation. (18) For purposes of this section, if a producer files an election under paragraph (16)(a), it must include the labor value content and the net cost of the producer’s passenger vehicles, light trucks or heavy trucks, calculated under one of the categories set out in subsection (15), with respect to (a) all vehicles that fall within the category chosen by the producer, or (b) those vehicles to be exported to the territory of one or more of the USMCA countries that fall within the category chosen by the producer. High-Wage Assembly Credit (12) A high-wage assembly credit of five percentage points may be included in the LVC for passenger vehicles or light trucks produced by a producer that operates a highwage assembly plant for passenger vehicle or light truck parts or has a long-term supply contract for those parts (i.e. a contract with a minimum of three years) with such a plant. (13) A high-wage assembly credit of five percentage points may be included in the LVC for heavy trucks produced by a producer that operates a high-wage assembly plant for heavy truck parts or has a long-term supply contract (i.e., a contract with a minimum of three years) for those parts with such a plant. (14) A high-wage assembly plant for passenger vehicle, light truck, or heavy truck parts need only have the capacity to produce the minimum amount of originating parts specified in the definition. There is no need to maintain or provide records or other documents that certify such parts are originating, as long as information demonstrating the capacity to produce these minimum amounts is maintained and can be provided. Averaging for LVC Requirement (15) For the purpose of calculating the LVC of a passenger vehicle, light truck or heavy truck, the producer may elect to average the calculation using any one of the following categories, on the basis of either all vehicles VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00037 Fmt 4701 Sfmt 4700 (9) The high-wage technology expenditures credit (HWTC) is based on annual vehicle producer expenditures at the corporate level in one or more USMCA countries on wages paid by the producer for research and development (R&D) or information technology (IT), calculated as a percentage of total annual vehicle producer expenditures on wages paid to direct production workers in one or more USMCA countries. Expenditures on capital or other non-wage costs for R&D or IT are not included. (10) To determine the high-wage technology expenditures credit (HWTC), the following formula may be used: LVC Periods (19) For the purposes of determining the LVC in this section, the producer may base the calculation on the following periods: (a) The previous fiscal year of the producer; (b) the previous calendar year; E:\FR\FM\01JYR2.SGM 01JYR2 ER01JY20.006</GPH> (11) For the purposes of subsection 14(10), expenditures on wages for R&D include wage expenditures on research and development including prototype development, design, engineering, testing, or certifying operations. High-Wage Technology Expenditures Credit 39726 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations (c) the quarter or month to date in which the vehicle is produced or exported; (d) the producer’s fiscal year to date in which the vehicle is produced or exported; or (e) the calendar year to date in which the vehicle is produced or exported. Transportation and Related Costs (20) High-wage transportation or related costs for shipping may be included in a producer’s LVC calculation, if not included in the amount for high-wage materials. Alternatively, a producer may aggregate such costs within the territories of one or more of the USMCA countries. Based on this aggregate amount, the producer may attribute an amount for transportation or related costs for shipping for purposes of the LVC calculation. Transportation or related costs for shipping incurred in transporting a material from outside the territories of the USMCA countries to the territory of a USMCA country are not included in this calculation. Value of Materials for LVC Purposes (21) The value of both originating and nonoriginating materials must be taken into account for the purpose of calculating the labor value content of a good. For greater certainty, the full value of a non-originating material that has undergone production in a qualifying-wage-rate production plant may be included in the HWM described in subsection 6. Excess LVC May Be Used Towards RVC Requirement for Heavy Trucks (22) For the period ending July 1, 2027, if a producer certifies a Labor Value Content for a heavy truck that is higher than 45 percent by increasing the amount of high wage material and manufacturing expenditures above 30 percentage points, the producer may use the points above 30 percentage points as a credit towards the regional value content percentages under section 13, provided that the regional value content percentage is not below 60 percent. Section 19: Alternative Staging Regime (1) For the purposes of this section, eligible vehicles means passenger vehicles or light trucks for which an alternative staging regime has been approved by the USMCA countries. (2) Notwithstanding sections 13 through 18, eligible vehicles are subject to the requirements set forth in subsection (4) from July 1, 2020 to June 30, 2025, or any other period provided for in the producer’s approved alternative staging regime. Eligible vehicles are also subject to any other applicable requirements established in these Regulations. (3) Passenger vehicles or light trucks that are not eligible vehicles may qualify as originating under the rules of origin established in sections 13 through 18, and any other applicable requirements established in these Regulations. (4) Eligible vehicles are considered originating if they meet the following requirements: (a) A regional value content of not less than 62.5 percent, under the net cost method; VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 (b) for parts listed in Table A.1, except lithium ion batteries of subheading 8507.60, a regional value content of not less than: (i) 62.5 percent where the net cost method is used; or (ii) 72.5 percent where the transaction value method is used if the corresponding rule includes a transaction value method; and (iii) for lithium-ion batteries of 8507.60, a change from within subheading 8507.60 or from any other subheading for lithium-ion batteries of 8507.60 (c) at least 70 percent of a vehicle producer’s purchases of steel and at least 70 percent of a vehicle producer’s purchases of aluminum, by value, must qualify as originating under the rules of origin established in Schedule I (PSRO Annex). This requirement will not apply to vehicle producers that have an exemption under an approved alternative staging regime from having to satisfy this requirement; and (d) a labor value content of at least 25 percent, consisting of at least ten percentage points of high-wage material and manufacturing expenditures, no more than ten percentage points of high-wage technology expenditures, and no more than five percentage points of high-wage assembly expenditures. (5) Eligible vehicles are exempt from the core parts requirement set out in section 14. (6) All methods and calculations for the requirements applicable to eligible vehicles must be based on the applicable provisions in these Regulations. (7) Vehicles that are presently covered under the alternative staging regime described in Article 403.6 of the NAFTA Agreement as of November 30, 2019, may continue to use this regime, including any regulations that were effect prior to entry into force of the USMCA, according to each USMCA country’s approval process for use of the alternative staging regime. After the expiration of the period under the Article 403.6 alternative staging period, such vehicles will be eligible for preferential treatment under the requirements described in subsection (4), until the end of the USMCA alternative staging period described in subsection (2). For greater certainty, such vehicles will also be eligible for preferential tariff treatment under the other rules of origin set forth in these regulations. Section 20: Regional Value Content for Other Vehicles (1) The value of non-originating materials used by the producer in the production of other vehicles and parts thereof must not, for the purpose of calculating the regional value content of the good, include the value of nonoriginating materials used to produce originating materials that are subsequently used in the production of the good. (2) Notwithstanding section 13 and Schedule I (PSRO Annex), the regional value content requirement is 62.5 percent under the net cost method for: (a) A motor vehicle for the transport of 15 or fewer persons of subheading 8702.10 or 8702.90; (b) a passenger vehicle with a compressionignition engine as the primary motor of PO 00000 Frm 00038 Fmt 4701 Sfmt 4700 propulsion of subheading 8703.21 through 8703.90, (c) a three or four-wheeled motorcycle of subheading 8703.21 through 8703.90, (d) a motorhome or entertainer coach of subheading 8703.21 through 8703.90; (e) an ambulance, a hearse, a prison van of subheading 8703.21 through 8703.90; (f) a vehicle solely principally for off-road use of subheading 8703.21 through 8703.90; or (g) a vehicle of subheading 8704.21 or 8704.31 that is solely or principally for offroad use; and (h) a good of heading 84.07 or 84.08, or subheading 8708.40, that is for use in a motor vehicle in paragraphs (a) through (g). (3) Notwithstanding section 13 and Schedule I (PSRO Annex), the regional value content requirement is 60 percent under the net cost method for: (a) A good that is: (i) A motor vehicle of heading 87.01, except for subheading 8701.20; (ii) a motor vehicle for the transport of 16 or more persons of subheading 8702.10 or 8702.90; (iii) a motor vehicle of subheading 8704.10; (iv) a motor vehicle of subheading 8704.22, 8704.23, 8704.32, or 8704.90 that is solely or principally for off-road use; (v) a motor vehicle of heading 87.05; or, (vi) a good of heading 87.06 that is not for use in a passenger vehicle, light truck, or heavy truck; (b) a good of heading 84.07 or 84.08, or subheading 8708.40, that is for use in a motor vehicle in paragraph (3)(a); or (c) except for a good in paragraph (3)(b) or of subheading 8482.10 through 8482.80, 8483.20, or 8483.30, a good in Table F that is subject to a regional value content requirement and that is for use in a motor vehicle in paragraphs (2)(a) through (g) or (3)(a). (4) For the purpose of calculating the regional value content under the net cost method for a good that is a motor vehicle provided for in paragraphs (2)(a) through (g) or (3)(a), a good listed in Table F for use as original equipment in the production of a good in paragraphs (2)(a) through (g), or a component listed in Table G for use as original equipment in the production of the motor vehicle in paragraph (3)(a), the value of non-originating materials used by the producer in the production of the good must be the sum of: (a) For each material used by the producer listed in Table F or Table G, whether or not produced by the producer, at the choice of the producer and determined in accordance with section 7 (Regional Value Content), either (i) the value of such material that is nonoriginating, or (ii) the value of non-originating materials used in the production of such material; and (b) the value of any other non-originating material used by the producer that is not listed in Table F or Table G, determined in accordance with section 7 (Regional Value Content). (5) For greater certainty, notwithstanding subsection (4), for purposes of a good that is a motor vehicle provided for in paragraphs E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations (2)(a) through (g) or (3)(a), the value of nonoriginating materials is the sum of the values of all non-originating materials used by the producer in the production of the vehicle. (6) For the purpose of calculating the regional value content of a motor vehicle covered by subsections (2) or (3), the producer may average its calculation over its fiscal year, using any one of the following categories, on the basis of either all motor vehicles in the category or only those motor vehicles in the category that are exported to the territory of one or more of the other USMCA countries: (a) The same model line of motor vehicles in the same class of vehicles produced in the same plant in the territory of a USMCA country; (b) the same class of motor vehicles produced in the same plant in the territory of a USMCA country; or (c) the same model line of motor vehicles produced in the territory of a USMCA country. (7) For the purpose of calculating the regional value content for a good listed in Table F, or a component or material listed in Table G, 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 paragraph (a) separately for a good sold to one or more motor vehicle producers; or (c) with respect to any calculation under this subsection, calculate the average separately for goods that are exported to the territory of one or more of the USMCA countries. (8) The regional value content requirement for a motor vehicle identified in subsection (2) or (3) is: (a) 50 percent for five 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 subsection (3), size category and underbody, not previously produced by the 39727 motor vehicle assembler in the territory of any of the USMCA 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 two years after the date on which the first motor vehicle prototype is produced at a plant following a refit, if it is a different motor vehicle of a class, or marque, or, except for a motor vehicle identified in subsection (3), size category and underbody, that was assembled by the motor vehicle assembler in the plant before the refit. Note: The Regional Value Content requirements set out in sections 13 or 14 or Schedule I (PSRO Annex) apply to a good for use as original equipment in the production of a passenger vehicle or light truck. For an aftermarket part, the applicable productspecific rule of origin set out in section 13 or 14 or Schedule I (PSRO Annex) is the alternative that includes the phrase ‘‘for any other good.’’ TABLE A.1—CORE PARTS FOR PASSENGER VEHICLES AND LIGHT TRUCKS HS 2012 Description 8407.31 ........ Reciprocating piston engines of a kind used for the propulsion of passenger vehicles of Chapter 87, of a cylinder capacity not exceeding 50 cc. Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 50 cc but not exceeding 250 cc. Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 250 cc but not exceeding 1,000 cc. Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 1,000 cc. Compression-ignition internal combustion piston engines of a kind used for the propulsion of vehicles of subheading 8704.21 or 8704.31. Parts suitable for use solely or principally with the engines of heading 84.07 or 84.08, suitable for use solely or principally with spark-ignition internal combustion piston engines. Parts suitable for use solely or principally with the engines of heading 84.07 or 84.08, other. Lithium-ion batteries that are used as the primary source of electrical power for the propulsion of an electric passenger vehicle or electric light truck. Chassis fitted with engines, for the motor vehicles of heading 87.03 or subheading 8704.21 or 8704.31. Bodies for the vehicles of heading 87.03. Bodies for the vehicles of subheading 8704.21 or 8704.31. Body stampings. Gear boxes and parts thereof. Drive axles with differential, whether or not provided with other transmission components, and non-driving axles; parts thereof. Suspension systems and parts thereof (including shock absorbers). Steering wheels, steering columns, and steering boxes; parts thereof. Chassis frames. 8407.32 ........ 8407.33 ........ 8407.34 ........ Ex 8408.20 ... 8409.91 ........ 8409.99 ........ 8507.60 ........ 8706.00 ........ 8707.10 ........ 8707.90 ........ Ex 8708.29 ... 8708.40 ........ 8708.50 ........ 8708.80 ........ 8708.94 ........ Ex 8708.99 ... The following table sets out the parts and components applicable to Table A.2 and their related tariff provisions, to facilitate implementation of the core parts requirement pursuant to Article 3.7 of the Appendix to the Annex 4–B of the Agreement. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 These parts, and components used to produce such parts, are for the production of a passenger vehicle or light truck in order to meet the requirements under Section 14. The prefix ‘‘ex’’ is used to indicate that only the parts described in the components column PO 00000 Frm 00039 Fmt 4701 Sfmt 4700 and used in the production of parts for use as original equipment in a passenger vehicle or light truck are taken into consideration when performing the calculation. E:\FR\FM\01JYR2.SGM 01JYR2 39728 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations TABLE A.2—PARTS AND COMPONENTS FOR DETERMINING THE ORIGIN OF PASSENGER VEHICLES AND LIGHT TRUCKS UNDER SECTIONS 13 OR 14 OR SCHEDULE I (PSRO ANNEX) Column 1 (the parts listed in this column may be referred to collectively as a super-core part) Column 2 Components 6-Digit HS Subheading Parts Engines ........................................... Transmissions ................................. Body and Chassis ........................... Axles ................................................ Suspension Systems ....................... Steering Systems ............................ Advanced Batteries ......................... Spark-ignition reciprocating or rotary internal combustion piston engines and Compression-ignition internal combustion piston engines (diesel or semi-diesel engines). Heads ..................................................................................................... Blocks .................................................................................................... Crankshafts ............................................................................................ Crankcases ............................................................................................ Pistons ................................................................................................... Rods ....................................................................................................... Head subassembly ................................................................................ Gear boxes ............................................................................................ Transmission cases ............................................................................... Torque converters .................................................................................. Torque converter housings .................................................................... Gears and gear blanks .......................................................................... Clutches, including continuously variable transmissions, but not parts thereof. Valve body assembly ............................................................................. Major stampings that form the ‘‘body in white’’ or chassis frame ......... Major body panel stampings ................................................................. Secondary panel stampings .................................................................. Structural panel stampings .................................................................... Stamped Frame components ................................................................ Drive-axles with differential, whether or not provided with other transmission components, and non-driving axles. Axle shafts ............................................................................................. Axle housings ........................................................................................ Axle hubs ............................................................................................... Carriers .................................................................................................. Differentials ............................................................................................ Suspension systems (including shock absorbers) ................................ Shock absorbers .................................................................................... Struts ...................................................................................................... Control arms .......................................................................................... Sway bars .............................................................................................. Knuckles ................................................................................................ Coil springs ............................................................................................ Leaf springs ........................................................................................... Steering wheels, steering columns and steering boxes ........................ Steering columns ................................................................................... Steering gears/racks .............................................................................. Control units ........................................................................................... Batteries of a kind used as the primary source for the propulsion of electrical power for electrically powered vehicles for passenger vehicles and light trucks. Cells ....................................................................................................... Modules/arrays ...................................................................................... Assembled packs ................................................................................... Note: The Regional Value Content requirements set out in section 13 or 14 or Schedule I (PSRO Annex) apply to a good for VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 use as original equipment in the production of a passenger vehicle or light truck. For an aftermarket part, the applicable product-specific rule of origin set out in PO 00000 Frm 00040 Fmt 4701 Sfmt 4700 ex 8407.33, ex 8407.34, ex 8408.20. ex ex ex ex ex ex ex ex ex ex ex ex ex 8409.91, 8409.91, 8483.10. 8409.91, 8409.91. 8409.91, 8409.91, 8708.40. 8708.40. 8708.40, 8708.40, 8708.40, 8708.93. ex 8409.99. ex 8409.99. ex 8409.99. ex 8409.99. ex 8409.99. ex 8483.90. ex 8483.90. ex 8483.90. ex 8481.90, ex 8708.40. ex 8707.10, ex 8707.90, ex 8708.29, ex 8708.99. ex 8708.10, ex 8708.29. ex 8708.29. ex 8708.29, ex 8708.99. ex 8708.29, ex 8708.99. ex 8708.50. ex 8708.50. ex 8708.50. ex 8482.10, ex 8482.20, ex 8708.50, ex 8708.99. ex 8708.50. ex 8708.50. ex 8708.80. ex 8708.80. ex 8708.80. ex 8708.80. ex 8708.80. ex 8708.80. ex 7320.20. ex 7320.10. ex 8708.94. ex 8708.94. ex 8708.94. ex 8537.10, ex 8537.90, ex 8543.70. ex 8507.60, ex 8507.80. ex 8507.60, ex 8507.80, ex 8507.90. ex 8507.60, ex 8507.80, ex 8507.90. ex 8507.60, ex 8507.80. section 13 or 14 or Schedule I (PSRO Annex) is the alternative that includes the phrase ‘‘for any other good.’’ E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations 39729 TABLE B—PRINCIPAL PARTS FOR PASSENGER VEHICLES AND LIGHT TRUCKS HS 2012 8413.30 8413.50 8414.59 8414.80 8415.20 ........ ........ ........ ........ ........ Ex 8479.89 ... 8482.10 ........ 8482.20 ........ 8482.30 ........ 8482.40 ........ 8482.50 ........ 8482.80 ........ 8483.10 ........ 8483.20 ........ 8483.30 ........ 8483.40 ........ 8483.50 8483.60 8501.32 8501.33 8505.20 8505.90 ........ ........ ........ ........ ........ ........ 8511.40 ........ 8511.50 ........ 8511.80 ........ Ex 8511.90 ... 8537.10 ........ 8708.10 ........ 8708.21 ........ Ex 8708.29 ... 8708.30 ........ 8708.70 ........ 8708.91 ........ 8708.92 ........ 8708.93 ........ 8708.95 ........ Ex 8708.99 ... 9401.20 ........ Description Fuel, lubricating or cooling medium pumps for internal combustion piston engines. Other reciprocating positive displacement pumps. Other fans. Other air or gas pumps, compressors and fans. Air conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including those machines in which humidity cannot be separately regulated, of a kind used for persons, in motor vehicles. Electronic brake systems, including ABS and ESC systems. Ball bearings. Tapered roller bearings, including cone and tapered roller assemblies. Spherical roller bearings. Needle roller bearings. Other cylindrical roller bearings. Other ball or roller bearings, including combined ball/roller bearings. Transmission shafts (including cam shafts and crank shafts) and cranks. Bearing housings, incorporating ball or roller bearings. Bearing housings, not incorporating ball or roller bearings; plain shaft bearings. Gears and gearing, other than toothed wheels, chain sprockets and other transmission elements presented separately; ball or roller screws; gear boxes and other speed changers, including torque converters. Flywheels and pulleys, including pulley blocks. Clutches and shaft couplings (including universal joints). Other DC motors and generators of an output exceeding 750 W but not exceeding 75 kW. Other DC motors and generators of an output exceeding 75 kW but not exceeding 375 kW. Electro-magnetic couplings, clutches and brakes. Other electro-magnets; electro-magnetic or permanent magnet chucks, clamps and similar holding devices; electro-magnetic lifting heads; including parts. Starter motors and dual purpose starter-generators of a kind used for spark-ignition or compression-ignition internal combustion engines. Other generators. Other electrical ignition or starting equipment of a kind used for spark-ignition or compression-ignition internal combustion engines. Parts of electrical ignition or starting equipment of a kind used for spark-ignition or compression-ignition internal combustion engines. Electric controls for a voltage not exceeding 1,000 V. Bumpers and parts thereof. Safety seat belts. Other parts and accessories of bodies (including cabs) of motor vehicles (excluding body stampings). Brakes and servo-brakes; parts thereof. Road wheels and parts and accessories thereof. Radiators and parts thereof. Silencers (mufflers) and exhaust pipes; parts thereof. Clutches and parts thereof. Safety airbags with inflator system; parts thereof. Other parts and accessories of motor vehicles of headings 87.01 to 87.05 (excluding chassis frames). Seats of a kind used for motor vehicles. Note: The Regional Value Content requirements set out in sections 13 or 14 or Schedule I (PSRO Annex) apply to a good for use as original equipment in the production of a passenger vehicle or light truck. For an aftermarket part, the applicable productspecific rule of origin set out in section 13 or 14 or Schedule I (PSRO Annex) is the alternative that includes the phrase ‘‘for any other good.’’ TABLE C—COMPLEMENTARY PARTS FOR PASSENGER VEHICLES AND LIGHT TRUCKS HS 2012 Description 4009.12 ........ Tubes, pipes and hoses of vulcanised rubber other than hard rubber, not reinforced or otherwise combined with other materials, with fittings. Tubes, pipes and hoses of vulcanised rubber other than hard rubber, reinforced or otherwise combined only with metal, with fittings. Tubes, pipes and hoses of vulcanised rubber other than hard rubber, reinforced or otherwise combined only with textile materials, with fittings. Tubes, pipes and hoses of vulcanised rubber other than hard rubber, reinforced or otherwise combined with other materials, with fittings. Locks of a kind used for motor vehicles. Catalytic converters. Valves for oleohydraulic or pneumatic transmissions. Check (nonreturn) valves. Other taps, cocks, valves and similar appliances, including pressure-reducing valves and thermostatically controlled valves. Electric motors of an output not exceeding 37.5 W. Universal AC/DC motors of an output exceeding 37.5 W. Other DC motors and generators of an output not exceeding 750 W. 4009.22 ........ 4009.32 ........ 4009.42 ........ 8301.20 ........ Ex 8421.39 ... 8481.20 ........ 8481.30 ........ 8481.80 ........ 8501.10 ........ 8501.20 ........ 8501.31 ........ VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 E:\FR\FM\01JYR2.SGM 01JYR2 39730 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations TABLE C—COMPLEMENTARY PARTS FOR PASSENGER VEHICLES AND LIGHT TRUCKS—Continued HS 2012 Ex 8507.20 ... Ex 8507.30 ... Ex 8507.40 ... Ex 8507.80 ... 8511.30 ........ 8512.20 ........ 8512.40 ........ Ex 8519.81 ... 8536.50 ........ Ex 8536.90 ... 8539.10 ........ 8539.21 ........ 8544.30 ........ 9031.80 ........ 9032.89 ........ Description Other lead-acid batteries of a kind used for the propulsion of motor vehicles of Chapter 87. Nickel-cadmium batteries of a kind used for the propulsion of motor vehicles of Chapter 87. Nickel-iron batteries of a kind used for the propulsion of motor vehicles of Chapter 87. Other batteries of a kind used for the propulsion of motor vehicles of Chapter 87. Distributors; ignition coils. Other lighting or visual signalling equipment. Windshield wipers, defrosters and demisters. Cassette decks. Other electrical switches, for a voltage not exceeding 1,000 V. Junction boxes. Sealed beam lamp units. Tungsten halogen filament lamp. Ignition wiring sets and other wiring sets of a kind used in motor vehicles. Other measuring and checking instruments, appliances & machines. Other automatic regulating or controlling instruments and apparatus. Note: The Regional Value Content requirements set out in sections 13 or 15 or Schedule I (PSRO Annex) apply to a good for use as original equipment in the production of a heavy truck. For an aftermarket part, the applicable product-specific rule of origin set out in section 13 or Schedule I (PSRO Annex) is the alternative that includes the phrase ‘‘for any other good.’’ TABLE D—PRINCIPAL PARTS FOR HEAVY TRUCKS 8407.31 ......... 8407.32 ......... 8407.33 ......... 8407.34 ......... 8408.20 ......... 8409.91 ......... 8409.99 ......... 8413.30 ......... Ex 8414.59 .... 8414.80 ......... 8415.20 ......... 8483.10 ......... 8483.40 ......... 8483.50 ......... Ex 8501.32 .... 8511.40 ......... 8511.50 8537.10 8706.00 8707.90 8708.10 8708.21 8708.29 8708.30 8708.40 8708.50 ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... 8708.70 8708.80 8708.91 8708.92 8708.93 8708.94 8708.95 8708.99 9401.20 ......... ......... ......... ......... ......... ......... ......... ......... ......... VerDate Sep<11>2014 Reciprocating piston engines of a kind used for the propulsion of passenger vehicles of Chapter 87, of a cylinder capacity not exceeding 50 cc. Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 50 cc but not exceeding 250 cc. Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 250 cc but not exceeding 1,000 cc. Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 1,000 cc. Compression-ignition internal combustion piston engines of a kind used for the propulsion of vehicles of Chapter 87. Parts suitable for use solely or principally with the engines of heading 84.07 or 84.08, suitable for use solely or principally with spark-ignition internal combustion piston engines. Parts suitable for use solely or principally with the engines of heading 84.07 or 84.08, other. Fuel, lubricating or cooling medium pumps for internal combustion piston engines. Turbochargers and superchargers. Other air or gas pumps, compressors and fans. Air conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including those machines in which humidity cannot be separately regulated, of a kind used for persons, in motor vehicles. Transmission shafts (including cam shafts and crank shafts) and cranks. Gears and gearing, other than toothed wheels, chain sprockets and other transmission elements presented separately; ball or roller screws; gear boxes and other speed changers, including torque converters. Flywheels and pulleys, including pulley blocks. Other DC motors and generators of an output exceeding 750 W but not exceeding 75 kW, of a kind used for the propulsion of motor vehicles of Chapter 87. Starter motors and dual purpose starter-generators of a kind used for spark-ignition or compression-ignition internal combustion engines. Other generators. Electric controls for a voltage not exceeding 1,000 V. Chassis fitted with engines, for the motor vehicles of heading 87.01 through 87.05. Bodies for the vehicles of heading 87.01, 87.02, 87.04 or 87.05. Bumpers and parts thereof. Safety seat belts. Other parts and accessories of bodies (including cabs) of motor vehicles. Brakes and servo-brakes; parts thereof. Gear boxes and parts thereof. Drive axles with differential, whether or not provided with other transmission components, and non-driving axles; and parts thereof. Road wheels and parts and accessories thereof. Suspension systems and parts thereof (including shock absorbers). Radiators and parts thereof. Silencers (mufflers) and exhaust pipes; parts thereof. Clutches and parts thereof. Steering wheels, steering columns and steering boxes; parts thereof. Safety airbags with inflator system; parts thereof. Other parts and accessories of motor vehicles of headings 87.01 to 87.05. Seats of a kind used for motor vehicles. 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00042 Fmt 4701 Sfmt 4700 E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Note: The Regional Value Content requirements set out in sections 13 or 15 or Schedule I (PSRO Annex) apply to a good for use as original equipment in the production of a heavy truck. For an aftermarket part, the applicable product-specific rule of origin set 39731 out in section 13 or Schedule I (PSRO Annex) is the alternative that includes the phrase ‘‘for any other good.’’ TABLE E—COMPLEMENTARY PARTS FOR HEAVY TRUCKS 8413.50 ......... Ex 8479.89 .... 8482.10 ......... 8482.20 ......... 8482.30 ......... 8482.40 ......... 8482.50 ......... 8483.20 ......... 8483.30 ......... 8483.60 ......... 8505.20 ......... 8505.90 ......... 8507.60 ......... 8511.80 ......... 8511.90 ......... Other reciprocating positive displacement pumps. Electronic brake systems, including ABS and ESC systems. Ball bearings. Tapered roller bearings, including cone and tapered roller assemblies. Spherical roller bearings. Needle roller bearings. Other cylindrical roller bearings. Bearing housings, incorporating ball or roller bearings. Bearing housings, not incorporating ball or roller bearings; plain shaft bearings. Clutches and shaft couplings (including universal joints). Electro-magnetic couplings, clutches and brakes. Other electro-magnets; electro-magnetic or permanent magnet chucks, clamps and similar holding devices; electro-magnetic lifting heads; including parts. Lithium-ion batteries. Other electrical ignition or starting equipment of a kind used for spark-ignition or compression-ignition internal combustion engines. Parts of electrical ignition or starting equipment of a kind used for spark-ignition or compression-ignition internal combustion engines or generators and cut-outs of a kind used in conjunction with such engines. Note: The Regional Value Content requirements set out in section 20 or Schedule I (PSRO Annex) apply to a good for use in a vehicle specified in subsections 20(2) and 20(3). TABLE F—PARTS FOR OTHER VEHICLES HS 2012 Description 40.09 .................................... 4010.31 ................................ Tubes, pipes and hoses. Endless transmission belts (V-belts), V-ribbed, of an outside circumference exceeding 60 cm but not exceeding 180 cm. Endless transmission belts (V-belts), other than V-ribbed, of an outside circumference exceeding 60 cm but not exceeding 180 cm. Endless transmission belts (V-belts), V-ribbed, of an outside circumference exceeding 180 cm but not exceeding 240 cm. Endless transmission belts (V-belts), other than V-ribbed, of an outside circumference exceeding 180 cm but not exceeding 240 cm. Other endless transmission belts (V-belts). New pneumatic tires, of rubber. Gaskets, washers and other seals of vulcanised rubber other than hard rubber. Vibration control goods. Toughened (tempered) safety glass of a size and shape suitable for incorporation in vehicles. Laminated safety glass of a size and shape suitable for incorporation in vehicles. Rearview mirrors for vehicles. Locks of a kind used for motor vehicles. Reciprocating piston engines of a kind used for the propulsion of passenger vehicles of Chapter 87, of a cylinder capacity not exceeding 50 cc. Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 50 cc but not exceeding 250 cc. Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 250 cc but not exceeding 1,000 cc. Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 1,000 cc but not exceeding 2,000 cc. Reciprocating piston engines of a kind used for the propulsion of vehicles of Chapter 87, of a cylinder capacity exceeding 2,000 cc. Compression-ignition internal combustion piston engines of a kind used for the propulsion of vehicles of Chapter 87. Parts suitable for use solely or principally with spark-ignition internal combustion piston engines. Fuel, lubricating or cooling medium pumps for internal combustion piston engines. Other air or gas pumps, compressors and fans (turbochargers and superchargers for motor vehicles, where not provided for under subheading 8414.59). Other fans (turbochargers and superchargers for motor vehicles, where not provided for under subheading 8414.80). Air conditioning machines, comprising a motor-driven fan and elements for changing the temperature and humidity, including those machines in which humidity cannot be separately regulated, of a kind used for persons, in motor vehicles. Catalytic converters. Valves for oleohydraulic or pneumatic transmissions. Check (nonreturn) valves. 4010.32 ................................ 4010.33 ................................ 4010.34 ................................ 4010.39.aa ........................... 40.11 .................................... 4016.93.aa ........................... 4016.99.aa ........................... 7007.11 ................................ 7007.21 ................................ 7009.10 ................................ 8301.20 ................................ 8407.31 ................................ 8407.32 ................................ 8407.33 ................................ 8407.34.aa ........................... 8407.34.bb ........................... 8408.20 ................................ 84.09 .................................... 8413.30 ................................ 8414.80.aa ........................... 8414.59.aa ........................... 8415.20 ................................ 8421.39.aa ........................... 8481.20 ................................ 8481.30 ................................ VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00043 Fmt 4701 Sfmt 4700 E:\FR\FM\01JYR2.SGM 01JYR2 39732 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations TABLE F—PARTS FOR OTHER VEHICLES—Continued HS 2012 Description 8481.80 ................................ Other taps, cocks, valves and similar appliances, including pressure-reducing valves and thermostatically controlled valves. Ball or roller bearings. Transmission shafts (including cam shafts and crank shafts) and cranks. Bearing housings, incorporating ball or roller bearings. Bearing housings; not incorporating ball or roller bearings; plain shaft bearings. Gears and gearing, other than toothed wheels, chain sprockets and other transmission elements presented separately; ball or roller screws; gear boxes and other speed changes, including torque converters. Flywheels and pulleys, including pulley blocks. Electric motors and generators of an output not exceeding 37.5 W. Universal AC/DC motors of an output exceeding 37.5 W. Other DC motors and generators of an output not exceeding 750 W. Other DC motors and generators of an output exceeding 750 W but not exceeding 75 kW of a kind used for the propulsion of vehicles of Chapter 87. Batteries that provide primary source for electric cars. 8482.10 8483.10 8483.20 8483.30 8483.40 through 8482.80 ..... ................................ ................................ ................................ ................................ 8483.50 ................................ 8501.10 ................................ 8501.20 ................................ 8501.31 ................................ 8501.32.aa ........................... 8507.20.aa, 8507.30.aa, 8507.40.aa and 8507.80.aa. 8511.30 ................................ 8511.40 ................................ Distributors; ignition coils. Starter motors and dual purpose starter-generators of a kind used for spark-ignition or compressing-ignition internal combustion engines. Other generators. Other lighting or visual signalling equipment. Windshield wipers, defrosters and demisters. Cassette decks. Radios combined with cassette players. Radios. Other electrical switches, for a voltage not exceeding 1,000 V. Junction boxes. Motor control centers. Sealed beam lamp units. Tungsten halogen filament lamp. Ignition wiring sets and other wiring sets of a kind used in vehicles. Chassis fitted with engines, for the motor vehicles of heading 87.01 through 87.05. Bodies (including cabs) for the motor vehicles of headings 87.01 to 87.05. Bumpers (but not parts thereof). Safety seat belts. Body stampings. Door assemblies. Brakes and servo-brakes; parts thereof. Gear boxes and parts thereof. Drive axles with differential, whether or not provided with other transmission components, and non-driving axles. Road wheels, but not parts or accessories thereof. Suspension systems and parts thereof (including shock absorbers). Radiators and parts thereof. Silencers (mufflers) and exhaust pipes; parts thereof. Clutches (but not parts thereof). Steering wheels, steering columns and steering boxes; parts thereof. Safety airbags with inflator systems, and parts thereof. Vibration control goods containing rubber. Double flanged wheel hub units incorporating ball bearings. Other parts for powertrains. Other parts and accessories not provided for elsewhere in subheading 8708.99. Other measuring and checking instruments, appliances & machines. Other automatic regulating or controlling instruments and apparatus. Seats of a kind used for motor vehicles. 8511.50 ................................ 8512.20 ................................ 8512.40 ................................ ex 8519.81 ........................... 8527.21 ................................ 8527.29 ................................ 8536.50 ................................ 8536.90 ................................ 8537.10.bb ........................... 8539.10 ................................ 8539.21 ................................ 8544.30 ................................ 87.06 .................................... 87.07 .................................... 8708.10.aa ........................... 8708.21 ................................ 8708.29.aa ........................... 8708.29.cc ............................ 8708.30 ................................ 8708.40 ................................ 8708.50 ................................ 8708.70.aa ........................... 8708.80 ................................ 8708.91 ................................ 8708.92 ................................ 8708.93.aa ........................... 8708.94 ................................ 8708.95 ................................ 8708.99.aa ........................... 8708.99.bb ........................... 8708.99.ee ........................... 8708.99.hh ........................... 9031.80 ................................ 9032.89 ................................ 9401.20 ................................ TABLE G—LIST OF COMPONENTS AND MATERIALS FOR OTHER VEHICLES 1. Component: Engines provided for in heading 84.07 or 84.08 Materials: Cast block, cast head, fuel nozzle, fuel injector pumps, glow plugs, turbochargers and superchargers, electronic engine controls, intake manifold, exhaust manifold, intake/exhaust valves, crankshaft/camshaft, alternator, starter, air cleaner assembly, pistons, connecting rods and assemblies made therefrom (or rotor assemblies for rotary engines), flywheel (for manual transmissions), flexplate (for automatic transmissions), oil pan, oil pump and pressure regulator, water pump, crankshaft and camshaft gears, and radiator assemblies or charge-air coolers. 2. Component: Gear boxes (transmissions) provided for in subheading 8708.40 Materials: (a) For manual transmissions—transmission case and clutch housing; clutch; internal shifting mechanism; gear sets, synchronizers and shafts; and (b) for torque convertor type transmissions—transmission case and convertor housing; torque convertor assembly; gear sets and clutches; and electronic transmission controls. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00044 Fmt 4701 Sfmt 4700 E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations The following table lists the HS subheadings for steel and aluminum subject to the USMCA steel and aluminum purchasing requirements set out in Section 17 to facilitate implementation of the steel and aluminum purchasing requirement, pursuant to Article 6.3 of the Appendix to Annex 4–B of the Agreement. The prefix ‘‘ex’’ is used to indicate that only goods described in the ‘‘Description’’ column are taken into consideration when performing the calculation. These descriptions cover structural steel or aluminum purchases by vehicle producers used in the production of passenger vehicles, light trucks, or heavy trucks, including all steel or aluminum purchases used for the 39733 production of major stampings that form the ‘‘body in white’’ or chassis frame as defined in Table A.2 (Parts and Components for Passenger Vehicles and Light Trucks). The descriptions do not cover structural steel or aluminum purchased by parts producers or suppliers used in the production of other automotive parts. TABLE S—STEEL AND ALUMINUM S Description 6-Digit HS subheading(s) Steel ................................................ Flat-rolled products of iron or non-alloy steel, of a width of 600 mm or more, hot-rolled, not clad, plated or coated: Other, in coils, not further worked than hot-rolled, pickled ................... Other, in coils, not further worked than hot-rolled ................................. Other, not in coils, not further worked than hot-rolled .......................... Flat-rolled products of iron or non-alloy steel, of a width of 600 mm or more, cold-rolled (cold-reduced), not clad, plated or coated: In coils, not further worked than cold-rolled (cold-reduced): Not in coils, not further worked than cold-rolled (cold-reduced): Flat-rolled products of iron or non-alloy steel, of a width of 600 mm or more, clad, plated or coated: Electrolytically plated or coated with zinc .......................................... Otherwise plated or coated with zinc, Other (Not Corrugated) ......... Other plated or coated with aluminum ............................................... Other: Clad; Other: Electrolytically coated or plated with base metal, Other. Flat-rolled products of iron or non-alloy steel, of a width of less than 600 mm, not clad, plated or coated: Other, of a thickness of 4.75 mm or more ........................................ Other: ................................................................................................. Not further worked than cold-rolled (cold-reduced), Containing by weight less than 0.25 percent of carbon: Flat-rolled products of iron or non-alloy steel, of a width of less than 600 mm, clad, plated or coated: Electrolytically plated or coated with zinc .......................................... Otherwise plated or coated with zinc ................................................. Bars and rods, hot-rolled, in irregularly wound coils, of iron or nonalloy steel. Other, of free-cutting steel ................................................................. Other: Other ....................................................................................... Other bars and rods of iron or non-alloy steel, not further worked than forged, hot-rolled, hot-drawn or hot-extruded, but including those twisted after rolling Other, of free-cutting steel ................................................................. Of rectangular (other than square) cross-section .............................. Other: Other ....................................................................................... Flat-rolled products of other alloy steel, of a width of 600 mm or more Other, not further worked than hot-rolled, in coils: Other, not further worked than hot-rolled, not in coils: ...................... Other, not further worked than cold-rolled (cold-reduced): Electrolytically plated or coated with zinc .......................................... Other: Otherwise plated or coated with zinc ..................................... Other: Other ....................................................................................... Flat-rolled products of other alloy steel, of a width of less than 600 mm: Other: Not further worked than hot-rolled: Of tool steel (other than high-speed steel):. Not further worked than cold-rolled (cold-reduced): .............................. Other: ................................................................................................. Bars and rods, hot-rolled, in irregularly wound coils, of other alloy steel. Of silico-manganese steel .................................................................. Other .................................................................................................. Other bars and rods of other alloy steel; angles, shapes and sections, of other alloy steel; hollow drill bars and rods, of alloy or nonalloy steel. Bars and rods, of high speed steel .................................................... Bars and rods, of silico-manganese steel ......................................... VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00045 Fmt 4701 Sfmt 4700 E:\FR\FM\01JYR2.SGM 7208.25, 7208.26, 7208.27. 7208.36, 7208.37, 7208.38, 7208.39. 7208.51, 7208.52, 7208.53, 7208.54. 7209.15, 7209.16, 7209.18. 7209.25, 7209.26, 7209.28, 7209.90. 7210.30. 7210.49. 7210.69. 7210.90. 7211.14. 7211.19. 7211.23. 7212.20. 7212.30. 7213.20. 7213.99. 7214.30. 7214.91. 7214.99. 7225.30. 7225.40. 7225.50. 7225.91. 7225.92. 7225.99. 7226.91. 7226.92. 7226.99. 7227.20. 7227.90. 7228.10. 7228.20. 01JYR2 7209.17, 7209.27, 39734 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations TABLE S—STEEL AND ALUMINUM—Continued S Description 6-Digit HS subheading(s) Other bars and rods, not further worked than hot-rolled, hot-drawn or extruded. Other bars and rods ........................................................................... Other tubes, pipes and hollow profiles (for example, open seamed or welded, riveted or similarly closed), of iron or steel:. Other, welded, of circular cross section, of iron or nonalloy steel: ... Other, welded, of circular cross section, of other alloy steel: ........... Other, welded, of noncircular cross section: ......................................... Parts and accessories of the motor vehicles of headings 8701 to 8705:. Major, secondary, and structural body panel stampings, that form the ‘‘body in white’’. Stamped frame components that form the chassis frame ................ 7228.30. ............................................................................................................. HS heading or subheading Unwrought aluminum ............................................................................. Aluminum waste and scrap ................................................................... Aluminum bars, rods and profiles .......................................................... Aluminum wire ....................................................................................... Aluminum plates, sheets and strip, of a thickness exceeding 0.2 mm: Aluminum tubes and pipes .................................................................... Parts and accessories of the motor vehicles of headings 8701 to 8705:. Major, secondary, and structural body panel stampings, that form the ‘‘body in white’’. Stamped frame components that form the chassis frame ................ 76.01. 76.02. 76.04. 76.05. 76.06. 76.08. 7228.60 7306.30. 7306.50. 7306.61, 7306.69, ≤7306.90. ex 8708.29. ex 8708.99. Aluminum. Schedule I (PSRO Annex) 1. This schedule is deemed to be the contents of Sections A, B and C of Annex 4– B of the Agreement, as implemented in General Note 11 of the Harmonized Tariff Schedule of the United States,3 except that the following rules of interpretation apply: (a) For the purpose of Chapter 61, Note 2 or Chapter 62, Note 3 of Annex 4–B, a fabric of subheading 5806.20 or heading 60.02 is considered formed from yarn and finished in the territory of one or more Parties if all production processes and finishing operations, starting with the weaving, knitting, needling, tufting, or other process, and ending with the fabric ready for cutting or assembly without further processing, took place in the territories of one or more of the USMCA countries, even if non-originating yarn is used in the production of the fabric of subheading 5806.20 or heading 60.02; (b) for the purposes of Chapter 61, Note 3 and Chapter 62, Note 4 of Annex 4–B, sewing thread is considered formed and finished in the territory of one or more Parties if all production processes and finishing 3 The language ‘‘in General Note 11 of the Harmonized Tariff Scheduled of the United States’’ differs from the trilaterally agreed upon uniform regulations because the Parties contemplated that the language ‘‘by each USMCA country’’ would be replaced with the specific Party’s reference to the location of the rules of origin under domestic law. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 operations, starting with the extrusion of filaments, strips, film or sheet, and including slitting a film or sheet into strip, or the spinning of all fibers into yarn, or both, and ending with the finished single or plied thread ready for use for sewing without further processing, took place in the territories of one or more of the USMCA countries even if non-originating fibre is used in the production of sewing thread of heading 52.04, 54.01 or 55.08, or yarn of heading 54.02 used as sewing thread referred to in the Notes; (c) for the purpose of Chapter 61, Note 4 or Chapter 62, Note 5 of Annex 4–B, pocket bag fabric is considered formed and finished in the territory of one or more of the Parties if all production processes and finishing operations, starting with the weaving, knitting, needling, tufting, felting, entangling, or other process, and ending with the fabric ready for cutting or assembly without further processing, took place in the territories of one or more of the USMCA countries, even if non-originating fiber is used in the production of the yarn used to produce the pocket bag fabric; (d) for the purpose of Chapter 61, Note 4 or Chapter 62, Note 5 of Annex 4–B, pocket bag fabric is considered a pocket or pockets if the pockets in which fabric is shaped to form a bag is not visible as the pocket is in the interior of the garment (i.e. pockets PO 00000 Frm 00046 Fmt 4701 Sfmt 4700 ex 8708.29. ex 8708.99. consisting of ‘‘bags’’ in the interior of the garment). Visible pockets such as patch pockets, cargo pockets, or typical shirt pockets are not subject to these notes; (e) for the purpose of Chapter 61, Note 4 or Chapter 62, Note 5 of Annex 4–B, yarn is considered wholly formed in the territory of one or more Parties if all the production processes and finishing operations, starting with the extrusion of filaments, strips, film, or sheet, and including slitting a film or sheet into strip, or the spinning of all fibers into yarn, or both, and ending with a finished single or plied yarn, took place in the territory of one or more of the USMCA countries, even if non-originating fiber is used in the production of the yarn used to produce the pocket bag fabric; and, (f) for the purpose of Chapter 63, Note 2 of Annex 4–B, a fabric of heading 59.03 is considered formed and finished in the territory of one or more Parties if all production processes and finishing operations, starting with the weaving, knitting, needling, tufting, felting, entangling, or other process, including coating, covering, laminating, or impregnating, and ending with the fabric ready for cutting or assembly without further processing, took place in the territories of one or more of the USMCA countries, even if non-originating fiber or yarn is used in the production of the fabric of heading 5903; E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations 39735 Schedule II (Most-Favored-Nation Rates of Duty on Certain Goods set out in Table 2.10.1 of the Agreement) A. Automatic Data Processing Machines (ADP): 8471.30. 8471.41. 8471.49. B. Digital Processing Units: 8471.50. C. Input or Output Units: Combined Input/Output Units. Canada ...................... 8471.60.00. Mexico ...................... 8471.60.02. United States ............ 8471.60.10. Display Units. Canada ...................... 8528.42.00, 8528.52.00, 8528.62.00. Mexico ...................... 8528.41.99, 8528.51.01, 8528.51.99, 8528.61.01. United States ............ 8528.42.00, 8528.52.00, 8528.62.00. Other Input or Output Units. Canada ...................... 8471.60.00. Mexico ...................... 8471.60.03, 8471.60.99 United States ............ 8471.60.20, 8471.60.70, 8471.60.80, 8471.60.90. D. Storage Units: 8471.70. E. Other Units of Automatic Data Processing Machines: 8471.80. F. Parts of Computers: 8443.99 ............................................................. Canada .............................. 8473.30 ............................................................. 8517.70 ............................................................. 8529.90.19, 8529.90.50, 8529.90.90 ................ Mexico .............................. 8529.90.01, 8529.90.06 .................................... United States ................... 8529.90.22, 8529.90.75, 8529.90.99 ................ G. Computer Power Supplies: Canada .............................. Mexico .............................. United States ................... 8504.40.30, 8504.40.90, 8504.90.10, 8504.90.20, 8504.90.90. 8504.40.12, 8504.40.14, 8504.90.02, 8504.90.07, 8504.90.08. 8504.40.60, 8504.40.70, 8504.90.20, 8504.90.41. Schedule III (Value of Goods) 1 Unless otherwise stated, the following definitions apply in this Schedule. buyer refers to a person who purchases a good from the producer; buying commissions means fees paid by a buyer to that buyer’s agent for the agent’s services in representing the buyer in the purchase of a good; producer refers to the producer of the good being valued. 2 For purposes of subsection 7(2) of these Regulations, the transaction value of a good is the price actually paid or payable for the good, determined in accordance with section 3 and adjusted in accordance with section 4. 3 (1) The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the producer. The payment need not necessarily take the form of a transfer of money. It may be made by letters of credit or negotiable instruments. The payment may be made directly or indirectly to the producer. For an illustration of this, the settlement by the buyer, whether VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 parts of machines of subheading 8443.31 and 8443.32, excluding facsimile machines and teleprinters. parts of ADP machines and units thereof. parts of LAN equipment of subheading 8517.62. parts of monitors and projectors of subheading 8528.42, 8528.52, and 8528.62. parts of monitors or projectors of subheadings 8528.41, 8528.51, and 8528.61. parts of monitors and projectors of subheading 8528.42, 8528.52, and 8528.62. parts of goods classified in tariff item 8504.40.12. in whole or in part, of a debt owed by the producer is an indirect payment. (2) Activities undertaken by the buyer on the buyer’s own account, other than those for which an adjustment is provided in section 4, must not be considered to be an indirect payment, even though the activities may be regarded as being for the benefit of the producer. For an illustration of this, the buyer, by agreement with the producer, undertakes activities relating to the marketing of the good. The costs of such activities must not be added to the price actually paid or payable. (3) The transaction value must not include the following charges or costs, provided that they are distinguished from the price actually paid or payable: (a) Charges for construction, erection, assembly, maintenance or technical assistance related to the good undertaken after the good is sold to the buyer; or (b) duties and taxes paid in the country in which the buyer is located with respect to the good. PO 00000 Frm 00047 Fmt 4701 Sfmt 4700 (4) The flow of dividends or other payments from the buyer to the producer that do not relate to the purchase of the good are not part of the transaction value. 4 (1) In determining the transaction value of a good, the following must be added to the price actually paid or payable: (a) To the extent that they are incurred by the buyer, or by a related person on behalf of the buyer, with respect to the good being valued and are not included in the price actually paid or payable (i) commissions and brokerage fees, except buying commissions, (ii) the costs of transporting the good to the producer’s point of direct shipment and the costs of loading, unloading, handling and insurance that are associated with that transportation, and (iii) where the packaging materials and containers are classified with the good under the Harmonized System, the value of the packaging materials and containers; (b) the value, reasonably allocated in accordance with subsection (13), of the E:\FR\FM\01JYR2.SGM 01JYR2 39736 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations following elements if they are supplied directly or indirectly to the producer by the buyer, free of charge or at reduced cost for use in connection with the production and sale of the good, to the extent that the value is not included in the price actually paid or payable: (i) A material, other than an indirect material, used in the production of the good, (ii) tools, dies, molds and similar indirect materials used in the production of the good, (iii) an indirect material, other than those referred to in subparagraph (ii) or in paragraphs (c), (e) or (f) of the definition indirect material set out in subsection 1(1) of these Regulations, used in the production of the good, and (iv) engineering, development, artwork, design work, and plans and sketches necessary for the production of the good, regardless of where performed; (c) the royalties related to the good, other than charges with respect to the right to reproduce the good in the territory of one or more of the USMCA countries, that the buyer must pay directly or indirectly as a condition of sale of the good, to the extent that such royalties are not included in the price actually paid or payable; and (d) the value of any part of the proceeds of any subsequent resale, disposal or use of the good that accrues directly or indirectly to the producer. (2) The additions referred to in subsection (1) must be made to the price actually paid or payable under this section only on the basis of objective and quantifiable data. (3) If objective and quantifiable data do not exist with regard to the additions required to be made to the price actually paid or payable under subsection (1), the transaction value cannot be determined under section 2. (4) Additions must not be made to the price actually paid or payable for the purpose of determining the transaction value except as provided in this section. (5) The amounts to be added under subparagraphs (1)(a)(i) and (ii) are: (a) Those amounts that are recorded on the books of the buyer; or (b) if those amounts are costs incurred by a related person on behalf of the buyer and are not recorded on the books of the buyer, those amounts that are recorded on the books of that related person. (6) The value of the packaging materials and containers referred to in subparagraph (1)(a)(iii) and the value of the elements referred to in subparagraph (1)(b)(i) are (a) if the packaging materials and containers or the elements are imported from outside the territory of the USMCA country in which the producer is located, the customs value of the packaging materials and containers or the elements, (b) if the buyer, or a related person on behalf of the buyer, purchases the packaging materials and containers or the elements from a person who is not a related person in the territory of the USMCA country in which the producer is located, the price actually paid or payable for the packaging materials and containers or the elements, (c) if the buyer, or a related person on behalf of the buyer, acquires the packaging materials and containers or the elements VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 from a person who is not a related person in the territory of the USMCA country in which the producer is located other than through a purchase, the value of the consideration related to the acquisition of the packaging materials and containers or the elements, based on the cost of the consideration that is recorded on the books of the buyer or the related person, or (d) if the packaging materials and containers or the elements are produced by the buyer, or by a related person, in the territory of the USMCA country in which the producer is located, the total cost of the packaging materials and containers or the elements, determined in accordance with subsection (8), (7) The value referred to in subsection (6), to the extent that such costs are not included under paragraphs 6(a) through (d), must include the following costs that are recorded on the books of the buyer or the related person supplying the packaging materials and containers or the elements on behalf of the buyer: (a) The costs of freight, insurance, packing, and all other costs incurred in transporting the packaging materials and containers or the elements to the location of the producer, (b) duties and taxes paid or payable with respect to the packaging materials and containers or the elements, other than duties and taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable, (c) customs brokerage fees, including the cost of in-house customs brokerage services, incurred with respect to the packaging materials and containers or the elements, and (d) the cost of waste and spoilage resulting from the use of the packaging materials and containers or the elements in the production of the good, less the value of renewable scrap or by-product. (8) For purposes of paragraph (6)(d), the total cost of the packaging materials and containers referred to in subparagraph (1)(a)(iii) or the elements referred to in subparagraph (1)(b)(i) are (a) if the packaging materials and containers or the elements are produced by the buyer, at the choice of the buyer: (i) The total cost incurred with respect to all goods produced by the buyer, calculated on the basis of the costs that are recorded on the books of the buyer, that can be reasonably allocated to the packaging materials and containers or the elements in accordance with Schedule V, or (ii) the aggregate of each cost incurred by the buyer that forms part of the total cost incurred with respect to the packaging materials and containers or the elements, calculated on the basis of the costs that are recorded on the books of the buyer, that can be reasonably allocated to the packaging materials and containers or the elements in accordance with Schedule V; and (b) if the packaging materials and containers or the elements are produced by a person who is related to the buyer, at the choice of the buyer: (i) The total cost incurred with respect to all goods produced by that related person, calculated on the basis of the costs that are PO 00000 Frm 00048 Fmt 4701 Sfmt 4700 recorded on the books of that person, that can be reasonably allocated to the packaging materials and containers or the elements in accordance with Schedule V, or (ii) the aggregate of each cost incurred by that related person that forms part of the total cost incurred with respect to the packaging materials and containers or the elements, calculated on the basis of the costs that are recorded on the books of that person, that can be reasonably allocated to the packaging materials and containers or the elements in accordance with Schedule V. (9) Except as provided in subsections (11) and (12), the value of the elements referred to in subparagraphs (1)(b)(ii) through (iv) are (a) the cost of those elements that is recorded on the books of the buyer; or (b) if such elements are provided by another person on behalf of the buyer and the cost is not recorded on the books of the buyer, the cost of those elements that is recorded on the books of that other person. (10) If the elements referred to in subparagraphs (1)(b)(ii) through (iv) were previously used by or on behalf of the buyer, the value of the elements must be adjusted downward to reflect that use. (11) Where the elements referred to in subparagraphs (1)(b)(ii) and (iii) were leased by the buyer or a person related to the buyer, the value of the elements are the cost of the lease as recorded on the books of the buyer or that related person. (12) An addition must not be made to the price actually paid or payable for the elements referred to in subparagraph (1)(b)(iv) that are available in the public domain, other than the cost of obtaining copies of them. (13) The producer must choose the method of allocating to the good the value of the elements referred to in subparagraphs (1)(b)(ii) through (iv), provided that the value is reasonably allocated to the good. The methods the producer may choose to allocate the value include allocating the value over the number of units produced up to the time of the first shipment or allocating the value over the entire anticipated production where contracts or firm commitments exist for that production. For an illustration of this, a buyer provides the producer with a mold to be used in the production of the good and contracts with the producer to buy 10,000 units of that good. By the time the first shipment of 1,000 units arrives, the producer has already produced 4,000 units. In these circumstances, the producer may choose to allocate the value of the mold over 4,000 units or 10,000 units but must not choose to allocate the value of the elements to the first shipment of 1,000 units. The producer may choose to allocate the entire value of the elements to a single shipment of a good only if that single shipment comprises all of the units of the good acquired by the buyer under the contract or commitment for that number of units of the good between the producer and the buyer. (14) The addition for the royalties referred to in paragraph (1)(c) is the payment for the royalties that is recorded on the books of the buyer, or if the payment for the royalties is recorded on the books of another person, the payment for the royalties that is recorded on the books of that other person. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations (15) The value of the proceeds referred to in paragraph (1)(d) is the amount that is recorded for such proceeds on the books of the buyer or the producer. Schedule IV Unacceptable Transaction Value 1 Unless otherwise stated, the following definitions apply in this Schedule. buyer refers to a person who purchases a good from the producer; producer refers to the producer of the good being valued. 2 (1) There is no transaction value for a good if the good is not the subject of a sale. (2) The transaction value of a good is unacceptable if: (a) There are restrictions on the disposition or use of the good by the buyer, other than restrictions that (i) are imposed or required by law or by the public authorities in the territory of the USMCA country in which the buyer is located, (ii) limit the geographical area in which the good may be resold, or (iii) do not substantially affect the value of the good; (b) the sale or price actually paid or payable is subject to a condition or consideration for which a value cannot be determined with respect to the good; (c) part of the proceeds of any subsequent resale, disposal or use of the good by the buyer will accrue directly or indirectly to the producer, and an appropriate addition to the price actually paid or payable cannot be made in accordance with paragraph 4(1)(d) of Schedule III; or (d) the producer and the buyer are related persons and the relationship between them influenced the price actually paid or payable for the good. (3) The cases or considerations referred to in paragraph (2)(b) include the following: (a) The producer establishes the price actually paid or payable for the good on condition that the buyer will also buy other goods in specified quantities; (b) the price actually paid or payable for the good is dependent on the price or prices at which the buyer sells other goods to the producer of the good; and (c) the price actually paid or payable is established on the basis of a form of payment extraneous to the good, such as where the good is a semi-finished good that is provided by the producer to the buyer on condition that the producer will receive a specified quantity of the finished good from the buyer. (4) For purposes of paragraph (2)(b), conditions or considerations relating to the production or marketing of the good must not render the transaction value unacceptable, such as if the buyer undertakes on the buyer’s own account, even though by agreement with the producer, activities relating to the marketing of the good. (5) If objective and quantifiable data do not exist with regard to the additions required to be made to the price actually paid or payable under subsection 4(1) of Schedule III, the transaction value cannot be determined under the provisions of section 2 of that Schedule. For an illustration of this, a royalty is paid on the basis of the price actually paid VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 or payable in a sale of a litre of a particular good that was purchased by the kilogram and made up into a solution. If the royalty is based partially on the purchased good and partially on other factors that have nothing to do with that good, such as when the purchased good is mixed with other ingredients and is no longer separately identifiable, or when the royalty cannot be distinguished from special financial arrangements between the producer and the buyer, it would be inappropriate to add the royalty and the transaction value of the good could not be determined. However, if the amount of the royalty is based only on the purchased good and can be readily quantified, an addition to the price actually paid or payable can be made and the transaction value can be determined. Schedule V (Reasonable Allocation of Costs) Definitions and Interpretation 1 of the following definitions apply in this Schedule, costs means any costs that are included in total cost and that can or need to be allocated in a reasonable manner under to subsections 5(11), 7(11) and 8(8) of these Regulations, subsection 4(8) of Schedule III and subsections 4(8) and 9(3) of Schedule VI; discontinued operation, in the case of a producer located in a USMCA country, has the meaning set out in that USMCA country’s Generally Accepted Accounting Principles; indirect overhead means period costs and other costs; internal management purpose means any purpose relating to tax reporting, financial reporting, financial planning, decisionmaking, pricing, cost recovery, cost control management or performance measurement; overhead means costs, other than direct material costs and direct labor costs. 2 (1) In this Schedule, reference to ‘‘producer’’, for purposes of subsection 4(8) of Schedule III, is to be read as a reference to ‘‘buyer’’. (2) In this Schedule, a reference to ‘‘good’’, (a) for purposes of subsection 7(15) of these Regulations, is to be read as a reference to ‘‘identical goods or similar goods, or any combination thereof’’; (b) for purposes of subsection 8(8) of these Regulations, is to be read as a reference to ‘‘intermediate material’’; (c) for purposes of section 16 of these Regulations, is to be read as a reference to ‘‘category of vehicles that is chosen pursuant to subsection 16(1) of these Regulations’’; (d) for purposes of subsection 4(8) of Schedule III, be read as a reference to ‘‘packaging materials and containers or the elements’’; and (e) for purposes of subsection 4(8) of Schedule VI, be read as a reference to ‘‘elements’’. Methods to Reasonably Allocate Costs 3 (1) If a producer of a good is using, for an internal management purpose, a cost allocation method to allocate to the good direct material costs, or part thereof, and that method reasonably reflects the direct material used in the production of the good based on the criterion of benefit, cause or ability to bear, that method must be used to reasonably allocate the costs to the good. PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 39737 (2) If a producer of a good is using, for an internal management purpose, a cost allocation method to allocate to the good direct labor costs, or part thereof, and that method reasonably reflects the direct labor used in the production of the good based on the criterion of benefit, cause or ability to bear, that method must be used to reasonably allocate the costs to the good. (3) If a producer of a good is using, for an internal management purpose, a cost allocation method to allocate to the good overhead, or part thereof, and that method is based on the criterion of benefit, cause or ability to bear, that method must be used to reasonably allocate the costs to the good. 4 If costs are not reasonably allocated to a good under section 3, those costs are reasonably allocated to the good if they are allocated: (a) With respect to direct material costs, on the basis of any method that reasonably reflects the direct material used in the production of the good based on the criterion of benefit, cause or ability to bear; (b) with respect to direct labor costs, on the basis of any method that reasonably reflects the direct labor used in the production of the good based on the criterion of benefit, cause or ability to bear; and (c) with respect to overhead, on the basis of any of the following methods: (i) The method set out in Appendix A, B or C, (ii) a method based on a combination of the methods set out in Appendices A and B or Appendices A and C, and (iii) a cost allocation method based on the criterion of benefit, cause or ability to bear. 5 Notwithstanding sections 3 and 8, if a producer allocates, for an internal management purpose, costs to a good that is not produced in the period in which the costs are expensed on the books of the producer (such as costs with respect to research and development, and obsolete materials), those costs must be considered reasonably allocated if: (a) For purposes of subsection 7(11) of these Regulations, they are allocated to a good that is produced in the period in which the costs are expensed, and (b) the good produced in that period is within a group or range of goods, including identical goods or similar goods, that is produced by the same industry or industry sector as the goods to which the costs are expensed. 6 Any cost allocation method referred to in section 3, 4 or 5 that is used by a producer for the purposes of these Regulations must be used throughout the producer’s fiscal year. Costs Not Reasonably Allocated 7 The allocation to a good of any of the following is considered not to be reasonably allocated to the good: (a) Costs of a service provided by a producer of a good to another person where the service is not related to the good; (b) gains or losses resulting from the disposition of a discontinued operation, except gains or losses related to the production of the good; (c) cumulative effects of accounting changes reported in accordance with a E:\FR\FM\01JYR2.SGM 01JYR2 39738 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations specific requirement of the applicable Generally Accepted Accounting Principles; and (d) gains or losses resulting from the sale of a capital asset of the producer. 8 Any costs allocated under section 3 on the basis of a cost allocation method that is used for an internal management purpose that is solely for the purpose of qualifying a good as an originating good are considered not to be reasonably allocated. Appendix A—Cost Ratio Method Calculation of Cost Ratio For the overhead to be allocated, the producer may choose one or more allocation bases that reflect a relationship between the overhead and the good based on the criterion of benefit, cause or ability to bear. With respect to each allocation base that is chosen by the producer for allocating overhead, a cost ratio is calculated for each good produced by the producer as determined by the formula: CR = AB ÷ TAB where CR is the cost ratio with respect to the good; AB is the allocation base for the good; and TAB is the total allocation base for all the goods produced by the producer. Allocation to a Good of Costs Included in Overhead The costs with respect to which an allocation base is chosen are allocated to a good in accordance with the following formula: CAG = CA × CR where CAG is the costs allocated to the good; CA is the costs to be allocated; and CR is the cost ratio with respect to the good. Excluded Costs Under paragraph 7(11)(b) of these Regulations, where excluded costs are included in costs to be allocated to a good, the cost ratio used to allocate that cost to the good is used to determine the amount of excluded costs to be subtracted from the costs allocated to the good. Allocation Bases for Costs The following is a non-exhaustive list of allocation bases that may be used by the producer to calculate cost ratios: • Direct labor hours • Direct labor costs • Units produced • Machine-hours • Sales dollars or pesos • Floor space ‘‘Examples’’ The following examples illustrate the application of the cost ratio method to costs included in overhead. Example 1: Direct Labor Hours A producer who produces Good A and Good B may allocate overhead on the basis of direct labor hours spent to produce Good A and Good B. A total of 8,000 direct labor hours have been spent to produce Good A and Good B: 5,000 hours with respect to VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 Good A and 3,000 hours with respect to Good B. The amount of overhead to be allocated is $6,000,000. Calculation of the ratios: Good A: 5,000 hours/8,000 hours = .625 Good B: 3,000 hours/8,000 hours = .375 Allocation of overhead to Good A and Good B: Good A: $6,000,000 × .625 = $3,750,000 Good B: $6,000,000 × .375 = $2,250,000 Example 2: Direct Labor Costs A producer who produces Good A and Good B may allocate overhead on the basis of direct labour costs incurred in the production of Good A and Good B. The total direct labor costs incurred in the production of Good A and Good B is $60,000: $50,000 with respect to Good A and $10,000 with respect to Good B. The amount of overhead to be allocated is $6,000,000. Calculation of the ratios: Good A: $50,000/$60,000 = .833 Good B: $10,000/$60,000 = .167 Allocation of Overhead to Good A and Good B: Good A: $6,000,000 × .833 = $4,998,000 Good B: $6,000,000 × .167 = $1,002,000 Example 3: Units Produced A producer of Good A and Good B may allocate overhead on the basis of units produced. The total units of Good A and Good B produced is 150,000: 100,000 units of Good A and 50,000 units of Good B. The amount of overhead to be allocated is $6,000,000. Calculation of the ratios: Good A: 100,000 units/150,000 units = .667 Good B: 50,000 units/150,000 units = .333 Allocation of Overhead to Good A and Good B: Good A: $6,000,000 × .667 = $4,002,000 Good B: $6,000,000 × .333 = $1,998,000 Example 4: Machine-Hours A producer who produces Good A and Good B may allocate machine-related overhead on the basis of machine-hours utilized in the production of Good A and Good B. The total machine-hours utilized for the production of Good A and Good B is 3,000 hours: 1,200 hours with respect to Good A and 1,800 hours with respect to Good B. The amount of machine-related overhead to be allocated is $6,000,000. Calculation of the ratios: Good A: 1,200 machine-hours/3,000 machine-hours = .40 Good B: 1,800 machine-hours/3,000 machine-hours = .60 Allocation of machine-related overhead to Good A and Good B: Good A: $6,000,000 × .40 = $2,400,000 Good B: $6,000,000 × .60 = $3,600,000 Example 5: Sales Dollars or Pesos A producer who produces Good A and Good B may allocate overhead on the basis of sales dollars. The producer sold 2,000 units of Good A at $4,000 and 200 units of Good B at $3,000. The amount of overhead to be allocated is $6,000,000. Total sales dollars for Good A and Good B: PO 00000 Frm 00050 Fmt 4701 Sfmt 4700 Good A: $4,000 × 2,000 units = $8,000,000 Good B: $3,000 × 200 units = $600,000 Total sales dollars: $8,000,000 + $600,000 = $8,600,000 Calculation of the ratios: Good A: $8,000,000/$8,600,000 = .93 Good B: $600,000/$8,600,000 = .07 Allocation of Overhead to Good A and Good B: Good A: $6,000,000 × .93 = $5,580,000 Good B: $6,000,000 × .07 = $420,000 Example 6: Floor Space A producer who produces Good A and Good B may allocate overhead relating to utilities (heat, water and electricity) on the basis of floor space used in the production and storage of Good A and Good B. The total floor space used in the production and storage of Good A and Good B is 100,000 square feet: 40,000 square feet with respect to Good A and 60,000 square feet with respect to Good B. The amount of overhead to be allocated is $6,000,000. Calculation of the Ratios: Good A: 40,000 square feet/100,000 square feet = .40 Good B: 60,000 square feet/100,000 square feet = .60 Allocation of overhead (utilities) to Good A and Good B: Good A: $6,000,000 × .40 = $2,400,000 Good B: $6,000,000 × .60 = $3,600,000 Appendix B—Direct Labor and Direct Material Ratio Method Calculation of Direct Labor and Direct Material Ratio For each good produced by the producer, a direct labor and direct material ratio is calculated by the formula: DLDMR = (DLC + DMC) ÷ (TDLC + TDMC) where DLDMR is the direct labor and direct material ratio for the good; DLC is the direct labor costs of the good; DMC is the direct material costs of the good; TDLC is the total direct labor costs of all goods produced by the producer; and TDMC is the total direct material costs of all goods produced by the producer. Allocation of Overhead to a Good Overhead is allocated to a good by the formula: OAG = O × DLDMR where OAG is the overhead allocated to the good; O is the overhead to be allocated; and DLDMR is the direct labor and direct material ratio for the good. Excluded Costs Under paragraph 7(11)(b) of these Regulations, if excluded costs are included in overhead to be allocated to a good, the direct labor and direct material ratio used to allocate overhead to the good is used to determine the amount of excluded costs to be subtracted from the overhead allocated to the good. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations ‘‘Examples’’ material ratio method used by a producer of a good to allocate overhead where the producer chooses to calculate the net cost of the good in accordance with paragraph 7(11)(a) of these Regulations. A producer Example 1 The following example illustrates the application of the direct labor and direct 39739 produces Good A and Good B. Overhead (O) minus excluded costs (EC) is $30 and the other relevant costs are set out in the following table: Good A ($) Good B ($) Total ($) Direct labor costs (DLC) .............................................................................................................. Direct material costs (DMC) ........................................................................................................ 5 10 5 5 10 15 Totals .................................................................................................................................... 15 10 25 Overhead Allocated to Good A Appendix C—Direct Cost Ratio Method OAG (Good A) = O ($30) × DLDMR ($15/$25) OAG (Good A) = $18.00 Direct Overhead Overhead Allocated to Good B OAG (Good B) = O ($30) × DLDMR ($10/$25) OAG (Good B) = $12.00 Example 2 The following example illustrates the application of the direct labor and direct material ratio method used by a producer of a good to allocate overhead where the producer chooses to calculate the net cost of the good in accordance with paragraph 7(11)(b) of these Regulations and where excluded costs are included in overhead. A producer produces Good A and Good B. Overhead (O) is $50 (including excluded costs (EC) of $20). The other relevant costs are set out in the table to Example 1. Overhead Allocated to Good A OAG (Good A) = [O ($50) × DLDMR ($15/ $25)]¥[EC ($20) × DLDMR ($15/$25)] OAG (Good A) = $18.00 Overhead Allocated to Good B OAG (Good B) = [O ($50) × DLDMR ($10/ $25)]¥[EC ($20) × DLDMR ($10/$25)] OAG (Good B) = $12.00 Direct overhead is allocated to a good on the basis of a method based on the criterion of benefit, cause or ability to bear. Indirect Overhead Indirect overhead is allocated on the basis of a direct cost ratio. Calculation of Direct Cost Ratio For each good produced by the producer, a direct cost ratio is calculated by the formula: DCR = (DLC + DMC + DO) ÷ (TDLC + TDMC + TDO) where DCR is the direct cost ratio for the good; DLC is the direct labor costs of the good; DMC is the direct material costs of the good; DO is the direct overhead of the good; TDLC is the total direct labor costs of all goods produced by the producer; TDMC is the total direct material costs of all goods produced by the producer; and TDO is the total direct overhead of all goods produced by the producer. Allocation of Indirect Overhead to a Good Indirect overhead is allocated to a good by the formula: IOAG = IO × DCR where IOAG is the indirect overhead allocated to the good; IO is the indirect overhead of all goods produced by the producer; and DCR is the direct cost ratio of the good. Excluded Costs Under paragraph 7(11)(b) of these Regulations, if excluded costs are included in (a) direct overhead to be allocated to a good, those excluded costs are subtracted from the direct overhead allocated to the good; and (b) indirect overhead to be allocated to a good, the direct cost ratio used to allocate indirect overhead to the good is used to determine the amount of excluded costs to be subtracted from the indirect overhead allocated to the good. ‘‘Examples’’ Example 1 The following example illustrates the application of the direct cost ratio method used by a producer of a good to allocate indirect overhead where the producer chooses to calculate the net cost of the good in accordance with paragraph 7(11)(a) of these Regulations. A producer produces Good A and Good B. Indirect overhead (IO) minus excluded costs (EC) is $30. The other relevant costs are set out in the following table: Good A ($) Good B ($) Total ($) Direct labor costs (DLC) .............................................................................................................. Direct material costs (DMC) ........................................................................................................ Direct overhead (DO) .................................................................................................................. 5 10 8 5 5 2 10 15 10 Totals ........................................................................................................................................... 23 12 35 Indirect Overhead Allocated to Good A IOAG (Good A) = IO ($30) × DCR ($23/$35) IOAG (Good A) = $19.71 Indirect Overhead Allocated to Good B IOAG (Good B) = IO ($30) × DCR ($12/$35) IOAG (Good B) = $10.29 Example 2 The following example illustrates the application of the direct cost ratio method used by a producer of a good to allocate indirect overhead if the producer has chosen to calculate the net cost of the good in accordance with paragraph 7(11)(b) of these VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 Regulations and where excluded costs are included in indirect overhead. A producer produces Good A and Good B. The indirect overhead (IO) is $50 (including excluded costs (EC) of $20). The other relevant costs are set out in the table to Example 1. Indirect Overhead Allocated to Good A IOAG (Good A) = [IO ($50) × DCR ($23/ $35)]¥[EC ($20) × DCR ($23/$35)] IOAG (Good A) = $19.72 PO 00000 Frm 00051 Fmt 4701 Sfmt 4700 Indirect Overhead Allocated to Good B IOAG (Good B) = [IO ($50) × DCR ($12/ $35)]¥[EC ($20) × DCR ($12/$35)] IOAG (Good B) = $10.28 Schedule VI Value of Materials 1 (1) Unless otherwise stated, the following definitions apply in this Schedule. buying commissions means fees paid by a producer to that producer’s agent for the agent’s services in representing the producer in the purchase of a material; materials of the same class or kind means, with respect to materials being valued, E:\FR\FM\01JYR2.SGM 01JYR2 39740 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations materials that are within a group or range of materials that (a) is produced by a particular industry or industry sector, and (b) includes identical materials or similar materials; producer refers to the producer who used the material in the production of a good that is subject to a regional value-content requirement; seller refers to a person who sells the material being valued to the producer. 2 (1) Except as provided under subsection (2), the transaction value of a material under paragraph 8(1)(b) of these Regulations is the price actually paid or payable for the material determined in accordance with section 3 and adjusted in accordance with section 4. (2) There is no transaction value for a material if the material is not the subject of a sale. (3) The transaction value of a material is unacceptable if: (a) there are restrictions on the disposition or use of the material by the producer, other than restrictions that (i) are imposed or required by law or by the public authorities in the territory of the USMCA country in which the producer of the good or the seller of the material is located, (ii) limit the geographical area in which the material may be used, or (iii) do not substantially affect the value of the material; (b) the sale or price actually paid or payable is subject to a condition or consideration for which a value cannot be determined with respect to the material; (c) part of the proceeds of any subsequent disposal or use of the material by the producer will accrue directly or indirectly to the seller, and an appropriate addition to the price actually paid or payable cannot be made in accordance with paragraph 4(1)(d); or (d) the producer and the seller are related persons and the relationship between them influenced the price actually paid or payable for the material. (4) The cases or considerations referred to in paragraph (3)(b) include the following: (a) the seller establishes the price actually paid or payable for the material on condition that the producer will also buy other materials or goods in specified quantities; (b) the price actually paid or payable for the material is dependent on the price or prices at which the producer sells other materials or goods to the seller of the material; and (c) the price actually paid or payable is established on the basis of a form of payment extraneous to the material, such as where the material is a semi-finished material that is provided by the seller to the producer on condition that the seller will receive a specified quantity of the finished material from the producer. (5) For purposes of paragraph (3)(b), conditions or considerations relating to the use of the material will not render the transaction value unacceptable, such as where the producer undertakes on the producer’s own account, even though by agreement with the seller, activities relating VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 to the warranty of the material used in the production of a good. (6) If objective and quantifiable data do not exist with regard to the additions required to be made to the price actually paid or payable under subsection 4(1), the transaction value cannot be determined under the provisions of subsection 2(1). For an illustration of this, a royalty is paid on the basis of the price actually paid or payable in a sale of a litre of a particular good that is produced by using a material that was purchased by the kilogram and made up into a solution. If the royalty is based partially on the purchased material and partially on other factors that have nothing to do with that material, such as when the purchased material is mixed with other ingredients and is no longer separately identifiable, or when the royalty cannot be distinguished from special financial arrangements between the seller and the producer, it would be inappropriate to add the royalty and the transaction value of the material could not be determined. However, if the amount of the royalty is based only on the purchased material and can be readily quantified, an addition to the price actually paid or payable can be made and the transaction value can be determined. 3 (1) The price actually paid or payable is the total payment made or to be made by the producer to or for the benefit of the seller of the material. The payment need not necessarily take the form of a transfer of money. It may be made by letters of credit or negotiable instruments. Payment may be made directly or indirectly to the seller. For an illustration of this, the settlement by the producer, whether in whole or in part, of a debt owed by the seller, is an indirect payment. (2) Activities undertaken by the producer on the producer’s own account, other than those for which an adjustment is provided in section 4, must not be considered to be an indirect payment, even though the activities might be regarded as being for the benefit of the seller. (3) The transaction value must not include charges for construction, erection, assembly, maintenance or technical assistance related to the use of the material by the producer, provided that they are distinguished from the price actually paid or payable. (4) The flow of dividends or other payments from the producer to the seller that do not relate to the purchase of the material are not part of the transaction value. 4 (1) In determining the transaction value of the material, the following must be added to the price actually paid or payable: (a) To the extent that they are incurred by the producer with respect to the material being valued and are not included in the price actually paid or payable, (i) commissions and brokerage fees, except buying commissions, and (ii) the costs of containers which, for customs purposes, are classified with the material under the Harmonized System; (b) the value, reasonably allocated in accordance with subsection (13), of the following elements if they are supplied directly or indirectly to the seller by the producer free of charge or at reduced cost for use in connection with the production and PO 00000 Frm 00052 Fmt 4701 Sfmt 4700 sale of the material, to the extent that the value is not included in the price actually paid or payable: (i) A material, other than an indirect material, used in the production of the material being valued, (ii) tools, dies, mold and similar indirect materials used in the production of the material being valued, (iii) an indirect material, other than those referred to in subparagraph (ii) or in paragraphs (c), (e) or (f) of the definition indirect material in subsection 1(1) of these Regulations, used in the production of the material being valued, and (iv) engineering, development, artwork, design work, and plans and sketches made outside the territory of the USMCA country in which the producer is located that are necessary for the production of the material being valued; (c) the royalties related to the material, other than charges with respect to the right to reproduce the material in the territory of the USMCA country in which the producer is located that the producer must pay directly or indirectly as a condition of sale of the material, to the extent that such royalties are not included in the price actually paid or payable; and (d) the value of any part of the proceeds of any subsequent disposal or use of the material that accrues directly or indirectly to the seller. (2) The additions referred to in subsection (1) must be made to the price actually paid or payable under this section only on the basis of objective and quantifiable data. (3) If objective and quantifiable data do not exist with regard to the additions required to be made to the price actually paid or payable under subsection (1), the transaction value cannot be determined under subsection 2(1). (4) Additions must not be made to the price actually paid or payable for the purpose of determining the transaction value except as provided in this section. (5) The amounts to be added under paragraph (1)(a) must be those amounts that are recorded on the books of the producer. (6) The value of the elements referred to in subparagraph (1)(b)(i) must be: (a) Where the elements are imported from outside the territory of the USMCA country in which the seller is located, the customs value of the elements, (b) where the producer, or a related person on behalf of the producer, purchases the elements from a person who is not a related person in the territory of the USMCA country in which the seller is located, the price actually paid or payable for the elements, (c) where the producer, or a related person on behalf of the producer, acquires the elements from a person who is not a related person in the territory of the USMCA country in which the seller is located other than through a purchase, the value of the consideration related to the acquisition of the elements, based on the cost of the consideration that is recorded on the books of the producer or the related person, or (d) where the elements are produced by the producer, or by a related person, in the territory of the USMCA country in which the seller is located, the total cost of the E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations elements, determined in accordance with subsection (8), (7) Those elements must include the following costs, that are recorded on the books of the producer or the related person supplying the elements on behalf of the producer, to the extent that such costs are not included under paragraphs (6)(a) through (d): (a) The costs of freight, insurance, packing, and all other costs incurred in transporting the elements to the location of the seller, (b) duties and taxes paid or payable with respect to the elements, other than duties and taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable, (c) customs brokerage fees, including the cost of in-house customs brokerage services, incurred with respect to the elements, and (d) the cost of waste and spoilage resulting from the use of the elements in the production of the material, minus the value of reusable scrap or by-product. (8) For the purposes of paragraph (6)(d), the total cost of the elements referred to in subparagraph (1)(b)(i) are: (a) Where the elements are produced by the producer, at the choice of the producer, (i) the total cost incurred with respect to all goods produced by the producer, calculated on the basis of the costs that are recorded on the books of the producer, that can be reasonably allocated to the elements in accordance with Schedule V, or (ii) the aggregate of each cost incurred by the producer that forms part of the total cost incurred with respect to the elements, calculated on the basis of the costs that are recorded on the books of the producer, that can be reasonably allocated to the elements in accordance with Schedule V; and (b) if the elements are produced by a person who is related to the producer, at the choice of the producer: (i) The total cost incurred with respect to all goods produced by that related person, calculated on the basis of the costs that are recorded on the books of that person, that can be reasonably allocated to the elements in accordance with Schedule V, or (ii) the aggregate of each cost incurred by that related person that forms part of the total cost incurred with respect to the elements, calculated on the basis of the costs that are recorded on the books of that person, that can be reasonably allocated to the elements in accordance with Schedule V. (9) Except as provided in subsections (11) and (12), the value of the elements referred to in subparagraphs (1)(b)(ii) through (iv) are: (a) The cost of those elements that is recorded on the books of the producer; or (b) if such elements are provided by another person on behalf of the producer and the cost is not recorded on the books of the producer, the cost of those elements that is recorded on the books of that other person. (10) If the elements referred to in subparagraphs (1)(b)(ii) through (iv) were previously used by or on behalf of the producer, the value of the elements must be adjusted downward to reflect that use. (11) If the elements referred to in subparagraphs (1)(b)(ii) and (iii) were leased by the producer or a person related to the producer, the value of the elements are the VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 cost of the lease that is recorded on the books of the producer or that related person. (12) An addition must not be made to the price actually paid or payable for the elements referred to in subparagraph (1)(b)(iv) that are available in the public domain, other than the cost of obtaining copies of them. (13) The producer must choose the method of allocating to the material the value of the elements referred to in subparagraphs (1)(b)(ii) through (iv), provided that the value is reasonably allocated. The methods the producer may choose to allocate the value include allocating the value over the number of units produced up to the time of the first shipment or allocating the value over the entire anticipated production where contracts or firm commitments exist for that production. For an illustration of this, a producer provides the seller with a mold to be used in the production of the material and contracts with the seller to buy 10,000 units of that material. By the time the first shipment of 1,000 units arrives, the seller has already produced 4,000 units. In these circumstances, the producer may choose to allocate the value of the mold over 4,000 units or 10,000 units but must not choose to allocate the value of the elements to the first shipment of 1,000 units. The producer may choose to allocate the entire value of the elements to a single shipment of material only where that single shipment comprises all of the units of the material acquired by the producer under the contract or commitment for that number of units of the material between the seller and the producer. (14) The addition for the royalties referred to in paragraph (1)(c) is the payment for the royalties that is recorded on the books of the producer, or where the payment for the royalties is recorded on the books of another person, the payment for the royalties that is recorded on the books of that other person. (15) The value of the proceeds referred to in paragraph (1)(d) is the amount that is recorded for those proceeds on the books of the producer or the seller. 5 (1) If there is no transaction value under subsection 2(2) or the transaction value is unacceptable under subsection 2(3), the value of the material, referred to in subparagraph 8(1)(b)(ii) of these Regulations, is the transaction value of identical materials sold, at or about the same time as the material being valued was shipped to the producer, to a buyer located in the same country as the producer. (2) In applying this section, the transaction value of identical materials in a sale at the same commercial level and in substantially the same quantity of materials as the material being valued shall be used to determine the value of the material. If no such sale is found, the transaction value of identical materials sold at a different commercial level or in different quantities, adjusted to take into account the differences attributable to the commercial level or quantity, must be used, provided that such adjustments can be made on the basis of evidence that clearly establishes that the adjustment is reasonable and accurate, whether the adjustment leads to an increase or a decrease in the value. (3) A condition for adjustment under subsection (2) because of different PO 00000 Frm 00053 Fmt 4701 Sfmt 4700 39741 commercial levels or different quantities is that such adjustment be made only on the basis of evidence that clearly establishes that an adjustment is reasonable and accurate. For an illustration of this, a bona fide price list contains prices for different quantities. If the material being valued consists of a shipment of 10 units and the only identical materials for which a transaction value exists involved a sale of 500 units, and it is recognized that the seller grants quantity discounts, the required adjustment may be accomplished by resorting to the seller’s bona fide price list and using the price applicable to a sale of 10 units. This does not require that sales had to have been made in quantities of 10 as long as the price list has been established as being bona fide through sales at other quantities. In the absence of such an objective measure, however, the determination of a value under this section is not appropriate. (4) If more than one transaction value of identical materials is found, the lowest such value must be used to determine the value of the material under this section. 6 (1) If there is no transaction value under subsection 2(2) or the transaction value is unacceptable under subsection 2(3), and the value of the material cannot be determined under section 5, the value of the material, referred to in subparagraph 8(1)(b)(ii) of these Regulations, is the transaction value of similar materials sold, at or about the same time as the material being valued was shipped to the producer, to a buyer located in the same country as the producer. (2) In applying this section, the transaction value of similar materials in a sale at the same commercial level and in substantially the same quantity of materials as the material being valued must be used to determine the value of the material. Where no such sale is found, the transaction value of similar materials sold at a different commercial level or in different quantities, adjusted to take into account the differences attributable to the commercial level or quantity, must be used, provided that such adjustments can be made on the basis of evidence that clearly establishes that the adjustment is reasonable and accurate, whether the adjustment leads to an increase or a decrease in the value. (3) A condition for adjustment under subsection (2) because of different commercial levels or different quantities is that such adjustment be made only on the basis of evidence that clearly establishes that an adjustment is reasonable and accurate. For an illustration of this, a bona fide price list contains prices for different quantities. If the material being valued consists of a shipment of 10 units and the only similar materials for which a transaction value exists involved a sale of 500 units, and it is recognized that the seller grants quantity discounts, the required adjustment may be accomplished by resorting to the seller’s bona fide price list and using the price applicable to a sale of 10 units. This does not require that sales had to have been made in quantities of 10 as long as the price list has been established as being bona fide through sales at other quantities. In the absence of such an objective measure, however, the determination of a value under this section is not appropriate. (4) If more than one transaction value of similar materials is found, the lowest of those E:\FR\FM\01JYR2.SGM 01JYR2 39742 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations values must be used to determine the value of the material under this section. 7 If there is no transaction value under subsection 2(2) or the transaction value is unacceptable under subsection 2(3), and the value of the material cannot be determined under section 5 or 6, the value of the material, referred to in subparagraph 8(1)(b)(ii) of these Regulations, must be determined under section 8 or, when the value cannot be determined under that section, under section 9 except that, at the request of the producer, the order of application of sections 8 and 9 must be reversed. 8 (1) Under this section, if identical materials or similar materials are sold in the territory of the USMCA country in which the producer is located, in the same condition as the material was in when received by the producer, the value of the material, referred to in subparagraph 8(1)(b)(ii) of these Regulations, must be based on the unit price at which those identical materials or similar materials are sold, in the greatest aggregate quantity by the producer or, where the producer does not sell those identical materials or similar materials, by a person at the same trade level as the producer, at or about the same time as the material being valued is received by the producer, to persons located in that territory who are not related to the seller, subject to deductions for the following: (a) Either the amount of commissions usually earned or the amount generally reflected for profit and general expenses, in connection with sales, in the territory of that USMCA country, of materials of the same class or kind as the material being valued; and (b) taxes, if included in the unit price, payable in the territory of that USMCA country, which are either waived, refunded or recoverable by way of credit against taxes actually paid or payable. (2) If neither identical materials nor similar materials are sold at or about the same time Sale quantity Unit price Number of sales 1–10 units ..................................................................... 100 11–25 units ................................................................... Over 25 units ................................................................ 95 90 The greatest number of units sold at a particular price is 80; therefore, the unit price in the greatest aggregate quantity is 90. As another illustration of this, two sales occur. In the first sale 500 units are sold at a price of 95 currency units each. In the second sale 400 units are sold at a price of 90 currency units each. In this illustration, the greatest number of units sold at a particular price is 500; therefore, the unit price in the greatest aggregate quantity is 95. (4) Any sale to a person who supplies, directly or indirectly, free of charge or at reduced cost for use in connection with the production of the material, any of the elements specified in paragraph 4(1)(b), must not be taken into account in establishing the unit price for the purposes of this section. (5) The amount generally reflected for profit and general expenses referred to in paragraph (1)(a) must be taken as a whole. The figure for the purpose of deducting an amount for profit and general expenses must be determined on the basis of information supplied by or on behalf of the producer unless the figures provided by the producer are inconsistent with those usually reflected in sales, in the country in which the producer is located, of materials of the same class or kind as the material being valued. If the figures provided by the producer are inconsistent with those figures, the amount for profit and general expenses must be based on relevant information other than that supplied by or on behalf of the producer. (6) For the purposes of this section, general expenses are the direct and indirect costs of marketing the material in question. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 10 sales of 5 units ........................................................ 5 sales of 3 units 5 sales of 11 units ........................................................ 1 sale of 30 units .......................................................... 1 sale of 50 units (7) In determining either the commissions usually earned or the amount generally reflected for profit and general expenses under this section, the question as to whether certain materials are materials of the same class or kind as the material being valued must be determined on a case-by-case basis with reference to the circumstances involved. Sales in the country in which the producer is located of the narrowest group or range of materials of the same class or kind as the material being valued, for which the necessary information can be provided, must be examined. For the purposes of this section, ‘‘materials of the same class or kind’’ includes materials imported from the same country as the material being valued as well as materials imported from other countries or acquired within the territory of the USMCA country in which the producer is located. (8) For the purposes of subsection (2), the earliest date is the date by which sales of identical materials or similar materials are made, in sufficient quantity to establish the unit price, to other persons in the territory of the USMCA country in which the producer is located. 9 (1) Under this section, the value of a material, referred to in subparagraph 8(1)(b)(ii) of these Regulations, is the sum of: (a) The cost or value of the materials used in the production of the material being valued, as determined on the basis of the costs that are recorded on the books of the producer of the material, (b) the cost of producing the material being valued, as determined on the basis of the costs that are recorded on the books of the producer of the material, and PO 00000 Frm 00054 the material being valued is received by the producer, the value must, subject to the deductions provided for under subsection (1), be based on the unit price at which identical materials or similar materials are sold in the territory of the USMCA country in which the producer is located, in the same condition as the material was in when received by the producer, at the earliest date within 90 days after the day on which the material being valued was received by the producer. (3) The expression ‘‘unit price at which those identical materials or similar materials are sold, in the greatest aggregate quantity’’ in subsection (1) means the price at which the greatest number of units is sold in sales between persons who are not related persons. For an illustration of this, materials are sold from a price list which grants favourable unit prices for purchases made in larger quantities. Fmt 4701 Sfmt 4700 Total quantity sold at each price 65 55 80 (c) an amount for profit and general expenses equal to that usually reflected in sales (i) where the material being valued is imported by the producer into the territory of the USMCA country in which the producer is located, to persons located in the territory of the USMCA country in which the producer is located by producers of materials of the same class or kind as the material being valued who are located in the country in which the material is produced, and (ii) where the material being valued is acquired by the producer from another person located in the territory of the USMCA country in which the producer is located, to persons located in the territory of the USMCA country in which the producer is located by producers of materials of the same class or kind as the material being valued who are located in the country in which the producer is located. (2) This value of a material, to the extent it is not are not already included under paragraph (a) or (b) must include the following costs and where the elements are supplied directly or indirectly to the producer of the material being valued by the producer free of charge or at a reduced cost for use in the production of that material, (a) the value of elements referred to in subparagraph 4(1)(b)(i), determined in accordance with subsections 4(6) and (7), and (b) the value of elements referred to in subparagraphs 4(1)(b)(ii) through (iv), determined in accordance with subsection 4(9) and reasonably allocated to the material in accordance with subsection 4(13). E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations (3) For purposes of paragraphs (1)(a) and (b), if the costs recorded on the books of the producer of the material relate to the production of other goods and materials as well as to the production of the material being valued, the costs referred to in paragraphs (1)(a) and (b) with respect to the material being valued must be those costs recorded on the books of the producer of the material that can be reasonably allocated to that material in accordance with Schedule V. (4) The amount for profit and general expenses referred to in paragraph (1)(c) must be determined on the basis of information supplied by or on behalf of the producer of the material being valued unless the profit and general expenses figures that are supplied with that information are inconsistent with those usually reflected in sales by producers of materials of the same class or kind as the material being valued who are located in the country in which the material is produced or the producer is located, as the case may be. The information supplied must be prepared in a manner consistent with generally accepted accounting principles of the country in which the material being valued is produced. If the material is produced in the territory of a USMCA country, the information must be prepared in accordance with the Generally Accepted Accounting Principles set out in the authorities listed for that USMCA country in Schedule X. (5) For purposes of paragraph (1)(c) and subsection (4), general expenses means the direct and indirect costs of producing and selling the material that are not included under paragraphs (1)(a) and (b). (6) For purposes of subsection (4), the amount for profit and general expenses must be taken as a whole. If, in the information supplied by or on behalf of the producer of a material, the profit figure is low and the general expenses figure is high, the profit and general expense figures taken together may nevertheless be consistent with those usually reflected in sales of materials of the same class or kind as the material being valued. If the producer of a material can demonstrate that it is taking a nil or low profit on its sales of the material because of particular commercial circumstances, its actual profit and general expense figures must be taken into account, provided that the producer of the material has valid commercial reasons to justify them and its pricing policy reflects usual pricing policies in the branch of industry concerned. For an illustration of this, such a situation might occur if producers have been forced to lower prices temporarily because of an unforeseeable drop in demand, or if the producers sell the material to complement a range of materials and goods being produced in the country in which the material is sold and accept a low profit to maintain competitiveness. A further illustration is if a material was being launched and the producer accepted a nil or low profit to offset high general expenses associated with the launch. (7) If the figures for the profit and general expenses supplied by or on behalf of the producer of the material are not consistent with those usually reflected in sales of materials of the same class or kind as the VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 material being valued that are made by other producers in the country in which that material is sold, the amount for profit and general expenses may be based on relevant information other than that supplied by or on behalf of the producer of the material. (8) Whether certain materials are of the same class or kind as the material being valued will be determined on a case-by-case basis with reference to the circumstances involved. For purposes of determining the amount for profit and general expenses usually reflected under the provisions of this section, sales of the narrowest group or range of materials of the same class or kind, which includes the material being valued, for which the necessary information can be provided, shall be examined. For the purposes of this section, the materials of the same class or kind must be from the same country as the material being valued. 10 (1) If there is no transaction value under subsection 2(2) or the transaction value is unacceptable under subsection 2(3), and the value of the material cannot be determined under sections 5 through 9, the value of the material, referred to in subparagraph 8(1)(b)(ii) of these Regulations, must be determined under this section using reasonable means consistent with the principles and general provisions of this Schedule and on the basis of data available in the country in which the producer is located. (2) The value of the material determined under this section must not be determined on the basis of (a) a valuation system which provides for the acceptance of the higher of two alternative values; (b) a cost of production other than the value determined in accordance with section 9; (c) minimum values; (d) arbitrary or fictitious values; (e) if the material is produced in the territory of the USMCA country in which the producer is located, the price of the material for export from that territory; or (f) if the material is imported, the price of the material for export to a country other than to the territory of the USMCA country in which the producer is located. (3) To the greatest extent possible, the value of the material determined under this section must be based on the methods of valuation set out in sections 2 through 9, but a reasonable flexibility in the application of such methods would be in conformity with the aims and provisions of this section. For an illustration of this, under section 5, the requirement that the identical materials should be sold at or about the same time as the time the material being valued is shipped to the producer could be flexibly interpreted. Similarly, identical materials produced in a country other than the country in which the material is produced could be the basis for determining the value of the material, or the value of identical materials already determined under section 8 could be used. For another illustration, under section 6, the requirement that the similar materials should be sold at or about the same time as the material being valued are shipped to the producer could be flexibly interpreted. PO 00000 Frm 00055 Fmt 4701 Sfmt 4700 39743 Likewise, similar materials produced in a country other than the country in which the material is produced could be the basis for determining the value of the material, or the value of similar materials already determined under the provisions of section 8 could be used. For a further illustration, under section 8, the ninety days requirement could be administered flexibly. Schedule VII (Methods for Determining the Value of Non-Originating Materials That Are Identical Materials and That Are Used in the Production of a Good) Definitions 1 The following definitions apply in this Schedule. FIFO method means the method by which the value of non-originating materials first received in materials inventory, determined in accordance with section 8 of these Regulations, is considered to be the value of non-originating materials used in the production of the good first shipped to the buyer of the good; identical materials means, with respect to a material, materials that are the same as that material in all respects, including physical characteristics, quality and reputation but excluding minor differences in appearance; LIFO method means the method by which the value of non-originating materials last received in materials inventory, determined in accordance with section 8 of these Regulations, is considered to be the value of non-originating materials used in the production of the good first shipped to the buyer of the good; materials inventory means, with respect to a single plant of the producer of a good, an inventory of non-originating materials that are identical materials and that are used in the production of the good; rolling average method means the method by which the value of non-originating materials used in the production of a good that is shipped to the buyer of the good is based on the average value, calculated in accordance with section 4, of the nonoriginating materials in materials inventory. General 2 For purposes of subsections 5(13) and (14) and 7(10) of these Regulations, the following are the methods for determining the value of non-originating materials that are identical materials and are used in the production of a good: (a) FIFO method; (b) LIFO method; and (c) rolling average method. 3 (1) If a producer of a good chooses, with respect to non-originating materials that are identical materials, any of the methods referred to in section 2, the producer may not use another of those methods with respect to any other non-originating materials that are identical materials and that are used in the production of that good or in the production of any other good. (2) If a producer of a good produces the good in more than one plant, the method chosen by the producer must be used with respect to all plants of the producer in which the good is produced. (3) The method chosen by the producer to determine the value of non-originating E:\FR\FM\01JYR2.SGM 01JYR2 39744 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations materials may be chosen at any time during the producer’s fiscal year and may not be changed during that fiscal year. Average Value for Rolling Average Method 4 (1) The average value of non-originating materials that are identical materials and that are used in the production of a good that is shipped to the buyer of the good is calculated by dividing: (a) The total value of non-originating materials that are identical materials in materials inventory prior to the shipment of the good, determined in accordance with section 8 of these Regulations, by (b) the total units of those non-originating materials in materials inventory prior to the shipment of the good. (2) The average value calculated under subsection (1) is applied to the remaining units of non-originating materials in materials inventory. Appendix ‘‘Examples’’ Illustrating the Application of the Methods for Determining the Value of Non-Originating Materials That Are Identical Materials and That Are Used in the Production of a Good The following examples are based on the figures set out in the table below and on the following assumptions: (a) Materials A are non-originating materials that are identical materials that are used in the production of Good A; (b) one unit of Materials A is used to produce one unit of Good A; (c) all other materials used in the production of Good A are originating materials; and (d) Good A is produced in a single plant. Materials Inventory (Receipts of Materials A) Sales (Shipments of Good A) Date (M/D/Y) 01/01/21 01/03/21 01/05/21 01/08/21 01/09/21 01/10/21 01/14/21 01/16/21 01/18/21 ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... ....................................................................................................................................... Quantity (units) Unit cost ($) Quantity (units) 200 1,000 1,000 ........................ ........................ 1,000 ........................ 2,000 ........................ 1.05 1.00 1.10 ........................ ........................ 1.05 ........................ 1.10 ........................ ........................ ........................ ........................ 500 500 ........................ 1,500 ........................ 1,500 * Unit cost is determined in accordance with section 8 of these Regulations. Example 1: FIFO method By applying the FIFO Method: (1) The 200 units of Materials A received on 01/01/21 and valued at $1.05 per unit and 300 units of the 1,000 units of Material A received on 01/03/21 and valued at $1.00 per unit are considered to have been used in the production of the 500 units of Good A shipped on 01/08/21; therefore, the value of the non-originating materials used in the production of those goods is considered to be $510 [(200 units × $1.05) + (300 units × $1.00)]; (2) 500 units of the remaining 700 units of Materials A received on 01/03/21 and valued at $1.00 per unit are considered to have been used in the production of the 500 units of Good A shipped on 01/09/21; therefore, the value of the non-originating materials used in the production of those goods is considered to be $500 (500 units × $1.00); (3) the remaining 200 units of the 1,000 units of Materials A received on 01/03/21 and valued at $1.00 per unit, the 1,000 units of Materials A received on 01/05/21 and valued at $1.10 per unit, and 300 units of the 1,000 units of Materials A received on 01/10/ 21 and valued at $1.05 per unit are considered to have been used in the production of the 1,500 units of Good A shipped on 01/14/21; therefore, the value of VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 non-originating materials used in the production of those goods is considered to be $1,615 [(200 units × $1.00) + (1,000 units × $1.10) + (300 units x $1.05)]; and (4) the remaining 700 units of the 1,000 units of Materials A received on 01/10/21 and valued at $1.05 per unit and 800 units of the 2,000 units of Materials A received on 01/16/21 and valued at $1.10 per unit are considered to have been used in the production of the 1,500 units of Good A shipped on 01/18/21; therefore, the value of non-originating materials used in the production of those goods is considered to be $1,615 [(700 units × $1.05) + (800 units × $1.10)]. Example 2: LIFO Method By applying the LIFO method: (1) 500 units of the 1,000 units of Materials A received on 01/05/21 and valued at $1.10 per unit are considered to have been used in the production of the 500 units of Good A shipped on 01/08/21; therefore, the value of the non-originating materials used in the production of those goods is considered to be $550 (500 units × $1.10); (2) the remaining 500 units of the 1,000 units of Materials A received on 01/05/21 and valued at $1.10 per unit are considered to have been used in the production of the 500 units of Good A shipped on 01/09/21; PO 00000 Frm 00056 Fmt 4701 Sfmt 4700 therefore, the value of non-originating materials used in the production of those goods is considered to be $550 (500 units × $1.10); (3) the 1,000 units of Materials A received on 01/10/21 and valued at $1.05 per unit and 500 units of the 1,000 units of Material A received on 01/03/21 and valued at $1.00 per unit are considered to have been used in the production of the 1,500 units of Good A shipped on 01/14/21; therefore, the value of non-originating materials used in the production of those goods is considered to be $1,550 [(1,000 units × $1.05) + (500 units × $1.00)]; and (4) 1,500 units of the 2,000 units of Materials A received on 01/16/21 and valued at $1.10 per unit are considered to have been used in the production of the 1,500 units of Good A shipped on 01/18/21; therefore, the value of non-originating materials used in the production of those goods is considered to be $1,650 (1,500 units × $1.10). Example 3: Rolling Average Method The following table identifies the average value of non-originating Materials A as determined under the rolling average method. For purposes of this example, a new average value of non-originating Materials A is calculated after each receipt. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Materials inventory Date (M/D/Y) Beginning Inventory ......................................................................................... Receipt ............................................................................................................. AVERAGE VALUE ................................................................................... Receipt ............................................................................................................. AVERAGE VALUE ................................................................................... Shipment .......................................................................................................... AVERAGE VALUE ................................................................................... Shipment .......................................................................................................... AVERAGE VALUE ................................................................................... Receipt ............................................................................................................. AVERAGE VALUE ................................................................................... 01/01/21 01/03/21 ........................ 01/05/21 ........................ 01/08/21 ........................ 01/09/21 ........................ 01/16/21 ........................ Quantity (units) 200 1,000 1,200 1,000 2,200 500 1,700 500 1,200 2,000 3,200 Unit cost* ($) 1.05 1.00 1.008 1.10 1.05 1.05 1.05 1.05 1.05 1.10 1.08 39745 Total value ($) 210 1,000 1,210 1,100 2,310 525 1,785 525 1,260 2,200 3,460 * Unit cost is determined in accordance with section 8 of these Regulations. By applying the rolling average method: (1) The value of non-originating materials used in the production of the 500 units of Good A shipped on 01/08/21 is considered to be $525 (500 units × $1.05); and (2) the value of non-originating materials used in the production of the 500 units of Good A shipped on 01/09/21 is considered to be $525 (500 units × $1.05). Schedule VIII (Inventory Management Methods) Part I Fungible Materials Definitions 1 The following definitions apply in this Part, average method means the method by which the origin of fungible materials withdrawn from materials inventory is based on the ratio, calculated under section 5, of originating materials and non-originating materials in materials inventory; FIFO method means the method by which the origin of fungible materials first received in materials inventory is considered to be the origin of fungible materials first withdrawn from materials inventory; LIFO method means the method by which the origin of fungible materials last received in materials inventory is considered to be the origin of fungible materials first withdrawn from materials inventory; materials inventory means, (a) with respect to a producer of a good, an inventory of fungible materials that are used in the production of the good, and (b) with respect to a person from whom the producer of the good acquired those fungible materials, an inventory from which fungible materials are sold or otherwise transferred to the producer of the good; opening inventory means the materials inventory at the time an inventory management method is chosen; origin identifier means any mark that identifies fungible materials as originating materials or non-originating materials. General 2 The following inventory management methods may be used for determining whether fungible materials referred to in paragraph 8(18)(a) of these Regulations are: (a) Specific identification method; (b) FIFO method; (c) LIFO method; and (d) average method. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 3 A producer of a good, or a person from whom the producer acquired the fungible materials that are used in the production of the good, may choose only one of the inventory management methods referred to in section 2, and, if the averaging method is chosen, only one averaging period in each fiscal year of that producer or person for the materials inventory. Specific Identification Method 4 (1) Except as otherwise provided under subsection (2), if the producer or person referred to in section 3 chooses the specific identification method, the producer or person must physically segregate, in materials inventory, originating materials that are fungible materials from nonoriginating materials that are fungible materials. (2) If originating materials or nonoriginating materials that are fungible materials are marked with an origin identifier, the producer or person need not physically segregate those materials under subsection (1) if the origin identifier remains visible throughout the production of the good. Average Method 5 If the producer or person referred to in section 3 chooses the average method, the origin of fungible materials withdrawn from materials inventory is determined on the basis of the ratio of originating materials and non-originating materials in materials inventory that is calculated under sections 6 through 8. 6 (1) Except as otherwise provided in sections 7 and 8, the ratio is calculated with respect to a month or three-month period, at the choice of the producer or person, by dividing (a) the sum of (i) the total units of originating materials or non-originating materials that are fungible materials and that were in materials inventory at the beginning of the preceding one-month or three-month period, and (ii) the total units of originating materials or non-originating materials that are fungible materials and that were received in materials inventory during that preceding one-month or three-month period, by (b) the sum of (i) the total units of originating materials and non-originating materials that are fungible materials and that were in materials inventory at the beginning of the preceding one-month or three-month period, and PO 00000 Frm 00057 Fmt 4701 Sfmt 4700 (ii) the total units of originating materials and non-originating materials that are fungible materials and that were received in materials inventory during that preceding one-month or three-month period. (2) The ratio calculated with respect to a preceding month or three-month period under subsection (1) is applied to the fungible materials remaining in materials inventory at the end of the preceding month or three-month period. 7 (1) If the good is subject to a regional value-content requirement and the regional value content is calculated under the net cost method and the producer or person chooses to average over a period under subsections 7(15), 16(1) or (10) of these Regulations, the ratio is calculated with respect to that period by dividing (a) the sum of (i) the total units of originating materials or non-originating materials that are fungible materials and that were in materials inventory at the beginning of the period, and (ii) the total units of originating materials or non-originating materials that are fungible materials and that were received in materials inventory during that period, by (b) the sum of (i) the total units of originating materials and non-originating materials that are fungible materials and that were in materials inventory at the beginning of the period, and (ii) the total units of originating materials and non-originating materials that are fungible materials and that were received in materials inventory during that period. (2) The ratio calculated with respect to a period under subsection (1) is applied to the fungible materials remaining in materials inventory at the end of the period. 8 (1) If the good is subject to a regional value-content requirement and the regional value content of that good is calculated under the transaction value method or the net cost method, the ratio is calculated with respect to each shipment of the good by dividing (a) the total units of originating materials or non-originating materials that are fungible materials and that were in materials inventory prior to the shipment, by (b) the total units of originating materials and non-originating materials that are fungible materials and that were in materials inventory prior to the shipment. (2) The ratio calculated with respect to a shipment of a good under subsection (1) is applied to the fungible materials remaining in materials inventory after the shipment. E:\FR\FM\01JYR2.SGM 01JYR2 39746 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Manner of Dealing With Opening Inventory 9 (1) Except as otherwise provided under subsections (2) and (3), if the producer or person referred to in section 3 has fungible materials in opening inventory, the origin of those fungible materials is determined by (a) identifying, in the books of the producer or person, the latest receipts of fungible materials that add up to the amount of fungible materials in opening inventory; (b) identifying the origin of the fungible materials that make up those receipts; and (c) considering the origin of those fungible materials to be the origin of the fungible materials in opening inventory. (2) If the producer or person chooses the specific identification method and has, in opening inventory, originating materials or non-originating materials that are fungible materials and that are marked with an origin identifier, the origin of those fungible materials is determined on the basis of the origin identifier. (3) The producer or person may consider all fungible materials in opening inventory to be non-originating materials. Part II Fungible Goods Definitions 10 The following definitions apply in this Part, average method means the method by which the origin of fungible goods withdrawn from finished goods inventory is based on the ratio, calculated under section 14, of originating goods and non-originating goods in finished goods inventory; FIFO method means the method by which the origin of fungible goods first received in finished goods inventory is considered to be the origin of fungible goods first withdrawn from finished goods inventory; finished goods inventory means an inventory from which fungible goods are sold or otherwise transferred to another person; LIFO method means the method by which the origin of fungible goods last received in finished goods inventory is considered to be the origin of fungible goods first withdrawn from finished goods inventory; opening inventory means the finished goods inventory at the time an inventory management method is chosen; origin identifier means any mark that identifies fungible goods as originating goods or non-originating goods. General 11 The following inventory management methods may be used for determining whether fungible goods referred to in paragraph 8(18)(b) of these Regulations are originating goods: (a) Specific identification method; (b) FIFO method; (c) LIFO method; and (d) average method. 12 An exporter of a good, or a person from whom the exporter acquired the fungible good, may choose only one of the inventory management methods referred to in section 11, including only one averaging period in the case of the average method, in each fiscal year of that exporter or person for each finished goods inventory of the exporter or person. Specific Identification Method 13 (1) Except as provided under subsection (2), if the exporter or person referred to in section 12 chooses the specific identification method, the exporter or person must physically segregate, in finished goods inventory, originating goods that are fungible goods from non-originating goods that are fungible goods. (2) If originating goods or non-originating goods that are fungible goods are marked with an origin identifier, the exporter or person need not physically segregate those goods under subsection (1) if the origin identifier is visible on the fungible goods. Average Method 14 (1) If the exporter or person referred to in section 12 chooses the average method, the origin of each shipment of fungible goods withdrawn from finished goods inventory during a month or three-month period, at the choice of the exporter or person, is determined on the basis of the ratio of originating goods and non-originating goods in finished goods inventory for the preceding one-month or three-month period that is calculated by dividing (a) the sum of (i) the total units of originating goods or non-originating goods that are fungible goods and that were in finished goods inventory at the beginning of the preceding one-month or three-month period, and (ii) the total units of originating goods or non-originating goods that are fungible goods and that were received in finished goods inventory during that preceding one-month or three-month period, by (b) the sum of (i) the total units of originating goods and non-originating goods that are fungible goods and that were in finished goods inventory at the beginning of the preceding one-month or three-month period, and (ii) the total units of originating goods and non-originating goods that are fungible goods and that were received in finished goods inventory during that preceding one-month or three-month period. (2) The ratio calculated with respect to a preceding month or three-month period under subsection (1) is applied to the fungible goods remaining in finished goods inventory at the end of the preceding month or three-month period. Manner of Dealing With Opening Inventory 15 (1) Except as otherwise provided under subsections (2) and (3), if the exporter or person referred to in section 12 has fungible goods in opening inventory, the origin of those fungible goods is determined by (a) identifying, in the books of the exporter or person, the latest receipts of fungible goods that add up to the amount of fungible goods in opening inventory; (b) determining the origin of the fungible goods that make up those receipts; and (c) considering the origin of those fungible goods to be the origin of the fungible goods in opening inventory. (2) If the exporter or person chooses the specific identification method and has, in opening inventory, originating goods or nonoriginating goods that are fungible goods and that are marked with an origin identifier, the origin of those fungible goods is determined on the basis of the origin identifier. (3) The exporter or person may consider all fungible goods in opening inventory to be non-originating goods. Appendix A ‘‘Examples’’ Illustrating the Application of the Inventory Management Methods To Determine the Origin of Fungible Materials The following examples are based on the figures set out in the table below and on the following assumptions: (a) Originating Material A and nonoriginating Material A that are fungible materials are used in the production of Good A; (b) one unit of Material A is used to produce one unit of Good A; (c) Material A is only used in the production of Good A; (d) all other materials used in the production of Good A are originating materials; and (e) the producer of Good A exports all shipments of Good A to the territory of a USMCA country. Materials inventory (Receipts of Material A) Sales (Shipments of Good A) Date (M/D/Y) 12/18/20 12/27/20 01/01/21 01/01/21 01/05/21 01/10/21 01/10/21 01/15/21 01/16/21 01/20/21 ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ ............................................................................................................................................ VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00058 Fmt 4701 Sfmt 4700 Quantity (units) Unit cost * Total value Quantity (units) 100 (O 1) 100 (N 2) 200 (OI 3) 1,000 (O) 1,000 (N) ........................ 1,000 (O) ........................ 2,000 (N) ........................ $1.00 1.10 ........................ 1.00 1.10 ........................ 1.05 ........................ 1.10 ........................ $ 100 110 ........................ 1,000 1,100 ........................ 1,050 ........................ 2,200 ........................ ........................ ........................ ........................ ........................ ........................ 100 ........................ 700 ........................ 1,000 E:\FR\FM\01JYR2.SGM 01JYR2 39747 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Materials inventory (Receipts of Material A) Sales (Shipments of Good A) Date (M/D/Y) Quantity (units) Unit cost * Total value 01/23/21 ............................................................................................................................................ ........................ ........................ ........................ Quantity (units) 900 * Unit cost is determined in accordance with section 8 of these Regulations. 1 ‘‘O’’ denotes originating materials. 2 ‘‘N’’ denotes non-originating materials. 3 ‘‘OI’’ denotes opening inventory. Example 1: FIFO Method Good A is subject to a regional valuecontent requirement. Producer A is using the transaction value method to determine the regional value content of Good A. By applying the FIFO method: (1) The 100 units of originating Material A in opening inventory that were received in materials inventory on 12/18/20 are considered to have been used in the production of the 100 units of Good A shipped on 01/10/21; therefore, the value of non-originating materials used in the production of those goods is considered to be $0; (2) the 100 units of non-originating Material A in opening inventory that were received in materials inventory on 12/27/20 and 600 units of the 1,000 units of originating Material A that were received in materials inventory on 01/01/21 are considered to have been used in the production of the 700 units of Good A shipped on 01/15/21; therefore, the value of non-originating materials used in the production of those goods is considered to be $110 (100 units × $1.10); (3) the remaining 400 units of the 1,000 units of originating Material A that were received in materials inventory on 01/01/21 and 600 units of the 1,000 units of nonoriginating Material A that were received in materials inventory on 01/05/21 are considered to have been used in the production of the 1,000 units of Good A shipped on 01/20/21; therefore, the value of non-originating materials used in the production of those goods is considered to be $660 (600 units × $1.10); and (4) the remaining 400 units of the 1,000 units of non-originating Material A that were received in materials inventory on 01/05/21 and 500 units of the 1,000 units of originating Material A that were received in materials inventory on 01/10/21 are considered to have been used in the production of the 900 units of Good A shipped on 01/23/21; therefore, the value of non-originating materials used in the production of those goods is considered to be $440 (400 units × $1.10). Example 2: LIFO Method Good A is subject to a change in tariff classification requirement and the nonoriginating Material A used in the production of Good A does not undergo the applicable change in tariff classification. Therefore, if originating Material A is used in the production of Good A, Good A is an originating good and, if non-originating Material A is used in the production of Good A, Good A is a non-originating good. By applying the LIFO method: (1) 100 units of the 1,000 units of nonoriginating Material A that were received in materials inventory on 01/05/21 are considered to have been used in the production of the 100 units of Good A shipped on 01/10/21; (2) 700 units of the 1,000 units of originating Material A that were received in materials inventory on 01/10/21 are considered to have been used in the production of the 700 units of Good A shipped on 01/15/21; (3) 1,000 units of the 2,000 units of nonoriginating Material A that were received in materials inventory on 01/16/21 are considered to have been used in the production of the 1,000 units of Good A shipped on 01/20/21; and (4) 900 units of the remaining 1,000 units of non-originating Material A that were received in materials inventory on 01/16/21 are considered to have been used in the production of the 900 units of Good A shipped on 01/23/21. Example 3: Average Method Good A is subject to an applicable regional value-content requirement. Producer A is using the transaction value method to determine the regional value content of Good A. Producer A determines the average value of non-originating Material A and the ratio of originating Material A to total value of originating Material A and non-originating Material A in the following table. Material inventory Sales (Receipts of Material A) (Non-originating material) Date (M/D/ Y) Quantity (units) Total value Unit cost * (Shipments of Good A) Quantity (units) Total value Ratio Quantity (units) Receipt .............................................................. Receipt .............................................................. 12/18/20 12/27/20 100 (O1) 100 (N2) $ 100 110 $1.00 1.10 .................... 100 .................... $ 110.00 .................... .................... .................... .................... New AVG INV Value ......................................... Receipt .............................................................. .................... 01/01/21 200 (OI3) 1,000 (O) 210 1,000 1.05 1.00 100 .................... 105.00 .................... 0.50 .................... .................... .................... New AVG INV Value ......................................... Receipt .............................................................. .................... 01/05/21 1,200 1,000 (N) 1,210 1,100 1.01 1.10 100 1,000 101.00 1,100.00 0.08 .................... .................... .................... New AVG INV Value ......................................... Shipment ........................................................... Receipt .............................................................. .................... 01/10/21 01/10/21 2,200 (100) 1,000 (O) 2,310 (105) 1,050 1.05 1.05 1.05 1,100 (50) .................... 1,155.00 (52.50) .................... 0.50 .................... .................... .................... 100 .................... New AVG INV Value ......................................... Shipment ........................................................... Receipt .............................................................. .................... 01/15/21 01/16/21 3,100 (700) 2,000 (N) 3,255 (735) 2,200 1.05 1.05 1.10 1,050 (238) 2,000 1,102.50 (249.90) 2,200.00 0.34 .................... .................... .................... 700 .................... New AVG INV Value ......................................... Shipment ........................................................... Shipment ........................................................... .................... 01/20/21 01/23/21 4,400 (1,000) (900) 4,720 (1,070) (963) 1.07 1.07 1.07 2,812 (640) (576) 3,008.84 (684.80) (616.32) 0.64 .................... .................... .................... 1,000 900 New AVG INV Value ......................................... .................... 2,500 2,687 1.07 1,596 1,707.24 0.64 .................... * Unit cost is determined in accordance with section 8 of these Regulations. 1 ‘‘O’’ denotes originating materials. 2 ‘‘N’’ denotes non-originating materials. 3 ‘‘OI’’ denotes opening inventory. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 PO 00000 Frm 00059 Fmt 4701 Sfmt 4700 E:\FR\FM\01JYR2.SGM 01JYR2 39748 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations By applying the average method: (1) Before the shipment of the 100 units of Material A on 01/10/21, the ratio of units of originating Material A to total units of Material A in materials inventory was .50 (1,100 units/2,200 units) and the ratio of units of non-originating Material A to total units of Material A in materials inventory was .50 (1,100 units/2,200 units); based on those ratios, 50 units (100 units × .50) of originating Material A and 50 units (100 units × .50) of non-originating Material A are considered to have been used in the production of the 100 units of Good A shipped on 01/10/21; therefore, the value of non-originating Material A used in the production of those goods is considered to be $52.50 [100 units × $1.05 (average unit value) × .50]; the ratios are applied to the units of Material A remaining in materials inventory after the shipment: 1,050 units (2,100 units × .50) are considered to be originating materials and 1,050 units (2,100 units × .50) are considered to be non-originating materials; (2) before the shipment of the 700 units of Good A on 01/15/21, the ratio of units of originating Material A to total units of Material A in materials inventory was 66% (2,050 units/3,100 units) and the ratio of units of non-originating Material A to total units of Material A in materials inventory was 34% (1,050 units/3,100 units); based on those ratios, 462 units (700 units × .66) of originating Material A and 238 units (700 units × .34) of non-originating Material A are considered to have been used in the production of the 700 units of Good A shipped on 01/15/21; therefore, the value of non-originating Material A used in the production of those goods is considered to be $249.90 [700 units × $1.05 (average unit value) × 34%]; the ratios are applied to the units of Material A remaining in materials inventory after the shipment: 1,584 units (2,400 units × .66) are considered to be originating materials and 816 units (2,400 units × .34) are considered to be non-originating materials; (3) before the shipment of the 1,000 units of Material A on 01/20/21, the ratio of units of originating Material A to total units of Material A in materials inventory was 36% (1,584 units/4,400 units) and the ratio of units of non-originating Material A to total units of Material A in materials inventory was 64% (2,816 units/4,400 units); based on those ratios, 360 units (1,000 units × .36) of originating Material A and 640 units (1,000 units × .64) of non-originating Material A are considered to have been used in the production of the 1,000 units of Good A shipped on 01/20/21; therefore, the value of non-originating Material A used in the production of those goods is considered to be $684.80 [1,000 units × $1.07 (average unit value) × 64%]; those ratios are applied to the units of Material A remaining in materials inventory after the shipment: 1,224 units (3,400 units × .36) are considered to be originating materials and 2,176 units (3,400 units × .64) are considered to be non-originating materials; (4) before the shipment of the 900 units of Good A on 01/23/21, the ratio of units of originating Material A to total units of Material A in materials inventory was 36% (1,224 units/3,400 units) and the ratio of units of non-originating Material A to total units of Material A in materials inventory was 64% (2,176 units/3,400 units); based on those ratios, 324 units (900 units × .36) of originating Material A and 576 units (900 units × .64) of non-originating Material A are considered to have been used in the production of the 900 units of Good A shipped on 01/23/21; therefore, the value of non-originating Material A used in the production of those goods is considered to be $616.32 [900 units × $1.07 (average unit value) × 64%]; those ratios are applied to the units of Material A remaining in materials inventory after the shipment: 900 units (2,500 units × .36) are considered to be originating materials and 1,600 units (2,500 units × .64) are considered to be non-originating materials. Example 4: Average Method Good A is subject to an applicable regional value-content requirement. Producer A is using the net cost method and is averaging over a period of one month under paragraph 7(15)(a) of these Regulations to determine the regional value content of Good A. By applying the average method: The ratio of units of originating Material A to total units of Material A in materials inventory for January 2021 is 40.4% (2,100 units/5,200 units); based on that ratio, 1,091 units (2,700 units × .404) of originating Material A and 1,609 units (2,700 units—1,091 units) of nonoriginating Material A are considered to have been used in the production of the 2,700 units of Good A shipped in January 2021; therefore, the value of non-originating materials used in the production of those goods is considered to be $0.64 per unit [$5,560 (total value of Material A in materials inventory)/5,200 (units of Material A in materials inventory) = $1.07 (average unit value) × (1¥.404)] or $1,728 ($0.64 × 2,700 units); and that ratio is applied to the units of Material A remaining in materials inventory on January 31, 2021: 1,010 units (2,500 units × .404) are considered to be originating materials and 1,490 units (2,500 units¥1,010 units) are considered to be non-originating materials. Appendix B ‘‘Examples’’ Illustrating the Application of the Inventory Management Methods to Determine the Origin of Fungible Goods The following examples are based on the figures set out in the table below and on the assumption that Exporter A acquires originating Good A and non-originating Good A that are fungible goods and physically combines or mixes Good A before exporting those goods to the buyer of those goods. Finished goods inventory (Receipts of Good A) Sales (Shipments of Good A) Date (M/D/Y) 12/18/20 12/27/20 01/01/21 01/01/21 01/05/21 01/10/21 01/10/21 01/15/21 01/16/21 01/20/21 01/23/21 ................................................................................................................................................................... ................................................................................................................................................................... ................................................................................................................................................................... ................................................................................................................................................................... ................................................................................................................................................................... ................................................................................................................................................................... ................................................................................................................................................................... ................................................................................................................................................................... ................................................................................................................................................................... ................................................................................................................................................................... ................................................................................................................................................................... Quantity (units) Quantity (units) 100 (O 1) 100 (N 2) 200 (OI 3) 1,000 (O) 1,000 (N) ........................ 1,000 (O) ........................ 2,000 (N) ........................ ........................ ........................ ........................ ........................ ........................ ........................ 100 ........................ 700 ........................ 1,000 900 1 ‘‘O’’ denotes originating goods. denotes non-originating goods. 3‘‘ OI’’ denotes opening inventory. 2‘‘ N’’ Example 1: FIFO Method By applying the FIFO method: VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 (1) The 100 units of originating Good A in opening inventory that were received in PO 00000 Frm 00060 Fmt 4701 Sfmt 4700 finished goods inventory on 12/18/20 are E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations considered to be the 100 units of Good A shipped on 01/10/21; (2) the 100 units of non-originating Good A in opening inventory that were received in finished goods inventory on 12/27/20 and 600 units of the 1,000 units of originating Good A that were received in finished goods inventory on 01/01/21 are considered to be the 700 units of Good A shipped on 01/15/ 21; (3) the remaining 400 units of the 1,000 units of originating Good A that were received in finished goods inventory on 01/ 01/21 and 600 units of the 1,000 units of nonoriginating Good A that were received in finished goods inventory on 01/05/21 are considered to be the 1,000 units of Good A shipped on 01/20/21; and (4) the remaining 400 units of the 1,000 units of non-originating Good A that were received in finished goods inventory on 01/ 05/21 and 500 units of the 1,000 units of originating Good A that were received in finished goods inventory on 01/10/21 are considered to be the 900 units of Good A shipped on 01/23/21. Example 2: LIFO Method By applying the LIFO method: (1) 100 units of the 1,000 units of nonoriginating Good A that were received in finished goods inventory on 01/05/21 are considered to be the 100 units of Good A shipped on 01/10/21; (2) 700 units of the 1,000 units of originating Good A that were received in finished goods inventory on 01/10/21 are considered to be the 700 units of Good A shipped on 01/15/21; (3) 1,000 units of the 2,000 units of nonoriginating Good A that were received in finished goods inventory on 01/16/21 are considered to be the 1,000 units of Good A shipped on 01/20/21; and (4) 900 units of the remaining 1,000 units of non-originating Good A that were received in finished goods inventory on 01/16/21 are considered to be the 900 units of Good A shipped on 01/23/21. Example 3: Average Method Exporter A chooses to determine the origin of Good A on a monthly basis. Exporter A exported 3,000 units of Good A during the month of February 2021. The origin of the units of Good A exported during that month is determined on the basis of the preceding month, that is January 2021. By applying the average method: The ratio of originating goods to all goods in finished goods inventory for the month of January 2021 is 40.4% (2,100 units/5,200 units); based on that ratio, 1,212 units (3,000 units × .404) of Good A shipped in February 2021 are considered to be originating goods and 1,788 units (3,000 units¥1,212 units) of Good A are considered to be non-originating goods; and that ratio is applied to the units of Good A remaining in finished goods inventory on January 31, 2021: 1,010 units (2,500 units × .404) are considered to be originating goods and 1,490 units (2,500 units¥1,010 units) are considered to be non-originating goods. VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 Schedule IX (Method for Calculating NonAllowable Interest Costs) Definitions and Interpretation 1 For purposes of this Schedule, fixed-rate contract means a loan contract, instalment purchase contract or other financing agreement in which the interest rate remains constant throughout the life of the contract or agreement; linear interpolation means, with respect to the interest rate issued by the federal government, the application of the following mathematical formula: A + [((B¥A) × (E¥D))/(C¥D)] where A is the interest rate issued by the federal government debt obligations that are nearest in maturity but of shorter maturity than the weighted average principal maturity of the payment schedule under the fixed-rate contract or variable-rate contract to which they are being compared, B is the interest rate issued by the federal government debt obligations that are nearest in maturity but of greater maturity than the weighted average principal maturity of that payment schedule, C is the maturity of federal government debt obligations that are nearest in maturity but of greater maturity than the weighted average principal maturity of that payment schedule, D is the maturity of federal government debt obligations that are nearest in maturity but of shorter maturity than the weighted average principal maturity of that payment schedule, and E is the weighted average principal maturity of that payment schedule; payment schedule means the schedule of payments, whether on a weekly, bi-weekly, monthly, yearly or other basis, of principal and interest, or any combination thereof, made by a producer to a lender in accordance with the terms of a fixed-rate contract or variable-rate contract; variable-rate contract means a loan contract, instalment purchase contract or other financing agreement in which the interest rate is adjusted at intervals during the life of the contract or agreement in accordance with its terms; weighted average principal maturity means, with respect to fixed-rate contracts and variable-rate contracts, the numbers of years, or portion thereof, that is equal to the number obtained by (a) dividing the sum of the weighted principal payments, (i) in the case of a fixed-rate contract, by the original amount of the loan, and (ii) in the case of a variable-rate contract, by the principal balance at the beginning of the interest rate period for which the weighted principal payments were calculated, and (b) rounding the amount determined under paragraph (a) to the nearest single decimal place and, if that amount is the midpoint between two such numbers, to the greater of those two numbers; weighted principal payment means, PO 00000 Frm 00061 Fmt 4701 Sfmt 4700 39749 (a) with respect to fixed-rate contracts, the amount determined by multiplying each principal payment under the contract by the number of years, or portion thereof, between the date the producer entered into the contract and the date of that principal payment, and (b) with respect to variable-rate contracts (i) the amount determined by multiplying each principal payment made during the current interest rate period by the number of years, or portion thereof, between the beginning of that interest rate period and the date of that payment, and (ii) the amount equal to the outstanding principal owing, but not necessarily due, at the end of the current interest rate period, multiplied by the number of years, or portion thereof, between the beginning and the end of that interest rate period; interest rate issued by the federal government means (a) in the case of a producer located in Canada, the weekly average of the yield for federal government debt obligations set out in the Bank of Canada’s Daily Digest (i) if the interest rate is adjusted at intervals of less than one year, under the title ‘‘Treasury Bills—1 Month’’, and (ii) in any other case, under the title ‘‘Government of Canada benchmark bond yields—3 Year’’, for the week that the producer entered into the contract or the week of the most recent interest rate adjustment date, if any, under the contract, (b) in the case of a producer located in Mexico, the yield for federal government debt obligations set out in La Seccion de Indicadores Monetarios, Financieros, y de Finanzas Publicas, de los Indicadores Economicos, published by the Banco de Mexico under the title ‘‘Certificados de la Tesoreria de la Federacion’’ for the week that the producer entered into the contract or the week of the most recent interest rate adjustment date, if any, under the contract, and (c) in the case of a producer located in the United States, the yield for federal government debt obligations set out in the Federal Reserve statistical release (H.15) Selected Interest Rates (i) if the interest rate is adjusted at intervals of less than one year, under the title ‘‘U.S. government securities, Treasury bills, Secondary market’’, and (ii) in any other case, under the title ‘‘U.S. Government Securities, Treasury constant maturities’’, for the week that the producer entered into the contract or the week of the most recent interest rate adjustment date, if any, under the contract. General 2. For purposes of calculating nonallowable interest costs (a) with respect to a fixed-rate contract, the interest rate under that contract must be compared with the interest rate issued by the federal government debt obligations that have maturities of the same length as the weighted average principal maturity of the payment schedule under the contract (that yield determined by linear interpolation, if necessary); (b) with respect to a variable-rate contract E:\FR\FM\01JYR2.SGM 01JYR2 39750 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations (i) in which the interest rate is adjusted at intervals of less than or equal to one year, the interest rate under that contract must be compared with the interest rate issued by the federal government on debt obligations that have maturities closest in length to the interest rate adjustment period of the contract, and (ii) in which the interest rate is adjusted at intervals of greater than one year, the interest rate under the contract must be compared with the interest rate issued by the federal government on debt obligations that have maturities of the same length as the weighted average principal maturity of the payment schedule under the contract (that yield determined by linear interpolation, if necessary); and (c) with respect to a fixed-rate or variablerate contract in which the weighted average principal maturity of the payment schedule under the contract is greater than the maturities offered on federal government debt obligations, the interest rate under the contract must be compared to the interest rate issued by the federal government on debt obligations that have maturities closest in length to the weighted average principal maturity of the payment schedule under the contract. Appendix ‘‘Example’’ Illustrating the Application of the Method for Calculating Non-Allowable Interest Costs in the Case of a Fixed-Rate Contract The following example is based on the figures set out in the table below and on the following assumptions: (a) A producer in a USMCA country borrows $1,000,000 from a person of the same USMCA country under a fixed-rate contract; Principal balance 1 Years of loan 1 ................................................................................... 2 ................................................................................... 3 ................................................................................... 4 ................................................................................... 5 ................................................................................... 6 ................................................................................... 7 ................................................................................... 8 ................................................................................... 9 ................................................................................... 10 ................................................................................. $924,132.04 843,712.00 758,466.76 668,106.81 572,325.26 470,796.81 363,176.66 249,099.30 128,177.30 (0.00) Interest payment 2 $60,000.00 55,447.92 50,622.72 45,508.01 40,086.41 34,339.52 28,247.81 21,790.60 14,945.96 7,690.66 (b) under the terms of the contract, the loan is payable in 10 years with interest paid at the rate of 6 per cent per year on the declining principal balance; (c) the payment schedule calculated by the lender based on the terms of the contract requires the producer to make annual payments of principal and interest of $135,867.36 over the life of the contract; (d) there are no federal government debt obligations that have maturities equal to the 6-year weighted average principal maturity of the contract; and (e) the federal government debt obligations that are nearest in maturity to the weighted average principal maturity of the contract are of 5- and 7-year maturities, and the yields on them are 4.7 per cent and 5.0 per cent, respectively. Principal payment 3 Payment schedule $75,867.96 80,420.04 85,245.24 90,359.95 95,781.55 101,528.44 107,620.15 114,077.36 120,922.00 128,177.32 $135,867.96 135,867.96 135,867.96 135,867.96 135,867.96 135,867.96 135,867.96 135,867.96 135,867.96 135.867.96 Weighted principal payment 4 $75,867.96 160,840.08 255,735.72 361,439.82 478,907.76 609,170.67 753,341.06 912,618.88 1,088,298.02 1,281,773.22 $5,977,993.19 1 The principal balance represents the loan balance at the end of each full year the loan is in effect and is calculated by subtracting the current year’s principal payment from the prior year’s ending loan balance. 2 Interest payments are calculated by multiplying the prior year’s ending loan balance by the contract interest rate of 6 per cent. 3 Principal payments are calculated by subtracting the current year’s interest payments from the annual payment schedule amount. 4 The weighted principal payment is determined by, for each year of the loan, multiplying that year’s principal payment by the number of years the loan had been in effect at the end of that year. 5 The weighted average principal maturity of the contract is calculated by dividing the sum of the weighted principal payments by the original loan amount and rounding the amount determined to the nearest decimal place. Weighted Average Principal Maturity $5,977,993.19/$1,000,000 = 5.977993 or 6 years5 By applying the above method, (1) the weighted average principal maturity of the payment schedule under the 6 per cent contract is 6 years; (2) the yields on the closest maturities for comparable federal government debt obligations of 5 years and 7 years are 4.7 per cent and 5.0 per cent, respectively; therefore, using linear interpolation, the yield on a federal government debt obligation that has a maturity equal to the weighted average principal maturity of the contract is 4.85 per cent. This number is calculated as follows: 4.7 + [((5.0¥4.7) × (6¥5))/(7¥5)] = 4.7 + 0.15 = 4.85%; and (3) the producer’s contract interest rate of 6 per cent is within 700 basis points of the 4.85 per cent yield on the comparable federal VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 government debt obligation; therefore, none of the producer’s interest costs are considered to be non-allowable interest costs for purposes of the definition non-allowable interest costs in subsection 1(1) of these Regulations. ‘‘Example’’ Illustrating the Application of the Method for Calculating Non-allowable Interest Costs in the Case of a Variable-Rate Contract The following example is based on the figures set out in the tables below and on the following assumptions: (a) a producer in a USMCA country borrows $1,000,000 from a person of the same USMCA country under a variable-rate contract; (b) under the terms of the contract, the loan is payable in 10 years with interest paid at the rate of 6 per cent per year for the first two years and 8 per cent per year for the next two years on the principal balance, with rates adjusted each two years after that; PO 00000 Frm 00062 Fmt 4701 Sfmt 4700 (c) the payment schedule calculated by the lender based on the terms of the contract requires the producer to make annual payments of principal and interest of $135,867.96 for the first two years of the loan, and of $146,818.34 for the next two years of the loan; (d) there are no federal government debt obligations that have maturities equal to the 1.9-year weighted average principal maturity of the first two years of the contract; (e) there are no federal government debt obligations that have maturities equal to the 1.9-year weighted average principal maturity of the third and fourth years of the contract; and (f) the federal government debt obligations that are nearest in maturity to the weighted average principal maturity of the contract are 1- and 2-year maturities, and the yields on them are 3.0 per cent and 3.5 per cent respectively. E:\FR\FM\01JYR2.SGM 01JYR2 Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules and Regulations Beginning of year Principal balance 1 ............................................................... 2 ............................................................... $1,000,000.00 924,132.04 Interest rate (%) Interest payment Principal payment Payment schedule $60,000.00 55,447.92 $75,867.96 80,420.04 $135,867.96 135,867.96 6.00 6.00 .................................................................. $1,924,132.04/$1,000,000 = 1.92413204 or 1.9 years By applying the above method: (1) The weighted average principal maturity of the payment schedule of the first two years of the contract is 1.9 years; (2) the yield on the closest maturities of federal government debt obligations of 1 year and 2 years are 3.0 and 3.5 per cent, respectively; therefore, using linear interpolation, the yield on a federal government debt obligation that has a maturity equal to the weighted average principal maturity of the payment schedule of the first two years of the contract is 3.45 per cent. This amount is calculated as follows: 3.0 + [((3.5¥3.0) × (1.9¥1.0))/(2.0¥1.0)]; = 3.0 + 0.45 = 3.45%; and (3) the producer’s contract rate of 6 per cent for the first two years of the loan is Principal balance Beginning of year ............................................................... ............................................................... ............................................................... ............................................................... Weighted principal payment $75,867.96 1,848,264.08 $1,924,132.04 Weighted Average Principal Maturity 1 2 3 4 39751 Interest rate (%) $1,000,000.00 924,132.04 843,712.01 764,390.62 within 700 basis points of the 3.45 per cent interest rate issued by the federal government on debt obligations that have maturities equal to the 1.9-year weighted average principal maturity of the payment schedule of the first two years of the producer’s loan contract; therefore, none of the producer’s interest costs are considered to be non-allowable interest costs for purposes of the definition non-allowable interest costs in subsection 1(1) of these Regulations. Interest payment Principal payment Payment schedule $60,000.00 55,447.92 67,496.96 61,151.25 $75,867.96 80,420.04 79,321.38 85,667.09 $135,867.96 135,867.96 146,818.34 146,818.34 6.00 6.00 8.00 8.00 Weighted principal payment ........................ ........................ $79,321.38 1,528,781.24 $1,608,102.62 Weighted Average Principal Maturity $1,608,102.62/$843,712.01 = 1.905985 or 1.9 years By applying the above method: (1) The weighted average principal maturity of the payment schedule under the first two years of the contract is 1.9 years; (2) the federal government debt obligations that are nearest in maturities to the weighted average principal maturity of the contract are 1- and 2-year maturities, and the yields on them are 3.0 and 3.5 per cent, respectively; therefore, using linear interpolation, the yield on a federal government debt obligation that has a maturity equal to the weighted average principal maturity of the payment schedule of the first two years of the contract is 3.45 per cent. This amount is calculated as follows: 3.0 + [((3.5¥3.0) × (1.9¥1.0))/(2.0¥1.0)]; = 3.0 + 0.45 = 3.45% (3) the producer’s contract interest rate, for the third and fourth years of the loan, of 8 per cent is within 700 basis points of the 3.45 per cent interest rate issued by the federal government on debt obligations that have VerDate Sep<11>2014 01:23 Jul 01, 2020 Jkt 250001 maturities equal to the 1.9-year weighted average principal maturity of the payment schedule under the third and fourth years of the producer’s loan contract; therefore, none of the producer’s interest costs are considered to be non-allowable interest costs for purposes of the definition non-allowable interest costs in subsection 1(1) of these Regulations. Schedule X (Generally Accepted Accounting Principles) 1. Generally Accepted Accounting Principles means the recognized consensus or substantial authoritative support in the territory of a USMCA country with respect to the recording of revenues, expenses, costs, assets and liabilities, disclosure of information and preparation of financial statements. These standards may be broad guidelines of general application as well as detailed standards, practices and procedures. 2. For purposes of Generally Accepted Accounting Principles, the recognized consensus or authoritative support are referred to or set out in the following publications: (a) With respect to the territory of Canada, The Chartered Professional Accountants of PO 00000 Frm 00063 Fmt 4701 Sfmt 9990 Canada Handbook, as updated from time to time; (b) with respect to the territory of Mexico, Los Principios de Contabilidad Generalmente Aceptados, issued by the Instituto Mexicano de Contadores Pu´blicos A.C. (IMCP), including the boletines complementarios, as updated from time to time; and (c) with respect to the territory of the United States, Financial Accounting Standards Board (FASB) Accounting Standards Codification and any interpretive guidance recognized by the American Institute of Certified Public Accountants (AICPA). Dated: June 23, 2020. Robert E. Perez, Deputy Commissioner, U.S. Customs and Border Protection. Approved: Timothy E. Skud, Deputy Assistant Secretary of the Treasury. [FR Doc. 2020–13865 Filed 6–30–20; 8:45 am] BILLING CODE 9111–14–P E:\FR\FM\01JYR2.SGM 01JYR2

Agencies

[Federal Register Volume 85, Number 127 (Wednesday, July 1, 2020)]
[Rules and Regulations]
[Pages 39690-39751]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-13865]



[[Page 39689]]

Vol. 85

Wednesday,

No. 127

July 1, 2020

Part II





Department of Homeland Security





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U.S. Customs and Border Protection





Department of the Treasury





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19 CFR Parts 181 and 182





Implementation of the Agreement Between the United States of America, 
the United Mexican States, and Canada (USMCA) Uniform Regulations 
Regarding Rules of Origin; Interim Final Rule

Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Rules 
and Regulations

[[Page 39690]]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection

DEPARTMENT OF THE TREASURY

19 CFR Parts 181 and 182

[USCBP-2020-0036; CBP Dec. 20-11]
RIN 1515-AE55


Implementation of the Agreement Between the United States of 
America, the United Mexican States, and Canada (USMCA) Uniform 
Regulations Regarding Rules of Origin

AGENCY: U.S. Customs and Border Protection, Department of Homeland 
Security; Department of the Treasury.

ACTION: Interim final rule; request for comments.

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SUMMARY: This interim final rule amends the U.S. Customs and Border 
Protection (CBP) regulations to implement the rules of origin 
provisions for preferential tariff treatment of the Agreement Between 
the United States of America, the United Mexican States, and Canada 
(USMCA). This document sets forth the framework for our regulations 
that provides further guidance regarding the rules of origin for those 
seeking USMCA preferential tariff treatment and includes the text of 
the Uniform Regulations regarding rules of origin, as trilaterally 
agreed upon by the United States, the United Mexican States (Mexico), 
and Canada. Because the USMCA supersedes the North American Free Trade 
Agreement (NAFTA) when the USMCA enters into force on July 1, 2020, 
this document also amends the NAFTA regulations to reflect that the 
NAFTA provisions do not apply to goods entered for consumption, or 
withdrawn from warehouse for consumption, on or after July 1, 2020.

DATES: This interim final rule is effective on July 1, 2020; comments 
must be received by August 31, 2020.

ADDRESSES: You may submit comments, identified by docket number [USCBP-
2020-0036], by one of the following methods:
     Federal eRulemaking Portal at http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Due to COVID-19-related restrictions, CBP has 
temporarily suspended its ability to receive public comments by mail.
    Instructions: All submissions received must include the agency name 
and docket number for this rulemaking. All comments received will be 
posted without change to http://www.regulations.gov, including any 
personal information provided. For detailed instructions on submitting 
comments and additional information on the rulemaking process, see the 
``Public Participation'' heading of the SUPPLEMENTARY INFORMATION 
section of this document.
    Docket: For access to the docket to read background documents or 
comments received, go to http://www.regulations.gov. Due to the 
relevant COVID-19-related restrictions, CBP has temporarily suspended 
on-site public inspection of the public comments. Please note that any 
submitted comments that CBP receives by mail will be posted on the 
above-referenced docket for the public's convenience.

FOR FURTHER INFORMATION CONTACT: 
    Operational Aspects: Maya Kamar, Director, Textile and Trade 
Agreement Division, Office of Trade, U.S. Customs and Border 
Protection, (202) 945-7228 or [email protected].
    Audit Aspects: Amy Johnson, Senior Auditor, Regulatory Audit and 
Agency Advisory Services, U.S. Customs and Border Protection, (312) 
983-5364 or [email protected].
    Legal Aspects: Monika Brenner, Chief, Valuation & Special Programs 
Branch, Regulations and Rulings, Office of Trade, U.S. Customs and 
Border Protection, (202) 325-0038 or [email protected].

SUPPLEMENTARY INFORMATION: 

I. Public Participation

    Interested persons are invited to participate in this rulemaking by 
submitting written data, views, or arguments on this interim final 
rule. As stated below, U.S. Customs and Border Protection (CBP) will 
not accept comments upon the Uniform Regulations regarding rules of 
origin trilaterally agreed upon and contained in Appendix A to part 182 
of title 19 of the Code of Federal Regulations (CFR) (19 CFR part 182). 
CBP also invites comments that relate to the economic, environmental, 
or federalism effects that might result from this interim final rule. 
Comments that will provide the most assistance to CBP will reference a 
specific portion of the interim final rule, explain the reason for any 
recommended change, and include data, information or authority that 
support such recommended change.

II. Background

    On May 18, 2017, following consultations with the relevant 
Congressional committees, the Office of the United States Trade 
Representative (USTR) informed Congress of the President's intent to 
renegotiate the North American Free Trade Agreement (NAFTA). USTR 
announced this intention in a notice published in the Federal Register 
on May 23, 2017 (82 FR 23699), requesting public comments to assist in 
the development of the U.S. negotiating objectives on matters related 
to the modernization of NAFTA. The negotiations began on August 16, 
2017, and concluded on September 30, 2018.
    On November 30, 2018, USTR signed the ``Protocol Replacing the 
North American Free Trade Agreement with the Agreement Between the 
United States of America, the United Mexican States, and Canada'' (the 
Protocol). The Agreement Between the United States of America, the 
United Mexican States (Mexico), and Canada (the USMCA) \1\ is attached 
as an annex to the Protocol and was subsequently amended to reflect 
certain modifications and technical corrections in the ``Protocol of 
Amendment to the Agreement Between the United States of America, the 
United Mexican States, and Canada'' (the Amended Protocol), which USTR 
signed on December 10, 2019.
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    \1\ The Agreement between the United States of America, the 
United Mexican States, and Canada is the official name of the USMCA 
treaty. Please be aware that, in other contexts, the same document 
is also referred to as the United States-Mexico-Canada Agreement.
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    Pursuant to section 106 of the Bipartisan Congressional Trade 
Priorities and Accountability Act of 2015 (19 U.S.C. 4205) and section 
151 of the Trade Act of 1974 (19 U.S.C. 2191), the United States 
adopted the USMCA through the enactment of the United States-Mexico-
Canada Agreement Implementation Act (USMCA Act), Public Law 116-113, 
134 Stat. 11, on January 29, 2020. Mexico, Canada, and the United 
States certified their preparedness to implement the USMCA on December 
12, 2019, March 13, 2020, and April 24, 2020, respectively. As a 
result, pursuant to paragraph 2 of the Protocol, which provides that 
the USMCA will take effect on the first day of the third month after 
the last signatory party provides written notification of the 
completion of the domestic implementation of the USMCA through the 
enactment of implementing legislation, the USMCA will enter into force 
on July 1, 2020.

A. U.S. Implementation of USMCA Uniform Regulations

    Section 103(a)(1)(B) of the USMCA Act provides the authority for 
new or amended regulations to be issued to implement the USMCA, as of 
the date

[[Page 39691]]

of its entry into force. Further, section 103(b)(2) of the USMCA Act 
requires that interim or initial regulations shall be prescribed not 
later than the date on which the USMCA enters into force to implement 
the Uniform Regulations regarding rules of origin. In accordance with 
section 103(b)(2) of the USMCA Act, CBP is adding to this new part 182, 
as Appendix A, the Uniform Regulations on rules of origin for Chapters 
4 and 6 of the USMCA trilaterally agreed upon by the United States, 
Mexico, and Canada. Since the USMCA uniform regulations on rules of 
origin were trilaterally negotiated and may not be unilaterally 
altered, CBP is not requesting public comments in this interim final 
rule (IFR) with regard to Appendix A to part 182. CBP welcomes public 
comments on all other aspects of this IFR.
    Claims for preferential tariff treatment under the USMCA may be 
made as of July 1, 2020. In addition to the regulations set forth in 
this document, those persons intending to make USMCA preference claims 
may refer to the CBP website at https://www.cbp.gov/trade/priority-issues/trade-agreements/free-trade-agreements/USMCA for further 
guidance, including the U.S. USMCA Implementing Instructions. The 
United States International Trade Commission has modified the 
Harmonized Tariff Schedule of the United States (HTSUS) to include the 
addition of a new General Note 11, incorporating the USMCA rules of 
origin, and the insertion of the special program indicator ``S or S+'' 
for the USMCA in the HTSUS ``special'' rate of duty subcolumn.\2\
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    \2\ The S+ indicator is used for certain agricultural goods and 
textile tariff preference levels (TPLs).
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    Pursuant to section 103(b) of the USMCA Act, CBP will issue initial 
regulations (new part 182 including Appendix A) regarding rules of 
origin, as provided for under Article 5.16 of the USMCA, not later than 
the date on which USMCA enters into force. CBP expects to publish 
additional regulations by July 1, 2021, one year from when the USMCA 
enters into force, to set forth any remaining USMCA implementing 
regulations, and to request public comments on those implementing 
regulations.

B. Impact on NAFTA

    The USMCA supersedes NAFTA and its related provisions on USMCA's 
entry into force date. See Protocol, paragraph 1. NAFTA entered into 
force on January 1, 1994. Pursuant to section 1103 of the Omnibus Trade 
and Competitiveness Act of 1988 (19 U.S.C. 2903) and section 151 of the 
Trade Act of 1974 (19 U.S.C. 2191), the United States adopted NAFTA 
through the enactment of the North American Free Trade Agreement 
Implementation Act (NAFTA Implementation Act), Public Law 103-182, 107 
Stat. 2057 (19 U.S.C. 3301), on December 8, 1993. Section 601 of the 
USMCA Act repeals the NAFTA Implementation Act, as of the date that the 
USMCA enters into force.
    On December 30, 1993, the U.S. Customs Service [now CBP] published 
interim regulations (58 FR 69460) in a new part 181 of title 19 of the 
CFR (19 CFR part 181) to implement the preferential tariff treatment 
and other customs related provisions of NAFTA. Part 181 sets forth the 
relevant definitions, the requirements for filing a claim for 
preferential tariff treatment, post-importation duty refund claims, and 
the NAFTA uniform regulations on rules of origin, among others.
    The general rules of origin in Chapter Four of NAFTA, as well as 
the specific rules of origin in Annex 401 of NAFTA, are set forth in 
General Note 12, HTSUS. The NAFTA provisions set forth in 19 CFR part 
181 and General Note 12, HTSUS, continue to apply to goods entered for 
consumption, or withdrawn from warehouse for consumption, prior to July 
1, 2020.

III. Amendments to the CBP Regulations

A. Section 181.0

    Part 181 of title 19 of the CFR contains the NAFTA duty preference 
and other related CBP provisions. As the USMCA supersedes NAFTA upon 
the former's entry into force, CBP is adding a sentence to the scope 
provision in section 181.0 to indicate that part 181 is not applicable 
to goods entered for consumption, or withdrawn from warehouse for 
consumption, on or after July 1, 2020. The USMCA provisions, not the 
NAFTA provisions, are applicable to goods entered for consumption, or 
withdrawn from warehouse for consumption, on or after July 1, 2020.

B. New Part 182

    CBP is adding a new part 182 to title 19 of the CFR to establish 
the USMCA preferential tariff treatment and other customs related 
provisions. This document sets forth the scope of part 182, the rules 
of origin subpart, and Appendix A to part 182 containing the Uniform 
Regulations for Chapters 4 and 6 of the USMCA trilaterally agreed upon 
by the United States, Mexico, and Canada. These amendments are 
explained below.
    This document also includes the structure and subparts for the 
entirety of part 182. CBP is reserving the remaining sections at this 
time. As discussed above, CBP will publish in separate subsequent IFRs, 
additional regulations to set forth the remaining USMCA implementing 
regulations, which will be in part 182, and also any other affected 
parts of title 19 of the CFR, as needed, to implement the USMCA 
(including the United States' implementation of additional Uniform 
Regulations on origin procedures, as needed, for Chapters 5, 6, and 7 
of the USMCA).
Subpart A--General Provisions
    Section 182.0 sets forth the scope of the new part 182. Section 
182.0 provides the USMCA citations and parameters, and states that the 
part 181 NAFTA regulations are applicable for goods entered for 
consumption, or withdrawn from warehouse for consumption, prior to July 
1, 2020. This section further clarifies that, except where the context 
otherwise requires, the requirements contained in part 182 are in 
addition to the general administrative and enforcement provisions set 
forth elsewhere in the CBP regulations.
Subpart F--Rules of Origin
    Section 182.61 provides that the USMCA implementing regulations 
regarding rules of origin for preferential tariff treatment provisions 
of General Note 11, HTSUS, and Chapters Four and Six of the USMCA are 
contained in Appendix A to part 182.
Appendix A--Rules of Origin Regulations
    The rules of origin regulations are set forth as Appendix A to part 
182. The text contained in this appendix is as trilaterally negotiated 
by the United States, Mexico, and Canada. This appendix contains the 
uniform regulations for the interpretation, application, and 
administration of the rules of origin of Chapter Four of the USMCA and 
the rules of origin of Chapter Six of the USMCA related to textiles and 
apparel goods. The regulations contained in Appendix A may be cited as 
the ``USMCA Rules of Origin Regulations.''
Definitions and Currency Conversion
    Appendix A sets forth the relevant definitions and interpretations 
that are applicable to the Uniform Regulations on rules of origin, and 
the methodology for currency conversion if necessary to determine the 
value of goods or materials.

[[Page 39692]]

General Rules of Origin
    Appendix A contains the basic rules of origin established in 
Chapter Four of the USMCA. The provisions apply to the determination of 
the status of an imported good as an originating good for purposes of 
preferential tariff treatment and to the determination of the status of 
a material as an originating material used in a good which is subject 
to a determination under Appendix A. Specifically, this section 
identifies goods that are originating goods because they are wholly 
obtained or produced in one or more of the USMCA countries. This 
section also identifies goods that are originating goods because the 
good, which is produced entirely in the territory of one or more of the 
USMCA countries, is either made of exclusively originating materials or 
each of the non-originating materials used in the production of the 
good satisfies all applicable requirements of the regulations, 
including the product-specific rules of origin. This section also sets 
forth exceptions to the change in the tariff classification requirement 
and the special rule for certain goods, which provides that the goods 
listed in Schedule II of Appendix A to part 182 (Table 2.10.1 of 
Article 2.10 to Chapter 2 of the USMCA) are treated as originating 
goods regardless of whether they meet the applicable product-specific 
rule of origin, if they are imported from the territory of a USMCA 
country.
Treatment of Recovered Materials Used in the Production of a 
Remanufactured Good
    Appendix A sets forth the treatment of a recovered material derived 
in one or more USMCA countries when it is used in the production of, 
and is incorporated into, a remanufactured good. This section provides 
the requirements and examples illustrating the treatment of recovered 
materials used in the production of a remanufactured good.
De Minimis
    Appendix A sets forth the de minimis rules for goods to qualify as 
originating goods even when the goods would fail to qualify as such 
under the general rules of origin. Unless an exception applies, a good 
shall be considered to be an originating good where the value of all 
non-originating materials used in the production of the good is not 
more than ten percent of the transaction value of the good, or, if 
applicable, the total cost of the good, provided that the good 
satisfies any regional value content requirements and all other 
applicable regulations in Appendix A. The de minimis rules for textile 
goods established in Chapter Six of the USMCA and examples illustrating 
the application of the de minimis rules are also provided.
Sets of Goods, Kits or Composite Goods
    A good is classified as a set as a result of the application of 
rule 3 of the General Rules for the Interpretation of the HTSUS. Under 
the general rule of origin for such goods, a set is an originating good 
only if each good in the set is originating, and both the set and the 
goods in the set meet the other applicable requirements in Appendix A. 
Several examples, including the application to textile sets, are 
provided to illustrate when a set is considered an originating good.
Regional Value Content
    The appendix provides the basic rules that apply for purposes of 
determining whether an imported good satisfies any applicable regional 
value content requirement. With some exceptions, the regional value 
content of a good shall be calculated, at the choice of the importer, 
exporter or producer of the good, on the basis of either the 
transaction value method or the net cost method. The specifics of the 
transaction value method and the net cost method, including the 
formulas used to calculate each method, are also contained in Appendix 
A. Several examples of the calculations for the regional value content 
requirement are provided under both the transaction value method and 
the net cost method.
Materials
    Appendix A sets forth the rules regarding the valuation of 
materials, the treatment of materials with regard to the change in 
tariff classification requirement, and the regional value content 
requirement. Additionally, this section identifies adjustments to the 
value of materials including certain costs that may be deducted from 
the value of non-originating material or material of undetermined 
origin. This section also allows for an optional designation as an 
intermediate material of self-produced material that is used in the 
production of the good, and provides the determinations on the value of 
such intermediate material. Furthermore, it includes provisions for the 
treatment and value of indirect materials, packaging materials and 
containers, fungible materials and fungible commingled goods, and 
accessories, spare parts, tools or instructional or other information 
materials in determining the originating status of a good. Numerous 
examples are provided illustrating the provisions on materials.
Accumulation
    The appendix identifies the rules by which an importer, exporter or 
producer of a good has the option to accumulate the production, by one 
or more producers in the territory of one or more of the USMCA 
countries, of materials that are incorporated into that good for the 
determination of the origin of the good. Several examples of 
accumulation of production are provided to illustrate the process.
Transshipment
    Generally, an originating good loses its originating status and is 
considered non-originating if the good is transported outside of the 
territories of the USMCA countries. Appendix A sets forth the rule that 
an originating good transported outside the territories of the USMCA 
countries retains its originating status if the good remains under 
customs control, and the good does not undergo further production or 
any other non-specified operation outside the territories of the USMCA 
countries.
Non-Qualifying Operations
    Appendix A sets forth the rule that a good is not an originating 
good solely because of its dilution with water or another substance 
that does not materially alter the characteristics of the good, or by 
any other production method or pricing practice the purpose of which is 
to circumvent the rules of origin of Appendix A.
Automotive Goods
    The Appendix to Annex 4-B of Chapter 4 of the USMCA includes 
additional rules of origin requirements that apply to automotive goods. 
Automotive goods are passenger vehicles, light trucks, heavy trucks, or 
other vehicles; or an applicable part, component, or material listed in 
Tables A.1, A.2, B, C, D, E, F, or G of the Appendix to Annex 4-B of 
Chapter 4 of the USMCA. In addition to the rules of origin 
requirements, a passenger vehicle, light truck, or heavy truck is 
originating only if, during the time period specified, at least seventy 
percent of a vehicle producer's purchases of steel and aluminum, by 
value, in the territories of the USMCA countries are originating. 
Furthermore, a passenger vehicle, light truck, or heavy truck is 
originating only if the vehicle producer certifies and can demonstrate 
that its production meets the applicable labor value content 
requirement.

[[Page 39693]]

    Appendix A to part 182 sets forth the rules of origin related to 
automotive goods. Specifically, Appendix A provides the definitions 
that are applicable to automotive goods, the regional value content 
requirements specific to automotive goods, the steel and aluminum 
purchase requirement, and the labor value content requirement.
Schedules
    Appendix A also contains Schedules I through X. These schedules set 
forth the most-favored-nation rates of duty on certain goods, and 
provide much more detail on the calculations of the value of goods and 
materials, the inventory management methods, the methods of calculating 
costs, and the Generally Accepted Accounting Principles.

IV. Statutory and Regulatory Requirements

A. Administrative Procedure Act

    Under section 553 of the Administrative Procedure Act (APA) (5 
U.S.C. 553), agencies generally are required to publish a notice of 
proposed rulemaking in the Federal Register that solicits public 
comment on the proposed regulatory amendments, considers public 
comments in deciding on the content of the final amendments, and 
publishes the final amendments at least 30 days prior to their 
effective date. However, section 553(a)(1) of the APA provides that the 
standard prior notice and comment procedures do not apply to an agency 
rulemaking to the extent that it involves a foreign affairs function of 
the United States. CBP has determined that these interim regulations 
involve a foreign affairs function of the United States because they 
implement preferential tariff treatment and customs related provisions 
of the USMCA, a specific international agreement. Therefore, the 
rulemaking requirements under the APA do not apply and this interim 
rule will be effective on July 1, 2020.
    CBP also has determined that there is good cause pursuant to 5 
U.S.C. 553(b)(B) to publish this rule without prior public notice and 
comment procedures. This rule is a nondiscretionary action as it sets 
forth the uniform regulations that the United States, Mexico, and 
Canada trilaterally agreed to implement without change. Given CBP's 
lack of discretion and that this rule sets forth the rules of origin 
that the public needs knowledge of to claim USMCA preferential tariff 
treatment, prior public notice and comment procedures for this rule are 
impracticable, unnecessary, and contrary to the public interest.
    For the same reasons, a delayed effective date is not required 
under 5 U.S.C. 553(d)(3). Pursuant to section 103(b)(2) of the USMCA 
Act, regulations implementing the USMCA Uniform Regulations regarding 
rules of origin must be effective no later than the date the USMCA 
enters into force, which is July 1, 2020. Failure to implement the CBP 
regulations by the July 1, 2020 entry into force date would be in 
violation of the USMCA and the USMCA Act, and would result in 
undesirable international consequences.

B. Executive Orders 13563, 12866, and 13771

    Executive Orders 13563 and 12866 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. Executive Order 13771 directs agencies to reduce 
regulation and control regulatory costs, and provides that ``for every 
one new regulation issued, at least two prior regulations be identified 
for elimination, and that the cost of planned regulations be prudently 
managed and controlled through a budgeting process.''
    Rules involving the foreign affairs function of the United States 
are exempt from the requirements of Executive Orders 13563, 12866, and 
13771. Because this document involves a foreign affairs function of the 
United States by implementing a specific international agreement, it is 
not subject to the provisions of Executive Orders 13563, 12866, and 
13771.

C. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.), as amended 
by the Small Business Regulatory Enforcement and Fairness Act of 1996, 
requires an agency to prepare and make available to the public a 
regulatory flexibility analysis that describes the effect of a proposed 
rule on small entities (i.e., small businesses, small organizations, 
and small governmental jurisdictions) when the agency is required to 
publish a general notice of proposed rulemaking for a rule. Since a 
notice of proposed rulemaking is not necessary for this rule, CBP is 
not required to prepare a regulatory flexibility analysis for this 
rule.

V. Signing Authority

    This rulemaking is being issued in accordance with 19 CFR 
0.1(a)(1), pertaining to the authority of the Secretary of the Treasury 
(or that of his or her delegate) to approve regulations related to 
certain customs revenue functions.

List of Subjects

19 CFR Part 181

    Administrative practice and procedure, Canada, Exports, Mexico, 
Reporting and recordkeeping requirements, Trade agreements.

19 CFR Part 182

    Administrative practice and procedure, Canada, Exports, Mexico, 
Reporting and recordkeeping requirements, Trade agreements.

    For the reasons stated above, amend part 181 and add a new part 182 
of title 19 of the Code of Federal Regulations (19 CFR parts 181 and 
182) as set forth below.

PART 181--NORTH AMERICAN FREE TRADE AGREEMENT

0
1. The general authority citation for part 181 continues to read as 
follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized 
Tariff Schedule of the United States), 1624, 3314;
* * * * *


Sec.  181.0   [Amended]

0
2. In Sec.  181.0, add a new second sentence.
    The revision reads as follows:


Sec.  181.0   Scope.

    * * * This part is not applicable to goods entered for consumption, 
or withdrawn from warehouse for consumption, on or after July 1, 2020.
* * * * *

0
3. Add part 182 to read as follows:

PART 182--UNITED STATES-MEXICO-CANADA AGREEMENT

Sec.
Subpart A--General Provisions
182.0 Scope.
182.1 [Reserved]
Subpart B--Import Requirements
182.11-182.16 [Reserved]
Subpart C--Export Requirements
182.21 [Reserved]
Subpart D--Post-Importation Duty Refund Claims
182.31-182.33 [Reserved]

[[Page 39694]]

Subpart E--Restrictions on Drawback and Duty-Deferral Programs
182.41-182.54 [Reserved]
Subpart F--Rules of Origin
182.61 Rules of origin.
182.62 [Reserved]
Subpart G--Origin Verifications and Determinations
182.71-182.74 [Reserved]
Subpart H--Textile and Apparel Goods
182.81-182.82 [Reserved]
182.82 [Reserved]
Subpart I--Automotive Goods
182.91-182.93 [Reserved]
Subpart J--Commercial Samples and Goods Returned after Repair or 
Alteration
182.101-182.102 [Reserved]
Subpart K--Penalties
182.111-182.114 [Reserved]

Appendix A to Part 182--Rules of Origin Regulations

    Authority: 19 U.S.C. 66, 1202 (General Note 3(i) and General 
Note 11, Harmonized Tariff Schedule of the United States (HTSUS)), 
1624, 4513, 4535; Section 182.61 also issued under 19 U.S.C. 4531, 
4532.

Subpart A--General Provisions


Sec.  182.0   Scope.

    This part implements the duty preference and related customs 
provisions applicable to imported and exported goods under the 
Agreement Between the United States of America, the United Mexican 
States, and Canada (USMCA), signed on December 10, 2019, and entered 
into force on July 1, 2020, and under the United States-Mexico-Canada 
Agreement Implementation Act (134 Stat. 11) (the Act). For goods 
entered for consumption, or withdrawn from warehouse for consumption, 
prior to July 1, 2020, please see the NAFTA provisions in part 181 of 
this chapter. Except as otherwise specified in this part, the 
procedures and other requirements set forth in this part are in 
addition to the CBP procedures and requirements of general application 
contained elsewhere in this chapter.


Sec.  182.1   [Reserved]

Subpart B--Import Requirements


Sec. Sec.  182.11-182.16   [Reserved]

Subpart C--Export Requirements


Sec.  182.21   [Reserved]

Subpart D--Post-Importation Duty Refund Claims


Sec. Sec.  182.31-182.33   [Reserved]

Subpart E--Restrictions on Drawback and Duty-Deferral Programs


Sec. Sec.  182.41-182.54   [Reserved]

Subpart F--Rules of Origin


Sec.  182.61   Rules of origin.

    The regulations, implementing the rules of origin provisions of 
General Note 11, Harmonized Tariff Schedule of the United States 
(HTSUS), and Chapters Four and Six of the USMCA, are contained in 
Appendix A to this part.


Sec.  182.62   [Reserved]

Subpart G--Origin Verifications and Determinations


Sec. Sec.  182.71-182.74   [Reserved]

Subpart H--Textile and Apparel Goods


Sec. Sec.  182.81-182.82   [Reserved]

Subpart I--Automotive Goods


Sec. Sec.  182.91-182.93   [Reserved]

Subpart J--Commercial Samples and Goods Returned after Repair or 
Alteration


Sec. Sec.  182.101-182.102   [Reserved]

Subpart K--Penalties


Sec. Sec.  182.111-182.114   [Reserved]

Appendix A to Part 182--Rules of Origin Regulations

Uniform Regulations Regarding the Interpretation, Application, and 
Administration of Chapter 4 (Rules of Origin) and Related Provisions in 
Chapter 6 (Textile and Apparel Goods) of the Agreement Between the 
United States of America, the United Mexican States, and Canada \1\
---------------------------------------------------------------------------

    \1\ Please note that the citing conventions in Appendix A might 
not conform to the ordinary citing conventions in the Code of 
Federal Regulations (CFR) because the language is added pursuant to 
an international agreement without revision.
---------------------------------------------------------------------------

Part I

Section 1. Definitions and Interpretations

    (1) Definitions. The following definitions apply in these 
Regulations,
    accessories, spare parts, tools, instructional or other 
information materials means goods that are delivered with a good, 
whether or not they are physically affixed to that good, and that 
are used for the transport, protection, maintenance or cleaning of 
the good, for instruction in the assembly, repair or use of that 
good, or as replacements for consumable or interchangeable parts of 
that good;
    adjusted to exclude any costs incurred in the international 
shipment of the good means, with respect to the transaction value of 
a good, adjusted by
    (a) deducting the following costs if those costs are included in 
the transaction value of the good:
    (i) The costs of transporting the good after it is shipped from 
the point of direct shipment,
    (ii) the costs of unloading, loading, handling and insurance 
that are associated with that transportation, and
    (iii) the cost of packing materials and containers, and
    (b) if those costs are not included in the transaction value of 
the good, adding
    (i) the costs of transporting the good from the place of 
production to the point of direct shipment,
    (ii) the costs of loading, unloading, handling and insurance 
that are associated with that transportation, and
    (iii) the costs of loading the good for shipment at the point of 
direct shipment;
    Agreement means the United States-Mexico-Canada Agreement; \2\
---------------------------------------------------------------------------

    \2\ Please be aware that, in other contexts, the United States-
Mexico-Canada Agreement is referred to by its official name, the 
Agreement Between the United States of America, the United Mexican 
States, and Canada.
---------------------------------------------------------------------------

    applicable change in tariff classification means, with respect 
to a non-originating material used in the production of a good, a 
change in tariff classification specified in a rule established in 
Schedule I (PSRO Annex) for the tariff provision under which the 
good is classified;
    aquaculture means the farming of aquatic organisms, including 
fish, molluscs, crustaceans, other aquatic invertebrates and aquatic 
plants from seed stock such as eggs, fry, fingerlings, or larvae, by 
intervention in the rearing or growth processes to enhance 
production such as regular stocking, feeding, or protection from 
predators;
    costs incurred in packing means, with respect to a good or 
material, the value of the packing materials and containers in which 
the good or material is packed for shipment and the labor costs 
incurred in packing it for shipment, but does not include the costs 
of preparing and packaging it for retail sale;
    Customs Valuation Agreement means the Agreement on 
Implementation of Article VII of the General Agreement on Tariffs 
and Trade, set out in Annex 1A to the WTO Agreement;
    customs value means
    (a) in the case of Canada, value for duty as defined in the 
Customs Act, except that for the purpose of determining that value 
the reference in section 55 of that Act to ``in

[[Page 39695]]

accordance with the regulations made under the Currency Act'' is to 
be read as a reference to ``in accordance with subsection 2(1) of 
these CUSMA Rules of Origin Regulations'',
    (b) in the case of Mexico, the valor en aduana as determined in 
accordance with the Ley Aduanera, converted, if such value is not 
expressed in Mexican currency, to Mexican currency at the rate of 
exchange determined in accordance with subsection 2(1), and
    (c) in the case of the United States, the value of imported 
merchandise as determined by the U.S. Customs and Border Protection 
in accordance with section 402 of the Tariff Act of 1930, as 
amended, converted, if that value is not expressed in United States 
currency, to United States currency at the rate of exchange 
determined in accordance with subsection 2(1);
    days means calendar days, and includes Saturdays, Sundays and 
holidays;
    direct labor costs means costs, including fringe benefits, that 
are associated with employees who are directly involved in the 
production of a good;
    direct material costs means the value of materials, other than 
indirect materials and packing materials and containers, that are 
used in the production of a good;
    direct overhead means costs, other than direct material costs 
and direct labor costs, that are directly associated with the 
production of a good;
    enterprise means an entity constituted or organized under 
applicable law, whether or not for profit, and whether privately-
owned or governmentally-owned or controlled, including a 
corporation, trust, partnership, sole proprietorship, joint venture, 
association or similar organization;
    excluded costs means, with respect to net cost or total cost, 
sales promotion, marketing and after-sales service costs, royalties, 
shipping and packing costs and non-allowable interest costs;
    fungible goods means goods that are interchangeable for 
commercial purposes with another good and the properties of which 
are essentially identical;
    fungible materials means materials that are interchangeable with 
another material for commercial purposes and the properties of which 
are essentially identical;
    Harmonized System means the Harmonized Commodity Description and 
Coding System, including its General Rules of Interpretation, 
Section Notes, Chapter Notes and Subheading Notes, as set out in
    (a) in the case of Canada, the Customs Tariff,
    (b) in the case of Mexico, the Tarifa de la Ley de los Impuestos 
Generales de Importaci[oacute]n y de Exportaci[oacute]n, and
    (c) in the case of the United States, the Harmonized Tariff 
Schedule of the United States;
    identical goods means, with respect to a good, including the 
valuation of a good, goods that
    (a) are the same in all respects as that good, including 
physical characteristics, quality and reputation but excluding minor 
differences in appearance,
    (b) were produced in the same country as that good, and
    (c) were produced
    (i) by the producer of that good, or
    (ii) by another producer, if no goods that satisfy the 
requirements of paragraphs (a) and (b) were produced by the producer 
of that good;
    identical materials means, with respect to a material, including 
the valuation of a material, materials that
    (a) are the same as that material in all respects, including 
physical characteristics, quality and reputation but excluding minor 
differences in appearance,
    (b) were produced in the same country as that material, and
    (c) were produced
    (i) by the producer of that material, or
    (ii) by another producer, if no materials that satisfy the 
requirements of paragraphs (a) and (b) were produced by the producer 
of that material;
    incorporated means, with respect to the production of a good, a 
material that is physically incorporated into that good, and 
includes a material that is physically incorporated into another 
material before that material or any subsequently produced material 
is used in the production of the good;
    indirect material means a material used or consumed in the 
production, testing or inspection of a good but not physically 
incorporated into the good, or a material used or consumed in the 
maintenance of buildings or the operation of equipment associated 
with the production of a good, including
    (a) fuel and energy,
    (b) tools, dies, and molds,
    (c) spare parts and materials used or consumed in the 
maintenance of equipment and buildings,
    (d) lubricants, greases, compounding materials and other 
materials used or consumed in production or used to operate 
equipment and buildings,
    (e) gloves, glasses, footwear, clothing, safety equipment, and 
supplies,
    (f) equipment, devices and supplies used or consumed for testing 
or inspecting the goods,
    (g) catalysts and solvents, and
    (h) any other material that is not incorporated into the good 
but if the use in the production of the good can reasonably be 
demonstrated to be part of that production;
    interest costs means all costs paid or payable by a person to 
whom credit is, or is to be advanced, for the advancement of credit 
or the obligation to advance credit;
    intermediate material means a material that is self-produced and 
used in the production of a good, and designated as an intermediate 
material under subsection 8(6);
    location of the producer means,
    (a) the place where the producer uses a material in the 
production of the good; or
    (b) the warehouse or other receiving station where the producer 
receives materials for use in the production of the good, provided 
that it is located within a radius of 75 km (46.60 miles) from the 
production site.
    material means a good that is used in the production of another 
good, and includes a part or ingredient;
    month means a calendar month;
    national means a natural person who is a citizen or permanent 
resident of a USMCA 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 means total cost minus sales promotion, marketing and 
after-sales service costs, royalties, shipping and packing costs, 
and non-allowable interest costs that are included in the total 
cost;
    net cost of a good means the net cost that can be reasonably 
allocated to a good using the method set out in subsection 7(3) 
(Regional Value Content);
    net cost method means the method of calculating the regional 
value content of a good that is set out in subsection 7(3) (Regional 
Value Content);
    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 interest rate issued by the federal 
government for comparable maturities of the country in which the 
producer is located;
    non-originating good means a good that does not qualify as 
originating under these Regulations;
    non-originating material means a material that does not qualify 
as originating under these Regulations;
    originating good means a good that qualifies as originating 
under these Regulations;
    originating material means a material that qualifies as 
originating under these Regulations;
    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;
    person means a natural person or an enterprise;
    person of a USMCA country means a national, or an enterprise 
constituted or organized under the laws of a USMCA 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 engages in the production of a good;
    production means growing, cultivating, raising, mining, 
harvesting, fishing, trapping, hunting, capturing, breeding, 
extracting, manufacturing, processing, or assembling a good, or 
aquaculture;
    reasonably allocate means to apportion in a manner appropriate 
to the circumstances;

[[Page 39696]]

    recovered material means a material in the form of one or more 
individual parts that results from:
    (a) The disassembly of a used good into individual parts; and
    (b) the cleaning, inspecting, testing or other processing of 
those parts as necessary for improvement to sound working condition;
    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;
    remanufactured good means a good classified in HS Chapters 84 
through 90 or under heading 94.02 except goods classified under HS 
headings 84.18, 85.09, 85.10, and 85.16, 87.03 or subheadings 
8414.51, 8450.11, 8450.12, 8508.11, and 8517.11, that is entirely or 
partially composed of recovered materials and:
    (a) Has a similar life expectancy and performs the same as or 
similar to such a good when new; and
    (b) has a factory warranty similar to that applicable to such a 
good when new;
    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 the 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 or similar agreements, made as consideration 
for the use of, or right to use, a copyright, literary, artistic, or 
scientific work, patent, trademark, design, model, plan, or secret 
formula or process, excluding those payments under technical 
assistance or similar agreements that can be related to specific 
services such as
    (a) personnel training, without regard to where the training is 
performed, or
    (b) if performed in the territory of one or more of the USMCA 
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, or sales aid 
information); establishment and protection of logos and trademarks; 
sponsorships; wholesale and retail restocking charges; or 
entertainment;
    (b) sales and marketing incentives; consumer, retailer or 
wholesaler rebates; or merchandise incentives;
    (c) salaries and wages, sales commissions, bonuses, benefits 
(for example, medical, insurance, or pension), travelling and living 
expenses, or 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, if those 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, if those 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, if those 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, if those 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, if 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, if 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 these Regulations that are 
applied to determine whether the good is an originating good include 
a regional value content requirement;
    tariff provision means a heading, subheading or tariff item;
    territory means:
    (a) For Canada, the following zones or waters as determined by 
its domestic law and consistent with international law:
    (i) The land territory, air space, internal waters, and 
territorial sea of Canada,
    (ii) the exclusive economic zone of Canada, and
    (iii) the continental shelf of Canada;
    (b) for Mexico,
    (i) the land territory, including the states of the Federation 
and Mexico City,
    (ii) the air space, and
    (iii) the internal waters, territorial sea, and any areas beyond 
the territorial seas of Mexico within which Mexico may exercise 
sovereign rights and jurisdiction, as determined by its domestic 
law, consistent with the United Nations Convention on the Law of the 
Sea, done at Montego Bay on December 10, 1982; and
    (c) for 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) the territorial sea and air space of the United States and 
any area beyond the territorial sea within which, in accordance with 
customary international law as reflected in the United Nations 
Convention on the Law of the Sea, the United States may exercise 
sovereign rights or jurisdiction.
    total cost means all product costs, period costs, and other 
costs incurred in the territory of one or more of the USMCA 
countries, where:
    (a) Product costs are costs that are associated with the 
production of a good and include the value of materials, direct 
labor costs, and direct overheads;
    (b) period costs are costs, other than product costs, that are 
expensed in the period in which they are incurred, such as selling 
expenses and general and administrative expenses; and
    (c) other costs are all costs recorded on the books of the 
producer that are not product costs or period costs, such as 
interest.
    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;
    transaction value means the customs value as determined in 
accordance with the Customs Valuation Agreement, that is, the price 
actually paid or payable for a good or

[[Page 39697]]

material with respect to a transaction of the producer of the good, 
adjusted in accordance with the principles of Articles 8(1), 8(3), 
and 8(4) of the Customs Valuation Agreement, regardless of whether 
the good or material is sold for export;
    transaction value method means the method of calculating the 
regional value content of a good that is set out in subsection 7(2) 
(Regional Value Content);
    used means used or consumed in the production of a good;
    USMCA country means a Party to the Agreement;
    value means the value of a good or material for the purpose of 
calculating customs duties or for the purpose of applying these 
Regulations.
    verification of origin means a verification of origin of goods 
under
    (a) in the case of Canada, paragraph 42.1(1)(a) of the Customs 
Act,
    (b) in the case of Mexico, Article 5.9 of the Agreement, and
    (c) in the case of the United States, section 509 of the Tariff 
Act of 1930, as amended.
    (2) Interpretation: ``similar goods'' and ``similar materials''. 
For the 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 the purpose of determining whether goods or materials 
are similar.
    (3) Other definitions. For the purposes of these Regulations,
    (a) chapter, unless otherwise indicated, refers to a chapter of 
the Harmonized System;
    (b) heading refers to any four-digit number set out in the 
``Heading'' column in the Harmonized System, or the first four 
digits of any tariff provision;
    (c) subheading refers to any six-digit number, set out in the 
``H.S. Code'' column in the Harmonized System or the first six 
digits of any tariff provision;
    (d) tariff item refers to the first eight digits in the tariff 
classification number under the Harmonized System as implemented by 
each USMCA country;
    (e) any reference to a tariff item in Chapter Four of the 
Agreement or these Regulations that includes letters is to be 
reflected as the appropriate eight-digit number in the Harmonized 
System as implemented in each USMCA country; and
    (f) books refers to,
    (i) with respect to the books of a person who is located in a 
USMCA 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 X with 
respect to the territory of the USMCA 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 X with respect to the 
territory of the USMCA 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 USMCA 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, if there are no such 
principles, in accordance with the International Accounting 
Standards, and
    (B) financial statements, including note disclosures, that are 
prepared in accordance with generally accepted accounting principles 
applied in that location or, if there are no such principles, in 
accordance with the International Accounting Standards.
    (4) Use of examples. If an example, referred to as an 
``Example'', is set out in these Regulations, the example is for the 
purpose of illustrating the application of a provision, and if there 
is any inconsistency between the example and the provision, the 
provision prevails to the extent of the inconsistency.
    (5) References to domestic laws. Except as otherwise provided, 
references in these Regulations to domestic laws of the USMCA 
countries apply to those laws as they are currently in effect and as 
they may be amended or superseded.
    (6) Calculation of Total Cost. For the purposes of subsections 
5(11), 7(11) and 8(8),
    (a) total cost consists of all product costs, period costs and 
other costs that are recorded, except as otherwise provided in 
subparagraphs (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, is the 
value determined in accordance with subsections 8(1) and 8(2),
    (ii) the value of intermediate materials used in the production 
of the good or material with respect to which total cost is being 
calculated must be calculated in accordance with subsection 8(6),
    (iii) the value of indirect materials and the value of packing 
materials and containers is to 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), is to 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 must be deducted from total cost, and losses 
related to currency conversion that are related to the production of 
the good must be included in total cost;
    (e) the value of materials with respect to which production is 
accumulated under section 9 must 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) Period for the calculation of total cost. For the purpose of 
calculating total cost under subsections 5(11) and 7(11) and 8(8),
    (a) if the regional value content of the good is calculated on 
the basis of the net cost method and the producer has elected under 
subsection 7(15), 16(1) or (3) to calculate the regional value 
content over a period, the total cost must be calculated over that 
period; and
    (b) in any other case, the producer may elect that the total 
cost be calculated over
    (i) a one-month period,
    (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) Election not modifiable. An election 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 election is made.
    (9) Election considered made with respect to period. If a 
producer chooses a one, three or six-month period under subsection 
(7) with respect to a good or material, the producer is 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) Election considered made with respect to cost. With respect 
to a good exported to a USMCA country, an election to average is 
considered to have been made
    (a) in the case of an election referred to in subsection 16(1) 
or (3), if the election is received by the customs administration of 
that USMCA country; and
    (b) in the case of an election referred to in subsection 1(7), 
7(15) or 16(10), if the customs administration of that USMCA country 
is informed in writing during the course of a verification of origin 
of the good that the election has been made.

Section 2. Conversion of Currency

    2 (1) Conversion of currency. If the value of a good or a 
material is expressed in a currency other than the currency of the 
country where the producer of the good is located, that value must 
be converted to the currency of the country in which that producer 
is located, based on the following rates of exchange:
    (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 the purpose 
of recording that sale or purchase, or
    (b) in the case of a material that is acquired by the producer 
other than by a purchase,
    (i) if the producer used a rate of exchange for the purpose 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, or
    (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

[[Page 39698]]

the Banco de Mexico in the Diario Oficial de la Federaci[oacute]n, 
under the title ``TIPO de cambio para solventar obligaciones 
denominadas en moneda extranjera pagaderas en la Rep[uacute]blica 
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) Information in other currency in statement. If a producer of 
a good has a statement referred to in section 9 that includes 
information in a currency other than the currency of the country in 
which that producer is located, the currency must be converted to 
the currency of the country in which the producer is located based 
on the following rates of exchange:
    (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 must be the rate used by the 
producer for the purpose of recording the purchase; or
    (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) and the producer used a rate of exchange for the purpose of 
recording a transaction in that other currency that occurred within 
30 days of the date on which the producer acquired the material, the 
rate of exchange must be that rate, or
    (ii) in any other case,
    (A) with respect to a producer located in Canada, the rate of 
exchange is the rate 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 is the rate 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 is the rate 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) if the producer used a rate of exchange for the purpose of 
recording a transaction in that other currency that occurred within 
30 days of the date on which the producer acquired the material, the 
rate of exchange must be that rate, and
    (ii) in any other case,
    (A) with respect to a producer located in Canada, the rate of 
exchange must be the rate 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 must be the rate 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 must be the rate referred to in 31 U.S.C. 5151 for 
the date on which the material was shipped directly to the producer.

Part II

Section 3. Originating Goods

    3(1) Wholly obtained goods. A good is originating in the 
territory of a USMCA country if the good satisfies all other 
applicable requirements of these Regulations and is:
    (a) A mineral good or other naturally occurring substance 
extracted in or taken from the territory of one or more of the USMCA 
countries;
    (b) a plant, plant good, vegetable, or fungus, grown, harvested, 
picked, or gathered in the territory of one or more of the USMCA 
countries;
    (c) a live animal born and raised in the territory of one or 
more of the USMCA countries;
    (d) a good obtained from a live animal in the territory of one 
or more of the USMCA countries;
    (e) an animal obtained from hunting, trapping, fishing, 
gathering or capturing in the territory of one or more of the USMCA 
countries;
    (f) a good obtained from aquaculture in the territory of one or 
more of the USMCA countries;
    (g) fish, shellfish or other marine life taken from the sea, 
seabed or subsoil outside the territories of the USMCA countries 
and, under international law, outside the territorial sea of non-
USMCA countries, by vessels that are registered, listed, or recorded 
with a USMCA country and entitled to fly the flag of that USMCA 
country;
    (h) a good produced from goods referred to in paragraph (g) on 
board a factory ship where the factory ship is registered, listed, 
or recorded with a USMCA country and entitled to fly the flag of 
that USMCA country;
    (i) a good, other than fish, shellfish or other marine life, 
taken by a USMCA country or a person of a USMCA country from the 
seabed or subsoil outside the territories of the USMCA countries, if 
that USMCA country has the right to exploit that seabed or subsoil;
    (j) waste and scrap derived from:
    (i) Production in the territory of one or more of the USMCA 
countries, or
    (ii) used goods collected in the territory of one or more of the 
USMCA countries, provided the goods are fit only for the recovery of 
raw materials; or
    (k) a good produced in the territory of one or more of the USMCA 
countries, exclusively from a good referred to in any of paragraphs 
(a) through (j), or from their derivatives, at any stage of 
production.
    (2) Goods produced from non-originating materials. A good, 
produced entirely in the territory of one or more of the USMCA 
countries, is originating in the territory of a USMCA country if 
each of the non-originating materials used in the production of the 
good satisfies all applicable requirements of Schedule I (PSRO 
Annex), and the good satisfies all other applicable requirements of 
these Regulations.
    (3) Goods produced exclusively from originating materials. A 
good is originating in the territory of a USMCA country if the good 
is produced entirely in the territory of one or more of the USMCA 
countries exclusively from originating materials and the good 
satisfies all other applicable requirements of these Regulations.
    (4) Exceptions to the change in tariff classification 
requirement. Except in the case of a good of any of Chapters 61 
through 63, a good is originating in the territory of a USMCA 
country if:
    (a) One or more of the non-originating materials used in the 
production of that good cannot satisfy the change in tariff 
classification requirements set out in Schedule I (PSRO Annex) 
because both the good and its materials are classified in the same 
subheading or same heading that is not further subdivided into 
subheadings, and,
    (i) the good is produced entirely in the territory of one or 
more of the USMCA countries;
    (ii) the regional value content of the good, calculated in 
accordance with section 7 (Regional Value Content), is not less than 
60 percent if the transaction value method is used, or not less than 
50 percent if the net cost method is used; and
    (iii) the good satisfies all other applicable requirements of 
these Regulations; or
    (b) it was imported into the territory of a USMCA country in an 
unassembled or a disassembled form but classified as an assembled 
good in accordance with rule 2(a) of the General Rules of 
Interpretation for the Harmonized System and,
    (i) the good is produced entirely in the territory of one or 
more of the USMCA countries;
    (ii) the regional value content of the good, calculated in 
accordance with section 7 (Regional Value Content), is not less than 
60 percent if the transaction value method is used, or not less than 
50 percent if the net cost method is used; and
    (iii) the good satisfies all other applicable requirements of 
these Regulations.
    (5) Interpretation of goods and parts of goods. For the purposes 
of paragraph (4)(a),
    (a) the determination of whether a heading or subheading 
provides for a good and its parts is to 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) if, 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 is to be considered to cover 
only the goods and parts of the goods that are themselves classified 
under that subheading.

[[Page 39699]]

    (6) Requirement to meet one rule. For the purposes of subsection 
(2), if Schedule I (PSRO Annex) 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.
    (7) Special rule for certain goods. A good is originating in the 
territory of a USMCA country if the good is referred to in Schedule 
II and is imported from the territory of a USMCA country.
    (8) Self-produced material considered as a material. For the 
purpose 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 that material, be considered 
as a material used in the production of a good into which the self-
produced material is incorporated.
    (9) Each of the following examples is an ``Example'' as referred 
to in subsection 1(4).

Example 1: Subsection 3(2) Regarding the `component that determines 
the tariff classification' of a textile or apparel good)
    Producer A, located in a USMCA country, produces women[acute]s 
wool overcoats of subheading 6202.11 from two different fabrics, one 
for the body and another for the sleeves. Both fabrics are produced 
using originating and non-originating materials. The 
overcoat[acute]s body is made of woven wool and silk fabric, and the 
sleeves are made of knit cotton fabric.
    For the purpose of determining if the women[acute]s wool 
overcoats are originating goods, Producer A must take into account 
Note 2 of Chapter 62 of Schedule I, which indicates that the 
applicable rule will apply only to the component that determines the 
tariff classification of the good and that the component must 
satisfy the tariff change requirements set out in the rule for that 
good.
    The woven fabric (80% wool and 20% silk) used for the body is 
the component of the women[acute]s wool overcoat that determines its 
tariff classification under subheading 6202.11, because it 
constitutes the predominant material by weight and makes up the 
largest surface area of the overcoat. This fabric is made by 
Producer A from originating wool yarn classified in heading 51.06 
and non-originating silk yarn classified in heading 50.04.
    Since the knit cotton fabric used in the sleeves is not the 
component that determines the tariff classification of the good, it 
does not need to meet the requirements set out in the rule for the 
good.
    Producer A must determine whether the non-originating materials 
used in the production of the component that determines the tariff 
classification of the women[acute]s wool overcoats (the woven 
fabric) satisfy the requirements established in the product-specific 
rule of origin, which requires both a change in tariff 
classification from any other chapter, except from some headings and 
chapters under which certain yarns and fabrics are classified, and a 
requirement that the good be cut or knit to shape and sewn or 
otherwise assembled in the territory of one or more of the USMCA 
countries. The non-originating silk yarn of heading 50.04 used by 
Producer A satisfies the change in tariff classification 
requirement, since heading 50.04 is not excluded under the product-
specific rule of origin. Additionally, the overcoats are cut and 
sewn in the territory of one of the USMCA countries, and therefore 
the women[acute]s wool overcoats would be considered to be 
originating goods.

Example 2: (Subsection 3(2))
    Producer A, located in a USMCA country, produces T-shirts of 
subheading 6109.10 from knit cotton and polyester fabric (60% cotton 
and 40% polyester), which is also produced by Producer A using 
originating cotton yarn of heading 52.05 and polyester yarn made of 
non-originating filaments of heading 54.02.
    As the t-shirt is made of a single fabric and classified under 
GRI 1 in subheading 6109.10, this fabric is the component that 
determines tariff classification. Therefore, to be considered 
originating by application of the tariff-shift rule for subheading 
6109.10, each of the non-originating materials used in the 
production of the t-shirt must undergo the required change in tariff 
classification.
    In this case, the non-originating polyester filaments of heading 
54.02 used in the production of the T-shirts do not satisfy the 
change in tariff classification set out in the product-specific rule 
of origin. In addition, the weight of the non-originating polyester 
is over the ``de minimis'' allowance. Therefore, the T-shirts do not 
qualify as originating goods.

Example 3: (subsection 3(2))--Note 2 contained in Section XI--
Textiles and Textile Articles (Chapter 50-63)
    Producer A, located in a USMCA country, produces fabrics of 
subheading 5211.42 from originating cotton and polyester yarns, and 
non-originating rayon filament. For the purpose of determining if 
the fabrics are originating goods, Producer A must consider Note 2 
of Section XI of Schedule I, which indicates a good of Chapter 50 
through 63 is considered as originating, regardless of whether the 
rayon filaments used in its production are non-originating 
materials, provided that the good meets the requirements of the 
applicable product-specific rule of origin.
    With the exception of the rayon filaments of heading 54.03, that 
Note 2 of Section XI of Schedule I allows, all of the materials used 
in the production of the fabrics are originating materials, and 
since General Interpretative Note (d) of Schedule I provides that a 
change in tariff classification of a product-specific rule of origin 
applies only to non-originating materials, the fabrics are 
considered to be originating goods.

Example 4: Subsection 3(2) Note 2 and 5 of Chapter 62 regarding the 
interpretation of the component that determines the tariff 
classification and the requirement for pockets.
    Producer A, located in a USMCA country, produces men[acute]s 
suits classified in subheading 6203.12, which are made of three 
fabrics: A non-originating fabric of subheading 5407.61 used to make 
a visible lining, an originating fabric of 5514.41 used to make the 
outer part of the suit and a non-originating fabric of subheading 
5513.21 used to make pocket bags.
    For the purpose of determining if the men[acute]s suits are 
originating goods, Producer A should take into account Note 2 of 
Chapter 62 of Schedule I, which indicates that the applicable rule 
will only apply to the component that determines the tariff 
classification of the good and that the component must satisfy the 
tariff change requirements set out in the rule for that good.
    The originating fabric used to make the outer part of the suit 
is the component of the suit that determines the tariff 
classification under subheading 6203.12, because it constitutes the 
predominant material by weight and is the largest surface area of 
the suit. The origin of the fabric used as visible lining is 
disregarded for the purpose of determining whether the suit is an 
originating good since that fabric is not considered the component 
that determines the tariff classification, and there are no Chapter 
notes related to visible lining for apparel goods.
    Additionally, Producer A uses a non-originating fabric of 
subheading 5513.21 for the pocket bags of the suits, so it should 
take into account the second paragraph of Note 5 of Chapter 62 of 
Schedule I, which requires that the pocket bag fabric must be formed 
and finished in the territory of one or more USMCA countries from 
yarn wholly formed in one or more USMCA countries.
    In this case, for the production of men[acute]s suits, Producer 
A uses non-originating fabric for the pockets, and such fabric was 
not formed and finished in the territory of one or more Parties, 
therefore the suits would be considered to be non-originating goods.
    Example 5 (subsection 3(7)): A wholesaler located in USMCA 
Country A imports non-originating storage units provided for in 
subheading 8471.70 from outside the territory of the USMCA 
countries. The wholesaler resells the storage units to a buyer in 
USMCA Country B. While in the territory of Country A, the storage 
units do not undergo any production and therefore do not meet the 
rule in Schedule I for goods of subheading 8471.70 when imported 
into the territory of USMCA Country B.
    Notwithstanding the rule in Schedule I, the storage units of 
subheading 8471.70 are considered originating goods when they are 
imported to the territory of USMCA Country B because they are 
referred to in Schedule II and were imported from the territory of 
another USMCA country.
    The buyer in USMCA Country B subsequently uses the storage units 
provided for in subheading 8471.70 as a material in the production 
of another good. For the purpose of determining whether the other 
good originates, the buyer in USMCA Country B may treat the storage 
units of subheading 8471.70 as originating materials.
    Example 6 subsection 3(8): Self-produced Materials as Materials 
for the purpose of Determining Whether Non-originating Materials 
Undergo an Applicable Change in Tariff Classification
    Producer A, located in a USMCA 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

[[Page 39700]]

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 the purpose 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 4. Treatment of Recovered Materials Used in the Production of a 
Remanufactured Good

    4(1) Treatment of recovered materials used in the production of 
remanufactured goods. A recovered material derived in the territory 
of one or more of the USMCA countries, will be treated as 
originating, provided that:
    (a) It is the result of a disassembly process of a used good 
into individual parts;
    (b) It has undergone certain processing, such as cleaning, 
inspection, testing or other improvement processing, to sound 
working condition; and
    (c) It is used in the production of, and incorporated into, a 
remanufactured good.
    (2) Recovered material not used in remanufactured good. In the 
case that the recovered material is not used or incorporated in the 
production of a remanufactured good, it is originating only if it 
satisfies the requirements established in Section 3, and satisfies 
all other applicable requirements in these Regulations.
    (3) Requirements of Schedule I (PSRO Annex). A remanufactured 
good is originating in the territory of a USMCA country only if it 
satisfies the applicable requirements established in Schedule I 
(PSRO Annex), and satisfies all other applicable requirements in 
these Regulations.
    (4) Each of the following examples is an ``Example'' as referred 
to in subsection 1(4)

Example 1: (Section 4)
    In July 2023, Producer A located in a USMCA country manufactures 
water pumps of subheading 8413.30 for use in automotive engines. In 
addition to selling new water pumps, Producer A also sells water 
pumps that incorporate used parts.
    To obtain the used parts, Producer A disassembles used water 
pumps in a USMCA country and cleans, inspects, and tests the 
individual parts. Accordingly, these parts qualify as recovered 
materials.
    The water pumps that Producer A manufactures incorporate the 
recovered materials, have the same life expectancy and performance 
as new water pumps, and are sold with a warranty that is similar to 
the warranty for new water pumps. The water pumps therefore qualify 
as remanufactured goods, and the recovered materials are treated as 
originating materials when determining whether the good qualifies as 
an originating good.
    In this case, because the water pumps are for use in an 
automotive good, the provisions of Part VI apply. Because the water 
pump is a part listed in Table B, the RVC required is 70% under the 
net cost method or 80% under the transaction value method.
    The producer chooses to calculate the RVC using net cost as 
follows:

Water pump net cost = $1,000
Value of recovered materials = $600
Value other originating materials = $20
Value of non-originating materials = $280
RVC = (NC-VNM)/NC x 100
RVC = (1,000-280)/1,000 x 100 = 72%
    The remanufactured water pumps are originating goods because 
their regional value content exceeds the 70% requirement by net cost 
method.

    Example 2: Section 4
    Producer A located in a USMCA country, uses recovered materials 
derived in the territory of a USMCA country in the production of 
self-propelled ``bulldozers'' classified in subheading 8429.11.
    In the production of the bulldozers, Producer A uses recovered 
engines, classified in heading 84.07. The engines are recovered 
materials because they are disassembled from used bulldozers in a 
USMCA country and then subject to cleaning, inspecting and technical 
tests to verify their sound working condition.
    In addition to the recovered materials, other non-originating 
materials, classified in subheading 8413.91, are also used in the 
production of the bulldozers.
    Producer A's bulldozers are considered a ``remanufactured good'' 
because they are classified in a tariff provision set out in the 
definition of a remanufactured good, are partially composed of 
recovered materials, have a similar life expectancy and perform the 
same as or similar to new self-propelled bulldozers, and have a 
factory warranty similar to new self-propelled bulldozers.
    Once the recovered engines are used in the production of, and 
incorporated into, the remanufactured bulldozers, the recovered 
engines would be treated considered as originating materials for the 
purpose of determining if the remanufactured bulldozers are 
originating.
    The rule of origin set out in in Schedule I for subheading 
8429.11 specifies a change in tariff classification from any other 
subheading.
    In this case, because the recovered engines are treated as 
originating materials, and the non-originating materials, classified 
in subheading 8413.91, satisfy the requirements set out in Schedule 
I, the remanufactured bulldozers are originating goods.

Section 5. De Minimis

    5(1) De minimis rule for non-originating materials. Except as 
otherwise provided in subsection (3) (Exceptions), a good is 
originating in the territory of a USMCA country if
    (a) 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 USMCA countries is 
not more than ten percent
    (i) of the transaction value of the good, determined in 
accordance with Schedule III (Value of Goods), and adjusted to 
exclude any costs incurred in the international shipment of the 
good, or
    (ii) of the total cost of the good;
    (b) if the good is also subject to a regional content 
requirement under the rule in which the applicable change in tariff 
classification is specified, the value of those non-originating 
materials is to be taken into account in calculating the regional 
value content of the good in accordance with the method set out for 
that good; and
    (c) the good satisfies all other applicable requirements of 
these Regulations.
    (2) Only one rule to satisfy. If Schedule I (PSRO Annex) sets 
out two or more alternative rules for the tariff provision under 
which the good is classified, and the good is considered an 
originating good under one of those rules in accordance with 
subsection (1), it need not satisfy the requirements of any 
alternative rule to be originating.
    (3) Exceptions. Subsections (1) and (2) do not apply to:
    (a) A non-originating material of heading 04.01 through 04.06, 
or a non-originating material that is a dairy preparation containing 
over 10 percent by dry weight of milk solids of subheading 1901.90 
or 2106.90, used in the production of a good of heading 04.01 
through 04.06;
    (b) a non-originating material of heading 04.01 through 04.06, 
or a non-originating material that is a dairy preparation containing 
over 10 percent by dry weight of milk solids of subheading 1901.90 
or 2106.90, used in the production of a good of:
    (i) Infant preparations containing over 10 percent by dry weight 
of milk solids of subheading 1901.10,
    (ii) mixes and doughs, containing over 25 percent by dry weight 
of butterfat, not put up for retail sale of subheading 1901.20,
    (iii) dairy preparations containing over 10 percent by dry 
weight of milk solids of subheading 1901.90 or 2106.90,
    (iv) goods of heading 21.05,
    (v) beverages containing milk of subheading 2202.90, or
    (vi) animal feeds containing over 10 percent by dry weight of 
milk solids of subheading 2309.90;
    (c) a non-originating material of any of heading 08.05 and 
subheadings 2009.11 through 2009.39 that is used in the production 
of a good of any of subheadings 2009.11 through 2009.39 or a fruit 
or vegetable juice of any single fruit or vegetable, fortified with 
minerals or vitamins, concentrated or unconcentrated, of subheading 
2106.90 or 2202.90;
    (d) a non-originating material of Chapter 9 that is used in the 
production of instant coffee, not flavored, of subheading 2101.11;
    (e) a non-originating material of Chapter 15 that is used in the 
production of a good of any of headings 15.01 through 15.08, 15.12, 
15.14 or 15.15;
    (f) a non-originating material of heading 17.01 that is used in 
the production of a good of any of headings 17.01 through 17.03;

[[Page 39701]]

    (g) a non-originating material of Chapter 17 or heading 18.05 
that is used in the production of a good of subheading 1806.10;
    (h) a non-originating material that is pears, peaches or 
apricots of Chapter 8 or 20 that is used in the production of a good 
of heading 20.08;
    (i) a non-originating material that is a single juice ingredient 
of heading 20.09 that is used in the production of a good of any of 
subheading 2009.90, or tariff item 2106.90.cc or 2202.90.bb;
    (j) a non-originating material of heading 22.03 through 22.08 
that used in the production of a good provided for in any of heading 
22.07 or 22.08;
    (k) a non-originating material that is used in the production of 
a good of 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
    (l) a non-originating material that is used in the production of 
a good of any of Chapters 50 through 63.
    (4) De minimis rule for regional value content requirement. A 
good that is subject to a regional value content requirement is 
originating in the territory of a USMCA country and is not required 
to satisfy that requirement if
    (a) the value of all non-originating materials used in the 
production of the good is not more than ten per cent
    (i) of the transaction value of the good, determined in 
accordance with Schedule III (Value of the Good), and adjusted to 
exclude any costs incurred in the international shipment of the 
good, or
    (ii) of the total cost of the good, and
    (b) the good satisfies all other applicable requirements of 
these Regulations.
    (5) Value of non-originating materials for subsections (1) and 
(4). For the purposes of subsections (1) and (4), the value of non-
originating materials is to be determined in accordance with 
subsections 8(1) through (6).
    (6) De minimis rule for textile goods. A good of any of Chapters 
50 through 60 or heading 96.19, that contains non-originating 
materials that do not satisfy the applicable change in tariff 
classification requirements, will be considered originating in the 
territory of a USMCA country if:
    (a) The total weight of all those non-originating materials is 
not more than ten per cent of the total weight of the good, of which 
the total weight of elastomeric content may not exceed seven per 
cent of the total weight of the good; and
    (b) the good satisfies all other applicable requirements of 
these Regulations.
    (7) A good of any of Chapters 61 through 63, that contains non-
originating fibers or yarns in the component of the good that 
determines the tariff classification that do not undergo the 
applicable change in tariff classification requirements, will be 
considered originating in the territory of a USMCA country if:
    (a) The total weight of all those non-originating materials is 
not more than ten per cent of the total weight of that component, of 
which the elastomeric content may not exceed seven per cent; and
    (b) the good satisfies all other applicable requirements of 
these Regulations.
    (8) For purposes of subsection (7),
    (a) the component of a good that determines the tariff 
classification of that good is identified in accordance with the 
first of the following General Rules for the Interpretation of the 
Harmonized System under which the identification can be determined, 
namely, Rule 3(b), Rule 3(c) and Rule 4; and
    (b) if the component of the good that determines the tariff 
classification of the good is a blend of two or more yarns or 
fibers, all yarns and fibers used in the production of the component 
must be taken into account in determining the weight of fibers and 
yarns in that component.
    (9) For the purpose of determining if a good of Chapter 61 
through 63 is originating, the requirements set out in Schedule I 
(PSRO Annex) only apply to the component that determines the tariff 
classification of the good. Materials that are not part of the 
component that determines the tariff classification of the good are 
disregarded when determining if a good is originating. Similarly, 
for the purposes of Section 5 as applicable to a good of Chapters 61 
through 63, only the materials used in the component that determines 
the tariff classification are taken into account in the de minimis 
calculation.
    (10) Subsection (6) does not apply to sewing thread, narrow 
elastic bands, and pocket bag fabric subject to the requirements set 
out in Chapter 61 Notes 2 through 4, Chapter 62 Notes 3 through 5 or 
for coated fabric as set out in Chapter 63 Note 2 of Schedule I 
(PSRO Annex).
    (11) Calculation of ``Total Cost'', choice of methods. For the 
purposes of paragraph (1)(a)(ii) and subparagraph (4)(a)(ii), the 
total cost of a good is, at the choice of the producer of the good,
    (a) the total cost incurred with respect to all goods produced 
by the producer that can be reasonably allocated to that good in 
accordance with Schedule V; or
    (b) the aggregate of each cost that forms part of the total cost 
incurred with respect to that good that can be reasonably allocated 
to that good in accordance with Schedule V.
    (12) Calculation of total cost. Total cost under subsection (11) 
consists of the costs referred to in subsection 1(6), and is 
calculated in accordance with that subsection and subsection 1(7).
    (13) Value of non-originating materials--other methods. For the 
purpose of determining the value under subsection (1) of non-
originating materials that do not undergo an applicable change in 
tariff classification, if an inventory management method either 
recognized in the Generally Accepted Accounting Principles (GAAP) of 
the USMCA country where the production was performed or a method set 
out in Schedule VIII, is not being used to determine the value of 
those non-originating materials, the following methods are to be 
used:
    (a) If the value of those non-originating materials is being 
determined as a percentage of the transaction value of the good and 
the producer chooses under subsection 7(10) to use one of the 
methods recognized in the GAAP of the USMCA country where the 
material was produced, or a method set out in Schedule VII to 
determine the value of those non-originating materials for the 
purpose of calculating the regional value content of the good, the 
value of those non-originating materials must be determined in 
accordance with that method;
    (b) if the following conditions are met and if the value of 
those non-originating materials is equal to the sum of the values of 
non-originating materials, determined in accordance with the 
election under subparagraph (iv), divided by the number of units of 
the goods with respect to which the election is made
    (i) the value of those non-originating materials is being 
determined as a percentage of the total cost of the good,
    (ii) under the rule in which the applicable change in tariff 
classification is specified, the good is also subject to a regional 
value content requirement and paragraph (5)(a) does not apply with 
respect to that good,
    (iii) the regional value content of the good is calculated on 
the basis of the net cost method, and
    (iv) the producer elects under subsection 7(15), 16(1) or (10) 
that the regional value content of the good be calculated over a 
period;
    (c) if the conditions below are met the value of those non-
originating materials is the sum of the values of non-originating 
materials divided by the number of units produced during the period 
under subparagraph (iii):
    (i) The value of those non-originating materials is being 
determined as a percentage of the total cost of the good,
    (ii) under the rule in which the applicable change in tariff 
classification is specified, the good is not also subject to a 
regional value content requirement or paragraph (6)(a) applies with 
respect to that good, and
    (iii) the producer elects under paragraph 1(7)(b) that, for the 
purposes of subsection 5(11), the total cost of the good be 
calculated over a period; and
    (d) in any other case, the value of those non-originating 
materials may, at the choice of the producer, be determined in 
accordance with an inventory management method recognized in the 
GAAP of the USMCA country where the production was performed or one 
of the methods set out in Schedule VII.
    (14) Value of non-originating materials--production of the good. 
For the purposes of subsection (4), the value of the non-originating 
materials used in the production of the good may, at the choice of 
the producer, be determined in accordance with an inventory 
management method recognized in the GAAP of the USMCA country where 
the production was performed or one of the methods set out in 
Schedule VII
    (15) Examples illustrating de minimis rules. Each of the 
following examples is an ``Example'' as referred to in subsection 
1(4).

Example 1: Subsection 5(1)
    Producer A, located in a USMCA country, uses originating 
materials and non-originating materials in the production of 
aluminum powder of heading 76.03. The product-specific rule of 
origin set out in Schedule I for heading 76.03 specifies a change in 
tariff classification from any other

[[Page 39702]]

chapter. There is no applicable regional value content requirement 
for this heading. Therefore, in order for the aluminum powder to 
qualify as an originating good under the rule set out in Schedule I, 
Producer A may not use any non-originating material of Chapter 76 in 
the production of the aluminum powder.
    All of the materials used in the production of the aluminum 
powder are originating materials, with the exception of a small 
amount of aluminum scrap of heading 76.02, that is in the same 
chapter as the aluminum powder. Under subsection 5(1), if the value 
of the non-originating aluminum scrap does not exceed ten per cent 
of the transaction value of the aluminum powder or the total cost of 
the aluminum powder, whichever is applicable, the aluminum powder 
would be considered an originating good.

Example 2: Subsection 5(2)
    Producer A, located in a USMCA country, uses originating 
materials and non-originating materials in the production of fans of 
subheading 8414.59. There are two alternative rules set out in 
Schedule I for subheading 8414.59, one of which specifies a change 
in tariff classification from any other heading. The other rule 
specifies both a change in tariff classification from the subheading 
under which parts of the fans are classified and a regional value 
content requirement. In order for the fan to qualify as an 
originating good under the first of the alternative rules, all of 
the materials that are classified under the subheading for parts of 
fans and used in the production of the completed fan must be 
originating materials.
    In this case, all of the non-originating materials used in the 
production of the fan satisfy the change in tariff classification 
set out in the rule that specifies a change in tariff classification 
from any other heading, with the exception of one non-originating 
material that is classified under the subheading for parts of fans. 
Under subsection 5(1), if the value of the non-originating material 
that does not satisfy the change in tariff classification specified 
in the first rule does not exceed ten per cent of the transaction 
value of the fan or the total cost of the fan, whichever is 
applicable, the fan would be considered an originating good. 
Therefore, under subsection 5(2), the fan would not be required to 
satisfy the alternative rule that specifies both a change in tariff 
classification and a regional value content requirement.

Example 3: Subsection 5(2)
    Producer A, located in a USMCA country, uses originating 
materials and non-originating materials in the production of copper 
anodes of heading 74.02. The product-specific rule of origin set out 
in Schedule I for heading 74.02 specifies both a change in tariff 
classification from any other heading, except from heading 74.04, 
under which certain copper materials are classified, and a regional 
value content requirement. With respect to that part of the rule 
that specifies a change in tariff classification, in order for the 
copper anode to qualify as an originating good, any copper materials 
that are classified under heading 74.02 or 74.04 and that are used 
in the production of the copper anode must be originating materials.
    In this case, all of the non-originating materials used in the 
production of the copper anode satisfy the specified change in 
tariff classification, with the exception of a small amount of 
copper materials classified under heading 74.04. Subsection 5(1) 
provides that the copper anode can be considered an originating good 
if the value of the non-originating copper materials that do not 
satisfy the specified change in tariff classification does not 
exceed ten per cent of the transaction value of the copper anode or 
the total cost of the copper anode, whichever is applicable. In this 
case, the value of those non-originating materials that do not 
satisfy the specified change in tariff classification does not 
exceed the ten per cent limit.
    However, the rule set out in Schedule I for heading 74.02 
specifies both a change in tariff classification and a regional 
value content requirement. Under paragraph 5(1)(b), in order to be 
considered an originating good, the copper anode must also, except 
as otherwise provided in subsection 5(4), satisfy the regional value 
content requirement specified in that rule. As provided in paragraph 
5(1)(b), the value of the non-originating materials that do not 
satisfy the specified change in tariff classification, together with 
the value of all other non-originating materials used in the 
production of the copper anode, will be taken into account in 
calculating the regional value content of the copper anode.

Example 4: Subsection 5(4)
    Producer A, located in a USMCA country, primarily uses 
originating materials in the production of shoes of heading 64.05. 
The product-specific rule of origin set out in Schedule I for 
heading 64.05 specifies both a change in tariff classification from 
any heading other than headings 64.01 through 64.05 or subheading 
6406.10 and a regional value content requirement.
    With the exception of a small amount of materials of Chapter 39, 
all of the materials used in the production of the shoes are 
originating materials.
    Under subsection 5(4), if the value of all of the non-
originating materials used in the production of the shoes does not 
exceed ten per cent of the transaction value of the shoes or the 
total cost of the shoes, whichever is applicable, the shoes are not 
required to satisfy the regional value content requirement specified 
in the rule set out in Schedule I in order to be considered 
originating goods.

Example 5: Subsection 5(4)
    Producer A, located in a USMCA country, produces barbers' chairs 
of subheading 9402.10. The product-specific rule of origin set out 
in Schedule I for goods of subheading 9402.10 specifies a change in 
tariff classification from any other subheading. All of the 
materials used in the production of these chairs are originating 
materials, with the exception of a small quantity of non-originating 
materials that are classified as parts of barbers' chairs. These 
parts undergo no change in tariff classification because subheading 
9402.10 provides for both barbers' chairs and their parts.
    Although Producer A's barbers' chairs do not qualify as 
originating goods under the rule set out in Schedule I, paragraph 
3(4)(a) provides, among other things, that, if there is no change in 
tariff classification from the non-originating materials to the 
goods because the subheading under which the goods are classified 
provides for both the goods and their parts, the goods will qualify 
as originating goods if they satisfy a specified regional value 
content requirement.
    However, under subsection 5(4), if the value of the non-
originating materials does not exceed ten per cent of the 
transaction value of the barbers' chairs or the total cost of the 
barbers' chairs, whichever is applicable, the barbers' chairs will 
be considered originating goods and are not required to satisfy the 
regional value content requirement set out in subparagraph 
3(4)(a)(ii).

Example 6: Subsection 5(6):
    Producer A, located in a USMCA country, manufactures an infant 
diaper, classified in heading 96.19, consisting of an outer shell of 
94 percent nylon and 6 percent elastomeric fabric, by weight, and a 
terry knit cotton absorbent crotch. All materials used are produced 
in a USMCA country, except for the elastomeric fabric, which is from 
a non-USMCA country. The elastomeric fabric is only 6 percent of the 
total weight of the diaper. The product otherwise satisfies all 
other applicable requirements of these Regulations. Therefore, the 
product is considered originating from a USMCA country as per 
subsection (6).

Example 7: Subsection 5(6)
    Producer A, located in a USMCA country, produces cotton fabric 
of subheading 5209.11 from cotton yarn of subheading 5205.11. This 
cotton yarn is also produced by Producer A.
    The product-specific rule of origin set out in Schedule I for 
subheading 5209.11, under which the fabric is classified, specifies 
a change in tariff classification from any other heading outside 
52.08 through 52.12, except from certain headings under which 
certain yarns are classified, including cotton yarn of subheading 
5205.11.
    Therefore, with respect to that part of the rule that specifies 
a change in tariff classification, in order for the fabric to 
qualify as an originating good, the cotton yarn that is used by 
Producer A in the production of the fabric must be an originating 
material.
    At one point Producer A uses a small quantity of non-originating 
cotton yarn in the production of the cotton fabric. Under subsection 
5(6), if the total weight of the non-originating cotton yarn does 
not exceed ten per cent of the total weight of the cotton fabric, it 
would be considered an originating good.

Example 8: Subsections 5(7) and (8)
    Producer A, located in a USMCA country, produces women's dresses 
of subheading 6204.41 from fine wool fabric of heading 51.12. This 
fine wool fabric, also produced by Producer A, is the component of 
the dress that determines its tariff classification under subheading 
6204.41.
    The product-specific rule of origin set out in Schedule I for 
subheading 6204.41, under which the dress is classified, specifies 
both a change in tariff classification from any other chapter, 
except from those headings and chapters under which certain yarns 
and

[[Page 39703]]

fabrics, including combed wool yarn and wool fabric, are classified, 
and a requirement that the good be cut and sewn or otherwise 
assembled in the territory of one or more of the USMCA countries. In 
addition, narrow elastics classified in subheading 5806.20 or 
heading 60.02 and sewing thread classified in heading 52.04, 54.01 
or 55.08 or yarn classified in heading 54.02 that is used as sewing 
thread, must be formed and finished in the territory of one or more 
of the USMCA countries for the dress to be originating. Furthermore, 
if the dress has a pocket, the pocket bag fabric must be formed and 
finished in the territory of one or more of the USMCA countries for 
the dress to be originating.
    Therefore, with respect to that part of the rule that specifies 
a change in tariff classification, in order for the dress to qualify 
as an originating good, the combed wool yarn and the fine wool 
fabric made therefrom that are used by Producer A in the production 
of the dress must be originating materials. In addition, the sewing 
thread, narrow elastics and pocket bags that are used by Producer A 
in the production of the dress must also be formed and finished in 
the territory of one or more of the USMCA countries.
    At one point Producer A uses a small quantity of non-originating 
combed wool yarn in the production of the fine wool fabric. Under 
subsection 5(7), if the total weight of the non-originating combed 
wool yarn does not exceed ten per cent of the total weight of all 
the yarn used in the production of the component of the dress that 
determines its tariff classification, that is, the wool fabric, the 
dress would be considered an originating good.

Example 9: Subsection 5(7)
    Producer A, located in a USMCA country, manufactures women's 
knit sweaters, which have knit bodies and woven sleeves. The knit 
body is composed of 95 percent polyester and 5 percent spandex, by 
weight. The sleeves are made of non-USMCA woven fabric that is 100 
percent polyester. All materials of the knit body are from a USMCA 
country, except for the spandex, which is from a non-USMCA country. 
The sweater is cut and sewn in a USMCA country. Since the knit body 
gives the garment its essential character, the sweater is classified 
in subheading 6110.30. The product-specific rule of origin set out 
in Schedule I for subheading 6110.30 is that the product is both cut 
(or knit to shape) and sewn or otherwise assembled in the territory 
of one or more of the USMCA countries. The sleeves are disregarded 
in determining whether the sweater originates in a USMCA country 
because only the component that determines the tariff classification 
of the good must be originating and the de minimis provision is 
applied to that component. Moreover, the total weight of the spandex 
is less than 10 percent of the total weight of the knit body fabric, 
which is the component that determines the tariff classification of 
the sweater, and the spandex does not exceed seven percent of the 
total weight of good. Assuming that the women's knit sweater 
satisfies all other applicable requirements of these Regulations, 
the women's knit sweater is originating from the USMCA country.

Example 10: Subsection 5(9)
    A men's shirt of Chapter 61 is made using two different fabrics; 
one for the body and another for the sleeves. The component that 
determines the tariff classification of the men's shirt would be the 
fabric used for the body, as it constitutes the material that 
predominates by weight and makes up the largest surface area of the 
shirt`s exterior. If this fabric is produced using non-originating 
fibers and yarns that do not satisfy a tariff change rule, the de 
minimis provision would be calculated on the basis of the total 
weight of the non-originating fibers or yarns used in the production 
of the fabric that makes up the body of the shirt. The weight of 
these non-originating fibers or yarns must be ten percent or less of 
the total weight of that fabric and any elastomeric content must be 
seven per cent or less of the total weight of that fabric.
    Alternatively, if the shirt is made entirely of the same fabric, 
the component that determines the tariff classification of that 
shirt would be that fabric, as the shirt is made out of the same 
material throughout. Therefore, under this second scenario, the 
total weight of all non-originating fibers and yarns used in the 
production of the shirt that do not satisfy a tariff change rule, 
must be ten percent or less of the total weight of the shirt, and 
any elastomeric content must be seven per cent or less of the total 
weight of that shirt, for the shirt to be considered as an 
originating good.

Example 11: Subsection 5(9)
    Producer A, located in a USMCA country, produces women[acute]s 
blouses of subheading 6206.40 from a fabric also produced by 
Producer A using 90% by weight originating polyester yarns of 
subheading 5402.33, 3% by weight non-originating lyocell yarn of 
subheading 5403.49 and 7% by weight non-originating elastomeric 
filament yarn of subheading 5402.44. This fabric is the component of 
the women[acute]s blouses that determines its tariff classification 
under subheading 6206.40.
    The product-specific rule of origin of Schedule I applicable to 
the women[acute]s blouses of subheading 6206.40 requires a change in 
tariff classification from any other chapter, except from those 
headings and chapters under which certain yarns and fabrics, 
including polyester, lyocell and elastomeric filament yarns, are 
classified and a requirement that the good is cut and sewn or 
otherwise assembled in the territory of one or more of the USMCA 
countries.
    In this case, the non-originating lyocell yarns of subheading 
5403.49 and the non-originating elastomeric filament yarn of 
subheading 5402.44 do not satisfy the change in tariff 
classification required by the product-specific rule of origin of 
Schedule I, because the product specific rule of origin for heading 
62.06 excludes a change from Chapter 54 to heading 62.06.''
    However, according to subsection (7), a textile or apparel good 
classified in Chapters 61 through 63 of the Harmonized System that 
contains non-originating fibers or yarns in the component of the 
good that determines its tariff classification that do not satisfy 
the applicable change in tariff classification, will nonetheless be 
considered an originating good if the total weight of all those 
fibers or yarns is not more than 10 percent of the total weight of 
that component, of which the total weight of elastomeric content may 
not exceed 7 percent of the total weight of the component, and such 
good meets all the other applicable requirements of these 
Regulations.
    Since the weight of the non-originating materials used by 
Producer A does not exceed 10 percent of the total weight of the 
component that determines the tariff classification of the 
women[acute]s blouses, and the weight of elastomeric content also 
does not exceed 7 percent of such total weight, the women[acute]s 
blouses qualify as originating goods.

Example 12: Subsection 5(10)
    A producer located in a USMCA country manufactures boys' 
swimwear of subheading 6211.11 from fabric that has been woven in a 
USMCA country from yarn spun in a USMCA country; however, the 
producer uses non-originating narrow elastic of heading 60.02 in the 
waist-band of the swimwear. As a result of the use of non-
originating narrow elastic of heading 60.02 in the waistband, and 
provided the garment is imported into a USMCA country at least 18 
months after the Agreement enters into force, the swimwear is 
considered non-originating because it does not satisfy the 
requirement set out in Note 3 of Chapter 62. In addition, subsection 
5(7) is not applicable regarding the narrow elastic of 60.02 and the 
good is therefore a non-originating good.

Section 6. Sets of Goods, Kits or Composite Goods

    6 (1) This section applies to a good that is classified as a set 
as a result of the application of rule 3 of the General Rules for 
the Interpretation of the Harmonized System.
    (2) Requirements. Except as otherwise provided in Schedule I 
(PSRO Annex), a set is originating in the territory of one or more 
of the USMCA countries only if each good in the set is originating 
and both the set and the goods meet the other applicable 
requirements of these Regulations.
    (3) Exceptions. Notwithstanding, subsection 2, a set is only 
originating if the value of all the non-originating goods included 
in the set does not exceed 10 percent of the value of the set.
    (4) Value. For the purposes of subsection 3, the value of non-
originating goods in the set and the value of the set is to be 
calculated in the same manner as the value of non-originating 
materials determined in accordance with section 8 and the value of 
the good determined in accordance with section 7.
    (5) Examples. Each of the following examples is an ``Example'' 
as referred to in subsection 1(4).

Example 1 (paint set)
    Producer A assembles a paint set for arts and crafts. The set 
includes tubes of paint, paint brushes, and paper all presented in a 
reusable wooden box. The paint set for arts and crafts is classified 
in subheading 3210.00 as a result of the application of Rule 3 of 
the General Rules for the Interpretation of the Harmonized System 
and, as a result, Section 6 will apply with respect to such set. The 
paint, paper and wooden box are all originating as they each undergo 
the changes

[[Page 39704]]

required in the product-specific rules of origin in Schedule I. The 
paint brushes, which represent four percent of the value of the set, 
are produced in the territory of a non-USMCA country and are 
therefore non-originating. The set is nonetheless originating.

Example 2: Subsection 6(2)
    Producer A, located in a USMCA country, uses originating 
materials and non-originating materials to assemble a manicure set 
of subheading 8214.20. The set includes a nail nipper, cuticle 
scissors, a nail clipper and a nail file with cardboard support, all 
presented in a plastic case with zipper. The items are not 
classified as a set as a result of the application of rule 3 of the 
General Rules for the Interpretation of the Harmonized System. The 
Harmonized System specifies that manicure sets are classified in 
subheading 8214.20. This means that the specific rule of origin set 
out in Schedule I is applied. This rule requires a change in tariff 
classification from any other chapter. In order for the manicure set 
to qualify as an originating good under the rule set out in Schedule 
I, Producer A may not use any non-originating material of Chapter 82 
in the assembly of the manicure set.
    In this case, Producer A, located in a USMCA country, produces 
the nail nipper, the cuticle scissors and the nail clipper included 
in the set, and all qualify as originating. Despite being classified 
in the same chapter as the manicure set (chapter 82), the 
originating nail nipper, the cuticle scissors and the nail clipper 
satisfy the change in tariff classification applicable to the 
manicure set. The nail file with cardboard support (6805.20) and the 
plastic case with zipper (4202.12) are imported from outside the 
territories of the USMCA countries; however, these items are not 
classified in chapter 82, so they satisfy the applicable change in 
tariff classification. Therefore, the manicure set is an originating 
good.

Example 3: Pants set Section 6(2)
    Producer A makes a pants set, containing men's cotton denim 
trousers and a polyester belt, packed together for a retail sale. 
The trousers are made of cotton fabric formed and finished from yarn 
in a USMCA country. The sewing thread is formed and finished in a 
USMCA country. The pocket bag fabric is formed and finished in a 
USMCA country, of yarn wholly formed in a USMCA country. The 
trousers are cut and sewn in USMCA country A. A polyester webbing 
belt with a metal buckle is made in a non-USMCA country and shipped 
to USMCA country A, where it is threaded through the belt loops of 
the trousers. The value of the belt is 8% of the value of the 
trousers and belt combined.
    The men's trousers are classified under subheading 6203.42. The 
rule of origin set out in Schedule I for subheading 6203.42 requires 
that the trousers be made from fabric produced in a USMCA country 
from yarn produced in a USMCA country. The trousers satisfy the 
product-specific rules provided in Schedule I and are considered 
originating. However, the belt does not satisfy the rules and would 
not be considered originating. The set is nonetheless an originating 
good if the belt value is 10% or less of the value of the set. Since 
the value of the belt is 8% of the value of the set, the men's 
trousers and belt set would be treated as an originating good under 
the USMCA.

Example 4: Shirt and Tie Set Section 6(2)
    Producer A makes a boys' shirt and tie set in a USMCA country. 
The shirt is constructed from 55% cotton, 45% polyester, solid 
color, dyed, woven fabric, classified in subheading 5210.31. The 
fabric contains 73.2 total yarns per square centimeter and 76 metric 
yarns. The shirt is packaged in a retail polybag with a coordinating 
color, 100% polyester, woven fabric tie. The yarns used in the shirt 
fabric are spun in non-USMCA country and the fabric is woven and 
dyed in the same non-USMCA country. The shirt fabric is sent to the 
USMCA country where it is cut and sewn into finished garments. The 
coordinating tie is made in a non-USMCA country from fabric that is 
woven in that country from yarns that are spun in that country. The 
value of the coordinating tie is approximately 13% of the value of 
the set.
    The shirt is classified under heading 62.05. The shirt satisfies 
the product-specific rule for subheading 62.05 set out in Schedule I 
and is considered originating because it is wholly made from fabric 
of heading 5210.31 (not of square construction, containing more than 
70 warp ends and filling picks per square centimeter, of average 
yarn number exceeding 70 metric) and cut and sewn into finished 
garments in the USMCA country. On the other hand, the tie does not 
satisfy the product specific rule for heading 62.15 and would not be 
considered originating. For purposes of the sets rule, provided the 
tie is valued at 10% or less of the value of the set, the set will 
be treated as originating. However, since the value of the 
coordinating tie is approximately 13% of the value of the set, the 
shirt and tie set would not be treated as an originating good under 
the USMCA.

Example 5: Chef set Section 6(2)
    Producer A, located in a USMCA country, produces a chef set for 
retail sale using originating and non-originating materials. This 
set includes an apron, cooking gloves and a chef hat. The chef set 
is classified in heading 62.11 as a result of the application of 
rule 3 of the General Rules for the Interpretation of the Harmonized 
System. For this reason, subsection (3) applies to this set. Both 
the apron and cooking gloves meet the product-specific rules of 
origin for their respective product categories and are therefore 
considered to be originating. The chef hat, which represents 9.7 
percent of the value of the set, is produced in the territory of a 
non-USMCA country and is therefore non-originating. The set is 
nonetheless an originating good because less than ten percent of the 
value of the set is non-originating.

Part III

Section 7. Regional Value Content

    7 (1) Calculation. Except as otherwise provided in subsection 
(6), the regional value content of a good is to be calculated, at 
the choice of the importer, exporter or producer of the good, on the 
basis of either the transaction value method or the net cost method.
    (2) Transaction value method. The transaction value method for 
calculating the regional value content of a good is as follows:
RVC = (TV-VNM)/TV * 100

Where
RVC is the regional value content of the good, expressed as a 
percentage;
TV is the transaction value of the good, determined in accordance 
with Schedule III with respect to the transaction in which the 
producer of the good sold the good, adjusted to exclude any costs 
incurred in the international shipment of the good; and
VNM is the value of non-originating materials used by the producer 
in the production of the good, determined in accordance with section 
8.

    (3) Net cost method. The net cost method for calculating the 
regional value content of a good is as follows:

RVC = (NC-VNM)/NC * 100

Where

RVC is the regional value content of the good, expressed as a 
percentage;
NC is the net cost of the good, calculated in accordance with 
subsection (11); and
VNM is the value of non-originating materials used by the producer 
in the production of the good, determined, except as otherwise 
provided in sections 14 and 15 and, in accordance with section 8.

    (4) Non-originating materials--values not included. For the 
purpose of calculating the regional value content of a good under 
subsection (2) or (3), the value of non-originating materials used 
by a producer in the production of the good must not include
    (a) the value of any non-originating materials used by another 
producer in the production of originating materials that are 
subsequently acquired and used by the producer of the good in the 
production of that good; or
    (b) the value of any non-originating materials used by the 
producer in the production of a self-produced material that is an 
originating material and is designated as an intermediate material.
    (5) Self-produced material. For the purposes of subsection (4),
    (a) in the case of any self-produced material that is not 
designated as an intermediate material, only the value of any non-
originating materials used in the production of the self-produced 
material is to be included in the value of non-originating materials 
used in the production of the good; and
    (b) if a self-produced material that is designated as an 
intermediate material and is an originating material is used by the 
producer of the good with non-originating materials (whether or not 
those non-originating materials are produced by that producer) in 
the production of the good, the value of those non-originating 
materials is to be included in the value of non-originating 
materials.
    (6) Net cost method--when required. The regional value content 
of a good is to be calculated only on the basis of the net cost 
method if the rule set in Schedule I (PSRO Annex) does not provide a 
rule based on the transaction value method;

[[Page 39705]]

    (7) Net cost method--when change permitted. If the importer, 
exporter or producer of a good calculates the regional value content 
of the good on the basis of the transaction value method and the 
customs administration of a USMCA country subsequently notifies that 
importer, exporter or producer in writing, during the course of a 
verification of origin, that
    (a) the transaction value of the good, as determined by the 
importer, exporter or producer, is required to be adjusted under 
section 4 of Schedule III, or
    (b) the value of any material used in the production of the 
good, as determined by the importer, exporter or producer, is 
required to be adjusted under section 5 of Schedule VI, the 
importer, exporter or producer may choose that the regional value 
content of the good be calculated on the basis of the net cost 
method, in which case the calculation must be made within 30 days 
after receiving the notification, or such longer period as that 
customs administration specifies.
    (8) Net cost method--no change permitted. If the importer, 
exporter or producer of a good chooses that the regional value 
content of the good be calculated on the basis of the net cost 
method and the customs administration of a USMCA country 
subsequently notifies that importer, exporter or producer in 
writing, during the course of a verification of origin, that the 
good does not satisfy the applicable regional value content 
requirement, the importer, exporter or producer of the good may not 
recalculate the regional value content on the basis of the 
transaction value method.
    (9) Clarification. Nothing in subsection (7) is to be construed 
as preventing any review and appeal under Article 5.15 of the 
Agreement, as implemented in each USMCA country, of an adjustment to 
or a rejection of
    (a) the transaction value of the good; or
    (b) the value of any material used in the production of the 
good.
    (10) Value of identical non-originating materials. For the 
purposes of the transaction value method, if non-originating 
materials that are the same as one another in all respects, 
including physical characteristics, quality and reputation but 
excluding minor differences in appearance, are used in the 
production of a good, the value of those non-originating materials 
may, at the choice of the producer of the good, be determined in 
accordance with one of the methods set out in Schedule VII.
    (11) Calculating the net cost of a good. For the purposes of 
subsection (3), the net cost of a good may be calculated, at the 
choice of the producer of the good, by
    (a) calculating the total cost incurred with respect to all 
goods produced by that producer, subtracting any excluded costs that 
are included in that total cost, and reasonably allocating, in 
accordance with Schedule V, the remainder to the good;
    (b) calculating the total cost incurred with respect to all 
goods produced by that producer, reasonably allocating, in 
accordance with Schedule V, that total cost to the good, and 
subtracting any excluded costs that are included in the amount 
allocated to that good; or
    (c) reasonably allocating, in accordance with Schedule V, each 
cost that forms part of the total cost incurred with respect to the 
good so that the aggregate of those costs does not include any 
excluded costs.
    (12) Calculation of total cost. Total cost under subsection (11) 
consists of the costs referred to in subsection 1(6), and is 
calculated in accordance with that subsection and subsection 1(7).
    (13) Calculation of net cost of a good. For the purpose of 
calculating the net cost under subsection (11),
    (a) excluded costs must be the excluded costs that are recorded 
on the books of the producer of the good;
    (b) excluded costs that are included in the value of a material 
that is used in the production of the good must not be subtracted 
from or otherwise excluded from the total cost; and
    (c) excluded costs do not include any amount paid for research 
and development services performed in the territory of a USMCA 
country.
    (14) Non-allowable interest. For the purpose of calculating non-
allowable interest costs, the determination of whether interest 
costs incurred by a producer are more than 700 basis points above 
the interest rate of comparable maturities issued by the federal 
government of the country in which the producer is located is to be 
made in accordance with Schedule IX.
    (15) Use of ``averaging'' over a period. For the purposes of the 
net cost method, the regional value content of the good, other than 
a good with respect to which an election to average may be made 
under subsection 16(1) or (10), may be calculated, if the producer 
elects to do so, by
    (a) calculating the sum of the net costs incurred and the sum of 
the values of non-originating materials used by the producer of the 
good with respect to the good and identical goods or similar goods, 
or any combination thereof, produced in a single plant by the 
producer over
    (i) a one-month period,
    (ii) any consecutive three-month or six-month period that falls 
within and is evenly divisible into the number of months of the 
producer's fiscal year remaining at the beginning of that period, or
    (iii) the producer's fiscal year; and
    (b) using the sums referred to in paragraph (a) as the net cost 
and the value of non-originating materials, respectively.
    (16) Application. The calculation made under subsection (15) 
applies with respect to all units of the good produced during the 
period chosen by the producer under paragraph (15)(a).
    (17) No change to the goods or period. An election made under 
subsection (15) may not be rescinded or modified with respect to the 
goods or the period with respect to which the election is made.
    (18) Period considered to be chosen. If a producer chooses a 
one, three or six-month period under subsection (15) with respect to 
a good, the producer will 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 this good.
    (19) Method and period for remainder of fiscal year. If the net 
cost method is required to be used or has been chosen and an 
election has been made under subsection (15), the regional value 
content of the good is to be calculated on the basis of the net cost 
method over the period chosen under that subsection and for the 
remainder of the producer's fiscal year.
    (20) Analysis of actual costs. Except as otherwise provided in 
subsections 16(9), if the producer of a good has calculated the 
regional value content of the good under the net cost method on the 
basis of estimated costs, including standard costs, budgeted 
forecasts or other similar estimating procedures, before or during 
the period chosen under paragraph (15)(a), the producer must conduct 
an analysis at the end of the producer's fiscal year of the actual 
costs incurred over the period with respect to the production of the 
good.
    (21) Option to treat any material as non-originating. For the 
purpose of calculating the regional value content of a good, the 
producer of that good may choose to treat any material used in the 
production of that good as a non-originating material.
    (22) Examples. Each of the following examples is an ``Example'' 
as referred to in subsection 1(4).

Example 1: Example of point of direct shipment (with respect to 
adjusted to exclude any costs incurred in the international shipment 
of the good)
    A producer has only one factory, at which the producer 
manufactures finished office chairs. Because the factory is located 
close to transportation facilities, all units of the finished good 
are stored in a factory warehouse 200 meters from the end of the 
production line. Goods are shipped worldwide from this warehouse. 
The point of direct shipment is the warehouse.

Example 2: Examples of point of direct shipment (with respect to 
adjusted to exclude any costs incurred in the international shipment 
of the good)
    A producer has six factories, all located within the territory 
of one of the USMCA countries, at which the producer produces garden 
tools of various types. These tools are shipped worldwide, and 
orders usually consist of bulk orders of various types of tools. 
Because different tools are manufactured at different factories, the 
producer decided to consolidate storage and shipping facilities and 
ships all finished products to a large warehouse located near the 
seaport, from which all orders are shipped. The distance from the 
factories to the warehouse varies from 3 km to 130 km. The point of 
direct shipment for each of the goods is the warehouse.

Example 3: Examples of point of direct shipment (with respect to 
adjusted to exclude any costs incurred in the international shipment 
of the good)
    A producer has only one factory, located near the center of one 
of the USMCA countries, at which the producer manufactures finished 
office chairs. The office chairs are shipped from that factory to 
three warehouses leased by the producer, one on the west coast, one 
near the factory and one on the east coast. The office chairs are 
shipped to buyers from these warehouses, the shipping location 
depending on the shipping

[[Page 39706]]

distance from the buyer. Buyers closest to the west coast warehouse 
are normally supplied by the west coast warehouse, buyers closest to 
the east coast are normally supplied by the warehouse located on the 
east coast and buyers closest to the warehouse near the factory are 
normally supplied by that warehouse. In this case, the point of 
direct shipment is the location of the warehouse from which the 
office chairs are normally shipped to customers in the location in 
which the buyer is located.

Example 4: Subsection 7(3), net cost method
    A producer located in USMCA country A sells Good A that is 
subject to a regional value content requirement to a buyer located 
in USMCA country B. The producer of Good A chooses that the regional 
value content of that good be calculated using the net cost method. 
All applicable requirements of these Regulations, other than the 
regional value content requirement, have been met. The applicable 
regional value content requirement is 50 per cent.
    In order to calculate the regional value content of Good A, the 
producer first calculates the net cost of Good A. Under paragraph 
6(11)(a), the net cost is the total cost of Good A (the aggregate of 
the product costs, period costs and other costs) per unit, minus the 
excluded costs (the aggregate of the sales promotion, marketing and 
after-sales service costs, royalties, shipping and packing costs and 
non-allowable interest costs) per unit. The producer uses the 
following figures to calculate the net cost:
    Product costs:

Value of originating materials $30.00
Value of non-originating materials 40.00
Other product costs 20.00
Period costs 10.00
Other costs 0.00
Total cost of Good A, per unit $100.00
    Excluded costs:
Sales promotion, marketing and after-sales service cost $5.00
Royalties 2.50
Shipping and packing costs 3.00
Non-allowable interest costs 1.50
Total excluded costs $12.00
    The net cost is the total cost of Good A, per unit, minus the 
excluded costs.

Total cost of Good A, per unit: $100.00
Excluded costs:--12.00
Net cost of Good A, per unit: $ 88.00
    The value for net cost ($88) and the value of non-originating 
materials ($40) are needed in order to calculate the regional value 
content. The producer calculates the regional value content of Good 
A under the net cost method in the following manner:

RVC = (NC-VNM)/NC*100
= (88-40)/88*100
= 54.5%
    Therefore, under the net cost method, Good A qualifies as an 
originating good, with a regional value content of 54.5 per cent.

Example 5: Paragraph 7(11)(a)
    A producer in a USMCA country produces Good A and Good B during 
the producer's fiscal year.
    The producer uses the following figures, which are recorded on 
the producer's books and represent all of the costs incurred with 
respect to both Good A and Good B, to calculate the net cost of 
those goods:

    Product costs:
Value of originating materials $2,000
Value of non-originating materials 1,000
Other product costs 2,400
Period costs: (including $1,200 in excluded costs) 3,200
Other costs: 400
Total cost of Good A and Good B: $9,000
    The net cost is the total cost of Good A and Good B, minus the 
excluded costs incurred with respect to those goods.

Total cost of Good A and Good B: $9,000
Excluded costs:--1,200
Net cost of Good A and Good B: $7,800
    The net cost must then be reasonably allocated, in accordance 
with Schedule V, to Good A and Good B.

Example 6: Paragraph 7(11)(b))
    A producer located in a USMCA country produces Good A and Good B 
during the producer's fiscal year. In order to calculate the 
regional value content of Good A and Good B, the producer uses the 
following figures that are recorded on the producer's books and 
incurred with respect to those goods:
    Product costs:

Value of originating materials $2,000
Value of non-originating materials 1,000
Other product costs 2,400
Period costs: (including $1,200 in excluded costs) 3,200
Other costs: 400
Total cost of Good A and Good B: $9,000
    Under paragraph 6(11)(b), the total cost of Good A and Good B is 
then reasonably allocated, in accordance with Schedule VII, to those 
goods. The costs are allocated in the following manner:

Allocated to Good A 5,220
Allocated to Good B 3,780
Total cost ($9,000 for both Good A and Good B)
    The excluded costs ($1,200) that are included in total cost 
allocated to Good A and Good B, in accordance with Schedule VII, are 
subtracted from that amount.
    Total Excluded costs:

Sales promotion, marketing and after-sale service costs 500
Royalties 200
Shipping and packing costs 500
    Excluded Cost Allocated to Good A:

Sales promotion, marketing and after-sale service costs 290
Royalties 116
Shipping and packing costs 290
Net cost (total cost minus excluded costs): $4,524
    Excluded Cost Allocated to Good B:

Sales promotion, marketing and after-sale service costs 210
Royalties 84
Shipping and packing costs 210
Net cost (total cost minus excluded costs): $3,276
    The net cost of Good A is thus $4,524, and the net cost of Good 
B is $3,276.

Example 7: Paragraph 7(11)(c)
    A producer located in a USMCA country produces Good C and Good 
D. The following costs are recorded on the producer's books for the 
months of January, February and March, and each cost that forms part 
of the total cost are reasonably allocated, in accordance with 
Schedule VII, to Good C and Good D.

Total cost: Good C and Good D (in thousands of dollars)
    Product costs:

Value of originating materials 100
Value of non-originating materials 900
Other product costs 500
Period costs: (including $420 in excluded costs) 5,679
Minus Excluded costs 420
Other costs: 0
Total cost (aggregate of product costs, period costs and other 
costs): 6,759
    Allocated to Good C (in thousands of dollars):
    Product costs:

Value of originating materials 0
Value of non-originating materials 800
Other product costs 300
Period costs: (including $420 in excluded costs) 3,036
Minus Excluded costs 300
Other costs: 0
Total cost (aggregate of product costs, period costs and other 
costs): 3,836
    Allocated to Good D (in thousands of dollars):
    Product costs:

Value of originating materials 100
Value of non-originating materials 100
Other product costs 200
Period costs: (including $420 in excluded costs) 2,643
Minus Excluded costs 120
Other costs: 0
Total cost (aggregate of product costs, period costs and other 
costs): 2,923
Example 8: Subsection 7(12)
    Producer A, located in a USMCA country, produces Good A that is 
subject to a regional value content requirement. The producer 
chooses that the regional value content of that good be calculated 
using the net cost method. Producer A buys Material X from Producer 
B, located in a USMCA country. Material X is a non-originating 
material and is used in the production of Good A. Producer A 
provides Producer B, at no charge, with molds to be used in the 
production of Material X. The cost of the molds that is recorded on 
the books of Producer A has been expensed in the current year. 
Pursuant to subparagraph 4(1)(b)(ii) of Schedule VI, the value of 
the molds is included in the value of Material X. Therefore, the 
cost of the molds that is recorded on the books of Producer A and 
that has been expensed in the current year cannot be included as a 
separate cost in the net cost of Good A because it has already been 
included in the value of Material X.

Example 9: Subsection 7(12)
    Producer A, located in a USMCA country, produces Good A that is 
subject to a regional value content requirement. The producer 
chooses that the regional value content of that good be calculated 
using the net cost method and averages the calculation over the 
producer's fiscal year under subsection 7(15). Producer A determines 
that during that fiscal year Producer A incurred a gain on foreign 
currency conversion of $10,000 and a loss on foreign currency 
conversion of $8,000,

[[Page 39707]]

resulting in a net gain of $2,000. Producer A also determines that 
$7,000 of the gain on foreign currency conversion and $6,000 of the 
loss on foreign currency conversion is related to the purchase of 
non-originating materials used in the production of Good A, and 
$3,000 of the gain on foreign currency conversion and $2,000 of the 
loss on foreign currency conversion is not related to the production 
of Good A. The producer determines that the total cost of Good A is 
$45,000 before deducting the $1,000 net gain on foreign currency 
conversion related to the production of Good A. The total cost of 
Good A is therefore $44,000. That $1,000 net gain is not included in 
the value of non-originating materials under subsection 8(1).

Example 10: Subsection 7(12)
    Given the same facts as in example 9, except that Producer A 
determines that $6,000 of the gain on foreign currency conversion 
and $7,000 of the loss on foreign currency conversion is related to 
the purchase of non-originating materials used in the production of 
Good A. The total cost of Good A is $45,000, which includes the 
$1,000 net loss on foreign currency conversion related to the 
production of Good A. That $1,000 net loss is not included in the 
value of non-originating materials under subsection 8(1).

Part IV

Section 8. Materials

    8 (1) Value of material used in production. Except as otherwise 
provided for non-originating materials used in the production of a 
good referred to in section 14 or subsection 15(1), and except in 
the case of indirect materials, intermediate materials and packing 
materials and containers, for the purpose of calculating the 
regional value content of a good and for the purposes of subsection 
5(1) and (4), the value of a material that is used in the production 
of the good is to be
    (a) except as otherwise provided in subsection (4), if the 
material is imported by the producer of the good into the territory 
of the USMCA country in which the good is produced, the transaction 
value of the material at the time of importation, including the 
costs incurred in the international shipment of the material,
    (b) if the material is acquired by the producer of the good from 
another person located in the territory of the USMCA country in 
which the good is produced
    (i) the price paid or payable by the producer in the USMCA 
country where the producer is located,
    (ii) the value as determined for an imported material in 
subparagraph (a), or (iii) the earliest ascertainable price paid or 
payable in the territory of the USMCA country where the good is 
produced, or
    (c) for a material that is self-produced
    (i) all the costs incurred in the production of the material, 
which includes general expenses, and
    (ii) an amount equivalent to the profit added in the normal 
course of trade, or equal to the profit that is usually reflected in 
the sale of goods of the same class or kind as the self-produced 
material that is being valued provided that no self-produced 
material that has been used in its production has been valued 
including the amount equivalent or equal to the profit according to 
this paragraph.
    (2) Adjustments to the value of materials. The following costs 
may be deducted from the value of a non-originating material or 
material of undetermined origin, if they are included under 
subsection (1):
    (a) the costs of freight, insurance and packing and all other 
costs incurred in transporting the material to the location of the 
producer;
    (b) duties and taxes paid or payable with respect to the 
material in the territory of one or more of the USMCA countries, 
other than duties and taxes that are waived, refunded, refundable or 
otherwise recoverable, including credit against duty or tax paid or 
payable,
    (c) customs brokerage fees, including the cost of in-house 
customs brokerage services, incurred with respect to the material in 
the territory of one or more of the USMCA countries, and
    (d) the cost of waste and spoilage resulting from the use of the 
material in the production of the good, minus the value of any 
reusable scrap or by-product.
    (3) Documentary evidence required. If the cost or expense listed 
in subsection (2) is unknown or documentary evidence of the amount 
of the adjustment is not available, then no adjustment is allowed 
for that particular cost or expense.
    (4) Transaction value not acceptable. For the purposes of 
paragraph (1)(a), if the transaction value of the material referred 
to in that paragraph is not acceptable or if there is no transaction 
value in accordance with Schedule IV (Unacceptable Transaction 
Value), the value of the material must be determined in accordance 
with Schedule VI (Value of Materials) and, if the costs referred to 
in subsection (2) are included in that value, those costs may be 
deducted from that value.
    (5) Costs recorded on books. For the purposes of subsection (1), 
the costs referred to in paragraph (1)(c) are to be the costs 
referred to in those paragraphs that are recorded on the books of 
the producer of the good.
    (6) Designation of self-produced material as an intermediate 
material. For the purpose of calculating the regional value content 
of a good the producer of the good may designate as an intermediate 
material any self-produced material that is used in the production 
of the good, provided that if an intermediate material is subject to 
a regional value content requirement, no other self-produced 
material that is subject to a regional value content requirement and 
is incorporated into that intermediate material is also designated 
by the producer as an intermediate material.
    (7) Particulars. For the purposes of subsection (6),
    (a) in order to qualify as an originating material, a self-
produced material that is designated as an intermediate material 
must qualify as an originating material under these Regulations;
    (b) the designation of a self-produced material as an 
intermediate material is to be made solely at the choice of the 
producer of that self-produced material; and
    (c) except as otherwise provided in subsection 9(4), the proviso 
set out in subsection (6) does not apply with respect to an 
intermediate material used by another producer in the production of 
a material that is subsequently acquired and used in the production 
of a good by the producer referred to in subsection (6).
    (8) Value of an intermediate material. The value of an 
intermediate material will be, at the choice of the producer of the 
good,
    (a) the total cost incurred with respect to all goods produced 
by the producer that can be reasonably allocated to that 
intermediate material in accordance with Schedule V; or
    (b) the aggregate of each cost that forms part of the total cost 
incurred with respect to that intermediate material that can be 
reasonably allocated to that intermediate material in accordance 
with Schedule V.
    (9) Calculation of total cost. Total cost under subsection (8) 
consists of the costs referred to in subsection 1(6), and is 
calculated in accordance with that subsection and subsection 1(7).
    (10) Rescission of a designation. If a producer of a good 
designates a self-produced material as an intermediate material 
under subsection (6) and the customs administration of a USMCA 
country into which the good is imported determines during a 
verification of origin of the good that the intermediate material is 
a non-originating material and notifies the producer of this in 
writing before the written determination of whether the good 
qualifies as an originating good, the producer may rescind the 
designation, and the regional value content of the good must be 
calculated as though the self-produced material were not so 
designated.
    (11) Effect of a rescission. A producer of a good who rescinds a 
designation under subsection (10) may, not later than 30 days after 
the customs administration referred to in subsection (10) notifies 
the producer in writing that the self-produced material referred to 
in paragraph (a) is a non-originating material, designate as an 
intermediate material another self-produced material that is 
incorporated into the good, subject to the provision set out in 
subsection (6).
    (12) Second rescission. If a producer of a good designates 
another self-produced material as an intermediate material under 
subsection (6) and the customs administration referred to in 
subsection (10) determines during the verification of origin of the 
good that that self-produced material is a non-originating material,
    (a) the producer may rescind the designation, and the regional 
value content of the good will be calculated as though the self-
produced material were not so designated; and,
    (b) the producer may not designate another self-produced 
material that is incorporated into the good as an intermediate 
material.
    (13) Indirect materials. For the purpose of determining whether 
a good is an originating good, an indirect material that is used in 
the production of the good

[[Page 39708]]

    (a) will be considered to be an originating material, regardless 
of where that indirect material is produced; and
    (b) if the good is subject to a regional value content 
requirement, for the purpose of calculating the net cost under the 
net cost method, the value of the indirect material is to be the 
costs of that material that are recorded on the books of the 
producer of the good.
    (14) Packaging materials and containers. Packaging materials and 
containers, if classified under the Harmonized System with the good 
that is packaged therein, will be disregarded for the purpose of
    (a) determining whether all of the non-originating materials 
used in the production of the good undergo an applicable change in 
tariff classification;
    (b) determining whether a good is wholly obtained or produced; 
and
    (c) determining under subsection 5(1) the value of non-
originating materials that do not undergo an applicable change in 
tariff classification.
    (15) Value of packaging materials and containers--cases where 
taken into account. If packaging materials and containers in which a 
good is packaged for retail sale are classified under the Harmonized 
System with the good that is packaged therein and that good is 
subject to a regional value content requirement, the value of those 
packaging materials and containers will be taken into account as 
originating materials or non-originating materials, as the case may 
be, for the purpose of calculating the regional value content of the 
good.
    (16) Packaging materials and containers--self-produced. For the 
purposes of subsection (15), if packaging materials and containers 
are self-produced materials, the producer may choose to designate 
those materials as intermediate materials under subsection (6).
    (17) Packing materials and containers. For the purpose of 
determining whether a good is an originating good, packing materials 
and containers are disregarded.
    (18) Fungible materials and fungible goods. A fungible material 
or good is originating if:
    (a) when originating and non-originating fungible materials
    (i) are withdrawn from an inventory in one location and used in 
the production of the good, or
    (ii) are withdrawn from inventories in more than one location in 
the territory of one or more of the USMCA countries and used in the 
production of the good at the same production facility, the 
determination of whether the materials are originating is made on 
the basis of an inventory management method recognized in the 
Generally Accepted Accounting Principles of, or otherwise accepted 
by, the USMCA country in which the production is performed or an 
inventory management method set out in Schedule VIII; or
    (b) when originating and non-originating fungible goods are 
commingled and exported in the same form, the determination of 
whether the goods are originating is made on the basis of an 
inventory management method recognized in the Generally Accepted 
Accounting Principles of, or otherwise accepted by, the USMCA 
country from which the good is exported or an inventory management 
method set out in Schedule VIII.
    (19) The inventory management method selected under subsection 
18 must be used throughout the fiscal year of the producer or the 
person that selected the inventory management method.
    (20) An importer may claim that a fungible material or good is 
originating if the importer, producer, or exporter has physically 
segregated each fungible material or good as to allow their specific 
identification.
    (21) Choice of inventory management method. If fungible 
materials referred to in paragraph (18)(a) and fungible goods 
referred to in paragraph (18)(b) are withdrawn from the same 
inventory, the inventory management method used for the materials 
must be the same as the inventory management method used for the 
goods, and if the averaging method is used, the respective averaging 
periods for fungible materials and fungible goods are to be used.
    (22) Written notice. A choice of inventory management methods 
under subsection (18) will be considered to have been made when the 
customs administration of the USMCA country into which the good is 
imported is informed in writing of the choice during the course of a 
verification of origin of the good.
    (23) Accessories, spare parts, tools or instructional or other 
information materials. For the purposes of subsections (24) through 
(27), ``accessories, spare parts, tools, or instructional or other 
information materials'' are covered when
    (a) they are classified with, delivered with, but not invoiced 
separately from the good, and
    (b) their type, quantity and value are customary for the good, 
within the industry that produces the good.
    (24) Exclusion. Accessories, spare parts, tools, or 
instructional or other information materials are to be disregarded 
for the purpose of determining
    (a) whether a good is wholly obtained;
    (b) whether all the non-originating materials used in the 
production of the good satisfy a process or applicable change in 
tariff classification requirement established in Schedule I (PSRO 
Annex); or,
    (c) under subsection 5(1), the value of non-originating 
materials that do not undergo an applicable change in tariff 
classification.
    (25) Value for regional value content requirement. If a good is 
subject to a regional value content requirement, the value of 
accessories, spare parts, tools, or instructional or other 
information materials is to be taken into account as originating 
materials or non-originating materials, as the case may be, in 
calculating the regional value content of the good.
    (26) Designation. For the purposes of subsection (25), if 
accessories, spare parts, tools, or instructional or other 
information materials are self-produced materials, the producer may 
choose to designate those materials as intermediate materials under 
subsection (6).
    (27) Originating status. A good's accessories, spare parts, 
tools, or instructional or other information materials have the 
originating status of the good with which they are delivered.
    (28) Examples illustrating the provisions on materials. Each of 
the following examples is an ``Example'' as referred to in 
subsection 1(4).

Example 1: Subsection 8(4), Transaction Value not Determined in a 
Manner Consistent with Schedule VI
    Producer A, located in USMCA country A, imports a bicycle 
chainring into USMCA country A. Producer A purchased the chainring 
from a middleman located in country B. The middleman purchased the 
chainring from a manufacturer located in country B. Under the laws 
in USMCA country A that implement the Agreement on Implementation of 
Article VII of the General Agreement on Tariffs and Trade, the 
customs value of the chainring was based on the price actually paid 
or payable by the middleman to the manufacturer. Producer A uses the 
chainring to produce a bicycle, and exports the bicycle to USMCA 
country C. The bicycle is subject to a regional value content 
requirement.
    Under subsection 3(1) of Schedule VI (Value of Materials), the 
price actually paid or payable is the total payment made or to be 
made by the producer to or for the benefit of the seller of the 
material. Section 1 of that Schedule defines producer and seller for 
the purposes of the Schedule. A producer is the person who uses the 
material in the production of a good that is subject to a regional 
value content requirement. A seller is the person who sells the 
material being valued to the producer.
    The transaction value of the chainring was not determined in a 
manner consistent with Schedule VI because it was based on the price 
actually paid or payable by the middleman to the manufacturer, 
rather than on the price actually paid or payable by Producer A to 
the middleman. Thus, subsection 8(4) applies and the chainring is 
valued in accordance with Schedule IV.

Example 2: Subsection 8(7), Value of Intermediate Materials
    A producer located in a USMCA country produces a bicycle, which 
is subject to a regional value content requirement under section 
3(2). The producer also produces a chain ring, which is used in the 
production of the bicycle. Both originating materials and non-
originating materials are used in the production of the chainring. 
The chainring is subject to a change in tariff classification 
requirement under section 3(2). The costs to produce the chainring 
are the following:
    Product costs:

Value of originating materials $ 1.00
Value of non-originating materials 7.50
Other product costs 1.50
Period costs (including $0.30 in royalties): 0.50
Other costs: 0.10
Total cost of the chainring: $10.60
    The producer designates the chainring as an intermediate 
material and determines that, because all of the non-originating 
materials that are used in the production of the chainring undergo 
an applicable change in tariff classification set out in Schedule I, 
the chainring would, under section 3(2) qualify as an originating 
material. The cost

[[Page 39709]]

of the non-originating materials used in the production of the 
chainring is therefore not included in the value of non-originating 
materials that are used in the production of the bicycle for the 
purpose of determining its regional value content of the bicycle. 
Because the chainring has been designated as an intermediate 
material, the total cost of the chainring, which is $10.60, is 
treated as the cost of originating materials for the purpose of 
calculating the regional value content of the bicycle. The total 
cost of the bicycle is determined in accordance with the following 
figures:
    Product costs:

Value of originating materials
--intermediate materials $10.60
--other materials 3.00
Value of non-originating materials 5.50
Other product costs 6.50
Period costs: 2.50
Other costs: 0.10
Total cost of the bicycle: $28.20
Example 3: Subsection 8(7), Effects of the Designation of Self-
produced Materials on Net Cost
    The ability to designate intermediate materials helps to put the 
vertically integrated producer who is self-producing materials that 
are used in the production of a good on par with a producer who is 
purchasing materials and valuing those materials in accordance with 
subsection 8(1). The following situations demonstrate how this is 
achieved:

Situation 1

    A producer located in a USMCA country produces a bicycle, which 
is subject to a regional value content requirement of 50 per cent 
under the net cost method. The bicycle satisfies all other 
applicable requirements of these Regulations. The producer purchases 
a bicycle frame, which is used in the production of the bicycle, 
from a supplier located in a USMCA country. The value of the frame 
determined in accordance with subsection 8(1) is $11.00. The frame 
is an originating material. All other materials used in the 
production of the bicycle are non-originating materials.
    The net cost of the bicycle is determined as follows:
    Product costs:

Value of originating materials (bicycle frame) $11.00
Value of non-originating materials 5.50
Other product costs 6.50
Period costs: (including $0.20 in excluded costs) 0.50
Other costs: 0.10
Total cost of the bicycle: $23.60
Excluded costs: (included in period costs) 0.20
Net cost of the bicycle: $23.40
    The regional value content of the bicycle is calculated as 
follows:

RVC = (NC-VNM)/NC*100
= ($23.40-$5.50)/$23.50*100
= 76.5%
    The regional value content of the bicycle is 76.5 per cent, and 
the bicycle, therefore, qualifies as an originating good.

Situation 2

    A producer located in a USMCA country produces a bicycle, which 
is subject to a regional value content requirement of 50 per cent 
under the net cost method. The bicycle satisfies all other 
applicable requirements of these Regulations. The producer self-
produces the bicycle frame which is used in the production of the 
bicycle. The costs to produce the frame are the following:
    Product costs:

Value of originating materials $ 1.00
Value of non-originating materials 7.50
Other product costs 1.50
Period costs: (including $0.20 in excluded costs) 0.50
Other costs: 0.10
Total cost of the bicycle frame: $10.60
    Additional costs to produce the bicycle are the following:
    Product costs:

Value of originating materials $ 0.00
Value of non-originating materials 5.50
Other product costs 6.50
Period costs: (Including $0.20 in excluded costs) 0.50
Other costs: 0.10
Total additional costs: $12.60
    The producer does not designate the bicycle frame as an 
intermediate material under subsection 8(4). The net cost of the 
bicycle is calculated as follows:

----------------------------------------------------------------------------------------------------------------
                                                                   Costs of the
                                                                   bicycle frame
                                                                       (not         Additional
                                                                   designated as     costs to          Total
                                                                        an          produce the
                                                                   intermediate       bicycle
                                                                     material)
----------------------------------------------------------------------------------------------------------------
Product costs:
    Value of originating materials..............................          $ 1.00          $ 0.00          $ 1.00
    Value of non-originating materials..........................            7.50            5.50           13.00
    Other product costs.........................................            1.50            6.50            8.00
Period costs (including $0.20 in excluded costs)................            0.50            0.50            1.00
Other costs.....................................................            0.10            0.10            0.20
                                                                 -----------------------------------------------
    Total cost of the bicycle...................................           10.60           12.60           23.20
Excluded costs (in period costs)................................            0.20            0.20            0.40
                                                                 -----------------------------------------------
    Net cost of the bicycle (total cost minus excluded costs):..  ..............  ..............           22.80
----------------------------------------------------------------------------------------------------------------

    The regional value content of the bicycle is calculated as 
follows:

RVC = (NC-VNM)/NC*100
= ($22.80-$13.00)/$22.80*100
= 42.9%
    The regional value content of the bicycle is 42.9 per cent, and 
the bicycle, therefore, does not qualify as an originating good.

Situation 3

    A producer located in a USMCA country produces the bicycle, 
which is subject to a regional value content requirement of 50 per 
cent under the net cost method. The bicycle satisfies all other 
applicable requirements of these Regulations. The producer self-
produces the bicycle frame, which is used in the production of the 
bicycle. The costs to produce the frame are the following:
    Product costs:

Value of originating materials $ 1.00
Value of non-originating materials 7.50
Other product costs 1.50
    Period costs: (Including $0.20 in excluded costs) 0.50
    Other costs: 0.10
Total cost of the bicycle frame: $10.60
Additional costs to produce the bicycle are the following: Product 
costs: 0.10
    Product costs:

Value of originating materials $ 0.00
Value of non-originating materials 5.50
Other product costs 6.50
Period costs: (including $0.20 in excluded costs) 0.50
Other costs: 0.10
Total additional costs: $12.60
    The producer designates the frame as an intermediate material 
under subsection 8(6). The frame qualifies as an originating 
material under section 3(2). Therefore, the value of non-originating 
materials used in the production of the frame is not included in the 
value of non-originating materials for the purpose of calculating 
the regional value content of the bicycle. The net cost of the 
bicycle is calculated as follows:

[[Page 39710]]



----------------------------------------------------------------------------------------------------------------
                                                                   Costs of the
                                                                   bicycle frame
                                                                       (not         Additional
                                                                   designated as     costs to          Total
                                                                        an          produce the
                                                                   intermediate       bicycle
                                                                     material)
----------------------------------------------------------------------------------------------------------------
Product costs:
    Value of originating materials..............................          $10.60           $0.00          $10.60
    Value of non-originating materials..........................  ..............            5.50            5.50
    Other product costs.........................................  ..............            6.50            6.50
Period costs (including $0.20 in excluded costs)................  ..............            0.50            0.50
Other costs.....................................................  ..............            0.10            0.10
                                                                 -----------------------------------------------
    Total cost of the bicycle...................................           10.60           12.60           23.20
Excluded costs (in period costs)................................  ..............            0.20            0.20
                                                                 -----------------------------------------------
    Net cost of the bicycle (total cost minus excluded costs):..  ..............  ..............           23.00
----------------------------------------------------------------------------------------------------------------

    The regional value content of the bicycle is calculated as 
follows:

RVC = (NC-VNM)/NC*100
= ($23.00-$5.50)/$23.00*100
= 76.1%
    The regional value content of the bicycle is 76.1 per cent, and 
the bicycle, therefore, qualifies as an originating good.

Example 4: Originating Materials Acquired from a Producer Who 
Produced Them Using Intermediate Materials
    Producer A, located in USMCA country A, produces switches. In 
order for the switches to qualify as originating goods, Producer A 
designates subassemblies of the switches as intermediate materials. 
The subassemblies are subject to a regional value content 
requirement. They satisfy that requirement, and qualify as 
originating materials. The switches are also subject to a regional 
value content requirement, and, with the subassemblies designated as 
intermediate materials, are determined to have a regional value 
content of 65 per cent.
    Producer A sells the switches to Producer B, located in USMCA 
country B, who uses them to produce switch assemblies that are used 
in the production of Good B. The switch assemblies are subject to a 
regional value content requirement. Producers A and B are not 
accumulating their production within the meaning of section 9. 
Producer B is therefore able, under subsection 8(6), to designate 
the switch assemblies as intermediate materials.
    If Producers A and B were accumulating their production within 
the meaning of section 9, Producer B would be unable to designate 
the switch assemblies as intermediate materials, because the 
production of both producers would be considered to be the 
production of one producer.
    Example 5: Single Producer and Successive Designations of 
Materials Subject to a Regional Value Content Requirement as 
Intermediate Materials
    Producer A, located in USMCA country, produces Material X and 
uses Material X in the production of Good B. Material X qualifies as 
an originating material because it satisfies the applicable regional 
value content requirement. Producer A designates Material X as an 
intermediate material.
    Producer A uses Material X in the production of Material Y, 
which is also used in the production of Good B. Material Y is also 
subject to a regional value content requirement. Under the proviso 
set out in subsection 8(6), Producer A cannot designate Material Y 
as an intermediate material, even if Material Y satisfies the 
applicable regional value content requirement, because Material X 
was already designated by Producer A as an intermediate material.
    Example 6: Single Producer and Multiple Designations of 
Materials as Intermediate Materials
    Producer X, who is located in USMCA country X, uses non-
originating materials in the production of self-produced materials 
A, B and C. None of the self-produced materials are used in the 
production of any of the other self-produced materials.
    Producer X uses the self-produced materials in the production of 
Good O, which is exported to USMCA country Y. Materials A, B and C 
qualify as originating materials because they satisfy the applicable 
regional value content requirements.
    Because none of the self-produced materials are used in the 
production of any of the other self-produced materials, then even 
though each self-produced material is subject to a regional value 
content requirement, Producer X may, under subsection 8(6), 
designate all of the self-produced materials as intermediate 
materials. The proviso set out in subsection 8(6) only applies if 
self-produced materials are used in the production of other self-
produced materials and both are subject to a regional value content 
requirement.

Example 7: Subsection 8(23) Accessories, Spare Parts, Tools, 
Instruction or Other Information Materials
    The following are examples of accessories, spare parts, tools, 
instructional or other information materials that are delivered with 
a good and form part of the good's standard accessories, spare 
parts, tools, instructional or other information materials:
    (a) Consumables that must be replaced at regular intervals, such 
as dust collectors for an air-conditioning system,
    (b) a carrying case for equipment,
    (c) a dust cover for a machine,
    (d) an operational manual for a vehicle,
    (e) brackets to attach equipment to a wall,
    (f) a bicycle tool kit or a car jack,
    (g) a set of wrenches to change the bit on a chuck,
    (h) a brush or other tool to clean out a machine, and
    (i) electrical cords and power bars for use with electronic 
goods.

Example 8: Value of Indirect Materials that are Assists
    Producer A, located in a USMCA country, produces a well-water 
pump that is subject to a regional value content requirement. The 
producer chooses that the regional value content of that good be 
calculated using the net cost method. Producer A buys a mold-
injected plastic water flow sensor from Producer B, located in the 
same USMCA country, and uses it in the production of the well-water 
pump. Producer A provides to Producer B, at no charge, molds to be 
used in the production of the water flow sensor. The molds have a 
value of $100 which is expensed in the current year by Producer A.
    The water flow sensor is subject to a regional value content 
requirement which Producer B chooses to calculate using the net cost 
method. For the purpose of determining the value of non-originating 
materials in order to calculate the regional value content of the 
water flow sensor, the molds are considered to be an originating 
material because they are an indirect material. However, pursuant to 
subsection 8(13) they have a value of nil because the cost of the 
molds with respect to the water flow sensor is not recorded on the 
books of Producer B.
    It is determined that the water flow sensor is a non-originating 
material. The cost of the molds that is recorded on the books of 
producer A is expensed in the current year. Pursuant to section 4 of 
Schedule VI (Value of Materials), the value of the molds (see 
subparagraph 4(1)(b)(ii) of Schedule VI) must be included in the 
value of the water flow sensor by Producer A when calculating the 
regional value content of the well-water pump. The cost of the 
molds, although recorded on the books of producer A, cannot be 
included as a separate cost in the net cost of the well-water pump 
because it is already included in the value of the water flow 
sensor. The entire cost of the water flow sensor, which includes the 
cost of the molds, is included in the value of non-originating 
materials for the purposes of the regional value content of the 
well-water pump.

[[Page 39711]]

Part V General Provisions

Section 9. Accumulation

    (9) (1) Subject to subsections (2) through (5)
    (a) a good is originating if the good is produced in the 
territory of one or more of the USMCA countries by one or more 
producers, provided that the good satisfies the requirements of 
section 3 and all other applicable requirements of these 
Regulations;
    (b) an originating good or material of one or more of the USMCA 
countries is considered as originating in the territory of another 
USMCA country when used as a material in the production of a good in 
the territory of another USMCA country; and
    (c) production undertaken on a non-originating material in the 
territory of one or more of the USMCA countries may contribute 
toward the originating status of a good, regardless of whether that 
production was sufficient to confer originating status to the 
material itself.
    (2) Accumulation using the net cost method. If a good is subject 
to a regional value content requirement based on the net cost method 
and an exporter or producer of the good has a statement signed by a 
producer of a material that is used in the production of the good 
that states
    (a) the net cost incurred and the value of non-originating 
materials used by the producer of the material in the production of 
that material,
    (i) net cost incurred by the producer of the good with respect 
to the material is to be the net cost incurred by the producer of 
the material plus, if not included in the net cost incurred by the 
producer of the material, the costs referred to in paragraphs 
8(2)(a) through (c), and
    (ii) the value of non-originating materials used by the producer 
of the good with respect to the material is to be the value of non-
originating materials used by the producer of the material; or
    (b) any amount, other than an amount that includes any of the 
value of non-originating materials, that is part of the net cost 
incurred by the producer of the material in the production of that 
material,
    (i) the net cost incurred by the producer of the good with 
respect to the material is to be the value of the material, 
determined in accordance with subsection 8(1), and
    (ii) the value of non-originating materials used by the producer 
of the good with respect to the material is to be the value of the 
material, determined in accordance with subsection 8(1), minus the 
amount stated in the statement.
    (3) Accumulation using the transaction value method. If a good 
is subject to a regional value content requirement based on the 
transaction value method and an exporter or producer of the good has 
a statement signed by a producer of a material that is used in the 
production of the good that states the value of non-originating 
materials used by the producer of the material in the production of 
that material, the value of non-originating materials used by the 
producer of the good with respect to the material is the value of 
non-originating materials used by the producer of the material.
    (4) Averaging of costs--net cost method. If a good is subject to 
a regional value content requirement based on the net cost method 
and an exporter or producer of the good does not have a statement 
described in subsection (2) but has a statement signed by a producer 
of a material that is used in the production of the good that
    (a) states the sum of the net costs incurred and the sum of the 
values of non-originating materials used by the producer of the 
material in the production of that material and identical materials 
or similar materials, or any combination thereof, produced in a 
single plant by the producer of the material over a month or any 
consecutive three, six or twelve month period that falls within the 
fiscal year of the producer of the good, divided by the number of 
units of materials with respect to which the statement is made,
    (i) the net cost incurred by the producer of the good with 
respect to the material is to be the sum of the net costs incurred 
by the producer of the material with respect to that material and 
the identical materials or similar materials, divided by the number 
of units of materials with respect to which the statement is made, 
plus, if not included in the net costs incurred by the producer of 
the material, the costs referred to in paragraphs 8(2)(a) through 
(c), and
    (ii) the value of non-originating materials used by the producer 
of the good with respect to the material is to be the sum of the 
values of non-originating materials used by the producer of the 
material with respect to that material and the identical materials 
or similar materials divided by the number of units of materials 
with respect to which the statement is made; or
    (b) states any amount, other than an amount that includes any of 
the values of non-originating materials, that is part of the sum of 
the net costs incurred by the producer of the material in the 
production of that material and identical materials or similar 
materials, or any combination thereof, produced in a single plant by 
the producer of the material over a month or any consecutive three, 
six or twelve month period that falls within the fiscal year of the 
producer of the good, divided by the number of units of materials 
with respect to which the statement is made,
    (i) the net cost incurred by the producer of the good with 
respect to the material is to be the value of the material, 
determined in accordance with subsection 8(1), and
    (ii) the value of non-originating materials used by the producer 
of the good with respect to the material is to be the value of the 
material, determined in accordance with subsection 8(1), minus the 
amount stated in the statement.
    (5) Averaging of costs--transaction value method. If a good is 
subject to a regional value content requirement based on the 
transaction value method and an exporter or producer of the good 
does not have a statement described in subsection (3) but has a 
statement signed by a producer of a material that is used in the 
production of the good that states the sum of the values of non-
originating materials used by the producer of the material in the 
production of that material and identical materials or similar 
materials, or any combination thereof, produced in a single plant by 
the producer of the material over a month or any consecutive three, 
six or twelve month period that falls within the fiscal year of the 
producer of the good, divided by the number of units of materials 
with respect to which the statement is made, the value of non-
originating materials used by the producer of the good with respect 
to the material is the sum of the values of non-originating 
materials used by the producer of the material with respect to that 
material and the identical materials or similar materials divided by 
the number of units of materials with respect to which the statement 
is made.
    (6) Single producer. For the purposes of subsection 8(6), if a 
producer of the good chooses to accumulate the production of 
materials under subsection (1), that production will be considered 
to be the production of the producer of the good.
    (7) Particulars. For the purposes of this section,
    (a) in order to accumulate the production of a material,
    (i) if the good is subject to a regional value content 
requirement, the producer of the good must have a statement 
described in subsection (2) through (5) that is signed by the 
producer of the material, and
    (ii) if an applicable change in tariff classification is applied 
to determine whether the good is an originating good, the producer 
of the good must have a statement signed by the producer of the 
material that states the tariff classification of all non-
originating materials used by that producer in the production of 
that material and that the production of the material took place 
entirely in the territory of one or more of the USMCA countries;
    (b) a producer of a good who chooses to accumulate is not 
required to accumulate the production of all materials that are 
incorporated into the good; and
    (c) any information set out in a statement referred to in 
subsection (2) through (5) that concerns the value of materials or 
costs is to be in the same currency as the currency of the country 
in which the person who provided the statement is located.
    (8) Examples of accumulation of production.
    Each of the following examples is an ``Example'' as referred to 
in subsection 1(4).

Example 1: Subsection 9(1)
    Producer A, located in USMCA country A, imports unfinished 
bearing rings provided for in subheading 8482.99 into USMCA country 
A from a non-USMCA territory. Producer A further processes the 
unfinished bearing rings into finished bearing rings, which are of 
the same subheading. The finished bearing rings of Producer A do not 
satisfy an applicable change in tariff classification and therefore 
do not qualify as originating goods.
    The net cost of the finished bearing rings (per unit) is 
calculated as follows:

[[Page 39712]]



------------------------------------------------------------------------
 
------------------------------------------------------------------------
Product costs:
    Value of originating materials......................           $0.15
    Value of non-originating materials..................            0.75
    Other product costs.................................            0.35
Period costs: (including $0.05 in excluded costs).......            0.15
Other costs:............................................            0.05
                                                         ---------------
    Total cost of the finished bearing rings, per unit:.            1.45
Excluded costs: (included in period costs)..............            0.05
                                                         ---------------
    Net cost of the finished bearing rings, per unit:...            1.40
------------------------------------------------------------------------

    Producer A sells the finished bearing rings to Producer B who is 
located in USMCA country A for $1.50 each. Producer B further 
processes them into bearings, and intends to export the bearings to 
USMCA country B. Although the bearings satisfy the applicable change 
in tariff classification, the bearings are subject to a regional 
value content requirement.
    Situation A:
    Producer B does not choose to accumulate costs incurred by 
Producer A with respect to the bearing rings used in the production 
of the bearings. The net cost of the bearings (per unit) is 
calculated as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Product costs:
    Value of originating materials......................           $0.45
    Value of non-originating materials (value, per unit,            1.50
     of the bearing rings purchased from Producer A)....
    Other product costs.................................            0.75
Period costs: (Including $0.05 in excluded costs).......            0.15
Other costs.............................................            0.05
                                                         ---------------
Total cost of the bearings, per unit:...................            2.90
Excluded costs: (Included in period costs)..............            0.05
                                                         ---------------
    Net cost of the bearings, per unit:.................            2.85
------------------------------------------------------------------------

Under the net cost method, the regional value content of the 
bearings is
[GRAPHIC] [TIFF OMITTED] TR01JY20.000

    Therefore, the bearings are non-originating goods.
    Situation B:
    Producer B chooses to accumulate costs incurred by Producer A 
with respect to the bearing rings used in the production of the 
bearings. Producer A provides a statement described in paragraph 
9(2)(a) to Producer B. The net cost of the bearings (per unit) is 
calculated as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Product costs:
    Value of originating materials ($0.45 + $0.15)......           $0.60
    Value of non-originating materials (value, per unit,            0.75
     of the unfinished bearing rings imported by
     Producer A)........................................
    Other product costs ($0.75 + $0.35).................            1.10
Period costs: (($0.15 + $0.15), including $0.10 in                  0.30
 excluded costs)........................................
Other costs: ($0.05 + $0.05)............................            0.10
                                                         ---------------
    Total cost of the bearings, per unit:...............            2.85
Excluded costs: (Included in period costs)..............            0.10
                                                         ---------------
    Net cost of the bearings, per unit:.................            2.75
------------------------------------------------------------------------

Under the net cost method, the regional value content of the 
bearings is
[GRAPHIC] [TIFF OMITTED] TR01JY20.001

    Therefore, the bearings are originating goods.
    Situation C:
    Producer B chooses to accumulate costs incurred by Producer A 
with respect to the bearing rings used in the production of the 
bearings. Producer A provides to Producer B a statement described in 
paragraph 9(2)(b) that specifies an amount equal to the net cost 
minus the value of non-originating materials used to produce the 
finished bearing rings ($1.40-0.75 = $0.65). The net cost of the 
bearings (per unit) is calculated as follows:

[[Page 39713]]



------------------------------------------------------------------------
 
------------------------------------------------------------------------
Product costs:
    Value of originating materials ($0.45 + $0.65)......           $1.10
    Value of non-originating materials ($1.50 - $0.65)..            0.85
    Other product costs.................................            0.75
Period costs: (Including $0.05 in excluded costs).......            0.15
Other costs.............................................            0.05
                                                         ---------------
    Total cost of the bearings, per unit:...............            2.90
Excluded costs: (Included in period costs)..............            0.05
                                                         ---------------
    Net cost of the bearings, per unit:.................            2.85
------------------------------------------------------------------------

Under the net cost method, the regional value content of the 
bearings is
[GRAPHIC] [TIFF OMITTED] TR01JY20.002

    Therefore, the bearings are originating goods.
    Situation D:
    Producer B chooses to accumulate costs incurred by Producer A 
with respect to the bearing rings used in the production of the 
bearings. Producer A provides to Producer B a statement described in 
paragraph 9(2)(b) that specifies an amount equal to the value of 
other product costs used in the production of the finished bearing 
rings ($0.35). The net cost of the bearings (per unit) is calculated 
as follows:

------------------------------------------------------------------------
 
------------------------------------------------------------------------
Product costs:
    Value of originating materials......................           $0.45
    Value of non-originating materials ($1.50 - $0.35)..            1.15
    Other product costs ($0.75 + $0.35).................            1.10
Period costs: (Including $0.05 in excluded costs).......            0.15
Other costs.............................................            0.05
                                                         ---------------
    Total cost of the bearings, per unit:...............            2.90
Excluded costs: (Included in period costs)..............            0.05
                                                         ---------------
    Net cost of the bearings, per unit:.................            2.85
------------------------------------------------------------------------

Under the net cost method, the regional value content of the 
bearings is
[GRAPHIC] [TIFF OMITTED] TR01JY20.003

    Therefore, the bearings are originating goods.

Example 2: Section 9(1)
    Producer A, located in USMCA country A, imports non-originating 
cotton, carded or combed, provided for in heading 52.03 for use in 
the production of cotton yarn provided for in heading 52.05. Because 
the change from cotton, carded or combed, to cotton yarn is a change 
within the same chapter, the cotton does not satisfy the applicable 
change in tariff classification for heading 52.05, which is a change 
from any other chapter, with certain exceptions. Therefore, the 
cotton yarn that Producer A produces from non-originating cotton is 
a non-originating good.
    Producer A then sells the non-originating cotton yarn to 
Producer B, also located in USMCA country A, who uses the cotton 
yarn in the production of woven fabric of cotton provided for in 
heading 52.08. The change from non-originating cotton yarn to woven 
fabric of cotton is insufficient to satisfy the applicable change in 
tariff classification for heading 52.08, which is a change from any 
heading outside headings 52.08 through 52.12, except from certain 
headings, under which various yarns, including cotton yarn provided 
for in heading 52.05, are classified.
    Therefore, the woven fabric of cotton that Producer B produces 
from non-originating cotton yarn produced by Producer A is a non-
originating good.
    However, Producer B can choose to accumulate the production of 
Producer A. The rule for heading 52.08, under which the cotton 
fabric is classified, does not exclude a change from heading 52.03, 
under which carded or combed cotton is classified. Therefore, under 
section 15(1), the change from carded or combed cotton provided for 
in heading 52.03 to the woven fabric of cotton provided for in 
heading 52.08 would satisfy the applicable change of tariff 
classification for heading 52.08. The woven fabric of cotton would 
be considered as an originating good.
    Producer B, in order to choose to accumulate Producer A's 
production, must have a statement described in subsection 9(7).
    Situation E:
    Producer B chooses to accumulate costs incurred by Producer A 
with respect to the bearing rings used in the production of the 
bearings. Producer A provides to Producer B a signed statement 
described in subsection 9(3) that specifies the value of non-
originating materials used in the production of the finished bearing 
rings ($0.75). Producer B chooses to calculate the regional value 
content of the bearings under the transaction value method. The 
regional value content of the bearings (per unit) is calculated as 
follows:

[[Page 39714]]



------------------------------------------------------------------------
 
------------------------------------------------------------------------
Transaction value of the bearings, per unit.............           $3.15
Costs incurred, per unit, in the international shipment             0.15
 of the good (included in transaction value of the
 bearings)..............................................
Transaction value, per unit, adjusted to exclude any                3.00
 costs incurred in the international shipment of the
 good...................................................
Value of non-originating materials (value, per unit, of             0.75
 the unfinished bearing rings imported by Producer A)...
------------------------------------------------------------------------

Under the transaction value method, the regional value content of 
the bearings is

RVC = (TV-VNM)/TV x 100
= ($3.00-$0.75)/$3.00 x 100
= 75%

    Therefore, because the bearings have a regional value content of 
at least 60 percent under transaction value method, the bearings are 
originating goods.

Section 10. Transshipment

    10 (1) Transport requirements to retain originating status. If 
an originating good is transported outside the territories of the 
USMCA countries, the good retains its originating status if
    (a) the good remains under customs control outside the 
territories of the USMCA countries; and
    (b) the good does not undergo further production or any other 
operation outside the territories of the USMCA countries, other than 
unloading; reloading; separation from a bulk shipment; storing; 
labeling or other marking required by the importing USMCA country; 
or any other operation necessary to transport the good to the 
territory of the importing USMCA country or to preserve the good in 
good condition, including:
    (i) Inspection;
    (ii) removal of dust that accumulates during shipment;
    (iii) ventilation;
    (iv) spreading out or drying;
    (v) chilling;
    (vi) replacing salt, sulphur dioxide or other aqueous solutions; 
or
    (vii) replacing damaged packing materials and containers and 
removal of units of the good that are spoiled or damaged and present 
a danger to the remaining units of the good.
    (2) Good entirely non-originating. A good that is a non-
originating good by application of subsection (1) is considered to 
be entirely non-originating for the purposes of these Regulations.
    (3) Exceptions for certain goods. Subsection (1) does not apply 
with respect to
    (a) a ``smart card'' of subheading 8523.52 containing a single 
integrated circuit, if any further production or other operation 
that that good undergoes outside the territories of the USMCA 
countries does not result in a change in the tariff classification 
of the good to any other subheading;
    (b) a good of any of subheadings 8541.10 through 8541.60 or 
8542.31 through 8542.39, if any further production or other 
operation that that good undergoes outside the territories of the 
USMCA countries does not result in a change in the tariff 
classification of the good to a subheading outside of that group;
    (c) an electronic microassembly of subheading 8543.90, if any 
further production or other operation that that good undergoes 
outside the territories of the USMCA countries does not result in a 
change in the tariff classification of the good to any other 
subheading; or
    (d) an electronic microassembly of subheading 8548.90, if any 
further production or other operation that that good undergoes 
outside the territories of the USMCA countries does not result in a 
change in the tariff classification of the good to any other 
subheading.

Section 11. Non-Qualifying Operations

    11 A good is not an originating good merely by reason of
    (a) mere dilution with water or another substance that does not 
materially alter the characteristics of the good; or
    (b) any production or pricing practice with respect to which it 
may be demonstrated, on the basis of a preponderance of evidence, 
that the object was to circumvent these Regulations.

Part VI Automotive Goods

Section 12. Definitions and Interpretation

    (1) For purposes of this part,
    aftermarket part means a good that is not for use as original 
equipment in the production of passenger vehicles, light trucks or 
heavy trucks as defined in these Regulations;
    all-terrain vehicle means a vehicle that does not meet United 
States federal safety and emissions standards permitting 
unrestricted on-road use or the equivalent Mexican and Canadian on-
road standards;
    annual purchase value (APV) means the sum of the values of high-
wage materials purchased annually by a producer for use in the 
production of passenger vehicles, light trucks or heavy trucks in a 
plant located in the territory of a USMCA country;
    average base hourly wage rate means the average hourly rate of 
pay based on all the hours performed on direct production work at a 
plant or facility, even if such workers performing that work are 
paid on a salary, piece-rate, or day-rate basis. This includes all 
hours performed by full-time, part time, temporary, and seasonal 
workers. The rate of pay does not include benefits, bonuses or 
shift-premiums, or premium pay for overtime, holidays or weekends. 
If a worker is paid by a third party, such as a temporary employment 
agency, only the wages received by the worker are included in the 
average base hourly wage rate calculation.
    For direct production workers, the average base hourly wage rate 
of pay is calculated based on all their working hours. For other 
workers performing direct production work, the average base hourly 
rate is calculated based on the number of hours performing direct 
production work. The rate also does not include any hours worked by 
interns, trainees, students, or any worker that does not have an 
express or implied compensation agreement with the employer.
    If any direct production worker or worker performing direct 
production work is compensated by a method other than hourly, such 
as a salary, piece-rate, or day-rate basis, the worker's hourly base 
wage rate-is calculated by converting the salary, piece-rate, or 
day-rate to an hourly equivalent. This hourly equivalent is then 
multiplied by the number of hours worked in direct production for 
purposes of calculating the average base hourly wage rate.
    class of motor vehicles means one of the following categories of 
motor vehicles:
    (a) Road tractors for semi-trailers of subheading 8701.20, 
vehicles for the transport of 16 or more persons of subheading 
8702.10 or 8702.90, motor vehicles for the transport of goods of 
subheading 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, special 
purpose motor vehicles of heading 87.05, or chassis fitted with 
engines of heading 87.06;
    (b) tractors of subheading 8701.10 or 8701.30 through 8701.90;
    (c) vehicles for the transport of 15 or fewer persons of 
subheading 8702.10 or 8702.90, or light trucks of subheading 8704.21 
or 8704.31; or
    (d) passenger vehicles of subheading 8703.21 through 8703.90;
    complete motor vehicle assembly process means the production of 
a motor vehicle from separate constituent parts, including the 
following:

(a) A structural frame or unibody
(b) body panels
(c) an engine, a transmission and a drive train
(d) brake components
(e) steering and suspension components
(f) seating and internal trim
(g) bumpers and external trim
(h) wheels and
(i) electrical and lighting components;
    direct production work means work by any employee directly 
involved in the production of passenger vehicles, light trucks, 
heavy trucks, or parts used in the production of these vehicles in 
the territory of a USMCA country. It also includes work by an 
employee directly involved in the set-up, operation, or maintenance 
of tools or equipment used in the production of those vehicles or 
parts. Direct production work may take place on a production line, 
at a workstation, on the shop floor, or in another production area.
    Direct production work also includes:
    (a) Material handling of vehicles or parts;
    (b) inspection of vehicles or parts, including inspections that 
are normally categorized as quality control and, for heavy trucks, 
pre-sale inspections carried out at the place where the vehicle is 
produced;
    (c) work performed by skilled tradespeople, such as process or 
production engineers, mechanics, technicians and other employees 
responsible for maintaining and ensuring the operation of the 
production line or tools and equipment used in the production of 
vehicles or parts; and
    (d) on-the-job training regarding the execution of a specific 
production task.

[[Page 39715]]

    Direct production work does not include any work by executive or 
management staff that have the authority to make final decisions to 
hire, fire, promote, transfer and discipline employees; workers 
engaged in research and development, or work by engineering or other 
personnel that are not responsible for maintaining and ensuring the 
operation of the production line or tools and equipment used in the 
production of vehicles or parts. It also does not include any work 
by interns, trainees, students, or any worker that does not have an 
express or implied compensation agreement with the employer.
    direct production worker means any worker whose primary 
responsibilities are direct production work, meaning at least 85% of 
the worker's time is spent performing direct production work.
    first motor vehicle prototype means the first motor vehicle that
    (a) is produced using tooling and processes intended for the 
production of motor vehicles to be offered for sale, and
    (b) follows the complete motor vehicle assembly process in a 
manner not specifically designed for testing purposes;
    heavy truck means a vehicle other than a vehicle that is solely 
or principally for off-road use of subheading 8701.20, 8704.22, 
8704.23, 8704.32 or 8704.90, or a chassis fitted with an engine of 
heading 87.06 that is for use in such a vehicle;
    high-wage assembly plant for passenger vehicle or light truck 
parts means a qualifying wage-rate production plant, operated by a 
corporate producer, or by a supplier with whom the producer has a 
contract of at least 3 years for the materials listed in sub-
paragraphs (a) through (c), provided that the plant is located in 
the territory of a USMCA country and that it has a production 
capacity of:
    (a) 100,000 or more engines of heading 84.07 or 84.08,
    (b) 100,000 or more transmissions of subheading 8708.40, or
    (c) 25,000 or more advanced battery packs;
    Such engines, transmissions, or advanced battery packs are not 
required to qualify as originating;
    high-wage assembly plant for heavy truck parts means a 
qualifying wage rate production plant, operated by a corporate 
producer, or by a supplier with whom the producer has a contract of 
at least 3 years for the materials listed in sub-paragraphs (a) 
through (c), provided that the plant is located in the territory of 
a USMCA country and that it has a production capacity of:
    (a) 20,000 or more engines of heading 84.07 or 84.08,
    (b) 20,000 or more transmissions of subheading 8708.40, or
    (c) 20,000 or more advanced battery packs;
    Such engines, transmissions, or advanced battery packs are not 
required to qualify as originating;
    high-wage labor costs (HWLC) means the sum of wage expenditures, 
not including benefits, for workers who perform direct production 
work at a qualifying wage-rate vehicle assembly plant;
    high-wage material (HWM) means a material that is produced in a 
qualifying wage-rate production plant;
    high-wage technology expenditures means wage expenditures--
expressed as a percentage of a passenger vehicle, light truck, or 
heavy truck producer's total production wage expenditures--at a 
corporate level in the territory of one or more of the USMCA 
countries on:
    (a) Research and development, including prototype development, 
design, engineering, or testing operations and any work undertaken 
by a producer for the purpose of creating new, or improving 
existing, materials, parts, vehicles or processes, including 
incremental improvements thereto, and
    (b) information technology, including software development, 
technology integration, vehicle communications, or information 
technology support operations,
    Expenditures on capital or other non-wage costs for R&D or IT 
are not included. For greater certainty, there is no minimum wage 
rate associated with high-wage technology expenditures;
    high-wage transportation or related costs for shipping means 
costs incurred by a producer for transportation, logistics, or 
material handling associated with the movement of high-wage parts or 
materials within the territories of the USMCA countries, provided 
that the transportation, logistics, or material handling provider 
pays an average base hourly wage rate to direct production employees 
performing these services of at least:
    (a) US$16 in the United States;
    (b) CA$20.88 in Canada; and
    (c) MXN$294.22 in Mexico;
    High-wage transportation or related costs for shipping may be 
included in high wage material and manufacturing expenses if those 
costs are not otherwise included;
    light truck means a vehicle of subheading 8704.21 or 8704.31, 
except for a vehicle that is solely or principally for off-road use;
    marque means the trade name used by a separate marketing 
division of a motor vehicle assembler;
    model line means a group of motor vehicles having the same 
platform or model name;
    model name means the word, group of words, letter, number or 
similar designation assigned to a motor vehicle by a marketing 
division of a motor vehicle assembler to:
    (a) Differentiate the motor vehicle from other motor vehicles 
that use the same platform design,
    (b) associate the motor vehicle with other motor vehicles that 
use different platform designs, or
    (c) denote a platform design;
    motorhome or entertainer coach means a vehicle of heading 87.02 
or 87.03 built on a self-propelled motor vehicle chassis that is 
solely or principally designed as temporary living quarters for 
recreational, camping, entertainment, corporate or seasonal use;
    motor vehicle assembler means a producer of motor vehicles and 
any related persons or joint ventures in which the producer 
participates;
    new building means a new construction, including at least the 
pouring or construction of a 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;
    passenger vehicle means a vehicle of subheading 8703.21 through 
8703.90, except for:
    (a) A vehicle with a compression-ignition engine of subheading 
8703.31 through 8703.33 or a vehicle of subheading 8703.90 with both 
a compression-ignition engine and an electric motor for propulsion,
    (b) a three- or four-wheeled motorcycle,
    (c) an all-terrain vehicle,
    (d) a motorhome or entertainer coach, or
    (e) an ambulance, hearse or prison van;
    plant means a building, or buildings in close proximity but not 
necessarily contiguous, machinery, apparatus and fixtures that are 
under the control of a producer and are used in the production of 
any of the following:
    (a) Passenger vehicles, light trucks or heavy trucks,
    (b) a good listed in Table A.1, A.2, B, C, D, E, F or G;
    platform means the primary load-bearing structural assembly of a 
motor vehicle that determines the basic size of the motor vehicle, 
and is the structural base that supports the driveline and links the 
suspension components of the motor vehicle for various types of 
frames, such as the body-on-frame or space-frame, and monocoques;
    qualifying wage-rate production plant means a plant that 
produces materials for passenger vehicles, light trucks or heavy 
trucks located in the territory of a USMCA country, at which the 
average base hourly wage rate is at least:
    (a) US$16 in the United States;
    (b) CA$20.88 in Canada; and
    (c) MXN$294.22 in Mexico;
    qualifying wage-rate vehicle assembly plant means a passenger 
vehicle, light truck or heavy truck assembly plant located in the 
territory of a USMCA country, at which the average base hourly wage 
rate is at least:
    (a) US$16 in the United States;
    (b) CA$20.88 in Canada; and
    (c) MXN$294.22 in Mexico;
    refit means a plant closure, for purposes of plant conversion or 
retooling, that lasts at least three months;
    size category, with respect to a light-duty vehicle, means that 
the total of the interior volume for passengers and the interior 
volume for luggage is
    (a) 85 cubic feet (2.38 m\3\) or less,
    (b) more than 85 cubic feet (2.38 m3) but less than 100 cubic 
feet (2.80 m3),
    (c) 100 cubic feet (2.80 m3) or more but not more than 110 cubic 
feet (3.08 m3),
    (d) more than 110 cubic feet (3.08 m3) but less than 120 cubic 
feet (3.36 m3), or
    (e) 120 cubic feet (3.36 m3) or more;
    super-core means the parts listed in column 1 of Table A.2 of 
this Part, which are considered as a single part for the purpose of 
performing a Regional Value Content calculation in accordance with 
subsections 14(10), 14(11), 14(13) and 16(10);
    total vehicle plant assembly annual purchase value (TAPV) means 
the sum of the values of all parts or materials purchased, on an 
annual basis, for use in the production of passenger vehicles, light 
trucks or heavy

[[Page 39716]]

trucks in a plant located in the territory of a USMCA country;
    underbody means a component, comprising a single part or two or 
more parts joined together, with or without additional stiffening 
members, that forms the base of a motor vehicle, beginning at the 
fire-wall or bulkhead of the motor vehicle and ending:
    (a) If there is a luggage floor panel in the motor vehicle, at 
the place where that luggage floor panel begins, or
    (b) if there is no luggage floor panel in the motor vehicle, at 
the place where the passenger compartment of the motor vehicle ends;
    vehicle that is solely or principally for off-road use means a 
vehicle that does not meet U.S. federal safety and emissions 
standards permitting unrestricted on-road use or the equivalent 
Mexican and Canadian on-road standards.

Section 13: Product-Specific Rules of Origin for Vehicles and Certain 
Auto Parts

    (1) Except as provided for in section 19 (Alternative Staging 
Regimes), the product-specific rule of origin for a good of heading 
87.01 through 87.08 is:
    8701.10 A change to a good of subheading 8701.10 from any other 
heading, provided there is a regional value content of not less than 
60 percent under the net cost method.
    8701.20 A change to a good of subheading 8701.20 from any other 
heading, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027; or
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    8701.30-8701.90 A change to a good of subheading 8701.30 through 
8701.90 from any other heading, provided there is a regional value 
content of not less than 60 percent under the net cost method.
    8702.10-8702.90
    (1) A change to a motor vehicle for the transport of 15 or fewer 
persons of subheading 8702.10 through 8702.90 from any other 
heading, provided there is a regional value content of not less than 
62.5 percent under the net cost method; or
    (2) A change to a motor vehicle for the transport of 16 or more 
persons of subheading 8702.10 through 8702.90 from any other 
heading, provided there is a regional value content of not less than 
60 percent under the net cost method.
    8703.10 A change to subheading 8703.10 from any other heading, 
provided there is a regional value content of not less than:
    (a) 60 percent under the transaction value method, or
    (b) 50 percent under the net cost method.
    8703.21-8703.90 (1) A change to a passenger vehicle of 
subheading 8703.21 through 8703.90 from any other heading, provided 
there is a regional value content of not less than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter; or
    (2) A change to any other good of subheading 8703.21 through 
8703.90 from any other heading, provided there is a regional value 
content of not less than 62.5 percent under the net cost method.
    8704.10 A change to a good of subheading 8704.10 from any other 
heading, provided there is a regional value content of not less than 
60 percent under the net cost method.
    8704.21 (1) A change to a light truck of subheading 8704.21 from 
any other heading, provided there is a regional value content of not 
less than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter; or
    (2) A change to a vehicle that is solely or principally for off-
road use subheading 8704.21 from any other heading, provided there 
is a regional value content of not less than 62.5 percent under the 
net cost method.
    8704.22-8704.23 (1) A change to a heavy truck of subheading 
8704.22 through 8704.23 from any other heading, provided there is a 
regional value content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter; or
    (2) A change to a vehicle that is solely or principally for off-
road use subheading 8704.22 through 8704.23 from any other heading, 
provided there is a regional value content of not less than 60 
percent under the net cost method.
    8704.31 (1) A change to a light truck of subheading 8704.31 from 
any other heading, provided there is a regional value content of not 
less than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter; or
    (2) A change to a vehicle that is solely or principally for off-
road use subheading 8704.31 from any other heading, provided there 
is a regional value content of not less than 62.5 percent under the 
net cost method.
    8704.32-8704.90 (1) A change to a heavy truck of subheading 
8704.32 through 8704.90 from any other heading, provided there is a 
regional value content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter; or
    (2) A change to a vehicle that is solely or principally for off-
road use of subheading 8704.32 through 8704.90 from any other 
heading, provided there is a regional value content of not less than 
60 percent under the net cost method.
    87.05 A change to heading 87.05 from any other heading, provided 
there is a regional value content of not less than 60 percent under 
the net cost method.
    87.06 For a good of heading 87.06 for use as original equipment 
in a passenger vehicle or light truck:
    (1) No required change in tariff classification provided there 
is a regional value content of not less than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of heading 87.06 for use as original equipment in a 
heavy truck:
    (2) No required change in tariff classification provided there 
is a regional value content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of heading 87.06 for use as original 
equipment in any other vehicle, or as an aftermarket part:
    (3) No required change in tariff classification provided there 
is a regional value content of not less than 60 percent under the 
net cost method.
    87.07 For a good of heading 87.07 for use as original equipment 
in a passenger vehicle or light truck:
    (1) No required change in tariff classification provided there 
is a regional value content of not less than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of heading 87.07 for use as original equipment in a 
heavy truck:
    (2) A change to heading 87.07 from any other chapter; or
    (3) No required change in tariff classification provided there 
is a regional value content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of heading 87.07 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (4) A change to heading 87.07 from any other chapter; or
    (5) No required change in tariff classification provided there 
is a regional value content of not less than 60 percent under the 
net cost method.

[[Page 39717]]

    8708.10 For a good of subheading 8708.10 for use as original 
equipment in a passenger vehicle or light truck:
    (1) A change to subheading 8708.10 from any other heading; or
    (2) A change to subheading 8708.10 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.10 for use as original equipment 
in a heavy truck:
    (3) A change to subheading 8708.10 from any other heading; or
    (4) A change to subheading 8708.10 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.10 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (5) A change to subheading 8708.10 from any other heading; or
    (6) A change to subheading 8708.10 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than 50 
percent under the net cost method.
    8708.21 For a good of subheading 8708.21 for use as original 
equipment in a passenger vehicle or light truck:
    (1) A change to subheading 8708.21 from any other heading; or
    (2) A change to subheading 8708.21 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.21 for use as original equipment 
in a heavy truck:
    (3) A change to subheading 8708.21 from any other heading; or
    (4) A change to subheading 8708.21 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.21 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (5) A change to subheading 8708.10 from any other heading; or
    (6) A change to subheading 8708.10 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than 50 
percent under the net cost method.
    8708.29 For a body stamping of subheading 8708.29 for use as 
original equipment in a passenger vehicle or light truck:
    (1) No required change in tariff classification to a body 
stamping of subheading 8708.29, provided there is a regional value 
content of not less than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For any other good of subheading 8708.29 for use as original 
equipment in a passenger vehicle or light truck:
    (2) A change to subheading 8708.29 from any other heading; or
    (3) No required change in tariff classification to subheading 
8708.29, provided there is a regional value content of not less 
than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.29 for use as original equipment 
in a heavy truck:
    (4) A change to subheading 8708.29 from any other heading; or
    (5) No required change in tariff classification to subheading 
8708.29, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.29 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (6) A change to subheading 8708.29 from any other heading; or
    (7) No required change in tariff classification to subheading 
8708.29, provided there is a regional value content of not less than 
50 percent under the net cost method.
    8708.30 For a good of subheading 8708.30 for use as original 
equipment in a passenger vehicle or light truck:
    (1) A change to subheading 8708.30 from any other heading; or
    (2) No required change in tariff classification to subheading 
8708.30, provided there is a regional value content of not less 
than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.30 for use as original equipment 
in a heavy truck:
    (3) A change to subheading 8708.30 from any other heading; or
    (4) No required change in tariff classification to subheading 
8708.30, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.30 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (5) A change to mounted brake linings of subheading 8708.30 from 
any other heading; or
    (6) A change to mounted brake linings of subheading 8708.30 from 
parts of mounted brake linings, brakes or servo-brakes of subheading 
8708.30 or 8708.99, whether or not there is also a change from any 
other heading, provided there is a regional value content of not 
less than 50 percent under the net cost method;
    (7) A change to any other good of subheading 8708.30 from any 
other heading; or
    (8) A change to any other good of subheading 8708.30 from 
mounted brake linings or parts of brakes or servo-brakes of 
subheading 8708.30, or 8708.99, whether or not there is also a 
change from any other heading, provided there is a regional value 
content of not less than 50 percent under the net cost method.
    8708.40 For a good of subheading 8708.40 for use as original 
equipment in a passenger vehicle or light truck:
    (1) No required change in tariff classification to subheading 
8708.40, provided there is a regional value content of not less 
than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.40 for use as original equipment 
in a heavy truck:
    (2) A change to subheading 8708.40 from any other heading; or
    (3) No required change in tariff classification to subheading 
8708.40, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.

[[Page 39718]]

    For a good of subheading 8708.40 for use as original equipment 
in any other vehicle or as an aftermarket part:
    (4) A change to gear boxes of subheading 8708.40 from any other 
heading; or
    (5) A change to gear boxes of subheading 8708.40 from any other 
good of subheading 8708.40 or 8708.99, whether or not there is also 
a change from any other heading, provided there is a regional value 
content of not less than 50 percent under the net cost method;
    (6) A change to any other good of subheading 8708.40 from any 
other heading; or
    (7) No required change in tariff classification to any other 
good of subheading 8708.40, provided there is a regional value 
content of not less than 50 percent under the net cost method.
    8708.50 For a good of subheading 8708.50 for use as original 
equipment in a passenger vehicle or light truck:
    (1) No required change in tariff classification to subheading 
8708.50, provided there is a regional value content of not less 
than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.50 for use as original equipment 
in a heavy truck:
    (2) A change to drive-axles with differential, whether or not 
provided with other transmission components, for vehicles of heading 
87.03, of subheading 8708.50 from any other heading, except from 
subheading 8482.10 through 8482.80; or
    (3) A change to drive-axles with differential, whether or not 
provided with other transmission components, for vehicles of heading 
87.03, of subheading 8708.50 from subheading 8482.10 through 8482.80 
or parts of drive-axles of subheading 8708.50, whether or not there 
is also a change from any other heading, provided there is a 
regional value content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    (4) A change to other drive-axles with differential, whether or 
not provided with other transmission components, of subheading 
8708.50 from any other heading; or
    (5) A change to other drive-axles with differential, whether or 
not provided with other transmission components, of subheading 
8708.50 from subheading 8708.99, whether or not there is also a 
change from any other heading, provided there is a regional value 
content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    (6) A change to non-driving axles and parts thereof, for 
vehicles of heading 87.03, of subheading 8708.50 from any other 
heading, except from subheading 8482.10 through 8482.80; or
    (7) A change to non-driving axles and parts thereof, for 
vehicles of heading 87.03, of subheading 8708.50 from subheading 
8482.10 through 8482.80 or 8708.99, whether or not there is also a 
change from any other heading, provided there is a regional value 
content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter;
    (8) A change to other non-driving axles and parts thereof of 
subheading 8708.50 from any other heading; or
    (9) A change to other non-driving axles and parts thereof of 
subheading 8708.50 from subheading 8708.99, whether or not there is 
also a change from any other heading, provided there is a regional 
value content of not less than:
    (a) 60 percent under the net cost method, beginning July 1, 2020 
until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    (10) A change to any other good of subheading 8708.50 from any 
other heading; or
    (11) No required change in tariff classification to any other 
good of subheading 8708.50, provided there is a regional value 
content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For a good of subheading 8708.50 for use as original equipment 
in any other vehicle or as an aftermarket part:
    (12) A change to drive-axles with differential, whether or not 
provided with other transmission components, for vehicles of heading 
87.03, of subheading 8708.50 from any other heading, except from 
subheading 8482.10 through 8482.80; or
    (13) A change to drive-axles with differential, whether or not 
provided with other transmission components, for vehicles of heading 
87.03, of subheading 8708.50 from subheading 8482.10 through 8482.80 
or parts of drive-axles of subheading 8708.50, whether or not there 
is also a change from any other heading, provided there is a 
regional value content of not less than 50 percent under the net 
cost method;
    (14) A change to other drive-axles with differential, whether or 
not provided with other transmission components, of subheading 
8708.50 from any other heading; or
    (15) A change to other drive-axles with differential, whether or 
not provided with other transmission components, of subheading 
8708.50 from subheading 8708.99, whether or not there is also a 
change from any other heading, provided there is a regional value 
content of not less than 50 percent under the net cost method;
    (16) A change to non-driving axles and parts thereof, for 
vehicles of heading 87.03, of subheading 8708.50 from any other 
heading, except from subheading 8482.10 through 8482.80; or
    (17) A change to non-driving axles and parts thereof, for 
vehicles of heading 87.03, of subheading 8708.50 from subheading 
8482.10 through 8482.80 or 8708.99, whether or not there is also a 
change from any other heading, provided there is a regional value 
content of not less than 50 percent under the net cost method;
    (18) A change to other non-driving axles and parts thereof of 
subheading 8708.50 from any other heading; or
    (19) A change to other non-driving axles and parts thereof of 
subheading 8708.50 from subheading 8708.99, whether or not there is 
also a change from any other heading, provided there is a regional 
value content of not less than 50 percent under the net cost method;
    (20) A change to any other good of subheading 8708.50 from any 
other heading; or
    (21) No required change in tariff classification to any other 
good of subheading 8708.50, provided there is a regional value 
content of not less than 50 percent under the net cost method.
    8708.70 For a good of subheading 8708.70 for use as original 
equipment in a passenger vehicle or light truck:
    (1) A change to subheading 8708.70 from any other heading; or
    (2) A change to subheading 8708.70 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than 50 
percent under the net cost method.
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.70 for use as original equipment 
in a heavy truck:
    (3) A change to subheading 8708.70 from any other heading; or
    (4) A change to subheading 8708.70 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than 50 
percent under the net cost method.
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.70 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (5) A change to subheading 8708.70 from any other heading; or
    (6) A change to subheading 8708.70 from subheading 8708.99, 
whether or not there is also a change from any other heading,

[[Page 39719]]

provided there is a regional value content of not less than 50 
percent under the net cost method.
    8708.80 For a good of subheading 8708.80 for use as original 
equipment in a passenger vehicle or light truck:
    (1) No required change in tariff classification to subheading 
8708.80, provided there is a regional value content of not less 
than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.80 for use as original equipment 
in a heavy truck:
    (2) A change to McPherson struts of subheading 8708.80 from 
parts thereof of subheading 8708.80 or any other subheading, 
provided there is a regional value content of not less than 50 
percent under the net cost method;
    (3) A change to any other good of subheading 8708.80 from any 
other heading; or
    (4) A change to suspension systems (including shock absorbers) 
of subheading 8708.80 from parts thereof of subheading 8708.80 or 
8708.99, whether or not there is also a change from any other 
heading, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter; or
    (5) No required change in tariff classification to parts of 
suspension systems (including shock absorbers) of subheading 
8708.80, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.80 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (6) A change to McPherson struts of subheading 8708.80 from 
parts thereof of subheading 8708.80 or any other subheading, 
provided there is a regional value content of not less than 50 
percent under the net cost method;
    (7) A change to subheading 8708.80 from any other heading;
    (8) A change to suspension systems (including shock absorbers) 
of subheading 8708.80 from parts thereof of subheading 8708.80 or 
8708.99, whether or not there is also a change from any other 
heading, provided there is a regional value content of not less than 
50 percent under the net cost method; or
    (9) No required change in tariff classification to parts of 
suspension system (including shock absorbers) of subheading 8708.80, 
provided there is a regional value content of not less than 50 
percent under the net cost method.
    8708.91 For a good of subheading 8708.91 for use as original 
equipment in a passenger vehicle or light truck:
    (1) A change to radiators of subheading 8708.91 from any other 
heading;
    (2) A change to radiators of subheading 8708.91 from any other 
good of subheading 8708.91, whether or not there is also a change 
from any other heading, provided there is a regional value content 
of not less than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023; or
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    (3) No required change in tariff classification to any other 
good of subheading 8708.91, provided there is a regional value 
content of not less than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023; or
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.91 for use as original equipment 
in a heavy truck:
    (4) No required change in tariff classification to any other 
good of subheading 8708.91, provided there is a regional value 
content of not less than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023; or
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    (5) A change to radiators of subheading 8708.91 from any other 
heading;
    (6) A change to radiators of subheading 8708.91 from any other 
good of subheading 8708.91, whether or not there is also a change 
from any other heading, provided there is a regional value content 
of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.91 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (7) A change to radiators of subheading 8708.91 from any other 
heading;
    (8) A change to radiators of subheading 8708.91 from any other 
good of subheading 8708.91, whether or not there is also a change 
from any other heading, provided there is a regional value content 
of not less than 50 percent under the net cost method; or
    (9) No required change in tariff classification to any other 
good of subheading 8708.91, provided there is a regional value 
content of not less than 50 percent under the net cost method.
    8708.92 For a good of subheading 8708.92 for use as original 
equipment in a passenger vehicle or light truck:
    (1) A change to silencers (mufflers) or exhaust pipes of 
subheading 8708.92 from any other heading;
    (2) A change to silencers (mufflers) or exhaust pipes of 
subheading 8708.92 from any other good of subheading 8708.92, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than; or
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    (3) No required change in tariff classification to any other 
good of subheading 8708.92, provided there is a regional value 
content of not less than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023; or
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.92 for use as original equipment 
in a heavy truck:
    (4) A change to silencers (mufflers) or exhaust pipes of 
subheading 8708.92 from any other heading;
    (5) A change to silencers (mufflers) or exhaust pipes of 
subheading 8708.92 from any other good of subheading 8708.92, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than; or
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    (6) No required change in tariff classification to any other 
good of subheading 8708.92, provided there is a regional value 
content of not less than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023; or
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For any other good of subheading 8708.92 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (7) A change to silencers (mufflers) or exhaust pipes of 
subheading 8708.92 from any other heading;
    (8) A change to silencers (mufflers) or exhaust pipes of 
subheading 8708.92 from any other good of subheading 8708.92, 
whether or not there is also a change from any other heading, 
provided there is a

[[Page 39720]]

regional value content of not less than 50 percent under the net 
cost method; or
    (9) No required change in tariff classification to any other 
good of subheading 8708.92, provided there is a regional value 
content of not less than 50 percent under the net cost method.
    8708.93 For a good of subheading 8708.93 for use as original 
equipment in a passenger vehicle or light truck:
    (1) A change to subheading 8708.93 from any other heading;
    (2) A change to subheading 8708.93 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than 70 
percent under the net cost method; or
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.93 for use as original equipment 
in a heavy truck:
    (3) A change to subheading 8708.93 from any other heading;
    (4) A change to subheading 8708.93 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than 70 
percent under the net cost method; or
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.93 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (5) A change to subheading 8708.93 from any other heading;
    (6) A change to subheading 8708.93 from subheading 8708.99, 
whether or not there is also a change from any other heading, 
provided there is a regional value content of not less than 50 
percent under the net cost method.
    8708.94 For a good of subheading 8708.94 for use as original 
equipment in a passenger vehicle or light truck:
    (1) No required change in tariff classification to subheading 
8708.94, provided there is a regional value content of not less 
than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.94 for use as original equipment 
in a heavy truck:
    (2) A change to subheading 8708.94 from any other heading; or
    (3) A change to steering wheels, steering columns or steering 
boxes of subheading 8708.94 from parts thereof of subheading 8708.94 
or 8708.99, whether or not there is also a change from any other 
heading, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter;
    (4) No required change in tariff classification to parts of 
steering wheels, steering columns or steering boxes of subheading 
8708.94, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.94 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (5) A change to subheading 8708.94 from any other heading; or
    (6) A change to steering wheels, steering columns or steering 
boxes of subheading 8708.94 from parts thereof of subheading 8708.94 
or 8708.99, whether or not there is also a change from any other 
heading, provided there is a regional value content of not less than 
50 percent under the net cost method;
    (7) No required change in tariff classification to parts of 
steering wheels, steering columns or steering boxes of subheading 
8708.94, provided there is a regional value content of not less than 
50 percent under the net cost method.
    8708.95 For a good of subheading 8708.95 for use as original 
equipment in a passenger vehicle or light truck:
    (1) A change to subheading 8708.95 from any other heading; or
    (2) No required change in tariff classification to subheading 
8708.95, provided there is a regional value content of not less 
than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a good of subheading 8708.95 for use as original equipment 
in a heavy truck:
    (1) A change to subheading 8708.95 from any other heading; or
    (2) No required change in tariff classification to subheading 
8708.95, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.95 for use as original 
equipment in any other vehicle or as an aftermarket part:
    (3) A change to subheading 8708.95 from any other heading; or
    (4) No required change in tariff classification to subheading 
8708.95, provided there is a regional value content of not less than 
50 percent under the net cost method.
    8708.99 For a chassis frame of subheading 8708.99 for use as 
original equipment in a passenger vehicle or light truck:
    (1) No required change in tariff classification to subheading 
8708.99, provided there is a regional value content of not less 
than:
    (a) 66 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 69 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 72 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 75 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    For a chassis of subheading 8708.99 for use as original 
equipment in a heavy truck:
    (2) No required change in tariff classification to subheading 
8708.99, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.99 for use as original 
equipment in a passenger vehicle or light truck:
    8708.99.aa A change to tariff item 8708.99.aa from any other 
subheading, provided there is a regional value content of not less 
than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    8708.99.bb A change to tariff item 8708.99.bb from any other 
heading, except from subheading 8482.10 through 8482.80 or tariff 
item 8482.99.aa; or
    A change to tariff item 8708.99.bb from subheadings 8482.10 
through 8482.80 or tariff item 8482.99.aa, whether or not there is 
also a change from any other heading, provided there is a regional 
value content of not less than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.
    8708.99 A change to subheading 8708.99 from any other heading; 
or
    No required change in tariff classification to subheading 
8708.99, provided there is a regional value content of not less 
than:
    (a) 62.5 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2021;
    (b) 65 percent under the net cost method, beginning on July 1, 
2021 until June 30, 2022;
    (c) 67.5 percent under the net cost method, beginning on July 1, 
2022 until June 30, 2023;
    (d) 70 percent under the net cost method, beginning on July 1, 
2023, and thereafter.

[[Page 39721]]

    For any other good of subheading 8708.99 for use as original 
equipment in a heavy truck:
    8708.99.aa A change to tariff item 8708.99.aa from any other 
subheading, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    8708.99.bb A change to tariff item 8708.99.bb from any other 
heading, except from subheading 8482.10 through 8482.80 or tariff 
item 8482.99.aa; or
    A change to tariff item 8708.99.bb from subheadings 8482.10 
through 8482.80 or tariff item 8482.99.aa, whether or not there is 
also a change from any other heading, provided there is a regional 
value content of not less than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    8708.99 A change to subheading 8708.99 from any other heading; 
or
    No required change in tariff classification to subheading 
8708.99, provided there is a regional value content of not less 
than:
    (a) 60 percent under the net cost method, beginning on July 1, 
2020 until June 30, 2024;
    (b) 64 percent under the net cost method, beginning on July 1, 
2024 until June 30, 2027;
    (c) 70 percent under the net cost method, beginning on July 1, 
2027, and thereafter.
    For any other good of subheading 8708.99 for use as original 
equipment in any other vehicle or as an aftermarket part:
    8708.99.aa A change to tariff item 8708.99.aa from any other 
subheading, provided there is a regional value content of not less 
than 50 per cent under the net cost method.
    8708.99.bb A change to tariff item 8708.99.bb from any other 
heading, except from subheading 8482.10 through 8482.80 or tariff 
item 8482.99.aa; or
    A change to tariff item 8708.99.bb from subheadings 8482.10 
through 8482.80 or tariff item 8482.99.aa, whether or not there is 
also a change from any other heading, provided there is a regional 
value content of not less than 50 per cent under the net cost 
method.
    8708.99 A change to subheading 8708.99 from any other heading; 
or
    No required change in tariff classification to subheading 
8708.99, provided there is a regional value content of not less than 
50 percent under the net cost method.

Section 14: Further Requirements Related to the Regional Value Content 
for Passenger Vehicles, Light Trucks, and Parts Thereof

Roll-Up of Originating Materials

    (1) The value of non-originating materials used by the producer 
in the production of a passenger vehicle, light truck and parts 
thereof must not, for the purpose of calculating the regional value 
content of the good, include the value of non-originating materials 
used to produce originating materials that are subsequently used in 
the production of the good. For greater certainty, if the production 
undertaken on non-originating materials results in the production of 
a good that qualifies as originating, no account is to be taken of 
the non-originating material contained therein if that good is used 
in the subsequent production of another good.

Requirements Related to Core Parts Listed in Table A.1

    (2) A part listed in Table A.1 that is for use as original 
equipment in the production of a passenger vehicle or light truck, 
except for batteries of subheading 8507.60 that are used as the 
primary source of electrical power for the propulsion of an electric 
passenger vehicle or an electric light truck, is originating only if 
it satisfies the regional value content requirement in sections 13 
or 14 or Schedule I (PSRO Annex).
    (3) A battery of subheading 8507.60 that is used as the primary 
source of electrical power for the propulsion of an electric 
passenger vehicle or an electric light truck is originating if it 
meets the applicable requirements set out in section 14 or Schedule 
I (PSRO Annex).

Parts Listed in Column 1 of Table A.2 Must Be Originating for 
Passenger Vehicle or Light Truck To Be Originating

    (4) In addition to other applicable requirements set out in 
these Regulations, a passenger vehicle or light truck is only 
originating if the parts listed in column 1 of Table A.2 used in its 
production are originating. The value of non-originating materials 
(VNM) for such parts must be calculated in accordance with 
subsections 14(7) through 14(8), or, at the choice of the vehicle 
producer or exporter, subsections 14(9) through 14(11). The net cost 
of a part must be calculated in accordance with section 7 (Regional 
Value Content), without regard to the VNM calculation method chosen.

Parts Listed in Column 1 of Table A.2 Must Meet an RVC Requirement; 
Advanced Batteries May Meet an RVC or Tariff Shift Requirement

    (5) Except for an advanced battery of subheading 8507.60, a part 
listed in column 1 of Table A.2, that is for use in a passenger 
vehicle or light truck, must meet the regional value content 
requirement of section 13 or Schedule I (PSRO Annex) to be 
considered originating.
    (6) An advanced battery of subheading 8507.60, that is for use 
in a passenger vehicle or light truck, is originating if it meets 
the applicable change in tariff classification or regional value 
content requirements set out in Schedule I (PSRO Annex).

VNM for Core Parts May Include All Non-Originating Materials, or 
Only Materials Listed in Column 2 of Table A.2

    (7) For the purpose of satisfying the requirement specified in 
subsections (4) through (6), the regional value content of a part 
listed in column 1 of Table A.2, the value of non-originating 
materials (VNM) may be determined, at the choice of the vehicle 
producer or exporter, taking into consideration:
    (a) The value of all non-originating materials used in the 
production of the part; or
    (b) the value of non-originating components that are listed in 
column 2 of Table A.2 that are used in the production of the part.
    (8) For the purposes of a regional value content calculation for 
a good listed in column 1 of Table A.2, based on paragraph (7)(b), 
any non-originating materials used in the production of the good 
that are not listed in column 2 of Table A.2 may be disregarded. For 
greater certainty, any non-originating parts listed in column 2 of 
Table A.2 must be included in the VNM calculation. Any parts not 
listed in column 2 of Table A.2 or materials or components used to 
produce such parts should also not be part of the VNM calculation.
    (9) Subsections (7) and (8) do not apply when calculating the 
regional value content of a part listed in Column 1 of Table A.2 
traded on its own. The rules for such parts are listed in section 13 
or Schedule I of these Regulations.

Parts Listed in Column 1 of Table A.2 May Be Treated as a Single, 
Super-Core Part

    (10) For the purpose of satisfying the requirement specified in 
subsections (4) through (6) and as an alternative to determining the 
VNM based on the method in subsection (7), the regional value 
content of the parts listed in column 1 of Table A.2 of these 
Regulations may be determined, at the choice of the vehicle producer 
or exporter, by treating these parts as a single part, which may be 
referred to as a super-core part, using the sum of the net cost of 
each part listed under column 1 of Table A.2 of these Regulations, 
and when calculating the VNM taking into consideration:
    (a) The sum of the value of all non-originating materials used 
in the production of the parts listed under column 1 of table A.2; 
or
    (b) the sum of the value of the non-originating components that 
are listed in column 2 of Table A.2 that are used in the production 
of the parts listed in column 1 of Table A.2.
    (11) If a non-originating material used in the production of a 
component listed in column 2 of Table A.2 undergoes further 
production such that it satisfies the requirements of these 
Regulations, the component is treated as originating when 
determining the originating status of the subsequently produced part 
listed in column 1 of Table A.2, regardless of whether that 
component was produced by the producer of the part.
    (12) The regional value content requirement for the parts listed 
in column 1 of Table A.2 may be averaged in accordance with the 
provisions in Section 16. Such an average may be calculated using 
the average regional value content for each individual parts 
category in the left hand column of Table A.2, or by calculating the 
average regional value content for all parts in the left hand column 
of Table A by treating them as a single part, defined as a super-
core. Once

[[Page 39722]]

this average, by either methodology, exceeds the required thresholds 
listed in subsection (13), all parts used to calculate this average 
are considered originating.

RVC Requirements Related to Parts Listed in Tables A.1 and A.2

    (13) Further to subsections (2), (7) and (10), the following 
regional value content thresholds apply to parts for use as original 
equipment listed under Table A.1 and column 1 of Table A.2:
    (a) 66 percent under the net cost method or 76 percent under the 
transaction value method beginning on July 1, 2020 until June 30, 
2021;
    (b) 69 percent under the net cost method or 79 percent under the 
transaction value method beginning on July 1, 2021 until June 30, 
2022;
    (c) 72 percent under the net cost method or 82 percent under the 
transaction value method, beginning on July 1, 2022 until June 30, 
2023; or
    (d) 75 percent under the net cost method or 85 percent under the 
transaction value method, beginning on July 1, 2023, and thereafter.

Requirements Related to Principal and Complementary Parts Listed in 
Tables B and C

    (14) Notwithstanding the regional value content requirements set 
out in Schedule I (PSRO Annex), a material listed in Table B is 
considered originating if it satisfies the applicable change in 
tariff classification requirement or the applicable regional value-
content requirement provided in Schedule I (PSRO Annex).
    (15) Further to subsection (14), the following regional value 
content thresholds apply to parts for use as original equipment 
listed under Table B:
    (a) 62.5 percent under the net cost method or 72.5 percent under 
the transaction value method beginning on July 1, 2020 until June 
30, 2021;
    (b) 65 percent under the net cost method or 75 percent under the 
transaction value method beginning on July 1, 2021 until June 30, 
2022;
    (c) 67.5 percent under the net cost method or 77.5 percent under 
the transaction value method, beginning on July 1, 2022 until June 
30, 2023; or
    (d) 70 percent under the net cost method or 80 percent under the 
transaction value method, beginning on July 1, 2023, and thereafter.
    (16) Notwithstanding the regional value content requirements set 
out in Schedule I (PSRO Annex), a material listed in Table C is 
originating if it meets the applicable change in tariff 
classification requirement or the applicable regional value-content 
requirement provided in Schedule I (PSRO Annex).
    (17) Further to subsection (16), the following regional value 
content thresholds apply to parts for use as original equipment 
listed under Table C:
    (a) 62 percent under the net cost method or 72 percent under the 
transaction value method beginning on July 1, 2020 until June 30, 
2021;
    (b) 63 percent under the net cost method or 73 percent under the 
transaction value method beginning on July 1, 2021 until June 30, 
2022;
    (c) 64 percent under the net cost method or 74 percent under the 
transaction value method, beginning on July 1, 2022 until June 30, 
2023; or
    (d) 65 percent under the net cost method or 75 percent under the 
transaction value method, beginning on July 1, 2023, and thereafter.
    (18) For greater certainty, subsections (13), (15) or (17) do 
not apply to aftermarket parts.

Section 15: Further Requirements Related to the Regional Value Content 
for Heavy Trucks and Parts Thereof

    (1) The value of non-originating materials used by the producer 
in the production of a heavy truck and parts thereof must not, for 
the purpose of calculating the regional value content of the good, 
include the value of non-originating materials used to produce 
originating materials that are subsequently used in the production 
of the good.
    (2) Notwithstanding the Product-Specific Rules of Origin in 
Schedule I (PSRO Annex), the regional value content requirement for 
a part listed in Table D that is for use in a heavy truck is:
    (a) 60 percent under the net cost method or 70 percent under the 
transaction value method, if the corresponding rule includes a 
transaction value method, beginning on July 1, 2020 until June 30, 
2024;
    (b) 64 percent under the net cost method or 74 percent under the 
transaction value method, if the corresponding rule includes a 
transaction value method beginning on July 1, 2024 until June 30, 
2027; or
    (c) 70 percent under the net cost method or 80 percent under the 
transaction value method, if the corresponding rule includes a 
transaction value method, beginning on July 1, 2027, and thereafter.
    (3) Notwithstanding the Product-Specific Rules of Origin in 
Schedule I (PSRO Annex), the regional value content requirement for 
a part listed in Table E that is for use in a heavy truck is:
    (a) 50 percent under the net cost method or 60 percent under the 
transaction value method, if the corresponding rule includes a 
transaction value method, beginning on July 1, 2024 until June 30, 
2027; or
    (b) 54 percent under the net cost method or 64 percent under the 
transaction value method, if the corresponding rule includes a 
transaction value method beginning on July 1, 2024 until June 30, 
2027; or
    (c) 60 percent under the net cost method or 70 percent under the 
transaction value method, if the corresponding rule includes a 
transaction value method, beginning on July 1, 2027, and thereafter.
    (4) Notwithstanding section 13 (Product-Specific Rules of Origin 
for Vehicles) or Schedule I (PSRO Annex), an engine of heading 84.07 
or 84.08, or a gear box (transmission) of subheading 8708.40, or a 
chassis classified in 8708.99, that is for use in a heavy truck, is 
originating only if it satisfies the applicable regional value 
content requirement in subsection (2).

Section 16: Averaging for Passenger Vehicles, Light Trucks and Heavy 
Trucks

    (1) For the purpose of calculating the regional value content of 
a passenger vehicle, light truck, or heavy truck, the calculation 
may be averaged over the producer's fiscal year, using any one of 
the following categories, on the basis of either all motor vehicles 
in the category or only those motor vehicles in the category that 
are exported to the territory of one or more of the other USMCA 
countries:
    (a) The same model line of motor vehicles in the same class of 
vehicles produced in the same plant in the territory of a USMCA 
country;
    (b) the same class of motor vehicles produced in the same plant 
in the territory of a USMCA country;
    (c) the same model line or same class of motor vehicles produced 
in the territory of a USMCA country; or
    (d) any other category as the USMCA countries may decide.
    (2) For the purposes of paragraph (1)(c), vehicles within the 
same model line or class may be averaged separately if such vehicles 
are subject to different regional value content requirements.
    (3) If a producer chooses to use averaging for the purpose of 
calculating regional value content, the producer must state the 
category it has chosen, and:
    (a) If the category referred to in paragraph (1)(a) is chosen, 
state the model line, model name, class of passenger vehicle, light 
truck, or heavy truck and tariff classification of the motor 
vehicles in that category, and the location of the plant at which 
the motor vehicles are produced,
    (b) if the category referred to in paragraph (1)(b) is chosen, 
state the model name, class of passenger vehicle, light truck, or 
heavy truck and tariff classification of the motor vehicles in that 
category, and the location of the plant at which the motor vehicles 
are produced,
    (c) if the category referred to in paragraph (1)(c) is chosen, 
state the model line, model name, class of motor vehicle and tariff 
classification of the passenger vehicle, light truck, or heavy truck 
in that category, and the locations of the plants at which the motor 
vehicles are produced,
    (d) if the category referred to in paragraph (1)(d) is chosen, 
state the model lines, model names, classes of motor vehicles and 
tariff classifications of the passenger vehicles, light trucks, or 
heavy trucks, and the location of the plants at which the motor 
vehicles are produced, or
    (e) if the category referred to in paragraph (1)(e) is chosen, 
state the model lines, model names, classes of motor vehicles and 
tariff classifications of the passenger vehicles, light trucks, or 
heavy trucks, the location of the plants at which the motor vehicles 
are produced and the party or parties to which the vehicles are 
exported;

Averaging Period

    (4) If the fiscal year of a producer begins after July 1, 2020, 
but before July 1, 2021, the producer may calculate its regional 
value content for passenger vehicles, light trucks, heavy trucks, 
other vehicles, core parts listed

[[Page 39723]]

in Table A.2 used in the production of passenger vehicles, light 
trucks or heavy trucks, an automotive good listed in Tables A.1, B, 
C, D or E, steel and aluminum purchasing requirement and labor value 
content, for the period beginning on July 1, 2020 and ending at the 
end of the following fiscal year.

Averaging After Entry Into Force + D133

    (5) For the period July 1, 2020 to June 30, 2023, the producer 
may calculate its regional value content for passenger vehicles, 
light trucks, heavy trucks, other vehicles, core parts listed in 
Table A.2 used in the production of passenger vehicles, light trucks 
or heavy trucks, an automotive good listed in Tables A.1, B, C, D or 
E, steel and aluminum purchasing requirement and labor value 
content, for the following periods:
    (a) July 1, 2020 to June 30, 2021
    (b) July 1, 2021 to June 30, 2022
    (c) July 1, 2022 to June 30, 2023, and
    (d) July 1, 2023 to the end of the producer's fiscal year.
    Additionally, a producer may calculate its regional value 
content for heavy trucks and parts listed in Table D or E, steel and 
aluminum purchasing requirement and labor value content, for the 
following periods:
    (a) July 1, 2023 to June 30, 2024
    (b) July 1 2024 to June 30, 2025
    (c) July 1 2025 to June 30, 2026
    (d) July 1 2026 to June 30, 2027 and
    (e) July 1, 2027 to the end of the producer's fiscal year.

Timely Filing of Choice to Average

    (6) If a producer chooses to average its regional value content 
calculations the producer must notify the customs administration of 
the USMCA country to which passenger vehicles, light trucks, heavy 
trucks or other vehicles are to be exported, by July 31, 2020 and 
subsequently at least 10 days before the first day of the producer's 
fiscal year during which the vehicles will be exported, or such 
shorter period as the customs administration may accept.

Choice to Average May Not Be Rescinded

    (7) The producer may not modify or rescind the category of 
passenger vehicles, light trucks, heavy trucks or other vehicles or 
the period that they have notified the customs authority they intend 
to use for their averaged regional value calculation.

Averaged Net Cost and VNM Included in Calculation of RVC on the 
Basis of Producer's Option To Include All Vehicles of Category or 
Only Certain Exported Vehicles of Category

    (8) For purposes of sections 13 through 15, if a producer 
chooses to average its net cost calculation, the net costs incurred 
and the values of non-originating materials used by the producer, 
with respect to
    (a) all passenger vehicles, light trucks, or heavy trucks that 
fall within the category chosen by the producer and that are 
produced during the fiscal year, or partial fiscal year if the 
producer's fiscal year begins after July 1, 2020, or
    (b) those passenger vehicles, light trucks, or heavy trucks to 
be exported to the territory of one or more of the USMCA countries 
that fall within the category chosen by the producer and that are 
produced during the fiscal year or, or partial fiscal year if the 
producer's fiscal year begins after July 1, 2020, must be included 
in the calculation of the regional value content under any of the 
categories set out in subsection (1).

Year-End Analysis Required if Averaging Based of Estimated Costs; 
Obligation To Notify of Change in Status

    (9) If the producer of a passenger vehicle, light truck, heavy 
truck or other vehicle has calculated the regional value content of 
the motor vehicle on the basis of estimated costs, including 
standard costs, budgeted forecasts or other similar estimating 
procedures, before or during the producer's fiscal year, the 
producer must conduct an analysis at the end of the producer's 
fiscal year of the actual costs incurred over the period with 
respect to the production of the motor vehicle, and, if the 
passenger vehicle, light truck, or heavy truck does not satisfy the 
regional value content requirement on the basis of the actual costs, 
immediately inform any person to whom the producer has provided a 
Certificate of Origin for the motor vehicle, or a written statement 
that the motor vehicle is an originating good, that the motor 
vehicle is a non-originating good.
    (10) For the purpose of calculating the regional value content 
for an automotive good listed in Tables A.1, B, C, D, or E, produced 
in the same plant, a core part listed in Table A.2, or when treating 
the parts listed in column 1 of Table A.2 as a super-core, for use 
in a passenger vehicle or light truck, the calculation may be 
averaged:
    (a) Over the fiscal year of the motor vehicle producer to whom 
the good is sold;
    (b) over any quarter or month;
    (c) over the fiscal year of the producer of the automotive 
material; or
    (d) over any of the categories in paragraph (1)(a) through (d), 
provided that the good was produced during the fiscal year, quarter, 
or month forming the basis for the calculation, in which:
    (i) The average in paragraph (9)(a) is calculated separately for 
those goods sold to one or more passenger vehicle, light truck, or 
heavy truck producer, or
    (ii) the average in paragraph (9)(a) or (d) is calculated 
separately for those goods that are exported to the territory of 
another USMCA country.

Example Relating to the Fiscal Year of a Producer Not Coinciding 
With the Entry Into Force of The Agreement

    (11) The following example is an ``Example'' as referred to in 
subsection 1(4).

Example: Subsection (4)

    The agreement enters into force on July 1, 2020. A producer's 
fiscal year begins on January 1, 2021. The producer may calculate 
their regional value content over the 18-month period beginning on 
July 1, 2020 and ending on December 31, 2021.

Section 17: Steel and Aluminum

    (1) In addition to meeting the requirements of sections 13 
through 16 or Schedule I (PSRO Annex), a passenger vehicle, light 
truck, or heavy truck is originating only if, during a time period 
provided for in subsection (2), at least 70 percent, by value, of 
the vehicle producer's purchases at the corporate level in the 
territories of one or more of the USMCA countries of:
    (a) Steel listed in Table S; and
    (b) aluminum listed in Table S;
    are of originating goods.
    (2) For the purposes of subsection (1), only the value of the 
steel or aluminum listed in Table S that is used in the production 
of the part will be taken into consideration for a part of 
subheading 8708.29 or 8708.99 listed in Table S.
    (3) The requirement set out in subsection (1) applies to steel 
and aluminum purchases made by the producer of passenger vehicles, 
light trucks or heavy trucks, including purchases made directly by 
the vehicle producer from a steel producer, purchases by the vehicle 
producer from a steel service center or a steel distributor. 
Subsection (1) also applies to steel or aluminum covered by a 
contractual arrangement in which a producer of passenger vehicles, 
light trucks, or heavy trucks negotiates the terms under which steel 
or aluminum will be supplied to a parts producer by a steel producer 
or supplier selected by the vehicle producer, for use in the 
production of parts that are supplied by the parts producer to a 
producer of passenger vehicles, light trucks, or heavy trucks. Such 
purchases must also include steel and aluminum purchases for major 
stampings that form the ``body in white'' or chassis frame, 
regardless of whether the vehicle producer or parts producer makes 
such purchases.
    (4) The requirement set out in subsection (1) applies to steel 
and aluminum purchased for use in the production of passenger 
vehicles, light trucks or heavy trucks. Subsection (1) does not 
apply to steel and aluminum purchased by a producer for other uses, 
such as the production of other vehicles, tools, dies or molds.
    (5) For the purpose subsection (1), as it applies to a steel 
good set out in Table S, a good is originating if:
    (a) Beginning on July 1, 2020 until June 30, 2027 the good 
satisfies the applicable requirements established in Schedule I 
(PSRO Annex) or section 13 and all other applicable requirements of 
these Regulations; or
    (b) beginning on July 1, 2027 the good satisfies all other 
applicable requirements of these Regulations, and provided that all 
steel manufacturing processes occur in one or more of the USMCA 
countries, except for metallurgical processes involving the 
refinement of steel additives. Such steel manufacturing processes 
include the initial melting and mixing and continues through the 
coating stage. This requirement does not apply to raw materials of 
used in the steel manufacturing process, including iron ore or 
reduced, processed, or pelletized iron ore of heading 26.01, pig 
iron of heading 72.01, raw alloys of heading 72.02 or steel scrap of 
heading 72.04.
    (6) The vehicle producer may calculate the value of steel and 
aluminum purchases in subsection (1) by the following methods:
    (a) For steel or aluminum imported or acquired in the territory 
of a USMCA country:

[[Page 39724]]

    (i) The price paid or payable by the producer in the USMCA 
country where the producer is located;
    (ii) the net cost of the material at the time of importation; or
    (iii) the transaction value of the material at the time of 
importation.
    (b) For steel or aluminum that is self-produced:
    (i) All costs incurred in the production of materials, which 
includes general expenses, and
    (ii) an amount equivalent to the profit added in the normal 
course of trade, or equal to the profit that is usually reflected in 
the sale of goods of the same class or kind as the self-produced 
material that is being valued.
    (7) For the purpose of determining the vehicle producer's 
purchases of steel or aluminum in subsection 17(1), the producer may 
calculate the purchases:
    (a) Over the previous fiscal year of the producer;
    (b) over the previous calendar year;
    (c) over the quarter or month to date in which the vehicle is 
exported;
    (d) over the producer's fiscal year to date in which the vehicle 
is exported; or
    (e) over the calendar year to date in which the vehicle is 
exported.
    (8) If the producer chooses to base a steel or aluminum 
calculation on paragraph (7)(c), (d) or (e), that calculation may be 
based on the producer's estimated purchases for the applicable 
period.
    (9) For the purpose of determining the vehicle producer's 
purchases of steel or aluminum in subsection (1), the producer may 
calculate the purchases on the basis of:
    (a) All motor vehicles produced in one or more plants in the 
territory of one or more USMCA countries;
    (b) all motor vehicles exported to the territory of one or more 
USMCA countries;
    (c) all motor vehicles in a category set out in subsection 16(1) 
that are produced in one or more plants in the territory of one or 
more USMCA countries; or,
    (d) all motor vehicles in a category set out in subsection 16(1) 
exported to the territory of one or more USMCA countries.
    (10) The producer may choose different periods for the purpose 
of its steel and aluminum calculations.
    (11) If the producer of a passenger vehicle, light truck, or 
heavy truck has calculated steel or aluminum purchases on the basis 
of estimates before or during the applicable period, the producer 
must conduct an analysis at the end of the producer's fiscal year of 
the actual purchases made over the period with respect to the 
production of the vehicle, and, if the passenger vehicle, light 
truck, or heavy truck does not satisfy the steel or aluminum 
requirement on the basis of the actual purchases, immediately inform 
any person to whom the producer has provided a certification of 
origin for the vehicle, or a written statement that the vehicle is 
an originating good, that the vehicle is a non-originating good.

Section 18: Labor Value Content

Labor Value Content Requirements for Passenger Vehicles

    (1) In addition to the requirements in sections 13 through 17 
and Schedule I (PSRO Annex), a passenger vehicle is originating only 
if the vehicle producer certifies that the passenger vehicle meets a 
Labor Value Content (LVC) requirement of:
    (a) 30 percent, consisting of at least 15 percentage points of 
high-wage material and labor expenditures, no more than 10 
percentage points of technology expenditures, and no more than 5 
percentage points of high-wage assembly expenditures, beginning on 
July 1, 2020 until June 30, 2021;
    (b) 33 percent, consisting of at least 18 percentage points of 
high-wage material and labor expenditures, no more than 10 
percentage points of technology expenditures, and no more than 5 
percentage points of high-wage assembly expenditures, beginning on 
July 1, 2021 until June 30, 2022;
    (c) 36 percent, consisting of at least 21 percentage points of 
high-wage material and labor expenditures, no more than 10 
percentage points of technology expenditures, and no more than 5 
percentage points of high-wage assembly expenditures, beginning on 
July 1, 2022 until June 30, 2023; or
    (d) 40 percent, consisting of at least 25 percentage points of 
high-wage material and labor expenditures, no more than 10 
percentage points of technology expenditures, and no more than 5 
percentage points of high-wage assembly expenditures, beginning on 
July 1, 2023, and thereafter.

LVC Requirement Related to Light Trucks or Heavy Trucks

    (2) In addition to the requirements set out in sections 13 
through 17 and Schedule I (PSRO Annex), a light truck or heavy truck 
is originating only if the vehicle producer certifies that the truck 
meets an LVC requirement of 45 percent, consisting of at least 30 
percentage points based on high-wage material and labor 
expenditures, no more than 10 percentage points based on technology 
expenditures, and no more than 5 percentage points based on high-
wage assembly expenditures.

Calculation of LVC Requirement

    (3) For purposes of an LVC calculation for a passenger vehicle, 
light truck or heavy truck, a producer may include:
    (a) An amount for high-wage materials used in production;
    (b) an amount for high-wage labor costs incurred in the assembly 
of the vehicle;
    (c) an amount for high-wage transportation or related costs for 
shipping materials to the location of the vehicle producer, if not 
included in the amount for high-wage materials;
    (d) a credit for technology expenditures; and
    (e) a credit for high-wage assembly expenditures.
    (4) High wage materials. The amount that may be included for 
high-wage materials used in production is the net cost or the annual 
purchase value of materials that undergo production in a qualifying-
wage-rate production plant and that are used in the production of 
passenger vehicles, light trucks or heavy trucks in a plant located 
in the territory of a USMCA country.
    (5) A plant engaged in the production of vehicles or parts may 
be certified as a qualifying wage-rate vehicle assembly plant or a 
qualifying-wage-rate production plant based on the average wage paid 
to direct production workers at the plant for July 1 to December 31, 
2020, or for July 1 to June 30, 2021. In subsequent periods, the 
certification of a qualifying-wage-rate production plant based on 
period less than 12 months is valid for the following period of the 
same length. The certification of a qualifying-wage-rate production 
plant based on a 12-month period is valid for the following 12 
months.
    (6) For the purpose of meeting the Labor Value Content 
requirement a producer may use one of the following formulas:

(a) Formula based on net cost
[GRAPHIC] [TIFF OMITTED] TR01JY20.004

(b) Formula based on total annual purchase value
[GRAPHIC] [TIFF OMITTED] TR01JY20.005


[[Page 39725]]


*HWLC is included in the numerator at the choice of the producer 
and, if included, must also be included in the denominator

Where:
APV is the annual purchase value of high-wage material expenditures
HWAC is the credit for high-wage assembly expenditures;
HWLC is the sum of the high-wage labor costs incurred in the 
assembly of the vehicle;
HWM is the sum or the high-wage material expenditures used in 
production;
HWTC is the credit for high-wage technology expenditures;
HWT is the high-wage transportation or related costs for shipping 
materials used in production, if not included in the amount for HWM;
NC is the net cost of the vehicle, and
TAPV is the total vehicle plant assembly annual purchase value of 
parts and materials for use in the production of the vehicle

High Wage Material Expenditures

    (7) The high wage material expenditures may be calculated as sum 
of the following values:
    (a) The annual purchase value (APV) or net cost, depending on 
the formula used, of a self-produced high-wage material used in the 
production of a vehicle;
    (b) the APV or net cost, depending on the formula used, of an 
imported or acquired high-wage material used in the production of a 
vehicle;
    (c) the APV or net cost, depending on the formula used, of a 
high-wage material used in the production of a part or material that 
is used in the production of an intermediate or self-produced part 
that is subsequently used in the production of a vehicle; and
    (d) the APV or net cost depending on the formula used of a high 
wage material used in the production of a part or material that is 
subsequently used in the production of a vehicle.
    (8) It is suggested, but not required, that the vehicle producer 
calculate the high-wage material and labor expenditures in the order 
described in paragraph (7). A vehicle producer need not calculate 
the elements in paragraphs 7(b) to (d) if the previous element or 
elements is sufficient to meet the LVC requirement.

High-Wage Technology Expenditures Credit

    (9) The high-wage technology expenditures credit (HWTC) is based 
on annual vehicle producer expenditures at the corporate level in 
one or more USMCA countries on wages paid by the producer for 
research and development (R&D) or information technology (IT), 
calculated as a percentage of total annual vehicle producer 
expenditures on wages paid to direct production workers in one or 
more USMCA countries. Expenditures on capital or other non-wage 
costs for R&D or IT are not included.
    (10) To determine the high-wage technology expenditures credit 
(HWTC), the following formula may be used:
[GRAPHIC] [TIFF OMITTED] TR01JY20.006

Where
HWTC is the credit for high-wage technology expenditures, expressed 
as a percentage;

    (11) For the purposes of subsection 14(10), expenditures on 
wages for R&D include wage expenditures on research and development 
including prototype development, design, engineering, testing, or 
certifying operations.

High-Wage Assembly Credit

    (12) A high-wage assembly credit of five percentage points may 
be included in the LVC for passenger vehicles or light trucks 
produced by a producer that operates a high-wage assembly plant for 
passenger vehicle or light truck parts or has a long-term supply 
contract for those parts (i.e. a contract with a minimum of three 
years) with such a plant.
    (13) A high-wage assembly credit of five percentage points may 
be included in the LVC for heavy trucks produced by a producer that 
operates a high-wage assembly plant for heavy truck parts or has a 
long-term supply contract (i.e., a contract with a minimum of three 
years) for those parts with such a plant.
    (14) A high-wage assembly plant for passenger vehicle, light 
truck, or heavy truck parts need only have the capacity to produce 
the minimum amount of originating parts specified in the definition. 
There is no need to maintain or provide records or other documents 
that certify such parts are originating, as long as information 
demonstrating the capacity to produce these minimum amounts is 
maintained and can be provided.

Averaging for LVC Requirement

    (15) For the purpose of calculating the LVC of a passenger 
vehicle, light truck or heavy truck, the producer may elect to 
average the calculation using any one of the following categories, 
on the basis of either all vehicles in the category or only those 
vehicles in the category that are exported to the territory of one 
or more of the other USMCA countries:
    (a) The same model line of vehicles in the same class of 
vehicles produced in the same plant in the territory of a USMCA 
country;
    (b) the same class of vehicles produced in the same plant in the 
territory of a USMCA country;
    (c) the same model line of vehicles or same class of vehicles 
produced in the territory of a USMCA country;
    (d) any other category as the USMCA countries may decide.
    (16) An election made under subsection (15) must
    (a) state the category chosen by the producer, and
    (i) if the category referred to in paragraph (15)(a) is chosen, 
state the model line, model name, class of vehicle and tariff 
classification of the vehicles in that category, and the location of 
the plant at which the vehicles are produced,
    (ii) if the category referred to in paragraph (15)(b) is chosen, 
state the model name, class of vehicle and tariff classification of 
the vehicles in that category, and the location of the plant at 
which the vehicles are produced, and
    (iii) if the category referred to in paragraph (15)(c) is 
chosen, state the model line, model name, class of vehicle and 
tariff classification of the vehicles in that category, and the 
locations of the plants at which the vehicles are produced;
    (b) state whether the basis of the calculation is all vehicles 
in the category or only those vehicles in the category that are 
exported to the territory of one or more of the other USMCA 
countries;
    (c) state the producer's name and address;
    (d) state the period with respect to which the election is made, 
including the starting and ending dates;
    (e) state the estimated labor value content of vehicles in the 
category on the basis stated under paragraph (b);
    (f) be dated and signed by an authorized officer of the 
producer; and
    (g) be filed with the customs administration of each USMCA 
country to which vehicles in that category are to be exported during 
the period covered by the election, by July 31, 2020, and 
subsequently at least 10 days before the first day of the producer's 
fiscal year, or such shorter period as that customs administration 
may accept.
    (17) An election filed for the vehicles referred to in 
subsection (16) may not be
    (a) rescinded; or
    (b) modified with respect to the category or basis of 
calculation.
    (18) For purposes of this section, if a producer files an 
election under paragraph (16)(a), it must include the labor value 
content and the net cost of the producer's passenger vehicles, light 
trucks or heavy trucks, calculated under one of the categories set 
out in subsection (15), with respect to
    (a) all vehicles that fall within the category chosen by the 
producer, or
    (b) those vehicles to be exported to the territory of one or 
more of the USMCA countries that fall within the category chosen by 
the producer.

LVC Periods

    (19) For the purposes of determining the LVC in this section, 
the producer may base the calculation on the following periods:
    (a) The previous fiscal year of the producer;
    (b) the previous calendar year;

[[Page 39726]]

    (c) the quarter or month to date in which the vehicle is 
produced or exported;
    (d) the producer's fiscal year to date in which the vehicle is 
produced or exported; or
    (e) the calendar year to date in which the vehicle is produced 
or exported.

Transportation and Related Costs

    (20) High-wage transportation or related costs for shipping may 
be included in a producer's LVC calculation, if not included in the 
amount for high-wage materials. Alternatively, a producer may 
aggregate such costs within the territories of one or more of the 
USMCA countries. Based on this aggregate amount, the producer may 
attribute an amount for transportation or related costs for shipping 
for purposes of the LVC calculation. Transportation or related costs 
for shipping incurred in transporting a material from outside the 
territories of the USMCA countries to the territory of a USMCA 
country are not included in this calculation.

Value of Materials for LVC Purposes

    (21) The value of both originating and non-originating materials 
must be taken into account for the purpose of calculating the labor 
value content of a good. For greater certainty, the full value of a 
non-originating material that has undergone production in a 
qualifying-wage-rate production plant may be included in the HWM 
described in subsection 6.

Excess LVC May Be Used Towards RVC Requirement for Heavy Trucks

    (22) For the period ending July 1, 2027, if a producer certifies 
a Labor Value Content for a heavy truck that is higher than 45 
percent by increasing the amount of high wage material and 
manufacturing expenditures above 30 percentage points, the producer 
may use the points above 30 percentage points as a credit towards 
the regional value content percentages under section 13, provided 
that the regional value content percentage is not below 60 percent.

Section 19: Alternative Staging Regime

    (1) For the purposes of this section, eligible vehicles means 
passenger vehicles or light trucks for which an alternative staging 
regime has been approved by the USMCA countries.
    (2) Notwithstanding sections 13 through 18, eligible vehicles 
are subject to the requirements set forth in subsection (4) from 
July 1, 2020 to June 30, 2025, or any other period provided for in 
the producer's approved alternative staging regime. Eligible 
vehicles are also subject to any other applicable requirements 
established in these Regulations.
    (3) Passenger vehicles or light trucks that are not eligible 
vehicles may qualify as originating under the rules of origin 
established in sections 13 through 18, and any other applicable 
requirements established in these Regulations.
    (4) Eligible vehicles are considered originating if they meet 
the following requirements:
    (a) A regional value content of not less than 62.5 percent, 
under the net cost method;
    (b) for parts listed in Table A.1, except lithium ion batteries 
of subheading 8507.60, a regional value content of not less than:
    (i) 62.5 percent where the net cost method is used; or
    (ii) 72.5 percent where the transaction value method is used if 
the corresponding rule includes a transaction value method; and
    (iii) for lithium-ion batteries of 8507.60, a change from within 
subheading 8507.60 or from any other subheading for lithium-ion 
batteries of 8507.60
    (c) at least 70 percent of a vehicle producer's purchases of 
steel and at least 70 percent of a vehicle producer's purchases of 
aluminum, by value, must qualify as originating under the rules of 
origin established in Schedule I (PSRO Annex). This requirement will 
not apply to vehicle producers that have an exemption under an 
approved alternative staging regime from having to satisfy this 
requirement; and
    (d) a labor value content of at least 25 percent, consisting of 
at least ten percentage points of high-wage material and 
manufacturing expenditures, no more than ten percentage points of 
high-wage technology expenditures, and no more than five percentage 
points of high-wage assembly expenditures.
    (5) Eligible vehicles are exempt from the core parts requirement 
set out in section 14.
    (6) All methods and calculations for the requirements applicable 
to eligible vehicles must be based on the applicable provisions in 
these Regulations.
    (7) Vehicles that are presently covered under the alternative 
staging regime described in Article 403.6 of the NAFTA Agreement as 
of November 30, 2019, may continue to use this regime, including any 
regulations that were effect prior to entry into force of the USMCA, 
according to each USMCA country's approval process for use of the 
alternative staging regime. After the expiration of the period under 
the Article 403.6 alternative staging period, such vehicles will be 
eligible for preferential treatment under the requirements described 
in subsection (4), until the end of the USMCA alternative staging 
period described in subsection (2). For greater certainty, such 
vehicles will also be eligible for preferential tariff treatment 
under the other rules of origin set forth in these regulations.

Section 20: Regional Value Content for Other Vehicles

    (1) The value of non-originating materials used by the producer 
in the production of other vehicles and parts thereof must not, for 
the purpose of calculating the regional value content of the good, 
include the value of non-originating materials used to produce 
originating materials that are subsequently used in the production 
of the good.
    (2) Notwithstanding section 13 and Schedule I (PSRO Annex), the 
regional value content requirement is 62.5 percent under the net 
cost method for:
    (a) A motor vehicle for the transport of 15 or fewer persons of 
subheading 8702.10 or 8702.90;
    (b) a passenger vehicle with a compression-ignition engine as 
the primary motor of propulsion of subheading 8703.21 through 
8703.90,
    (c) a three or four-wheeled motorcycle of subheading 8703.21 
through 8703.90,
    (d) a motorhome or entertainer coach of subheading 8703.21 
through 8703.90;
    (e) an ambulance, a hearse, a prison van of subheading 8703.21 
through 8703.90;
    (f) a vehicle solely principally for off-road use of subheading 
8703.21 through 8703.90; or
    (g) a vehicle of subheading 8704.21 or 8704.31 that is solely or 
principally for off-road use; and
    (h) a good of heading 84.07 or 84.08, or subheading 8708.40, 
that is for use in a motor vehicle in paragraphs (a) through (g).
    (3) Notwithstanding section 13 and Schedule I (PSRO Annex), the 
regional value content requirement is 60 percent under the net cost 
method for:
    (a) A good that is:
    (i) A motor vehicle of heading 87.01, except for subheading 
8701.20;
    (ii) a motor vehicle for the transport of 16 or more persons of 
subheading 8702.10 or 8702.90;
    (iii) a motor vehicle of subheading 8704.10;
    (iv) a motor vehicle of subheading 8704.22, 8704.23, 8704.32, or 
8704.90 that is solely or principally for off-road use;
    (v) a motor vehicle of heading 87.05; or,
    (vi) a good of heading 87.06 that is not for use in a passenger 
vehicle, light truck, or heavy truck;
    (b) a good of heading 84.07 or 84.08, or subheading 8708.40, 
that is for use in a motor vehicle in paragraph (3)(a); or
    (c) except for a good in paragraph (3)(b) or of subheading 
8482.10 through 8482.80, 8483.20, or 8483.30, a good in Table F that 
is subject to a regional value content requirement and that is for 
use in a motor vehicle in paragraphs (2)(a) through (g) or (3)(a).
    (4) For the purpose of calculating the regional value content 
under the net cost method for a good that is a motor vehicle 
provided for in paragraphs (2)(a) through (g) or (3)(a), a good 
listed in Table F for use as original equipment in the production of 
a good in paragraphs (2)(a) through (g), or a component listed in 
Table G for use as original equipment in the production of the motor 
vehicle in paragraph (3)(a), the value of non-originating materials 
used by the producer in the production of the good must be the sum 
of:
    (a) For each material used by the producer listed in Table F or 
Table G, whether or not produced by the producer, at the choice of 
the producer and determined in accordance with section 7 (Regional 
Value Content), either
    (i) the value of such material that is non-originating, or
    (ii) the value of non-originating materials used in the 
production of such material; and
    (b) the value of any other non-originating material used by the 
producer that is not listed in Table F or Table G, determined in 
accordance with section 7 (Regional Value Content).
    (5) For greater certainty, notwithstanding subsection (4), for 
purposes of a good that is a motor vehicle provided for in 
paragraphs

[[Page 39727]]

(2)(a) through (g) or (3)(a), the value of non-originating materials 
is the sum of the values of all non-originating materials used by 
the producer in the production of the vehicle.
    (6) For the purpose of calculating the regional value content of 
a motor vehicle covered by subsections (2) or (3), the producer may 
average its calculation over its fiscal year, using any one of the 
following categories, on the basis of either all motor vehicles in 
the category or only those motor vehicles in the category that are 
exported to the territory of one or more of the other USMCA 
countries:
    (a) The same model line of motor vehicles in the same class of 
vehicles produced in the same plant in the territory of a USMCA 
country;
    (b) the same class of motor vehicles produced in the same plant 
in the territory of a USMCA country; or
    (c) the same model line of motor vehicles produced in the 
territory of a USMCA country.
    (7) For the purpose of calculating the regional value content 
for a good listed in Table F, or a component or material listed in 
Table G, 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 paragraph (a) 
separately for a good sold to one or more motor vehicle producers; 
or
    (c) with respect to any calculation under this subsection, 
calculate the average separately for goods that are exported to the 
territory of one or more of the USMCA countries.
    (8) The regional value content requirement for a motor vehicle 
identified in subsection (2) or (3) is:
    (a) 50 percent for five 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 subsection (3), size category and 
underbody, not previously produced by the motor vehicle assembler in 
the territory of any of the USMCA 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 two years after the date on which the first 
motor vehicle prototype is produced at a plant following a refit, if 
it is a different motor vehicle of a class, or marque, or, except 
for a motor vehicle identified in subsection (3), size category and 
underbody, that was assembled by the motor vehicle assembler in the 
plant before the refit.
    Note: The Regional Value Content requirements set out in 
sections 13 or 14 or Schedule I (PSRO Annex) apply to a good for use 
as original equipment in the production of a passenger vehicle or 
light truck. For an aftermarket part, the applicable product-
specific rule of origin set out in section 13 or 14 or Schedule I 
(PSRO Annex) is the alternative that includes the phrase ``for any 
other good.''

      Table A.1--Core Parts for Passenger Vehicles and Light Trucks
------------------------------------------------------------------------
           HS 2012                            Description
------------------------------------------------------------------------
8407.31.....................  Reciprocating piston engines of a kind
                               used for the propulsion of passenger
                               vehicles of Chapter 87, of a cylinder
                               capacity not exceeding 50 cc.
8407.32.....................  Reciprocating piston engines of a kind
                               used for the propulsion of vehicles of
                               Chapter 87, of a cylinder capacity
                               exceeding 50 cc but not exceeding 250 cc.
8407.33.....................  Reciprocating piston engines of a kind
                               used for the propulsion of vehicles of
                               Chapter 87, of a cylinder capacity
                               exceeding 250 cc but not exceeding 1,000
                               cc.
8407.34.....................  Reciprocating piston engines of a kind
                               used for the propulsion of vehicles of
                               Chapter 87, of a cylinder capacity
                               exceeding 1,000 cc.
Ex 8408.20..................  Compression-ignition internal combustion
                               piston engines of a kind used for the
                               propulsion of vehicles of subheading
                               8704.21 or 8704.31.
8409.91.....................  Parts suitable for use solely or
                               principally with the engines of heading
                               84.07 or 84.08, suitable for use solely
                               or principally with spark-ignition
                               internal combustion piston engines.
8409.99.....................  Parts suitable for use solely or
                               principally with the engines of heading
                               84.07 or 84.08, other.
8507.60.....................  Lithium-ion batteries that are used as the
                               primary source of electrical power for
                               the propulsion of an electric passenger
                               vehicle or electric light truck.
8706.00.....................  Chassis fitted with engines, for the motor
                               vehicles of heading 87.03 or subheading
                               8704.21 or 8704.31.
8707.10.....................  Bodies for the vehicles of heading 87.03.
8707.90.....................  Bodies for the vehicles of subheading
                               8704.21 or 8704.31.
Ex 8708.29..................  Body stampings.
8708.40.....................  Gear boxes and parts thereof.
8708.50.....................  Drive axles with differential, whether or
                               not provided with other transmission
                               components, and non-driving axles; parts
                               thereof.
8708.80.....................  Suspension systems and parts thereof
                               (including shock absorbers).
8708.94.....................  Steering wheels, steering columns, and
                               steering boxes; parts thereof.
Ex 8708.99..................  Chassis frames.
------------------------------------------------------------------------

    The following table sets out the parts and components applicable 
to Table A.2 and their related tariff provisions, to facilitate 
implementation of the core parts requirement pursuant to Article 3.7 
of the Appendix to the Annex 4-B of the Agreement.
    These parts, and components used to produce such parts, are for 
the production of a passenger vehicle or light truck in order to 
meet the requirements under Section 14. The prefix ``ex'' is used to 
indicate that only the parts described in the components column and 
used in the production of parts for use as original equipment in a 
passenger vehicle or light truck are taken into consideration when 
performing the calculation.

[[Page 39728]]



 Table A.2--Parts and Components for Determining the Origin of Passenger
  Vehicles and Light Trucks Under Sections 13 or 14 or Schedule I (PSRO
                                 Annex)
------------------------------------------------------------------------
 Column 1 (the parts listed in                  Column 2
this column may be referred to -----------------------------------------
 collectively as a super-core
             part)                                         6-Digit HS
-------------------------------       Components           Subheading
             Parts
------------------------------------------------------------------------
Engines.......................  Spark-ignition          ex 8407.33, ex
                                 reciprocating or        8407.34, ex
                                 rotary internal         8408.20.
                                 combustion piston
                                 engines and
                                 Compression-ignition
                                 internal combustion
                                 piston engines
                                 (diesel or semi-
                                 diesel engines).
                                Heads.................  ex 8409.91, ex
                                                         8409.99.
                                Blocks................  ex 8409.91, ex
                                                         8409.99.
                                Crankshafts...........  ex 8483.10.
                                Crankcases............  ex 8409.91, ex
                                                         8409.99.
                                Pistons...............  ex 8409.91.
                                Rods..................  ex 8409.91, ex
                                                         8409.99.
                                Head subassembly......  ex 8409.91, ex
                                                         8409.99.
Transmissions.................  Gear boxes............  ex 8708.40.
                                Transmission cases....  ex 8708.40.
                                Torque converters.....  ex 8708.40, ex
                                                         8483.90.
                                Torque converter        ex 8708.40, ex
                                 housings.               8483.90.
                                Gears and gear blanks.  ex 8708.40, ex
                                                         8483.90.
                                Clutches, including     ex 8708.93.
                                 continuously variable
                                 transmissions, but
                                 not parts thereof.
                                Valve body assembly...  ex 8481.90, ex
                                                         8708.40.
Body and Chassis..............  Major stampings that    ex 8707.10, ex
                                 form the ``body in      8707.90, ex
                                 white'' or chassis      8708.29, ex
                                 frame.                  8708.99.
                                Major body panel        ex 8708.10, ex
                                 stampings.              8708.29.
                                Secondary panel         ex 8708.29.
                                 stampings.
                                Structural panel        ex 8708.29, ex
                                 stampings.              8708.99.
                                Stamped Frame           ex 8708.29, ex
                                 components.             8708.99.
Axles.........................  Drive-axles with        ex 8708.50.
                                 differential, whether
                                 or not provided with
                                 other transmission
                                 components, and non-
                                 driving axles.
                                Axle shafts...........  ex 8708.50.
                                Axle housings.........  ex 8708.50.
                                Axle hubs.............  ex 8482.10, ex
                                                         8482.20, ex
                                                         8708.50, ex
                                                         8708.99.
                                Carriers..............  ex 8708.50.
                                Differentials.........  ex 8708.50.
Suspension Systems............  Suspension systems      ex 8708.80.
                                 (including shock
                                 absorbers).
                                Shock absorbers.......  ex 8708.80.
                                Struts................  ex 8708.80.
                                Control arms..........  ex 8708.80.
                                Sway bars.............  ex 8708.80.
                                Knuckles..............  ex 8708.80.
                                Coil springs..........  ex 7320.20.
                                Leaf springs..........  ex 7320.10.
Steering Systems..............  Steering wheels,        ex 8708.94.
                                 steering columns and
                                 steering boxes.
                                Steering columns......  ex 8708.94.
                                Steering gears/racks..  ex 8708.94.
                                Control units.........  ex 8537.10, ex
                                                         8537.90, ex
                                                         8543.70.
Advanced Batteries............  Batteries of a kind     ex 8507.60, ex
                                 used as the primary     8507.80.
                                 source for the
                                 propulsion of
                                 electrical power for
                                 electrically powered
                                 vehicles for
                                 passenger vehicles
                                 and light trucks.
                                Cells.................  ex 8507.60, ex
                                                         8507.80, ex
                                                         8507.90.
                                Modules/arrays........  ex 8507.60, ex
                                                         8507.80, ex
                                                         8507.90.
                                Assembled packs.......  ex 8507.60, ex
                                                         8507.80.
------------------------------------------------------------------------

    Note: The Regional Value Content requirements set out in section 
13 or 14 or Schedule I (PSRO Annex) apply to a good for use as 
original equipment in the production of a passenger vehicle or light 
truck.
    For an aftermarket part, the applicable product-specific rule of 
origin set out in section 13 or 14 or Schedule I (PSRO Annex) is the 
alternative that includes the phrase ``for any other good.''

[[Page 39729]]



    Table B--Principal Parts for Passenger Vehicles and Light Trucks
------------------------------------------------------------------------
           HS 2012                            Description
------------------------------------------------------------------------
8413.30.....................  Fuel, lubricating or cooling medium pumps
                               for internal combustion piston engines.
8413.50.....................  Other reciprocating positive displacement
                               pumps.
8414.59.....................  Other fans.
8414.80.....................  Other air or gas pumps, compressors and
                               fans.
8415.20.....................  Air conditioning machines, comprising a
                               motor-driven fan and elements for
                               changing the temperature and humidity,
                               including those machines in which
                               humidity cannot be separately regulated,
                               of a kind used for persons, in motor
                               vehicles.
Ex 8479.89..................  Electronic brake systems, including ABS
                               and ESC systems.
8482.10.....................  Ball bearings.
8482.20.....................  Tapered roller bearings, including cone
                               and tapered roller assemblies.
8482.30.....................  Spherical roller bearings.
8482.40.....................  Needle roller bearings.
8482.50.....................  Other cylindrical roller bearings.
8482.80.....................  Other ball or roller bearings, including
                               combined ball/roller bearings.
8483.10.....................  Transmission shafts (including cam shafts
                               and crank shafts) and cranks.
8483.20.....................  Bearing housings, incorporating ball or
                               roller bearings.
8483.30.....................  Bearing housings, not incorporating ball
                               or roller bearings; plain shaft bearings.
8483.40.....................  Gears and gearing, other than toothed
                               wheels, chain sprockets and other
                               transmission elements presented
                               separately; ball or roller screws; gear
                               boxes and other speed changers, including
                               torque converters.
8483.50.....................  Flywheels and pulleys, including pulley
                               blocks.
8483.60.....................  Clutches and shaft couplings (including
                               universal joints).
8501.32.....................  Other DC motors and generators of an
                               output exceeding 750 W but not exceeding
                               75 kW.
8501.33.....................  Other DC motors and generators of an
                               output exceeding 75 kW but not exceeding
                               375 kW.
8505.20.....................  Electro-magnetic couplings, clutches and
                               brakes.
8505.90.....................  Other electro-magnets; electro-magnetic or
                               permanent magnet chucks, clamps and
                               similar holding devices; electro-magnetic
                               lifting heads; including parts.
8511.40.....................  Starter motors and dual purpose starter-
                               generators of a kind used for spark-
                               ignition or compression-ignition internal
                               combustion engines.
8511.50.....................  Other generators.
8511.80.....................  Other electrical ignition or starting
                               equipment of a kind used for spark-
                               ignition or compression-ignition internal
                               combustion engines.
Ex 8511.90..................  Parts of electrical ignition or starting
                               equipment of a kind used for spark-
                               ignition or compression-ignition internal
                               combustion engines.
8537.10.....................  Electric controls for a voltage not
                               exceeding 1,000 V.
8708.10.....................  Bumpers and parts thereof.
8708.21.....................  Safety seat belts.
Ex 8708.29..................  Other parts and accessories of bodies
                               (including cabs) of motor vehicles
                               (excluding body stampings).
8708.30.....................  Brakes and servo-brakes; parts thereof.
8708.70.....................  Road wheels and parts and accessories
                               thereof.
8708.91.....................  Radiators and parts thereof.
8708.92.....................  Silencers (mufflers) and exhaust pipes;
                               parts thereof.
8708.93.....................  Clutches and parts thereof.
8708.95.....................  Safety airbags with inflator system; parts
                               thereof.
Ex 8708.99..................  Other parts and accessories of motor
                               vehicles of headings 87.01 to 87.05
                               (excluding chassis frames).
9401.20.....................  Seats of a kind used for motor vehicles.
------------------------------------------------------------------------

    Note: The Regional Value Content requirements set out in 
sections 13 or 14 or Schedule I (PSRO Annex) apply to a good for use 
as original equipment in the production of a passenger vehicle or 
light truck. For an aftermarket part, the applicable product-
specific rule of origin set out in section 13 or 14 or Schedule I 
(PSRO Annex) is the alternative that includes the phrase ``for any 
other good.''

  Table C--Complementary Parts for Passenger Vehicles and Light Trucks
------------------------------------------------------------------------
           HS 2012                            Description
------------------------------------------------------------------------
4009.12.....................  Tubes, pipes and hoses of vulcanised
                               rubber other than hard rubber, not
                               reinforced or otherwise combined with
                               other materials, with fittings.
4009.22.....................  Tubes, pipes and hoses of vulcanised
                               rubber other than hard rubber, reinforced
                               or otherwise combined only with metal,
                               with fittings.
4009.32.....................  Tubes, pipes and hoses of vulcanised
                               rubber other than hard rubber, reinforced
                               or otherwise combined only with textile
                               materials, with fittings.
4009.42.....................  Tubes, pipes and hoses of vulcanised
                               rubber other than hard rubber, reinforced
                               or otherwise combined with other
                               materials, with fittings.
8301.20.....................  Locks of a kind used for motor vehicles.
Ex 8421.39..................  Catalytic converters.
8481.20.....................  Valves for oleohydraulic or pneumatic
                               transmissions.
8481.30.....................  Check (nonreturn) valves.
8481.80.....................  Other taps, cocks, valves and similar
                               appliances, including pressure-reducing
                               valves and thermostatically controlled
                               valves.
8501.10.....................  Electric motors of an output not exceeding
                               37.5 W.
8501.20.....................  Universal AC/DC motors of an output
                               exceeding 37.5 W.
8501.31.....................  Other DC motors and generators of an
                               output not exceeding 750 W.

[[Page 39730]]

 
Ex 8507.20..................  Other lead-acid batteries of a kind used
                               for the propulsion of motor vehicles of
                               Chapter 87.
Ex 8507.30..................  Nickel-cadmium batteries of a kind used
                               for the propulsion of motor vehicles of
                               Chapter 87.
Ex 8507.40..................  Nickel-iron batteries of a kind used for
                               the propulsion of motor vehicles of
                               Chapter 87.
Ex 8507.80..................  Other batteries of a kind used for the
                               propulsion of motor vehicles of Chapter
                               87.
8511.30.....................  Distributors; ignition coils.
8512.20.....................  Other lighting or visual signalling
                               equipment.
8512.40.....................  Windshield wipers, defrosters and
                               demisters.
Ex 8519.81..................  Cassette decks.
8536.50.....................  Other electrical switches, for a voltage
                               not exceeding 1,000 V.
Ex 8536.90..................  Junction boxes.
8539.10.....................  Sealed beam lamp units.
8539.21.....................  Tungsten halogen filament lamp.
8544.30.....................  Ignition wiring sets and other wiring sets
                               of a kind used in motor vehicles.
9031.80.....................  Other measuring and checking instruments,
                               appliances & machines.
9032.89.....................  Other automatic regulating or controlling
                               instruments and apparatus.
------------------------------------------------------------------------

    Note: The Regional Value Content requirements set out in 
sections 13 or 15 or Schedule I (PSRO Annex) apply to a good for use 
as original equipment in the production of a heavy truck. For an 
aftermarket part, the applicable product-specific rule of origin set 
out in section 13 or Schedule I (PSRO Annex) is the alternative that 
includes the phrase ``for any other good.''

                Table D--Principal Parts for Heavy Trucks
------------------------------------------------------------------------
 
------------------------------------------------------------------------
8407.31................  Reciprocating piston engines of a kind used for
                          the propulsion of passenger vehicles of
                          Chapter 87, of a cylinder capacity not
                          exceeding 50 cc.
8407.32................  Reciprocating piston engines of a kind used for
                          the propulsion of vehicles of Chapter 87, of a
                          cylinder capacity exceeding 50 cc but not
                          exceeding 250 cc.
8407.33................  Reciprocating piston engines of a kind used for
                          the propulsion of vehicles of Chapter 87, of a
                          cylinder capacity exceeding 250 cc but not
                          exceeding 1,000 cc.
8407.34................  Reciprocating piston engines of a kind used for
                          the propulsion of vehicles of Chapter 87, of a
                          cylinder capacity exceeding 1,000 cc.
8408.20................  Compression-ignition internal combustion piston
                          engines of a kind used for the propulsion of
                          vehicles of Chapter 87.
8409.91................  Parts suitable for use solely or principally
                          with the engines of heading 84.07 or 84.08,
                          suitable for use solely or principally with
                          spark-ignition internal combustion piston
                          engines.
8409.99................  Parts suitable for use solely or principally
                          with the engines of heading 84.07 or 84.08,
                          other.
8413.30................  Fuel, lubricating or cooling medium pumps for
                          internal combustion piston engines.
Ex 8414.59.............  Turbochargers and superchargers.
8414.80................  Other air or gas pumps, compressors and fans.
8415.20................  Air conditioning machines, comprising a motor-
                          driven fan and elements for changing the
                          temperature and humidity, including those
                          machines in which humidity cannot be
                          separately regulated, of a kind used for
                          persons, in motor vehicles.
8483.10................  Transmission shafts (including cam shafts and
                          crank shafts) and cranks.
8483.40................  Gears and gearing, other than toothed wheels,
                          chain sprockets and other transmission
                          elements presented separately; ball or roller
                          screws; gear boxes and other speed changers,
                          including torque converters.
8483.50................  Flywheels and pulleys, including pulley blocks.
Ex 8501.32.............  Other DC motors and generators of an output
                          exceeding 750 W but not exceeding 75 kW, of a
                          kind used for the propulsion of motor vehicles
                          of Chapter 87.
8511.40................  Starter motors and dual purpose starter-
                          generators of a kind used for spark-ignition
                          or compression-ignition internal combustion
                          engines.
8511.50................  Other generators.
8537.10................  Electric controls for a voltage not exceeding
                          1,000 V.
8706.00................  Chassis fitted with engines, for the motor
                          vehicles of heading 87.01 through 87.05.
8707.90................  Bodies for the vehicles of heading 87.01,
                          87.02, 87.04 or 87.05.
8708.10................  Bumpers and parts thereof.
8708.21................  Safety seat belts.
8708.29................  Other parts and accessories of bodies
                          (including cabs) of motor vehicles.
8708.30................  Brakes and servo-brakes; parts thereof.
8708.40................  Gear boxes and parts thereof.
8708.50................  Drive axles with differential, whether or not
                          provided with other transmission components,
                          and non-driving axles; and parts thereof.
8708.70................  Road wheels and parts and accessories thereof.
8708.80................  Suspension systems and parts thereof (including
                          shock absorbers).
8708.91................  Radiators and parts thereof.
8708.92................  Silencers (mufflers) and exhaust pipes; parts
                          thereof.
8708.93................  Clutches and parts thereof.
8708.94................  Steering wheels, steering columns and steering
                          boxes; parts thereof.
8708.95................  Safety airbags with inflator system; parts
                          thereof.
8708.99................  Other parts and accessories of motor vehicles
                          of headings 87.01 to 87.05.
9401.20................  Seats of a kind used for motor vehicles.
------------------------------------------------------------------------


[[Page 39731]]

    Note: The Regional Value Content requirements set out in 
sections 13 or 15 or Schedule I (PSRO Annex) apply to a good for use 
as original equipment in the production of a heavy truck. For an 
aftermarket part, the applicable product-specific rule of origin set 
out in section 13 or Schedule I (PSRO Annex) is the alternative that 
includes the phrase ``for any other good.''

              Table E--Complementary Parts for Heavy Trucks
------------------------------------------------------------------------
 
------------------------------------------------------------------------
8413.50................  Other reciprocating positive displacement
                          pumps.
Ex 8479.89.............  Electronic brake systems, including ABS and ESC
                          systems.
8482.10................  Ball bearings.
8482.20................  Tapered roller bearings, including cone and
                          tapered roller assemblies.
8482.30................  Spherical roller bearings.
8482.40................  Needle roller bearings.
8482.50................  Other cylindrical roller bearings.
8483.20................  Bearing housings, incorporating ball or roller
                          bearings.
8483.30................  Bearing housings, not incorporating ball or
                          roller bearings; plain shaft bearings.
8483.60................  Clutches and shaft couplings (including
                          universal joints).
8505.20................  Electro-magnetic couplings, clutches and
                          brakes.
8505.90................  Other electro-magnets; electro-magnetic or
                          permanent magnet chucks, clamps and similar
                          holding devices; electro-magnetic lifting
                          heads; including parts.
8507.60................  Lithium-ion batteries.
8511.80................  Other electrical ignition or starting equipment
                          of a kind used for spark-ignition or
                          compression-ignition internal combustion
                          engines.
8511.90................  Parts of electrical ignition or starting
                          equipment of a kind used for spark-ignition or
                          compression-ignition internal combustion
                          engines or generators and cut-outs of a kind
                          used in conjunction with such engines.
------------------------------------------------------------------------

    Note: The Regional Value Content requirements set out in section 
20 or Schedule I (PSRO Annex) apply to a good for use in a vehicle 
specified in subsections 20(2) and 20(3).

                    Table F--Parts for Other Vehicles
------------------------------------------------------------------------
           HS 2012                            Description
------------------------------------------------------------------------
40.09........................  Tubes, pipes and hoses.
4010.31......................  Endless transmission belts (V-belts), V-
                                ribbed, of an outside circumference
                                exceeding 60 cm but not exceeding 180
                                cm.
4010.32......................  Endless transmission belts (V-belts),
                                other than V-ribbed, of an outside
                                circumference exceeding 60 cm but not
                                exceeding 180 cm.
4010.33......................  Endless transmission belts (V-belts), V-
                                ribbed, of an outside circumference
                                exceeding 180 cm but not exceeding 240
                                cm.
4010.34......................  Endless transmission belts (V-belts),
                                other than V-ribbed, of an outside
                                circumference exceeding 180 cm but not
                                exceeding 240 cm.
4010.39.aa...................  Other endless transmission belts (V-
                                belts).
40.11........................  New pneumatic tires, of rubber.
4016.93.aa...................  Gaskets, washers and other seals of
                                vulcanised rubber other than hard
                                rubber.
4016.99.aa...................  Vibration control goods.
7007.11......................  Toughened (tempered) safety glass of a
                                size and shape suitable for
                                incorporation in vehicles.
7007.21......................  Laminated safety glass of a size and
                                shape suitable for incorporation in
                                vehicles.
7009.10......................  Rearview mirrors for vehicles.
8301.20......................  Locks of a kind used for motor vehicles.
8407.31......................  Reciprocating piston engines of a kind
                                used for the propulsion of passenger
                                vehicles of Chapter 87, of a cylinder
                                capacity not exceeding 50 cc.
8407.32......................  Reciprocating piston engines of a kind
                                used for the propulsion of vehicles of
                                Chapter 87, of a cylinder capacity
                                exceeding 50 cc but not exceeding 250
                                cc.
8407.33......................  Reciprocating piston engines of a kind
                                used for the propulsion of vehicles of
                                Chapter 87, of a cylinder capacity
                                exceeding 250 cc but not exceeding 1,000
                                cc.
8407.34.aa...................  Reciprocating piston engines of a kind
                                used for the propulsion of vehicles of
                                Chapter 87, of a cylinder capacity
                                exceeding 1,000 cc but not exceeding
                                2,000 cc.
8407.34.bb...................  Reciprocating piston engines of a kind
                                used for the propulsion of vehicles of
                                Chapter 87, of a cylinder capacity
                                exceeding 2,000 cc.
8408.20......................  Compression-ignition internal combustion
                                piston engines of a kind used for the
                                propulsion of vehicles of Chapter 87.
84.09........................  Parts suitable for use solely or
                                principally with spark-ignition internal
                                combustion piston engines.
8413.30......................  Fuel, lubricating or cooling medium pumps
                                for internal combustion piston engines.
8414.80.aa...................  Other air or gas pumps, compressors and
                                fans (turbochargers and superchargers
                                for motor vehicles, where not provided
                                for under subheading 8414.59).
8414.59.aa...................  Other fans (turbochargers and
                                superchargers for motor vehicles, where
                                not provided for under subheading
                                8414.80).
8415.20......................  Air conditioning machines, comprising a
                                motor-driven fan and elements for
                                changing the temperature and humidity,
                                including those machines in which
                                humidity cannot be separately regulated,
                                of a kind used for persons, in motor
                                vehicles.
8421.39.aa...................  Catalytic converters.
8481.20......................  Valves for oleohydraulic or pneumatic
                                transmissions.
8481.30......................  Check (nonreturn) valves.

[[Page 39732]]

 
8481.80......................  Other taps, cocks, valves and similar
                                appliances, including pressure-reducing
                                valves and thermostatically controlled
                                valves.
8482.10 through 8482.80......  Ball or roller bearings.
8483.10......................  Transmission shafts (including cam shafts
                                and crank shafts) and cranks.
8483.20......................  Bearing housings, incorporating ball or
                                roller bearings.
8483.30......................  Bearing housings; not incorporating ball
                                or roller bearings; plain shaft
                                bearings.
8483.40......................  Gears and gearing, other than toothed
                                wheels, chain sprockets and other
                                transmission elements presented
                                separately; ball or roller screws; gear
                                boxes and other speed changes, including
                                torque converters.
8483.50......................  Flywheels and pulleys, including pulley
                                blocks.
8501.10......................  Electric motors and generators of an
                                output not exceeding 37.5 W.
8501.20......................  Universal AC/DC motors of an output
                                exceeding 37.5 W.
8501.31......................  Other DC motors and generators of an
                                output not exceeding 750 W.
8501.32.aa...................  Other DC motors and generators of an
                                output exceeding 750 W but not exceeding
                                75 kW of a kind used for the propulsion
                                of vehicles of Chapter 87.
8507.20.aa, 8507.30.aa,        Batteries that provide primary source for
 8507.40.aa and 8507.80.aa.     electric cars.
8511.30......................  Distributors; ignition coils.
8511.40......................  Starter motors and dual purpose starter-
                                generators of a kind used for spark-
                                ignition or compressing-ignition
                                internal combustion engines.
8511.50......................  Other generators.
8512.20......................  Other lighting or visual signalling
                                equipment.
8512.40......................  Windshield wipers, defrosters and
                                demisters.
ex 8519.81...................  Cassette decks.
8527.21......................  Radios combined with cassette players.
8527.29......................  Radios.
8536.50......................  Other electrical switches, for a voltage
                                not exceeding 1,000 V.
8536.90......................  Junction boxes.
8537.10.bb...................  Motor control centers.
8539.10......................  Sealed beam lamp units.
8539.21......................  Tungsten halogen filament lamp.
8544.30......................  Ignition wiring sets and other wiring
                                sets of a kind used in vehicles.
87.06........................  Chassis fitted with engines, for the
                                motor vehicles of heading 87.01 through
                                87.05.
87.07........................  Bodies (including cabs) for the motor
                                vehicles of headings 87.01 to 87.05.
8708.10.aa...................  Bumpers (but not parts thereof).
8708.21......................  Safety seat belts.
8708.29.aa...................  Body stampings.
8708.29.cc...................  Door assemblies.
8708.30......................  Brakes and servo-brakes; parts thereof.
8708.40......................  Gear boxes and parts thereof.
8708.50......................  Drive axles with differential, whether or
                                not provided with other transmission
                                components, and non-driving axles.
8708.70.aa...................  Road wheels, but not parts or accessories
                                thereof.
8708.80......................  Suspension systems and parts thereof
                                (including shock absorbers).
8708.91......................  Radiators and parts thereof.
8708.92......................  Silencers (mufflers) and exhaust pipes;
                                parts thereof.
8708.93.aa...................  Clutches (but not parts thereof).
8708.94......................  Steering wheels, steering columns and
                                steering boxes; parts thereof.
8708.95......................  Safety airbags with inflator systems, and
                                parts thereof.
8708.99.aa...................  Vibration control goods containing
                                rubber.
8708.99.bb...................  Double flanged wheel hub units
                                incorporating ball bearings.
8708.99.ee...................  Other parts for powertrains.
8708.99.hh...................  Other parts and accessories not provided
                                for elsewhere in subheading 8708.99.
9031.80......................  Other measuring and checking instruments,
                                appliances & machines.
9032.89......................  Other automatic regulating or controlling
                                instruments and apparatus.
9401.20......................  Seats of a kind used for motor vehicles.
------------------------------------------------------------------------


      Table G--List of Components and Materials for Other Vehicles
------------------------------------------------------------------------
 
-------------------------------------------------------------------------
      1. Component: Engines provided for in heading 84.07 or 84.08
 
Materials: Cast block, cast head, fuel nozzle, fuel injector pumps, glow
 plugs, turbochargers and superchargers, electronic engine controls,
 intake manifold, exhaust manifold, intake/exhaust valves, crankshaft/
 camshaft, alternator, starter, air cleaner assembly, pistons,
 connecting rods and assemblies made therefrom (or rotor assemblies for
 rotary engines), flywheel (for manual transmissions), flexplate (for
 automatic transmissions), oil pan, oil pump and pressure regulator,
 water pump, crankshaft and camshaft gears, and radiator assemblies or
 charge-air coolers.
 
   2. Component: Gear boxes (transmissions) provided for in subheading
                                 8708.40
 
Materials: (a) For manual transmissions--transmission case and clutch
 housing; clutch; internal shifting mechanism; gear sets, synchronizers
 and shafts; and (b) for torque convertor type transmissions--
 transmission case and convertor housing; torque convertor assembly;
 gear sets and clutches; and electronic transmission controls.
------------------------------------------------------------------------


[[Page 39733]]

    The following table lists the HS subheadings for steel and 
aluminum subject to the USMCA steel and aluminum purchasing 
requirements set out in Section 17 to facilitate implementation of 
the steel and aluminum purchasing requirement, pursuant to Article 
6.3 of the Appendix to Annex 4-B of the Agreement.
    The prefix ``ex'' is used to indicate that only goods described 
in the ``Description'' column are taken into consideration when 
performing the calculation.
    These descriptions cover structural steel or aluminum purchases 
by vehicle producers used in the production of passenger vehicles, 
light trucks, or heavy trucks, including all steel or aluminum 
purchases used for the production of major stampings that form the 
``body in white'' or chassis frame as defined in Table A.2 (Parts 
and Components for Passenger Vehicles and Light Trucks). The 
descriptions do not cover structural steel or aluminum purchased by 
parts producers or suppliers used in the production of other 
automotive parts.

                       Table S--Steel and Aluminum
------------------------------------------------------------------------
                                                           6-Digit HS
               S                      Description         subheading(s)
------------------------------------------------------------------------
Steel.........................  Flat-rolled products    ................
                                 of iron or non-alloy
                                 steel, of a width of
                                 600 mm or more, hot-
                                 rolled, not clad,
                                 plated or coated:
                                Other, in coils, not    7208.25,
                                 further worked than     7208.26,
                                 hot-rolled, pickled.    7208.27.
                                Other, in coils, not    7208.36,
                                 further worked than     7208.37,
                                 hot-rolled.             7208.38,
                                                         7208.39.
                                Other, not in coils,    7208.51,
                                 not further worked      7208.52,
                                 than hot-rolled.        7208.53,
                                                         7208.54.
                                Flat-rolled products    ................
                                 of iron or non-alloy
                                 steel, of a width of
                                 600 mm or more, cold-
                                 rolled (cold-
                                 reduced), not clad,
                                 plated or coated:
                                In coils, not further   7209.15,
                                 worked than cold-       7209.16,
                                 rolled (cold-           7209.17,
                                 reduced):               7209.18.
                                Not in coils, not       7209.25,
                                 further worked than     7209.26,
                                 cold-rolled (cold-      7209.27,
                                 reduced):               7209.28,
                                                         7209.90.
                                Flat-rolled products    ................
                                 of iron or non-alloy
                                 steel, of a width of
                                 600 mm or more, clad,
                                 plated or coated:
                                  Electrolytically      7210.30.
                                plated or coated with
                                zinc
                                  Otherwise plated or   7210.49.
                                coated with zinc,
                                Other (Not Corrugated)
                                  Other plated or       7210.69.
                                coated with aluminum
                                  Other: Clad; Other:   7210.90.
                                Electrolytically
                                coated or plated with
                                base metal, Other
                                Flat-rolled products    ................
                                 of iron or non-alloy
                                 steel, of a width of
                                 less than 600 mm, not
                                 clad, plated or
                                 coated:
                                  Other, of a           7211.14.
                                thickness of 4.75 mm
                                or more
                                  Other:                7211.19.
                                Not further worked      7211.23.
                                 than cold-rolled
                                 (cold-reduced),
                                 Containing by weight
                                 less than 0.25
                                 percent of carbon:
                                Flat-rolled products    ................
                                 of iron or non-alloy
                                 steel, of a width of
                                 less than 600 mm,
                                 clad, plated or
                                 coated:
                                  Electrolytically      7212.20.
                                plated or coated with
                                zinc
                                  Otherwise plated or   7212.30.
                                coated with zinc
                                Bars and rods, hot-     ................
                                 rolled, in
                                 irregularly wound
                                 coils, of iron or non-
                                 alloy steel.
                                  Other, of free-       7213.20.
                                cutting steel
                                  Other: Other          7213.99.
                                Other bars and rods of  ................
                                 iron or non-alloy
                                 steel, not further
                                 worked than forged,
                                 hot-rolled, hot-drawn
                                 or hot-extruded, but
                                 including those
                                 twisted after rolling
                                  Other, of free-       7214.30.
                                cutting steel
                                  Of rectangular        7214.91.
                                (other than square)
                                cross-section
                                  Other: Other          7214.99.
                                Flat-rolled products    ................
                                 of other alloy steel,
                                 of a width of 600 mm
                                 or more.
                                Other, not further      7225.30.
                                 worked than hot-
                                 rolled, in coils:
                                  Other, not further    7225.40.
                                worked than hot-
                                rolled, not in coils:
                                Other, not further      7225.50.
                                 worked than cold-
                                 rolled (cold-
                                 reduced):
                                  Electrolytically      7225.91.
                                plated or coated with
                                zinc
                                  Other: Otherwise      7225.92.
                                plated or coated with
                                zinc
                                  Other: Other          7225.99.
                                Flat-rolled products    ................
                                 of other alloy steel,
                                 of a width of less
                                 than 600 mm:
                                  Other: Not further    7226.91.
                                worked than hot-
                                rolled: Of tool steel
                                (other than high-speed
                                steel):
                                Not further worked      7226.92.
                                 than cold-rolled
                                 (cold-reduced):.
                                  Other:                7226.99.
                                Bars and rods, hot-     ................
                                 rolled, in
                                 irregularly wound
                                 coils, of other alloy
                                 steel.
                                  Of silico-manganese   7227.20.
                                steel
                                  Other                 7227.90.
                                Other bars and rods of  ................
                                 other alloy steel;
                                 angles, shapes and
                                 sections, of other
                                 alloy steel; hollow
                                 drill bars and rods,
                                 of alloy or non-alloy
                                 steel.
                                  Bars and rods, of     7228.10.
                                high speed steel
                                  Bars and rods, of     7228.20.
                                silico-manganese steel

[[Page 39734]]

 
                                  Other bars and rods,  7228.30.
                                not further worked
                                than hot-rolled, hot-
                                drawn or extruded
                                  Other bars and rods   7228.60
                                Other tubes, pipes and  ................
                                 hollow profiles (for
                                 example, open seamed
                                 or welded, riveted or
                                 similarly closed), of
                                 iron or steel:.
                                  Other, welded, of     7306.30.
                                circular cross
                                section, of iron or
                                nonalloy steel:
                                  Other, welded, of     7306.50.
                                circular cross
                                section, of other
                                alloy steel:
                                Other, welded, of       7306.61,
                                 noncircular cross       7306.69,
                                 section:.               >7306.90.
                                Parts and accessories   ................
                                 of the motor vehicles
                                 of headings 8701 to
                                 8705:.
                                  Major, secondary,     ex 8708.29.
                                and structural body
                                panel stampings, that
                                form the ``body in
                                white''
                                  Stamped frame         ex 8708.99.
                                components that form
                                the chassis frame
------------------------------------------------------------------------
                                  ....................  HS heading or
                                                         subheading
------------------------------------------------------------------------
Aluminum......................
                                Unwrought aluminum....  76.01.
                                Aluminum waste and      76.02.
                                 scrap.
                                Aluminum bars, rods     76.04.
                                 and profiles.
                                Aluminum wire.........  76.05.
                                Aluminum plates,        76.06.
                                 sheets and strip, of
                                 a thickness exceeding
                                 0.2 mm:.
                                Aluminum tubes and      76.08.
                                 pipes.
                                Parts and accessories   ................
                                 of the motor vehicles
                                 of headings 8701 to
                                 8705:.
                                  Major, secondary,     ex 8708.29.
                                and structural body
                                panel stampings, that
                                form the ``body in
                                white''
                                  Stamped frame         ex 8708.99.
                                components that form
                                the chassis frame
------------------------------------------------------------------------

Schedule I (PSRO Annex)

    1. This schedule is deemed to be the contents of Sections A, B 
and C of Annex 4-B of the Agreement, as implemented in General Note 
11 of the Harmonized Tariff Schedule of the United States,\3\ except 
that the following rules of interpretation apply:
---------------------------------------------------------------------------

    \3\ The language ``in General Note 11 of the Harmonized Tariff 
Scheduled of the United States'' differs from the trilaterally 
agreed upon uniform regulations because the Parties contemplated 
that the language ``by each USMCA country'' would be replaced with 
the specific Party's reference to the location of the rules of 
origin under domestic law.
---------------------------------------------------------------------------

    (a) For the purpose of Chapter 61, Note 2 or Chapter 62, Note 3 
of Annex 4-B, a fabric of subheading 5806.20 or heading 60.02 is 
considered formed from yarn and finished in the territory of one or 
more Parties if all production processes and finishing operations, 
starting with the weaving, knitting, needling, tufting, or other 
process, and ending with the fabric ready for cutting or assembly 
without further processing, took place in the territories of one or 
more of the USMCA countries, even if non-originating yarn is used in 
the production of the fabric of subheading 5806.20 or heading 60.02;
    (b) for the purposes of Chapter 61, Note 3 and Chapter 62, Note 
4 of Annex 4-B, sewing thread is considered formed and finished in 
the territory of one or more Parties if all production processes and 
finishing operations, starting with the extrusion of filaments, 
strips, film or sheet, and including slitting a film or sheet into 
strip, or the spinning of all fibers into yarn, or both, and ending 
with the finished single or plied thread ready for use for sewing 
without further processing, took place in the territories of one or 
more of the USMCA countries even if non-originating fibre is used in 
the production of sewing thread of heading 52.04, 54.01 or 55.08, or 
yarn of heading 54.02 used as sewing thread referred to in the 
Notes;
    (c) for the purpose of Chapter 61, Note 4 or Chapter 62, Note 5 
of Annex 4-B, pocket bag fabric is considered formed and finished in 
the territory of one or more of the Parties if all production 
processes and finishing operations, starting with the weaving, 
knitting, needling, tufting, felting, entangling, or other process, 
and ending with the fabric ready for cutting or assembly without 
further processing, took place in the territories of one or more of 
the USMCA countries, even if non-originating fiber is used in the 
production of the yarn used to produce the pocket bag fabric;
    (d) for the purpose of Chapter 61, Note 4 or Chapter 62, Note 5 
of Annex 4-B, pocket bag fabric is considered a pocket or pockets if 
the pockets in which fabric is shaped to form a bag is not visible 
as the pocket is in the interior of the garment (i.e. pockets 
consisting of ``bags'' in the interior of the garment). Visible 
pockets such as patch pockets, cargo pockets, or typical shirt 
pockets are not subject to these notes;
    (e) for the purpose of Chapter 61, Note 4 or Chapter 62, Note 5 
of Annex 4-B, yarn is considered wholly formed in the territory of 
one or more Parties if all the production processes and finishing 
operations, starting with the extrusion of filaments, strips, film, 
or sheet, and including slitting a film or sheet into strip, or the 
spinning of all fibers into yarn, or both, and ending with a 
finished single or plied yarn, took place in the territory of one or 
more of the USMCA countries, even if non-originating fiber is used 
in the production of the yarn used to produce the pocket bag fabric; 
and,
    (f) for the purpose of Chapter 63, Note 2 of Annex 4-B, a fabric 
of heading 59.03 is considered formed and finished in the territory 
of one or more Parties if all production processes and finishing 
operations, starting with the weaving, knitting, needling, tufting, 
felting, entangling, or other process, including coating, covering, 
laminating, or impregnating, and ending with the fabric ready for 
cutting or assembly without further processing, took place in the 
territories of one or more of the USMCA countries, even if non-
originating fiber or yarn is used in the production of the fabric of 
heading 5903;

[[Page 39735]]

Schedule II (Most-Favored-Nation Rates of Duty on Certain Goods set out 
in Table 2.10.1 of the Agreement)

 
 
 
A. Automatic Data Processing Machines (ADP):
                                8471.30..........
                                8471.41..........
                                8471.49..........
B. Digital Processing Units:
                                8471.50..........
C. Input or Output Units:
    Combined Input/Output
     Units.
        Canada................  8471.60.00.......
        Mexico................  8471.60.02.......
        United States.........  8471.60.10.......
    Display Units.............
        Canada................  8528.42.00,
                                 8528.52.00,
                                 8528.62.00.
        Mexico................  8528.41.99,
                                 8528.51.01,
                                 8528.51.99,
                                 8528.61.01.
        United States.........  8528.42.00,
                                 8528.52.00,
                                 8528.62.00.
    Other Input or Output
     Units.
        Canada................  8471.60.00.......
        Mexico................  8471.60.03,        .....................
                                 8471.60.99
        United States.........  8471.60.20,
                                 8471.60.70,
                                 8471.60.80,
                                 8471.60.90.
D. Storage Units:
                                8471.70..........
E. Other Units of Automatic Data Processing Machines:
                                8471.80..........
F. Parts of Computers:
                                8443.99..........  parts of machines of
                                                    subheading 8443.31
                                                    and 8443.32,
                                                    excluding facsimile
                                                    machines and
                                                    teleprinters.
                                8473.30..........  parts of ADP machines
                                                    and units thereof.
                                8517.70..........  parts of LAN
                                                    equipment of
                                                    subheading 8517.62.
    Canada....................  8529.90.19,        parts of monitors and
                                 8529.90.50,        projectors of
                                 8529.90.90.        subheading 8528.42,
                                                    8528.52, and
                                                    8528.62.
    Mexico....................  8529.90.01,        parts of monitors or
                                 8529.90.06.        projectors of
                                                    subheadings 8528.41,
                                                    8528.51, and
                                                    8528.61.
    United States.............  8529.90.22,        parts of monitors and
                                 8529.90.75,        projectors of
                                 8529.90.99.        subheading 8528.42,
                                                    8528.52, and
                                                    8528.62.
G. Computer Power Supplies:
    Canada....................  8504.40.30,        .....................
                                 8504.40.90,
                                 8504.90.10,
                                 8504.90.20,
                                 8504.90.90.
    Mexico....................  8504.40.12,        parts of goods
                                 8504.40.14,        classified in tariff
                                 8504.90.02,        item 8504.40.12.
                                 8504.90.07,
                                 8504.90.08.
    United States.............  8504.40.60,
                                 8504.40.70,
                                 8504.90.20,
                                 8504.90.41.
 

Schedule III (Value of Goods)

    1 Unless otherwise stated, the following definitions apply in 
this Schedule.
    buyer refers to a person who purchases a good from the producer;
    buying commissions means fees paid by a buyer to that buyer's 
agent for the agent's services in representing the buyer in the 
purchase of a good;
    producer refers to the producer of the good being valued.
    2 For purposes of subsection 7(2) of these Regulations, the 
transaction value of a good is the price actually paid or payable 
for the good, determined in accordance with section 3 and adjusted 
in accordance with section 4.
    3 (1) The price actually paid or payable is the total payment 
made or to be made by the buyer to or for the benefit of the 
producer. The payment need not necessarily take the form of a 
transfer of money. It may be made by letters of credit or negotiable 
instruments. The payment may be made directly or indirectly to the 
producer. For an illustration of this, the settlement by the buyer, 
whether in whole or in part, of a debt owed by the producer is an 
indirect payment.
    (2) Activities undertaken by the buyer on the buyer's own 
account, other than those for which an adjustment is provided in 
section 4, must not be considered to be an indirect payment, even 
though the activities may be regarded as being for the benefit of 
the producer. For an illustration of this, the buyer, by agreement 
with the producer, undertakes activities relating to the marketing 
of the good. The costs of such activities must not be added to the 
price actually paid or payable.
    (3) The transaction value must not include the following charges 
or costs, provided that they are distinguished from the price 
actually paid or payable:
    (a) Charges for construction, erection, assembly, maintenance or 
technical assistance related to the good undertaken after the good 
is sold to the buyer; or
    (b) duties and taxes paid in the country in which the buyer is 
located with respect to the good.
    (4) The flow of dividends or other payments from the buyer to 
the producer that do not relate to the purchase of the good are not 
part of the transaction value.
    4 (1) In determining the transaction value of a good, the 
following must be added to the price actually paid or payable:
    (a) To the extent that they are incurred by the buyer, or by a 
related person on behalf of the buyer, with respect to the good 
being valued and are not included in the price actually paid or 
payable
    (i) commissions and brokerage fees, except buying commissions,
    (ii) the costs of transporting the good to the producer's point 
of direct shipment and the costs of loading, unloading, handling and 
insurance that are associated with that transportation, and
    (iii) where the packaging materials and containers are 
classified with the good under the Harmonized System, the value of 
the packaging materials and containers;
    (b) the value, reasonably allocated in accordance with 
subsection (13), of the

[[Page 39736]]

following elements if they are supplied directly or indirectly to 
the producer by the buyer, free of charge or at reduced cost for use 
in connection with the production and sale of the good, to the 
extent that the value is not included in the price actually paid or 
payable:
    (i) A material, other than an indirect material, used in the 
production of the good,
    (ii) tools, dies, molds and similar indirect materials used in 
the production of the good,
    (iii) an indirect material, other than those referred to in 
subparagraph (ii) or in paragraphs (c), (e) or (f) of the definition 
indirect material set out in subsection 1(1) of these Regulations, 
used in the production of the good, and
    (iv) engineering, development, artwork, design work, and plans 
and sketches necessary for the production of the good, regardless of 
where performed;
    (c) the royalties related to the good, other than charges with 
respect to the right to reproduce the good in the territory of one 
or more of the USMCA countries, that the buyer must pay directly or 
indirectly as a condition of sale of the good, to the extent that 
such royalties are not included in the price actually paid or 
payable; and
    (d) the value of any part of the proceeds of any subsequent 
resale, disposal or use of the good that accrues directly or 
indirectly to the producer.
    (2) The additions referred to in subsection (1) must be made to 
the price actually paid or payable under this section only on the 
basis of objective and quantifiable data.
    (3) If objective and quantifiable data do not exist with regard 
to the additions required to be made to the price actually paid or 
payable under subsection (1), the transaction value cannot be 
determined under section 2.
    (4) Additions must not be made to the price actually paid or 
payable for the purpose of determining the transaction value except 
as provided in this section.
    (5) The amounts to be added under subparagraphs (1)(a)(i) and 
(ii) are:
    (a) Those amounts that are recorded on the books of the buyer; 
or
    (b) if those amounts are costs incurred by a related person on 
behalf of the buyer and are not recorded on the books of the buyer, 
those amounts that are recorded on the books of that related person.
    (6) The value of the packaging materials and containers referred 
to in subparagraph (1)(a)(iii) and the value of the elements 
referred to in subparagraph (1)(b)(i) are
    (a) if the packaging materials and containers or the elements 
are imported from outside the territory of the USMCA country in 
which the producer is located, the customs value of the packaging 
materials and containers or the elements,
    (b) if the buyer, or a related person on behalf of the buyer, 
purchases the packaging materials and containers or the elements 
from a person who is not a related person in the territory of the 
USMCA country in which the producer is located, the price actually 
paid or payable for the packaging materials and containers or the 
elements,
    (c) if the buyer, or a related person on behalf of the buyer, 
acquires the packaging materials and containers or the elements from 
a person who is not a related person in the territory of the USMCA 
country in which the producer is located other than through a 
purchase, the value of the consideration related to the acquisition 
of the packaging materials and containers or the elements, based on 
the cost of the consideration that is recorded on the books of the 
buyer or the related person, or
    (d) if the packaging materials and containers or the elements 
are produced by the buyer, or by a related person, in the territory 
of the USMCA country in which the producer is located, the total 
cost of the packaging materials and containers or the elements, 
determined in accordance with subsection (8),
    (7) The value referred to in subsection (6), to the extent that 
such costs are not included under paragraphs 6(a) through (d), must 
include the following costs that are recorded on the books of the 
buyer or the related person supplying the packaging materials and 
containers or the elements on behalf of the buyer:
    (a) The costs of freight, insurance, packing, and all other 
costs incurred in transporting the packaging materials and 
containers or the elements to the location of the producer,
    (b) duties and taxes paid or payable with respect to the 
packaging materials and containers or the elements, other than 
duties and taxes that are waived, refunded, refundable or otherwise 
recoverable, including credit against duty or tax paid or payable,
    (c) customs brokerage fees, including the cost of in-house 
customs brokerage services, incurred with respect to the packaging 
materials and containers or the elements, and
    (d) the cost of waste and spoilage resulting from the use of the 
packaging materials and containers or the elements in the production 
of the good, less the value of renewable scrap or by-product.
    (8) For purposes of paragraph (6)(d), the total cost of the 
packaging materials and containers referred to in subparagraph 
(1)(a)(iii) or the elements referred to in subparagraph (1)(b)(i) 
are
    (a) if the packaging materials and containers or the elements 
are produced by the buyer, at the choice of the buyer:
    (i) The total cost incurred with respect to all goods produced 
by the buyer, calculated on the basis of the costs that are recorded 
on the books of the buyer, that can be reasonably allocated to the 
packaging materials and containers or the elements in accordance 
with Schedule V, or
    (ii) the aggregate of each cost incurred by the buyer that forms 
part of the total cost incurred with respect to the packaging 
materials and containers or the elements, calculated on the basis of 
the costs that are recorded on the books of the buyer, that can be 
reasonably allocated to the packaging materials and containers or 
the elements in accordance with Schedule V; and
    (b) if the packaging materials and containers or the elements 
are produced by a person who is related to the buyer, at the choice 
of the buyer:
    (i) The total cost incurred with respect to all goods produced 
by that related person, calculated on the basis of the costs that 
are recorded on the books of that person, that can be reasonably 
allocated to the packaging materials and containers or the elements 
in accordance with Schedule V, or
    (ii) the aggregate of each cost incurred by that related person 
that forms part of the total cost incurred with respect to the 
packaging materials and containers or the elements, calculated on 
the basis of the costs that are recorded on the books of that 
person, that can be reasonably allocated to the packaging materials 
and containers or the elements in accordance with Schedule V.
    (9) Except as provided in subsections (11) and (12), the value 
of the elements referred to in subparagraphs (1)(b)(ii) through (iv) 
are
    (a) the cost of those elements that is recorded on the books of 
the buyer; or
    (b) if such elements are provided by another person on behalf of 
the buyer and the cost is not recorded on the books of the buyer, 
the cost of those elements that is recorded on the books of that 
other person.
    (10) If the elements referred to in subparagraphs (1)(b)(ii) 
through (iv) were previously used by or on behalf of the buyer, the 
value of the elements must be adjusted downward to reflect that use.
    (11) Where the elements referred to in subparagraphs (1)(b)(ii) 
and (iii) were leased by the buyer or a person related to the buyer, 
the value of the elements are the cost of the lease as recorded on 
the books of the buyer or that related person.
    (12) An addition must not be made to the price actually paid or 
payable for the elements referred to in subparagraph (1)(b)(iv) that 
are available in the public domain, other than the cost of obtaining 
copies of them.
    (13) The producer must choose the method of allocating to the 
good the value of the elements referred to in subparagraphs 
(1)(b)(ii) through (iv), provided that the value is reasonably 
allocated to the good. The methods the producer may choose to 
allocate the value include allocating the value over the number of 
units produced up to the time of the first shipment or allocating 
the value over the entire anticipated production where contracts or 
firm commitments exist for that production. For an illustration of 
this, a buyer provides the producer with a mold to be used in the 
production of the good and contracts with the producer to buy 10,000 
units of that good. By the time the first shipment of 1,000 units 
arrives, the producer has already produced 4,000 units. In these 
circumstances, the producer may choose to allocate the value of the 
mold over 4,000 units or 10,000 units but must not choose to 
allocate the value of the elements to the first shipment of 1,000 
units. The producer may choose to allocate the entire value of the 
elements to a single shipment of a good only if that single shipment 
comprises all of the units of the good acquired by the buyer under 
the contract or commitment for that number of units of the good 
between the producer and the buyer.
    (14) The addition for the royalties referred to in paragraph 
(1)(c) is the payment for the royalties that is recorded on the 
books of the buyer, or if the payment for the royalties is recorded 
on the books of another person, the payment for the royalties that 
is recorded on the books of that other person.

[[Page 39737]]

    (15) The value of the proceeds referred to in paragraph (1)(d) 
is the amount that is recorded for such proceeds on the books of the 
buyer or the producer.

Schedule IV Unacceptable Transaction Value

    1 Unless otherwise stated, the following definitions apply in 
this Schedule.
    buyer refers to a person who purchases a good from the producer;
    producer refers to the producer of the good being valued.
    2 (1) There is no transaction value for a good if the good is 
not the subject of a sale.
    (2) The transaction value of a good is unacceptable if:
    (a) There are restrictions on the disposition or use of the good 
by the buyer, other than restrictions that
    (i) are imposed or required by law or by the public authorities 
in the territory of the USMCA country in which the buyer is located,
    (ii) limit the geographical area in which the good may be 
resold, or
    (iii) do not substantially affect the value of the good;
    (b) the sale or price actually paid or payable is subject to a 
condition or consideration for which a value cannot be determined 
with respect to the good;
    (c) part of the proceeds of any subsequent resale, disposal or 
use of the good by the buyer will accrue directly or indirectly to 
the producer, and an appropriate addition to the price actually paid 
or payable cannot be made in accordance with paragraph 4(1)(d) of 
Schedule III; or
    (d) the producer and the buyer are related persons and the 
relationship between them influenced the price actually paid or 
payable for the good.
    (3) The cases or considerations referred to in paragraph (2)(b) 
include the following:
    (a) The producer establishes the price actually paid or payable 
for the good on condition that the buyer will also buy other goods 
in specified quantities;
    (b) the price actually paid or payable for the good is dependent 
on the price or prices at which the buyer sells other goods to the 
producer of the good; and
    (c) the price actually paid or payable is established on the 
basis of a form of payment extraneous to the good, such as where the 
good is a semi-finished good that is provided by the producer to the 
buyer on condition that the producer will receive a specified 
quantity of the finished good from the buyer.
    (4) For purposes of paragraph (2)(b), conditions or 
considerations relating to the production or marketing of the good 
must not render the transaction value unacceptable, such as if the 
buyer undertakes on the buyer's own account, even though by 
agreement with the producer, activities relating to the marketing of 
the good.
    (5) If objective and quantifiable data do not exist with regard 
to the additions required to be made to the price actually paid or 
payable under subsection 4(1) of Schedule III, the transaction value 
cannot be determined under the provisions of section 2 of that 
Schedule. For an illustration of this, a royalty is paid on the 
basis of the price actually paid or payable in a sale of a litre of 
a particular good that was purchased by the kilogram and made up 
into a solution. If the royalty is based partially on the purchased 
good and partially on other factors that have nothing to do with 
that good, such as when the purchased good is mixed with other 
ingredients and is no longer separately identifiable, or when the 
royalty cannot be distinguished from special financial arrangements 
between the producer and the buyer, it would be inappropriate to add 
the royalty and the transaction value of the good could not be 
determined. However, if the amount of the royalty is based only on 
the purchased good and can be readily quantified, an addition to the 
price actually paid or payable can be made and the transaction value 
can be determined.

Schedule V (Reasonable Allocation of Costs)

Definitions and Interpretation

    1 of the following definitions apply in this Schedule,
    costs means any costs that are included in total cost and that 
can or need to be allocated in a reasonable manner under to 
subsections 5(11), 7(11) and 8(8) of these Regulations, subsection 
4(8) of Schedule III and subsections 4(8) and 9(3) of Schedule VI;
    discontinued operation, in the case of a producer located in a 
USMCA country, has the meaning set out in that USMCA country's 
Generally Accepted Accounting Principles;
    indirect overhead means period costs and other costs;
    internal management purpose means any purpose relating to tax 
reporting, financial reporting, financial planning, decision-making, 
pricing, cost recovery, cost control management or performance 
measurement;
    overhead means costs, other than direct material costs and 
direct labor costs.
    2 (1) In this Schedule, reference to ``producer'', for purposes 
of subsection 4(8) of Schedule III, is to be read as a reference to 
``buyer''.
    (2) In this Schedule, a reference to ``good'',
    (a) for purposes of subsection 7(15) of these Regulations, is to 
be read as a reference to ``identical goods or similar goods, or any 
combination thereof'';
    (b) for purposes of subsection 8(8) of these Regulations, is to 
be read as a reference to ``intermediate material'';
    (c) for purposes of section 16 of these Regulations, is to be 
read as a reference to ``category of vehicles that is chosen 
pursuant to subsection 16(1) of these Regulations'';
    (d) for purposes of subsection 4(8) of Schedule III, be read as 
a reference to ``packaging materials and containers or the 
elements''; and
    (e) for purposes of subsection 4(8) of Schedule VI, be read as a 
reference to ``elements''.

Methods to Reasonably Allocate Costs

    3 (1) If a producer of a good is using, for an internal 
management purpose, a cost allocation method to allocate to the good 
direct material costs, or part thereof, and that method reasonably 
reflects the direct material used in the production of the good 
based on the criterion of benefit, cause or ability to bear, that 
method must be used to reasonably allocate the costs to the good.
    (2) If a producer of a good is using, for an internal management 
purpose, a cost allocation method to allocate to the good direct 
labor costs, or part thereof, and that method reasonably reflects 
the direct labor used in the production of the good based on the 
criterion of benefit, cause or ability to bear, that method must be 
used to reasonably allocate the costs to the good.
    (3) If a producer of a good is using, for an internal management 
purpose, a cost allocation method to allocate to the good overhead, 
or part thereof, and that method is based on the criterion of 
benefit, cause or ability to bear, that method must be used to 
reasonably allocate the costs to the good.
    4 If costs are not reasonably allocated to a good under section 
3, those costs are reasonably allocated to the good if they are 
allocated:
    (a) With respect to direct material costs, on the basis of any 
method that reasonably reflects the direct material used in the 
production of the good based on the criterion of benefit, cause or 
ability to bear;
    (b) with respect to direct labor costs, on the basis of any 
method that reasonably reflects the direct labor used in the 
production of the good based on the criterion of benefit, cause or 
ability to bear; and
    (c) with respect to overhead, on the basis of any of the 
following methods:
    (i) The method set out in Appendix A, B or C,
    (ii) a method based on a combination of the methods set out in 
Appendices A and B or Appendices A and C, and
    (iii) a cost allocation method based on the criterion of 
benefit, cause or ability to bear.
    5 Notwithstanding sections 3 and 8, if a producer allocates, for 
an internal management purpose, costs to a good that is not produced 
in the period in which the costs are expensed on the books of the 
producer (such as costs with respect to research and development, 
and obsolete materials), those costs must be considered reasonably 
allocated if:
    (a) For purposes of subsection 7(11) of these Regulations, they 
are allocated to a good that is produced in the period in which the 
costs are expensed, and
    (b) the good produced in that period is within a group or range 
of goods, including identical goods or similar goods, that is 
produced by the same industry or industry sector as the goods to 
which the costs are expensed.
    6 Any cost allocation method referred to in section 3, 4 or 5 
that is used by a producer for the purposes of these Regulations 
must be used throughout the producer's fiscal year.

Costs Not Reasonably Allocated

    7 The allocation to a good of any of the following is considered 
not to be reasonably allocated to the good:
    (a) Costs of a service provided by a producer of a good to 
another person where the service is not related to the good;
    (b) gains or losses resulting from the disposition of a 
discontinued operation, except gains or losses related to the 
production of the good;
    (c) cumulative effects of accounting changes reported in 
accordance with a

[[Page 39738]]

specific requirement of the applicable Generally Accepted Accounting 
Principles; and
    (d) gains or losses resulting from the sale of a capital asset 
of the producer.
    8 Any costs allocated under section 3 on the basis of a cost 
allocation method that is used for an internal management purpose 
that is solely for the purpose of qualifying a good as an 
originating good are considered not to be reasonably allocated.

Appendix A--Cost Ratio Method

Calculation of Cost Ratio

    For the overhead to be allocated, the producer may choose one or 
more allocation bases that reflect a relationship between the 
overhead and the good based on the criterion of benefit, cause or 
ability to bear.
    With respect to each allocation base that is chosen by the 
producer for allocating overhead, a cost ratio is calculated for 
each good produced by the producer as determined by the formula:

CR = AB / TAB

where

CR is the cost ratio with respect to the good;
AB is the allocation base for the good; and
TAB is the total allocation base for all the goods produced by the 
producer.

Allocation to a Good of Costs Included in Overhead

    The costs with respect to which an allocation base is chosen are 
allocated to a good in accordance with the following formula:

CAG = CA x CR

where

CAG is the costs allocated to the good;
CA is the costs to be allocated; and
CR is the cost ratio with respect to the good.

Excluded Costs

    Under paragraph 7(11)(b) of these Regulations, where excluded 
costs are included in costs to be allocated to a good, the cost 
ratio used to allocate that cost to the good is used to determine 
the amount of excluded costs to be subtracted from the costs 
allocated to the good.

Allocation Bases for Costs

    The following is a non-exhaustive list of allocation bases that 
may be used by the producer to calculate cost ratios:

 Direct labor hours
 Direct labor costs
 Units produced
 Machine-hours
 Sales dollars or pesos
 Floor space

``Examples''

    The following examples illustrate the application of the cost 
ratio method to costs included in overhead.

Example 1: Direct Labor Hours

    A producer who produces Good A and Good B may allocate overhead 
on the basis of direct labor hours spent to produce Good A and Good 
B. A total of 8,000 direct labor hours have been spent to produce 
Good A and Good B: 5,000 hours with respect to Good A and 3,000 
hours with respect to Good B. The amount of overhead to be allocated 
is $6,000,000.
    Calculation of the ratios:

Good A: 5,000 hours/8,000 hours = .625
Good B: 3,000 hours/8,000 hours = .375

    Allocation of overhead to Good A and Good B:

Good A: $6,000,000 x .625 = $3,750,000
Good B: $6,000,000 x .375 = $2,250,000

Example 2: Direct Labor Costs

    A producer who produces Good A and Good B may allocate overhead 
on the basis of direct labour costs incurred in the production of 
Good A and Good B. The total direct labor costs incurred in the 
production of Good A and Good B is $60,000: $50,000 with respect to 
Good A and $10,000 with respect to Good B. The amount of overhead to 
be allocated is $6,000,000.
    Calculation of the ratios:

Good A: $50,000/$60,000 = .833
Good B: $10,000/$60,000 = .167

    Allocation of Overhead to Good A and Good B:

Good A: $6,000,000 x .833 = $4,998,000
Good B: $6,000,000 x .167 = $1,002,000

Example 3: Units Produced

    A producer of Good A and Good B may allocate overhead on the 
basis of units produced. The total units of Good A and Good B 
produced is 150,000: 100,000 units of Good A and 50,000 units of 
Good B. The amount of overhead to be allocated is $6,000,000.
    Calculation of the ratios:

Good A: 100,000 units/150,000 units = .667
Good B: 50,000 units/150,000 units = .333

    Allocation of Overhead to Good A and Good B:

Good A: $6,000,000 x .667 = $4,002,000
Good B: $6,000,000 x .333 = $1,998,000

Example 4: Machine-Hours

    A producer who produces Good A and Good B may allocate machine-
related overhead on the basis of machine-hours utilized in the 
production of Good A and Good B. The total machine-hours utilized 
for the production of Good A and Good B is 3,000 hours: 1,200 hours 
with respect to Good A and 1,800 hours with respect to Good B. The 
amount of machine-related overhead to be allocated is $6,000,000.
    Calculation of the ratios:

Good A: 1,200 machine-hours/3,000 machine-hours = .40
Good B: 1,800 machine-hours/3,000 machine-hours = .60

    Allocation of machine-related overhead to Good A and Good B:

Good A: $6,000,000 x .40 = $2,400,000
Good B: $6,000,000 x .60 = $3,600,000

Example 5: Sales Dollars or Pesos

    A producer who produces Good A and Good B may allocate overhead 
on the basis of sales dollars. The producer sold 2,000 units of Good 
A at $4,000 and 200 units of Good B at $3,000. The amount of 
overhead to be allocated is $6,000,000.
    Total sales dollars for Good A and Good B:

Good A: $4,000 x 2,000 units = $8,000,000
Good B: $3,000 x 200 units = $600,000
Total sales dollars: $8,000,000 + $600,000 = $8,600,000

    Calculation of the ratios:

Good A: $8,000,000/$8,600,000 = .93
Good B: $600,000/$8,600,000 = .07

    Allocation of Overhead to Good A and Good B:

Good A: $6,000,000 x .93 = $5,580,000
Good B: $6,000,000 x .07 = $420,000

Example 6: Floor Space

    A producer who produces Good A and Good B may allocate overhead 
relating to utilities (heat, water and electricity) on the basis of 
floor space used in the production and storage of Good A and Good B. 
The total floor space used in the production and storage of Good A 
and Good B is 100,000 square feet: 40,000 square feet with respect 
to Good A and 60,000 square feet with respect to Good B. The amount 
of overhead to be allocated is $6,000,000.
    Calculation of the Ratios:

Good A: 40,000 square feet/100,000 square feet = .40
Good B: 60,000 square feet/100,000 square feet = .60

    Allocation of overhead (utilities) to Good A and Good B:

Good A: $6,000,000 x .40 = $2,400,000
Good B: $6,000,000 x .60 = $3,600,000

Appendix B--Direct Labor and Direct Material Ratio Method

Calculation of Direct Labor and Direct Material Ratio

    For each good produced by the producer, a direct labor and 
direct material ratio is calculated by the formula:

DLDMR = (DLC + DMC) / (TDLC + TDMC)

where

DLDMR is the direct labor and direct material ratio for the good;
DLC is the direct labor costs of the good;
DMC is the direct material costs of the good;
TDLC is the total direct labor costs of all goods produced by the 
producer; and
TDMC is the total direct material costs of all goods produced by the 
producer.

Allocation of Overhead to a Good

    Overhead is allocated to a good by the formula:

OAG = O x DLDMR

where

OAG is the overhead allocated to the good;
O is the overhead to be allocated; and
DLDMR is the direct labor and direct material ratio for the good.

Excluded Costs

    Under paragraph 7(11)(b) of these Regulations, if excluded costs 
are included in overhead to be allocated to a good, the direct labor 
and direct material ratio used to allocate overhead to the good is 
used to determine the amount of excluded costs to be subtracted from 
the overhead allocated to the good.

[[Page 39739]]

``Examples''

Example 1

    The following example illustrates the application of the direct 
labor and direct material ratio method used by a producer of a good 
to allocate overhead where the producer chooses to calculate the net 
cost of the good in accordance with paragraph 7(11)(a) of these 
Regulations. A producer produces Good A and Good B. Overhead (O) 
minus excluded costs (EC) is $30 and the other relevant costs are 
set out in the following table:

----------------------------------------------------------------------------------------------------------------
                                                                    Good A  ($)     Good B  ($)     Total  ($)
----------------------------------------------------------------------------------------------------------------
Direct labor costs (DLC)........................................               5               5              10
Direct material costs (DMC).....................................              10               5              15
                                                                 -----------------------------------------------
    Totals......................................................              15              10              25
----------------------------------------------------------------------------------------------------------------

Overhead Allocated to Good A

OAG (Good A) = O ($30) x DLDMR ($15/$25)
OAG (Good A) = $18.00

Overhead Allocated to Good B

OAG (Good B) = O ($30) x DLDMR ($10/$25)
OAG (Good B) = $12.00

Example 2

    The following example illustrates the application of the direct 
labor and direct material ratio method used by a producer of a good 
to allocate overhead where the producer chooses to calculate the net 
cost of the good in accordance with paragraph 7(11)(b) of these 
Regulations and where excluded costs are included in overhead.
    A producer produces Good A and Good B. Overhead (O) is $50 
(including excluded costs (EC) of $20). The other relevant costs are 
set out in the table to Example 1.

Overhead Allocated to Good A

OAG (Good A) = [O ($50) x DLDMR ($15/$25)]-[EC ($20) x DLDMR ($15/
$25)]
OAG (Good A) = $18.00

Overhead Allocated to Good B

OAG (Good B) = [O ($50) x DLDMR ($10/$25)]-[EC ($20) x DLDMR ($10/
$25)]
OAG (Good B) = $12.00

Appendix C--Direct Cost Ratio Method

Direct Overhead

    Direct overhead is allocated to a good on the basis of a method 
based on the criterion of benefit, cause or ability to bear.

Indirect Overhead

    Indirect overhead is allocated on the basis of a direct cost 
ratio.

Calculation of Direct Cost Ratio

    For each good produced by the producer, a direct cost ratio is 
calculated by the formula:

DCR = (DLC + DMC + DO) / (TDLC + TDMC + TDO)

where

DCR is the direct cost ratio for the good;
DLC is the direct labor costs of the good;
DMC is the direct material costs of the good;
DO is the direct overhead of the good;
TDLC is the total direct labor costs of all goods produced by the 
producer;
TDMC is the total direct material costs of all goods produced by the 
producer; and
TDO is the total direct overhead of all goods produced by the 
producer.

Allocation of Indirect Overhead to a Good

    Indirect overhead is allocated to a good by the formula:

IOAG = IO x DCR

where

IOAG is the indirect overhead allocated to the good;
IO is the indirect overhead of all goods produced by the producer; 
and
DCR is the direct cost ratio of the good.

Excluded Costs

    Under paragraph 7(11)(b) of these Regulations, if excluded costs 
are included in
    (a) direct overhead to be allocated to a good, those excluded 
costs are subtracted from the direct overhead allocated to the good; 
and
    (b) indirect overhead to be allocated to a good, the direct cost 
ratio used to allocate indirect overhead to the good is used to 
determine the amount of excluded costs to be subtracted from the 
indirect overhead allocated to the good.

``Examples''

Example 1

    The following example illustrates the application of the direct 
cost ratio method used by a producer of a good to allocate indirect 
overhead where the producer chooses to calculate the net cost of the 
good in accordance with paragraph 7(11)(a) of these Regulations. A 
producer produces Good A and Good B. Indirect overhead (IO) minus 
excluded costs (EC) is $30. The other relevant costs are set out in 
the following table:

----------------------------------------------------------------------------------------------------------------
                                                                    Good A  ($)     Good B  ($)     Total  ($)
----------------------------------------------------------------------------------------------------------------
Direct labor costs (DLC)........................................               5               5              10
Direct material costs (DMC).....................................              10               5              15
Direct overhead (DO)............................................               8               2              10
                                                                 -----------------------------------------------
Totals..........................................................              23              12              35
----------------------------------------------------------------------------------------------------------------

Indirect Overhead Allocated to Good A

IOAG (Good A) = IO ($30) x DCR ($23/$35)
IOAG (Good A) = $19.71

Indirect Overhead Allocated to Good B

IOAG (Good B) = IO ($30) x DCR ($12/$35)
IOAG (Good B) = $10.29

Example 2

    The following example illustrates the application of the direct 
cost ratio method used by a producer of a good to allocate indirect 
overhead if the producer has chosen to calculate the net cost of the 
good in accordance with paragraph 7(11)(b) of these Regulations and 
where excluded costs are included in indirect overhead.
    A producer produces Good A and Good B. The indirect overhead 
(IO) is $50 (including excluded costs (EC) of $20). The other 
relevant costs are set out in the table to Example 1.

Indirect Overhead Allocated to Good A

IOAG (Good A) = [IO ($50) x DCR ($23/$35)]-[EC ($20) x DCR ($23/
$35)]
IOAG (Good A) = $19.72

Indirect Overhead Allocated to Good B

IOAG (Good B) = [IO ($50) x DCR ($12/$35)]-[EC ($20) x DCR ($12/
$35)]
IOAG (Good B) = $10.28

Schedule VI Value of Materials

    1 (1) Unless otherwise stated, the following definitions apply 
in this Schedule.
    buying commissions means fees paid by a producer to that 
producer's agent for the agent's services in representing the 
producer in the purchase of a material;
    materials of the same class or kind means, with respect to 
materials being valued,

[[Page 39740]]

materials that are within a group or range of materials that
    (a) is produced by a particular industry or industry sector, and
    (b) includes identical materials or similar materials;
    producer refers to the producer who used the material in the 
production of a good that is subject to a regional value-content 
requirement;
    seller refers to a person who sells the material being valued to 
the producer.
    2 (1) Except as provided under subsection (2), the transaction 
value of a material under paragraph 8(1)(b) of these Regulations is 
the price actually paid or payable for the material determined in 
accordance with section 3 and adjusted in accordance with section 4.
    (2) There is no transaction value for a material if the material 
is not the subject of a sale.
    (3) The transaction value of a material is unacceptable if:
    (a) there are restrictions on the disposition or use of the 
material by the producer, other than restrictions that
    (i) are imposed or required by law or by the public authorities 
in the territory of the USMCA country in which the producer of the 
good or the seller of the material is located,
    (ii) limit the geographical area in which the material may be 
used, or
    (iii) do not substantially affect the value of the material;
    (b) the sale or price actually paid or payable is subject to a 
condition or consideration for which a value cannot be determined 
with respect to the material;
    (c) part of the proceeds of any subsequent disposal or use of 
the material by the producer will accrue directly or indirectly to 
the seller, and an appropriate addition to the price actually paid 
or payable cannot be made in accordance with paragraph 4(1)(d); or
    (d) the producer and the seller are related persons and the 
relationship between them influenced the price actually paid or 
payable for the material.
    (4) The cases or considerations referred to in paragraph (3)(b) 
include the following:
    (a) the seller establishes the price actually paid or payable 
for the material on condition that the producer will also buy other 
materials or goods in specified quantities;
    (b) the price actually paid or payable for the material is 
dependent on the price or prices at which the producer sells other 
materials or goods to the seller of the material; and
    (c) the price actually paid or payable is established on the 
basis of a form of payment extraneous to the material, such as where 
the material is a semi-finished material that is provided by the 
seller to the producer on condition that the seller will receive a 
specified quantity of the finished material from the producer.
    (5) For purposes of paragraph (3)(b), conditions or 
considerations relating to the use of the material will not render 
the transaction value unacceptable, such as where the producer 
undertakes on the producer's own account, even though by agreement 
with the seller, activities relating to the warranty of the material 
used in the production of a good.
    (6) If objective and quantifiable data do not exist with regard 
to the additions required to be made to the price actually paid or 
payable under subsection 4(1), the transaction value cannot be 
determined under the provisions of subsection 2(1). For an 
illustration of this, a royalty is paid on the basis of the price 
actually paid or payable in a sale of a litre of a particular good 
that is produced by using a material that was purchased by the 
kilogram and made up into a solution. If the royalty is based 
partially on the purchased material and partially on other factors 
that have nothing to do with that material, such as when the 
purchased material is mixed with other ingredients and is no longer 
separately identifiable, or when the royalty cannot be distinguished 
from special financial arrangements between the seller and the 
producer, it would be inappropriate to add the royalty and the 
transaction value of the material could not be determined. However, 
if the amount of the royalty is based only on the purchased material 
and can be readily quantified, an addition to the price actually 
paid or payable can be made and the transaction value can be 
determined.
    3 (1) The price actually paid or payable is the total payment 
made or to be made by the producer to or for the benefit of the 
seller of the material. The payment need not necessarily take the 
form of a transfer of money. It may be made by letters of credit or 
negotiable instruments. Payment may be made directly or indirectly 
to the seller. For an illustration of this, the settlement by the 
producer, whether in whole or in part, of a debt owed by the seller, 
is an indirect payment.
    (2) Activities undertaken by the producer on the producer's own 
account, other than those for which an adjustment is provided in 
section 4, must not be considered to be an indirect payment, even 
though the activities might be regarded as being for the benefit of 
the seller.
    (3) The transaction value must not include charges for 
construction, erection, assembly, maintenance or technical 
assistance related to the use of the material by the producer, 
provided that they are distinguished from the price actually paid or 
payable.
    (4) The flow of dividends or other payments from the producer to 
the seller that do not relate to the purchase of the material are 
not part of the transaction value.
    4 (1) In determining the transaction value of the material, the 
following must be added to the price actually paid or payable:
    (a) To the extent that they are incurred by the producer with 
respect to the material being valued and are not included in the 
price actually paid or payable,
    (i) commissions and brokerage fees, except buying commissions, 
and
    (ii) the costs of containers which, for customs purposes, are 
classified with the material under the Harmonized System;
    (b) the value, reasonably allocated in accordance with 
subsection (13), of the following elements if they are supplied 
directly or indirectly to the seller by the producer free of charge 
or at reduced cost for use in connection with the production and 
sale of the material, to the extent that the value is not included 
in the price actually paid or payable:
    (i) A material, other than an indirect material, used in the 
production of the material being valued,
    (ii) tools, dies, mold and similar indirect materials used in 
the production of the material being valued,
    (iii) an indirect material, other than those referred to in 
subparagraph (ii) or in paragraphs (c), (e) or (f) of the definition 
indirect material in subsection 1(1) of these Regulations, used in 
the production of the material being valued, and
    (iv) engineering, development, artwork, design work, and plans 
and sketches made outside the territory of the USMCA country in 
which the producer is located that are necessary for the production 
of the material being valued;
    (c) the royalties related to the material, other than charges 
with respect to the right to reproduce the material in the territory 
of the USMCA country in which the producer is located that the 
producer must pay directly or indirectly as a condition of sale of 
the material, to the extent that such royalties are not included in 
the price actually paid or payable; and
    (d) the value of any part of the proceeds of any subsequent 
disposal or use of the material that accrues directly or indirectly 
to the seller.
    (2) The additions referred to in subsection (1) must be made to 
the price actually paid or payable under this section only on the 
basis of objective and quantifiable data.
    (3) If objective and quantifiable data do not exist with regard 
to the additions required to be made to the price actually paid or 
payable under subsection (1), the transaction value cannot be 
determined under subsection 2(1).
    (4) Additions must not be made to the price actually paid or 
payable for the purpose of determining the transaction value except 
as provided in this section.
    (5) The amounts to be added under paragraph (1)(a) must be those 
amounts that are recorded on the books of the producer.
    (6) The value of the elements referred to in subparagraph 
(1)(b)(i) must be:
    (a) Where the elements are imported from outside the territory 
of the USMCA country in which the seller is located, the customs 
value of the elements,
    (b) where the producer, or a related person on behalf of the 
producer, purchases the elements from a person who is not a related 
person in the territory of the USMCA country in which the seller is 
located, the price actually paid or payable for the elements,
    (c) where the producer, or a related person on behalf of the 
producer, acquires the elements from a person who is not a related 
person in the territory of the USMCA country in which the seller is 
located other than through a purchase, the value of the 
consideration related to the acquisition of the elements, based on 
the cost of the consideration that is recorded on the books of the 
producer or the related person, or
    (d) where the elements are produced by the producer, or by a 
related person, in the territory of the USMCA country in which the 
seller is located, the total cost of the

[[Page 39741]]

elements, determined in accordance with subsection (8),
    (7) Those elements must include the following costs, that are 
recorded on the books of the producer or the related person 
supplying the elements on behalf of the producer, to the extent that 
such costs are not included under paragraphs (6)(a) through (d):
    (a) The costs of freight, insurance, packing, and all other 
costs incurred in transporting the elements to the location of the 
seller,
    (b) duties and taxes paid or payable with respect to the 
elements, other than duties and taxes that are waived, refunded, 
refundable or otherwise recoverable, including credit against duty 
or tax paid or payable,
    (c) customs brokerage fees, including the cost of in-house 
customs brokerage services, incurred with respect to the elements, 
and
    (d) the cost of waste and spoilage resulting from the use of the 
elements in the production of the material, minus the value of 
reusable scrap or by-product.
    (8) For the purposes of paragraph (6)(d), the total cost of the 
elements referred to in subparagraph (1)(b)(i) are:
    (a) Where the elements are produced by the producer, at the 
choice of the producer,
    (i) the total cost incurred with respect to all goods produced 
by the producer, calculated on the basis of the costs that are 
recorded on the books of the producer, that can be reasonably 
allocated to the elements in accordance with Schedule V, or
    (ii) the aggregate of each cost incurred by the producer that 
forms part of the total cost incurred with respect to the elements, 
calculated on the basis of the costs that are recorded on the books 
of the producer, that can be reasonably allocated to the elements in 
accordance with Schedule V; and
    (b) if the elements are produced by a person who is related to 
the producer, at the choice of the producer:
    (i) The total cost incurred with respect to all goods produced 
by that related person, calculated on the basis of the costs that 
are recorded on the books of that person, that can be reasonably 
allocated to the elements in accordance with Schedule V, or
    (ii) the aggregate of each cost incurred by that related person 
that forms part of the total cost incurred with respect to the 
elements, calculated on the basis of the costs that are recorded on 
the books of that person, that can be reasonably allocated to the 
elements in accordance with Schedule V.
    (9) Except as provided in subsections (11) and (12), the value 
of the elements referred to in subparagraphs (1)(b)(ii) through (iv) 
are:
    (a) The cost of those elements that is recorded on the books of 
the producer; or
    (b) if such elements are provided by another person on behalf of 
the producer and the cost is not recorded on the books of the 
producer, the cost of those elements that is recorded on the books 
of that other person.
    (10) If the elements referred to in subparagraphs (1)(b)(ii) 
through (iv) were previously used by or on behalf of the producer, 
the value of the elements must be adjusted downward to reflect that 
use.
    (11) If the elements referred to in subparagraphs (1)(b)(ii) and 
(iii) were leased by the producer or a person related to the 
producer, the value of the elements are the cost of the lease that 
is recorded on the books of the producer or that related person.
    (12) An addition must not be made to the price actually paid or 
payable for the elements referred to in subparagraph (1)(b)(iv) that 
are available in the public domain, other than the cost of obtaining 
copies of them.
    (13) The producer must choose the method of allocating to the 
material the value of the elements referred to in subparagraphs 
(1)(b)(ii) through (iv), provided that the value is reasonably 
allocated. The methods the producer may choose to allocate the value 
include allocating the value over the number of units produced up to 
the time of the first shipment or allocating the value over the 
entire anticipated production where contracts or firm commitments 
exist for that production. For an illustration of this, a producer 
provides the seller with a mold to be used in the production of the 
material and contracts with the seller to buy 10,000 units of that 
material. By the time the first shipment of 1,000 units arrives, the 
seller has already produced 4,000 units. In these circumstances, the 
producer may choose to allocate the value of the mold over 4,000 
units or 10,000 units but must not choose to allocate the value of 
the elements to the first shipment of 1,000 units. The producer may 
choose to allocate the entire value of the elements to a single 
shipment of material only where that single shipment comprises all 
of the units of the material acquired by the producer under the 
contract or commitment for that number of units of the material 
between the seller and the producer.
    (14) The addition for the royalties referred to in paragraph 
(1)(c) is the payment for the royalties that is recorded on the 
books of the producer, or where the payment for the royalties is 
recorded on the books of another person, the payment for the 
royalties that is recorded on the books of that other person.
    (15) The value of the proceeds referred to in paragraph (1)(d) 
is the amount that is recorded for those proceeds on the books of 
the producer or the seller.
    5 (1) If there is no transaction value under subsection 2(2) or 
the transaction value is unacceptable under subsection 2(3), the 
value of the material, referred to in subparagraph 8(1)(b)(ii) of 
these Regulations, is the transaction value of identical materials 
sold, at or about the same time as the material being valued was 
shipped to the producer, to a buyer located in the same country as 
the producer.
    (2) In applying this section, the transaction value of identical 
materials in a sale at the same commercial level and in 
substantially the same quantity of materials as the material being 
valued shall be used to determine the value of the material. If no 
such sale is found, the transaction value of identical materials 
sold at a different commercial level or in different quantities, 
adjusted to take into account the differences attributable to the 
commercial level or quantity, must be used, provided that such 
adjustments can be made on the basis of evidence that clearly 
establishes that the adjustment is reasonable and accurate, whether 
the adjustment leads to an increase or a decrease in the value.
    (3) A condition for adjustment under subsection (2) because of 
different commercial levels or different quantities is that such 
adjustment be made only on the basis of evidence that clearly 
establishes that an adjustment is reasonable and accurate. For an 
illustration of this, a bona fide price list contains prices for 
different quantities. If the material being valued consists of a 
shipment of 10 units and the only identical materials for which a 
transaction value exists involved a sale of 500 units, and it is 
recognized that the seller grants quantity discounts, the required 
adjustment may be accomplished by resorting to the seller's bona 
fide price list and using the price applicable to a sale of 10 
units. This does not require that sales had to have been made in 
quantities of 10 as long as the price list has been established as 
being bona fide through sales at other quantities. In the absence of 
such an objective measure, however, the determination of a value 
under this section is not appropriate.
    (4) If more than one transaction value of identical materials is 
found, the lowest such value must be used to determine the value of 
the material under this section.
    6 (1) If there is no transaction value under subsection 2(2) or 
the transaction value is unacceptable under subsection 2(3), and the 
value of the material cannot be determined under section 5, the 
value of the material, referred to in subparagraph 8(1)(b)(ii) of 
these Regulations, is the transaction value of similar materials 
sold, at or about the same time as the material being valued was 
shipped to the producer, to a buyer located in the same country as 
the producer.
    (2) In applying this section, the transaction value of similar 
materials in a sale at the same commercial level and in 
substantially the same quantity of materials as the material being 
valued must be used to determine the value of the material. Where no 
such sale is found, the transaction value of similar materials sold 
at a different commercial level or in different quantities, adjusted 
to take into account the differences attributable to the commercial 
level or quantity, must be used, provided that such adjustments can 
be made on the basis of evidence that clearly establishes that the 
adjustment is reasonable and accurate, whether the adjustment leads 
to an increase or a decrease in the value.
    (3) A condition for adjustment under subsection (2) because of 
different commercial levels or different quantities is that such 
adjustment be made only on the basis of evidence that clearly 
establishes that an adjustment is reasonable and accurate. For an 
illustration of this, a bona fide price list contains prices for 
different quantities. If the material being valued consists of a 
shipment of 10 units and the only similar materials for which a 
transaction value exists involved a sale of 500 units, and it is 
recognized that the seller grants quantity discounts, the required 
adjustment may be accomplished by resorting to the seller's bona 
fide price list and using the price applicable to a sale of 10 
units. This does not require that sales had to have been made in 
quantities of 10 as long as the price list has been established as 
being bona fide through sales at other quantities. In the absence of 
such an objective measure, however, the determination of a value 
under this section is not appropriate.
    (4) If more than one transaction value of similar materials is 
found, the lowest of those

[[Page 39742]]

values must be used to determine the value of the material under 
this section.
    7 If there is no transaction value under subsection 2(2) or the 
transaction value is unacceptable under subsection 2(3), and the 
value of the material cannot be determined under section 5 or 6, the 
value of the material, referred to in subparagraph 8(1)(b)(ii) of 
these Regulations, must be determined under section 8 or, when the 
value cannot be determined under that section, under section 9 
except that, at the request of the producer, the order of 
application of sections 8 and 9 must be reversed.
    8 (1) Under this section, if identical materials or similar 
materials are sold in the territory of the USMCA country in which 
the producer is located, in the same condition as the material was 
in when received by the producer, the value of the material, 
referred to in subparagraph 8(1)(b)(ii) of these Regulations, must 
be based on the unit price at which those identical materials or 
similar materials are sold, in the greatest aggregate quantity by 
the producer or, where the producer does not sell those identical 
materials or similar materials, by a person at the same trade level 
as the producer, at or about the same time as the material being 
valued is received by the producer, to persons located in that 
territory who are not related to the seller, subject to deductions 
for the following:
    (a) Either the amount of commissions usually earned or the 
amount generally reflected for profit and general expenses, in 
connection with sales, in the territory of that USMCA country, of 
materials of the same class or kind as the material being valued; 
and
    (b) taxes, if included in the unit price, payable in the 
territory of that USMCA country, which are either waived, refunded 
or recoverable by way of credit against taxes actually paid or 
payable.
    (2) If neither identical materials nor similar materials are 
sold at or about the same time the material being valued is received 
by the producer, the value must, subject to the deductions provided 
for under subsection (1), be based on the unit price at which 
identical materials or similar materials are sold in the territory 
of the USMCA country in which the producer is located, in the same 
condition as the material was in when received by the producer, at 
the earliest date within 90 days after the day on which the material 
being valued was received by the producer.
    (3) The expression ``unit price at which those identical 
materials or similar materials are sold, in the greatest aggregate 
quantity'' in subsection (1) means the price at which the greatest 
number of units is sold in sales between persons who are not related 
persons. For an illustration of this, materials are sold from a 
price list which grants favourable unit prices for purchases made in 
larger quantities.

----------------------------------------------------------------------------------------------------------------
                                                                                                       Total
                 Sale quantity                    Unit price             Number of sales          quantity  sold
                                                                                                  at  each price
----------------------------------------------------------------------------------------------------------------
1-10 units....................................             100  10 sales of 5 units.............              65
                                                                5 sales of 3 units
11-25 units...................................              95  5 sales of 11 units.............              55
Over 25 units.................................              90  1 sale of 30 units..............              80
                                                                1 sale of 50 units
----------------------------------------------------------------------------------------------------------------

    The greatest number of units sold at a particular price is 80; 
therefore, the unit price in the greatest aggregate quantity is 90.
    As another illustration of this, two sales occur. In the first 
sale 500 units are sold at a price of 95 currency units each. In the 
second sale 400 units are sold at a price of 90 currency units each. 
In this illustration, the greatest number of units sold at a 
particular price is 500; therefore, the unit price in the greatest 
aggregate quantity is 95.
    (4) Any sale to a person who supplies, directly or indirectly, 
free of charge or at reduced cost for use in connection with the 
production of the material, any of the elements specified in 
paragraph 4(1)(b), must not be taken into account in establishing 
the unit price for the purposes of this section.
    (5) The amount generally reflected for profit and general 
expenses referred to in paragraph (1)(a) must be taken as a whole. 
The figure for the purpose of deducting an amount for profit and 
general expenses must be determined on the basis of information 
supplied by or on behalf of the producer unless the figures provided 
by the producer are inconsistent with those usually reflected in 
sales, in the country in which the producer is located, of materials 
of the same class or kind as the material being valued. If the 
figures provided by the producer are inconsistent with those 
figures, the amount for profit and general expenses must be based on 
relevant information other than that supplied by or on behalf of the 
producer.
    (6) For the purposes of this section, general expenses are the 
direct and indirect costs of marketing the material in question.
    (7) In determining either the commissions usually earned or the 
amount generally reflected for profit and general expenses under 
this section, the question as to whether certain materials are 
materials of the same class or kind as the material being valued 
must be determined on a case-by-case basis with reference to the 
circumstances involved. Sales in the country in which the producer 
is located of the narrowest group or range of materials of the same 
class or kind as the material being valued, for which the necessary 
information can be provided, must be examined. For the purposes of 
this section, ``materials of the same class or kind'' includes 
materials imported from the same country as the material being 
valued as well as materials imported from other countries or 
acquired within the territory of the USMCA country in which the 
producer is located.
    (8) For the purposes of subsection (2), the earliest date is the 
date by which sales of identical materials or similar materials are 
made, in sufficient quantity to establish the unit price, to other 
persons in the territory of the USMCA country in which the producer 
is located.
    9 (1) Under this section, the value of a material, referred to 
in subparagraph 8(1)(b)(ii) of these Regulations, is the sum of:
    (a) The cost or value of the materials used in the production of 
the material being valued, as determined on the basis of the costs 
that are recorded on the books of the producer of the material,
    (b) the cost of producing the material being valued, as 
determined on the basis of the costs that are recorded on the books 
of the producer of the material, and
    (c) an amount for profit and general expenses equal to that 
usually reflected in sales
    (i) where the material being valued is imported by the producer 
into the territory of the USMCA country in which the producer is 
located, to persons located in the territory of the USMCA country in 
which the producer is located by producers of materials of the same 
class or kind as the material being valued who are located in the 
country in which the material is produced, and
    (ii) where the material being valued is acquired by the producer 
from another person located in the territory of the USMCA country in 
which the producer is located, to persons located in the territory 
of the USMCA country in which the producer is located by producers 
of materials of the same class or kind as the material being valued 
who are located in the country in which the producer is located.
    (2) This value of a material, to the extent it is not are not 
already included under paragraph (a) or (b) must include the 
following costs and where the elements are supplied directly or 
indirectly to the producer of the material being valued by the 
producer free of charge or at a reduced cost for use in the 
production of that material,
    (a) the value of elements referred to in subparagraph 
4(1)(b)(i), determined in accordance with subsections 4(6) and (7), 
and
    (b) the value of elements referred to in subparagraphs 
4(1)(b)(ii) through (iv), determined in accordance with subsection 
4(9) and reasonably allocated to the material in accordance with 
subsection 4(13).

[[Page 39743]]

    (3) For purposes of paragraphs (1)(a) and (b), if the costs 
recorded on the books of the producer of the material relate to the 
production of other goods and materials as well as to the production 
of the material being valued, the costs referred to in paragraphs 
(1)(a) and (b) with respect to the material being valued must be 
those costs recorded on the books of the producer of the material 
that can be reasonably allocated to that material in accordance with 
Schedule V.
    (4) The amount for profit and general expenses referred to in 
paragraph (1)(c) must be determined on the basis of information 
supplied by or on behalf of the producer of the material being 
valued unless the profit and general expenses figures that are 
supplied with that information are inconsistent with those usually 
reflected in sales by producers of materials of the same class or 
kind as the material being valued who are located in the country in 
which the material is produced or the producer is located, as the 
case may be. The information supplied must be prepared in a manner 
consistent with generally accepted accounting principles of the 
country in which the material being valued is produced. If the 
material is produced in the territory of a USMCA country, the 
information must be prepared in accordance with the Generally 
Accepted Accounting Principles set out in the authorities listed for 
that USMCA country in Schedule X.
    (5) For purposes of paragraph (1)(c) and subsection (4), general 
expenses means the direct and indirect costs of producing and 
selling the material that are not included under paragraphs (1)(a) 
and (b).
    (6) For purposes of subsection (4), the amount for profit and 
general expenses must be taken as a whole. If, in the information 
supplied by or on behalf of the producer of a material, the profit 
figure is low and the general expenses figure is high, the profit 
and general expense figures taken together may nevertheless be 
consistent with those usually reflected in sales of materials of the 
same class or kind as the material being valued. If the producer of 
a material can demonstrate that it is taking a nil or low profit on 
its sales of the material because of particular commercial 
circumstances, its actual profit and general expense figures must be 
taken into account, provided that the producer of the material has 
valid commercial reasons to justify them and its pricing policy 
reflects usual pricing policies in the branch of industry concerned. 
For an illustration of this, such a situation might occur if 
producers have been forced to lower prices temporarily because of an 
unforeseeable drop in demand, or if the producers sell the material 
to complement a range of materials and goods being produced in the 
country in which the material is sold and accept a low profit to 
maintain competitiveness. A further illustration is if a material 
was being launched and the producer accepted a nil or low profit to 
offset high general expenses associated with the launch.
    (7) If the figures for the profit and general expenses supplied 
by or on behalf of the producer of the material are not consistent 
with those usually reflected in sales of materials of the same class 
or kind as the material being valued that are made by other 
producers in the country in which that material is sold, the amount 
for profit and general expenses may be based on relevant information 
other than that supplied by or on behalf of the producer of the 
material.
    (8) Whether certain materials are of the same class or kind as 
the material being valued will be determined on a case-by-case basis 
with reference to the circumstances involved. For purposes of 
determining the amount for profit and general expenses usually 
reflected under the provisions of this section, sales of the 
narrowest group or range of materials of the same class or kind, 
which includes the material being valued, for which the necessary 
information can be provided, shall be examined. For the purposes of 
this section, the materials of the same class or kind must be from 
the same country as the material being valued.
    10 (1) If there is no transaction value under subsection 2(2) or 
the transaction value is unacceptable under subsection 2(3), and the 
value of the material cannot be determined under sections 5 through 
9, the value of the material, referred to in subparagraph 
8(1)(b)(ii) of these Regulations, must be determined under this 
section using reasonable means consistent with the principles and 
general provisions of this Schedule and on the basis of data 
available in the country in which the producer is located.
    (2) The value of the material determined under this section must 
not be determined on the basis of
    (a) a valuation system which provides for the acceptance of the 
higher of two alternative values;
    (b) a cost of production other than the value determined in 
accordance with section 9;
    (c) minimum values;
    (d) arbitrary or fictitious values;
    (e) if the material is produced in the territory of the USMCA 
country in which the producer is located, the price of the material 
for export from that territory; or
    (f) if the material is imported, the price of the material for 
export to a country other than to the territory of the USMCA country 
in which the producer is located.
    (3) To the greatest extent possible, the value of the material 
determined under this section must be based on the methods of 
valuation set out in sections 2 through 9, but a reasonable 
flexibility in the application of such methods would be in 
conformity with the aims and provisions of this section. For an 
illustration of this, under section 5, the requirement that the 
identical materials should be sold at or about the same time as the 
time the material being valued is shipped to the producer could be 
flexibly interpreted. Similarly, identical materials produced in a 
country other than the country in which the material is produced 
could be the basis for determining the value of the material, or the 
value of identical materials already determined under section 8 
could be used. For another illustration, under section 6, the 
requirement that the similar materials should be sold at or about 
the same time as the material being valued are shipped to the 
producer could be flexibly interpreted. Likewise, similar materials 
produced in a country other than the country in which the material 
is produced could be the basis for determining the value of the 
material, or the value of similar materials already determined under 
the provisions of section 8 could be used. For a further 
illustration, under section 8, the ninety days requirement could be 
administered flexibly.

Schedule VII (Methods for Determining the Value of Non-Originating 
Materials That Are Identical Materials and That Are Used in the 
Production of a Good)

Definitions

    1 The following definitions apply in this Schedule.
    FIFO method means the method by which the value of non-
originating materials first received in materials inventory, 
determined in accordance with section 8 of these Regulations, is 
considered to be the value of non-originating materials used in the 
production of the good first shipped to the buyer of the good;
    identical materials means, with respect to a material, materials 
that are the same as that material in all respects, including 
physical characteristics, quality and reputation but excluding minor 
differences in appearance;
    LIFO method means the method by which the value of non-
originating materials last received in materials inventory, 
determined in accordance with section 8 of these Regulations, is 
considered to be the value of non-originating materials used in the 
production of the good first shipped to the buyer of the good;
    materials inventory means, with respect to a single plant of the 
producer of a good, an inventory of non-originating materials that 
are identical materials and that are used in the production of the 
good;
    rolling average method means the method by which the value of 
non-originating materials used in the production of a good that is 
shipped to the buyer of the good is based on the average value, 
calculated in accordance with section 4, of the non-originating 
materials in materials inventory.

General

    2 For purposes of subsections 5(13) and (14) and 7(10) of these 
Regulations, the following are the methods for determining the value 
of non-originating materials that are identical materials and are 
used in the production of a good:
    (a) FIFO method;
    (b) LIFO method; and
    (c) rolling average method.
    3 (1) If a producer of a good chooses, with respect to non-
originating materials that are identical materials, any of the 
methods referred to in section 2, the producer may not use another 
of those methods with respect to any other non-originating materials 
that are identical materials and that are used in the production of 
that good or in the production of any other good.
    (2) If a producer of a good produces the good in more than one 
plant, the method chosen by the producer must be used with respect 
to all plants of the producer in which the good is produced.
    (3) The method chosen by the producer to determine the value of 
non-originating

[[Page 39744]]

materials may be chosen at any time during the producer's fiscal 
year and may not be changed during that fiscal year.

Average Value for Rolling Average Method

    4 (1) The average value of non-originating materials that are 
identical materials and that are used in the production of a good 
that is shipped to the buyer of the good is calculated by dividing:
    (a) The total value of non-originating materials that are 
identical materials in materials inventory prior to the shipment of 
the good, determined in accordance with section 8 of these 
Regulations, by
    (b) the total units of those non-originating materials in 
materials inventory prior to the shipment of the good.
    (2) The average value calculated under subsection (1) is applied 
to the remaining units of non-originating materials in materials 
inventory.

Appendix ``Examples'' Illustrating the Application of the Methods for 
Determining the Value of Non-Originating Materials That Are Identical 
Materials and That Are Used in the Production of a Good

    The following examples are based on the figures set out in the 
table below and on the following assumptions:
    (a) Materials A are non-originating materials that are identical 
materials that are used in the production of Good A;
    (b) one unit of Materials A is used to produce one unit of Good 
A;
    (c) all other materials used in the production of Good A are 
originating materials; and
    (d) Good A is produced in a single plant.

----------------------------------------------------------------------------------------------------------------
                 Materials Inventory  (Receipts of Materials A)                    Sales  (Shipments of Good A)
----------------------------------------------------------------------------------------------------------------
                                                                     Quantity                        Quantity
                          Date (M/D/Y)                                (units)     Unit cost  ($)      (units)
----------------------------------------------------------------------------------------------------------------
01/01/21........................................................             200            1.05  ..............
01/03/21........................................................           1,000            1.00  ..............
01/05/21........................................................           1,000            1.10  ..............
01/08/21........................................................  ..............  ..............             500
01/09/21........................................................  ..............  ..............             500
01/10/21........................................................           1,000            1.05  ..............
01/14/21........................................................  ..............  ..............           1,500
01/16/21........................................................           2,000            1.10  ..............
01/18/21........................................................  ..............  ..............           1,500
----------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 8 of these Regulations.

Example 1: FIFO method

    By applying the FIFO Method:
    (1) The 200 units of Materials A received on 01/01/21 and valued 
at $1.05 per unit and 300 units of the 1,000 units of Material A 
received on 01/03/21 and valued at $1.00 per unit are considered to 
have been used in the production of the 500 units of Good A shipped 
on 01/08/21; therefore, the value of the non-originating materials 
used in the production of those goods is considered to be $510 [(200 
units x $1.05) + (300 units x $1.00)];
    (2) 500 units of the remaining 700 units of Materials A received 
on 01/03/21 and valued at $1.00 per unit are considered to have been 
used in the production of the 500 units of Good A shipped on 01/09/
21; therefore, the value of the non-originating materials used in 
the production of those goods is considered to be $500 (500 units x 
$1.00);
    (3) the remaining 200 units of the 1,000 units of Materials A 
received on 01/03/21 and valued at $1.00 per unit, the 1,000 units 
of Materials A received on 01/05/21 and valued at $1.10 per unit, 
and 300 units of the 1,000 units of Materials A received on 01/10/21 
and valued at $1.05 per unit are considered to have been used in the 
production of the 1,500 units of Good A shipped on 01/14/21; 
therefore, the value of non-originating materials used in the 
production of those goods is considered to be $1,615 [(200 units x 
$1.00) + (1,000 units x $1.10) + (300 units x $1.05)]; and
    (4) the remaining 700 units of the 1,000 units of Materials A 
received on 01/10/21 and valued at $1.05 per unit and 800 units of 
the 2,000 units of Materials A received on 01/16/21 and valued at 
$1.10 per unit are considered to have been used in the production of 
the 1,500 units of Good A shipped on 01/18/21; therefore, the value 
of non-originating materials used in the production of those goods 
is considered to be $1,615 [(700 units x $1.05) + (800 units x 
$1.10)].

Example 2: LIFO Method

    By applying the LIFO method:
    (1) 500 units of the 1,000 units of Materials A received on 01/
05/21 and valued at $1.10 per unit are considered to have been used 
in the production of the 500 units of Good A shipped on 01/08/21; 
therefore, the value of the non-originating materials used in the 
production of those goods is considered to be $550 (500 units x 
$1.10);
    (2) the remaining 500 units of the 1,000 units of Materials A 
received on 01/05/21 and valued at $1.10 per unit are considered to 
have been used in the production of the 500 units of Good A shipped 
on 01/09/21; therefore, the value of non-originating materials used 
in the production of those goods is considered to be $550 (500 units 
x $1.10);
    (3) the 1,000 units of Materials A received on 01/10/21 and 
valued at $1.05 per unit and 500 units of the 1,000 units of 
Material A received on 01/03/21 and valued at $1.00 per unit are 
considered to have been used in the production of the 1,500 units of 
Good A shipped on 01/14/21; therefore, the value of non-originating 
materials used in the production of those goods is considered to be 
$1,550 [(1,000 units x $1.05) + (500 units x $1.00)]; and
    (4) 1,500 units of the 2,000 units of Materials A received on 
01/16/21 and valued at $1.10 per unit are considered to have been 
used in the production of the 1,500 units of Good A shipped on 01/
18/21; therefore, the value of non-originating materials used in the 
production of those goods is considered to be $1,650 (1,500 units x 
$1.10).

Example 3: Rolling Average Method

    The following table identifies the average value of non-
originating Materials A as determined under the rolling average 
method. For purposes of this example, a new average value of non-
originating Materials A is calculated after each receipt.

[[Page 39745]]



----------------------------------------------------------------------------------------------------------------
                                                                     Quantity       Unit cost*      Total value
               Materials inventory                 Date  (M/D/Y)      (units)           ($)             ($)
----------------------------------------------------------------------------------------------------------------
Beginning Inventory.............................        01/01/21             200            1.05             210
Receipt.........................................        01/03/21           1,000            1.00           1,000
    AVERAGE VALUE...............................  ..............           1,200           1.008           1,210
Receipt.........................................        01/05/21           1,000            1.10           1,100
    AVERAGE VALUE...............................  ..............           2,200            1.05           2,310
Shipment........................................        01/08/21             500            1.05             525
    AVERAGE VALUE...............................  ..............           1,700            1.05           1,785
Shipment........................................        01/09/21             500            1.05             525
    AVERAGE VALUE...............................  ..............           1,200            1.05           1,260
Receipt.........................................        01/16/21           2,000            1.10           2,200
    AVERAGE VALUE...............................  ..............           3,200            1.08           3,460
----------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 8 of these Regulations.

    By applying the rolling average method:
    (1) The value of non-originating materials used in the 
production of the 500 units of Good A shipped on 01/08/21 is 
considered to be $525 (500 units x $1.05); and
    (2) the value of non-originating materials used in the 
production of the 500 units of Good A shipped on 01/09/21 is 
considered to be $525 (500 units x $1.05).

Schedule VIII (Inventory Management Methods)

Part I Fungible Materials

Definitions

    1 The following definitions apply in this Part,
    average method means the method by which the origin of fungible 
materials withdrawn from materials inventory is based on the ratio, 
calculated under section 5, of originating materials and non-
originating materials in materials inventory;
    FIFO method means the method by which the origin of fungible 
materials first received in materials inventory is considered to be 
the origin of fungible materials first withdrawn from materials 
inventory;
    LIFO method means the method by which the origin of fungible 
materials last received in materials inventory is considered to be 
the origin of fungible materials first withdrawn from materials 
inventory;
    materials inventory means,
    (a) with respect to a producer of a good, an inventory of 
fungible materials that are used in the production of the good, and
    (b) with respect to a person from whom the producer of the good 
acquired those fungible materials, an inventory from which fungible 
materials are sold or otherwise transferred to the producer of the 
good;
    opening inventory means the materials inventory at the time an 
inventory management method is chosen;
    origin identifier means any mark that identifies fungible 
materials as originating materials or non-originating materials.

General

    2 The following inventory management methods may be used for 
determining whether fungible materials referred to in paragraph 
8(18)(a) of these Regulations are:
    (a) Specific identification method;
    (b) FIFO method;
    (c) LIFO method; and
    (d) average method.
    3 A producer of a good, or a person from whom the producer 
acquired the fungible materials that are used in the production of 
the good, may choose only one of the inventory management methods 
referred to in section 2, and, if the averaging method is chosen, 
only one averaging period in each fiscal year of that producer or 
person for the materials inventory.

Specific Identification Method

    4 (1) Except as otherwise provided under subsection (2), if the 
producer or person referred to in section 3 chooses the specific 
identification method, the producer or person must physically 
segregate, in materials inventory, originating materials that are 
fungible materials from non-originating materials that are fungible 
materials.
    (2) If originating materials or non-originating materials that 
are fungible materials are marked with an origin identifier, the 
producer or person need not physically segregate those materials 
under subsection (1) if the origin identifier remains visible 
throughout the production of the good.

Average Method

    5 If the producer or person referred to in section 3 chooses the 
average method, the origin of fungible materials withdrawn from 
materials inventory is determined on the basis of the ratio of 
originating materials and non-originating materials in materials 
inventory that is calculated under sections 6 through 8.
    6 (1) Except as otherwise provided in sections 7 and 8, the 
ratio is calculated with respect to a month or three-month period, 
at the choice of the producer or person, by dividing
    (a) the sum of
    (i) the total units of originating materials or non-originating 
materials that are fungible materials and that were in materials 
inventory at the beginning of the preceding one-month or three-month 
period, and
    (ii) the total units of originating materials or non-originating 
materials that are fungible materials and that were received in 
materials inventory during that preceding one-month or three-month 
period, by
    (b) the sum of
    (i) the total units of originating materials and non-originating 
materials that are fungible materials and that were in materials 
inventory at the beginning of the preceding one-month or three-month 
period, and
    (ii) the total units of originating materials and non-
originating materials that are fungible materials and that were 
received in materials inventory during that preceding one-month or 
three-month period.
    (2) The ratio calculated with respect to a preceding month or 
three-month period under subsection (1) is applied to the fungible 
materials remaining in materials inventory at the end of the 
preceding month or three-month period.
    7 (1) If the good is subject to a regional value-content 
requirement and the regional value content is calculated under the 
net cost method and the producer or person chooses to average over a 
period under subsections 7(15), 16(1) or (10) of these Regulations, 
the ratio is calculated with respect to that period by dividing
    (a) the sum of
    (i) the total units of originating materials or non-originating 
materials that are fungible materials and that were in materials 
inventory at the beginning of the period, and
    (ii) the total units of originating materials or non-originating 
materials that are fungible materials and that were received in 
materials inventory during that period, by
    (b) the sum of
    (i) the total units of originating materials and non-originating 
materials that are fungible materials and that were in materials 
inventory at the beginning of the period, and
    (ii) the total units of originating materials and non-
originating materials that are fungible materials and that were 
received in materials inventory during that period.
    (2) The ratio calculated with respect to a period under 
subsection (1) is applied to the fungible materials remaining in 
materials inventory at the end of the period.
    8 (1) If the good is subject to a regional value-content 
requirement and the regional value content of that good is 
calculated under the transaction value method or the net cost 
method, the ratio is calculated with respect to each shipment of the 
good by dividing
    (a) the total units of originating materials or non-originating 
materials that are fungible materials and that were in materials 
inventory prior to the shipment, by
    (b) the total units of originating materials and non-originating 
materials that are fungible materials and that were in materials 
inventory prior to the shipment.
    (2) The ratio calculated with respect to a shipment of a good 
under subsection (1) is applied to the fungible materials remaining 
in materials inventory after the shipment.

[[Page 39746]]

Manner of Dealing With Opening Inventory

    9 (1) Except as otherwise provided under subsections (2) and 
(3), if the producer or person referred to in section 3 has fungible 
materials in opening inventory, the origin of those fungible 
materials is determined by
    (a) identifying, in the books of the producer or person, the 
latest receipts of fungible materials that add up to the amount of 
fungible materials in opening inventory;
    (b) identifying the origin of the fungible materials that make 
up those receipts; and
    (c) considering the origin of those fungible materials to be the 
origin of the fungible materials in opening inventory.
    (2) If the producer or person chooses the specific 
identification method and has, in opening inventory, originating 
materials or non-originating materials that are fungible materials 
and that are marked with an origin identifier, the origin of those 
fungible materials is determined on the basis of the origin 
identifier.
    (3) The producer or person may consider all fungible materials 
in opening inventory to be non-originating materials.

Part II Fungible Goods

Definitions

    10 The following definitions apply in this Part,
    average method means the method by which the origin of fungible 
goods withdrawn from finished goods inventory is based on the ratio, 
calculated under section 14, of originating goods and non-
originating goods in finished goods inventory;
    FIFO method means the method by which the origin of fungible 
goods first received in finished goods inventory is considered to be 
the origin of fungible goods first withdrawn from finished goods 
inventory;
    finished goods inventory means an inventory from which fungible 
goods are sold or otherwise transferred to another person;
    LIFO method means the method by which the origin of fungible 
goods last received in finished goods inventory is considered to be 
the origin of fungible goods first withdrawn from finished goods 
inventory;
    opening inventory means the finished goods inventory at the time 
an inventory management method is chosen;
    origin identifier means any mark that identifies fungible goods 
as originating goods or non-originating goods.

General

    11 The following inventory management methods may be used for 
determining whether fungible goods referred to in paragraph 8(18)(b) 
of these Regulations are originating goods:
    (a) Specific identification method;
    (b) FIFO method;
    (c) LIFO method; and
    (d) average method.
    12 An exporter of a good, or a person from whom the exporter 
acquired the fungible good, may choose only one of the inventory 
management methods referred to in section 11, including only one 
averaging period in the case of the average method, in each fiscal 
year of that exporter or person for each finished goods inventory of 
the exporter or person.

Specific Identification Method

    13 (1) Except as provided under subsection (2), if the exporter 
or person referred to in section 12 chooses the specific 
identification method, the exporter or person must physically 
segregate, in finished goods inventory, originating goods that are 
fungible goods from non-originating goods that are fungible goods.
    (2) If originating goods or non-originating goods that are 
fungible goods are marked with an origin identifier, the exporter or 
person need not physically segregate those goods under subsection 
(1) if the origin identifier is visible on the fungible goods.

Average Method

    14 (1) If the exporter or person referred to in section 12 
chooses the average method, the origin of each shipment of fungible 
goods withdrawn from finished goods inventory during a month or 
three-month period, at the choice of the exporter or person, is 
determined on the basis of the ratio of originating goods and non-
originating goods in finished goods inventory for the preceding one-
month or three-month period that is calculated by dividing
    (a) the sum of
    (i) the total units of originating goods or non-originating 
goods that are fungible goods and that were in finished goods 
inventory at the beginning of the preceding one-month or three-month 
period, and
    (ii) the total units of originating goods or non-originating 
goods that are fungible goods and that were received in finished 
goods inventory during that preceding one-month or three-month 
period, by
    (b) the sum of
    (i) the total units of originating goods and non-originating 
goods that are fungible goods and that were in finished goods 
inventory at the beginning of the preceding one-month or three-month 
period, and
    (ii) the total units of originating goods and non-originating 
goods that are fungible goods and that were received in finished 
goods inventory during that preceding one-month or three-month 
period.
    (2) The ratio calculated with respect to a preceding month or 
three-month period under subsection (1) is applied to the fungible 
goods remaining in finished goods inventory at the end of the 
preceding month or three-month period.

Manner of Dealing With Opening Inventory

    15 (1) Except as otherwise provided under subsections (2) and 
(3), if the exporter or person referred to in section 12 has 
fungible goods in opening inventory, the origin of those fungible 
goods is determined by
    (a) identifying, in the books of the exporter or person, the 
latest receipts of fungible goods that add up to the amount of 
fungible goods in opening inventory;
    (b) determining the origin of the fungible goods that make up 
those receipts; and
    (c) considering the origin of those fungible goods to be the 
origin of the fungible goods in opening inventory.
    (2) If the exporter or person chooses the specific 
identification method and has, in opening inventory, originating 
goods or non-originating goods that are fungible goods and that are 
marked with an origin identifier, the origin of those fungible goods 
is determined on the basis of the origin identifier.
    (3) The exporter or person may consider all fungible goods in 
opening inventory to be non-originating goods.

Appendix A

``Examples'' Illustrating the Application of the Inventory 
Management Methods To Determine the Origin of Fungible Materials

    The following examples are based on the figures set out in the 
table below and on the following assumptions:
    (a) Originating Material A and non-originating Material A that 
are fungible materials are used in the production of Good A;
    (b) one unit of Material A is used to produce one unit of Good 
A;
    (c) Material A is only used in the production of Good A;
    (d) all other materials used in the production of Good A are 
originating materials; and
    (e) the producer of Good A exports all shipments of Good A to 
the territory of a USMCA country.

----------------------------------------------------------------------------------------------------------------
                          Materials inventory  (Receipts of Material A)                                Sales
-------------------------------------------------------------------------------------------------  (Shipments of
                                                                                                      Good A)
                                                     Quantity                                    ---------------
                  Date (M/D/Y)                        (units)       Unit cost *     Total value      Quantity
                                                                                                      (units)
----------------------------------------------------------------------------------------------------------------
12/18/20........................................     100 (O \1\)           $1.00           $ 100  ..............
12/27/20........................................     100 (N \2\)            1.10             110  ..............
01/01/21........................................    200 (OI \3\)  ..............  ..............  ..............
01/01/21........................................       1,000 (O)            1.00           1,000  ..............
01/05/21........................................       1,000 (N)            1.10           1,100  ..............
01/10/21........................................  ..............  ..............  ..............             100
01/10/21........................................       1,000 (O)            1.05           1,050  ..............
01/15/21........................................  ..............  ..............  ..............             700
01/16/21........................................       2,000 (N)            1.10           2,200  ..............
01/20/21........................................  ..............  ..............  ..............           1,000

[[Page 39747]]

 
01/23/21........................................  ..............  ..............  ..............             900
----------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 8 of these Regulations.
\1\ ``O'' denotes originating materials.
\2\ ``N'' denotes non-originating materials.
\3\ ``OI'' denotes opening inventory.

Example 1: FIFO Method

    Good A is subject to a regional value-content requirement. 
Producer A is using the transaction value method to determine the 
regional value content of Good A.
    By applying the FIFO method:
    (1) The 100 units of originating Material A in opening inventory 
that were received in materials inventory on 12/18/20 are considered 
to have been used in the production of the 100 units of Good A 
shipped on 01/10/21; therefore, the value of non-originating 
materials used in the production of those goods is considered to be 
$0;
    (2) the 100 units of non-originating Material A in opening 
inventory that were received in materials inventory on 12/27/20 and 
600 units of the 1,000 units of originating Material A that were 
received in materials inventory on 01/01/21 are considered to have 
been used in the production of the 700 units of Good A shipped on 
01/15/21; therefore, the value of non-originating materials used in 
the production of those goods is considered to be $110 (100 units x 
$1.10);
    (3) the remaining 400 units of the 1,000 units of originating 
Material A that were received in materials inventory on 01/01/21 and 
600 units of the 1,000 units of non-originating Material A that were 
received in materials inventory on 01/05/21 are considered to have 
been used in the production of the 1,000 units of Good A shipped on 
01/20/21; therefore, the value of non-originating materials used in 
the production of those goods is considered to be $660 (600 units x 
$1.10); and
    (4) the remaining 400 units of the 1,000 units of non-
originating Material A that were received in materials inventory on 
01/05/21 and 500 units of the 1,000 units of originating Material A 
that were received in materials inventory on 01/10/21 are considered 
to have been used in the production of the 900 units of Good A 
shipped on 01/23/21; therefore, the value of non-originating 
materials used in the production of those goods is considered to be 
$440 (400 units x $1.10).

Example 2: LIFO Method

    Good A is subject to a change in tariff classification 
requirement and the non-originating Material A used in the 
production of Good A does not undergo the applicable change in 
tariff classification. Therefore, if originating Material A is used 
in the production of Good A, Good A is an originating good and, if 
non-originating Material A is used in the production of Good A, Good 
A is a non-originating good.
    By applying the LIFO method:
    (1) 100 units of the 1,000 units of non-originating Material A 
that were received in materials inventory on 01/05/21 are considered 
to have been used in the production of the 100 units of Good A 
shipped on 01/10/21;
    (2) 700 units of the 1,000 units of originating Material A that 
were received in materials inventory on 01/10/21 are considered to 
have been used in the production of the 700 units of Good A shipped 
on 01/15/21;
    (3) 1,000 units of the 2,000 units of non-originating Material A 
that were received in materials inventory on 01/16/21 are considered 
to have been used in the production of the 1,000 units of Good A 
shipped on 01/20/21; and
    (4) 900 units of the remaining 1,000 units of non-originating 
Material A that were received in materials inventory on 01/16/21 are 
considered to have been used in the production of the 900 units of 
Good A shipped on 01/23/21.

Example 3: Average Method

    Good A is subject to an applicable regional value-content 
requirement. Producer A is using the transaction value method to 
determine the regional value content of Good A. Producer A 
determines the average value of non-originating Material A and the 
ratio of originating Material A to total value of originating 
Material A and non-originating Material A in the following table.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                            Material inventory                                                                  Sales
--------------------------------------------------------------------------------------------------------------------------------------------------------
                         (Receipts of Material A)                                       (Non-originating material)                (Shipments of Good A)
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                   Date (M/D/    Quantity                               Quantity                               Quantity
                                                       Y)        (units)    Total value  Unit cost *    (units)    Total value     Ratio       (units)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Receipt.........................................     12/18/20   100 (O\1\)        $ 100        $1.00  ...........  ...........  ...........  ...........
Receipt.........................................     12/27/20   100 (N\2\)          110         1.10          100     $ 110.00  ...........  ...........
                                                              ------------------------------------------------------------------------------------------
New AVG INV Value...............................  ...........  200 (OI\3\)          210         1.05          100       105.00         0.50  ...........
Receipt.........................................     01/01/21    1,000 (O)        1,000         1.00  ...........  ...........  ...........  ...........
                                                              ------------------------------------------------------------------------------------------
New AVG INV Value...............................  ...........        1,200        1,210         1.01          100       101.00         0.08  ...........
Receipt.........................................     01/05/21    1,000 (N)        1,100         1.10        1,000     1,100.00  ...........  ...........
                                                              ------------------------------------------------------------------------------------------
New AVG INV Value...............................  ...........        2,200        2,310         1.05        1,100     1,155.00         0.50  ...........
Shipment........................................     01/10/21        (100)        (105)         1.05         (50)      (52.50)  ...........          100
Receipt.........................................     01/10/21    1,000 (O)        1,050         1.05  ...........  ...........  ...........  ...........
                                                              ------------------------------------------------------------------------------------------
New AVG INV Value...............................  ...........        3,100        3,255         1.05        1,050     1,102.50         0.34  ...........
Shipment........................................     01/15/21        (700)        (735)         1.05        (238)     (249.90)  ...........          700
Receipt.........................................     01/16/21    2,000 (N)        2,200         1.10        2,000     2,200.00  ...........  ...........
                                                              ------------------------------------------------------------------------------------------
New AVG INV Value...............................  ...........        4,400        4,720         1.07        2,812     3,008.84         0.64  ...........
Shipment........................................     01/20/21      (1,000)      (1,070)         1.07        (640)     (684.80)  ...........        1,000
Shipment........................................     01/23/21        (900)        (963)         1.07        (576)     (616.32)  ...........          900
                                                              ------------------------------------------------------------------------------------------
New AVG INV Value...............................  ...........        2,500        2,687         1.07        1,596     1,707.24         0.64  ...........
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 8 of these Regulations.
\1\ ``O'' denotes originating materials.
\2\ ``N'' denotes non-originating materials.
\3\ ``OI'' denotes opening inventory.


[[Page 39748]]

    By applying the average method:
    (1) Before the shipment of the 100 units of Material A on 01/10/
21, the ratio of units of originating Material A to total units of 
Material A in materials inventory was .50 (1,100 units/2,200 units) 
and the ratio of units of non-originating Material A to total units 
of Material A in materials inventory was .50 (1,100 units/2,200 
units);
    based on those ratios, 50 units (100 units x .50) of originating 
Material A and 50 units (100 units x .50) of non-originating 
Material A are considered to have been used in the production of the 
100 units of Good A shipped on 01/10/21; therefore, the value of 
non-originating Material A used in the production of those goods is 
considered to be $52.50 [100 units x $1.05 (average unit value) x 
.50];
    the ratios are applied to the units of Material A remaining in 
materials inventory after the shipment: 1,050 units (2,100 units x 
.50) are considered to be originating materials and 1,050 units 
(2,100 units x .50) are considered to be non-originating materials;
    (2) before the shipment of the 700 units of Good A on 01/15/21, 
the ratio of units of originating Material A to total units of 
Material A in materials inventory was 66% (2,050 units/3,100 units) 
and the ratio of units of non-originating Material A to total units 
of Material A in materials inventory was 34% (1,050 units/3,100 
units);
    based on those ratios, 462 units (700 units x .66) of 
originating Material A and 238 units (700 units x .34) of non-
originating Material A are considered to have been used in the 
production of the 700 units of Good A shipped on 01/15/21; 
therefore, the value of non-originating Material A used in the 
production of those goods is considered to be $249.90 [700 units x 
$1.05 (average unit value) x 34%];
    the ratios are applied to the units of Material A remaining in 
materials inventory after the shipment: 1,584 units (2,400 units x 
.66) are considered to be originating materials and 816 units (2,400 
units x .34) are considered to be non-originating materials;
    (3) before the shipment of the 1,000 units of Material A on 01/
20/21, the ratio of units of originating Material A to total units 
of Material A in materials inventory was 36% (1,584 units/4,400 
units) and the ratio of units of non-originating Material A to total 
units of Material A in materials inventory was 64% (2,816 units/
4,400 units);
    based on those ratios, 360 units (1,000 units x .36) of 
originating Material A and 640 units (1,000 units x .64) of non-
originating Material A are considered to have been used in the 
production of the 1,000 units of Good A shipped on 01/20/21; 
therefore, the value of non-originating Material A used in the 
production of those goods is considered to be $684.80 [1,000 units x 
$1.07 (average unit value) x 64%];
    those ratios are applied to the units of Material A remaining in 
materials inventory after the shipment: 1,224 units (3,400 units x 
.36) are considered to be originating materials and 2,176 units 
(3,400 units x .64) are considered to be non-originating materials;
    (4) before the shipment of the 900 units of Good A on 01/23/21, 
the ratio of units of originating Material A to total units of 
Material A in materials inventory was 36% (1,224 units/3,400 units) 
and the ratio of units of non-originating Material A to total units 
of Material A in materials inventory was 64% (2,176 units/3,400 
units);
    based on those ratios, 324 units (900 units x .36) of 
originating Material A and 576 units (900 units x .64) of non-
originating Material A are considered to have been used in the 
production of the 900 units of Good A shipped on 01/23/21; 
therefore, the value of non-originating Material A used in the 
production of those goods is considered to be $616.32 [900 units x 
$1.07 (average unit value) x 64%];
    those ratios are applied to the units of Material A remaining in 
materials inventory after the shipment: 900 units (2,500 units x 
.36) are considered to be originating materials and 1,600 units 
(2,500 units x .64) are considered to be non-originating materials.

Example 4: Average Method

    Good A is subject to an applicable regional value-content 
requirement. Producer A is using the net cost method and is 
averaging over a period of one month under paragraph 7(15)(a) of 
these Regulations to determine the regional value content of Good A.
    By applying the average method:
    The ratio of units of originating Material A to total units of 
Material A in materials inventory for January 2021 is 40.4% (2,100 
units/5,200 units);
    based on that ratio, 1,091 units (2,700 units x .404) of 
originating Material A and 1,609 units (2,700 units--1,091 units) of 
non-originating Material A are considered to have been used in the 
production of the 2,700 units of Good A shipped in January 2021; 
therefore, the value of non-originating materials used in the 
production of those goods is considered to be $0.64 per unit [$5,560 
(total value of Material A in materials inventory)/5,200 (units of 
Material A in materials inventory) = $1.07 (average unit value) x 
(1-.404)] or $1,728 ($0.64 x 2,700 units); and
    that ratio is applied to the units of Material A remaining in 
materials inventory on January 31, 2021: 1,010 units (2,500 units x 
.404) are considered to be originating materials and 1,490 units 
(2,500 units-1,010 units) are considered to be non-originating 
materials.

Appendix B

``Examples'' Illustrating the Application of the Inventory 
Management Methods to Determine the Origin of Fungible Goods

    The following examples are based on the figures set out in the 
table below and on the assumption that Exporter A acquires 
originating Good A and non-originating Good A that are fungible 
goods and physically combines or mixes Good A before exporting those 
goods to the buyer of those goods.

------------------------------------------------------------------------
     Finished goods inventory  (Receipts of Good A)            Sales
---------------------------------------------------------  (Shipments of
                                                              Good A)
                                             Quantity    ---------------
              Date  (M/D/Y)                   (units)        Quantity
                                                              (units)
------------------------------------------------------------------------
12/18/20................................     100 (O \1\)  ..............
12/27/20................................     100 (N \2\)  ..............
01/01/21................................    200 (OI \3\)  ..............
01/01/21................................       1,000 (O)  ..............
01/05/21................................       1,000 (N)  ..............
01/10/21................................  ..............             100
01/10/21................................       1,000 (O)  ..............
01/15/21................................  ..............             700
01/16/21................................       2,000 (N)  ..............
01/20/21................................  ..............           1,000
01/23/21................................  ..............             900
------------------------------------------------------------------------
\1\ ``O'' denotes originating goods.
\2\`` N'' denotes non-originating goods.
\3\`` OI'' denotes opening inventory.

Example 1: FIFO Method

    By applying the FIFO method:
    (1) The 100 units of originating Good A in opening inventory 
that were received in finished goods inventory on 12/18/20 are

[[Page 39749]]

considered to be the 100 units of Good A shipped on 01/10/21;
    (2) the 100 units of non-originating Good A in opening inventory 
that were received in finished goods inventory on 12/27/20 and 600 
units of the 1,000 units of originating Good A that were received in 
finished goods inventory on 01/01/21 are considered to be the 700 
units of Good A shipped on 01/15/21;
    (3) the remaining 400 units of the 1,000 units of originating 
Good A that were received in finished goods inventory on 01/01/21 
and 600 units of the 1,000 units of non-originating Good A that were 
received in finished goods inventory on 01/05/21 are considered to 
be the 1,000 units of Good A shipped on 01/20/21; and
    (4) the remaining 400 units of the 1,000 units of non-
originating Good A that were received in finished goods inventory on 
01/05/21 and 500 units of the 1,000 units of originating Good A that 
were received in finished goods inventory on 01/10/21 are considered 
to be the 900 units of Good A shipped on 01/23/21.

Example 2: LIFO Method

    By applying the LIFO method:
    (1) 100 units of the 1,000 units of non-originating Good A that 
were received in finished goods inventory on 01/05/21 are considered 
to be the 100 units of Good A shipped on 01/10/21;
    (2) 700 units of the 1,000 units of originating Good A that were 
received in finished goods inventory on 01/10/21 are considered to 
be the 700 units of Good A shipped on 01/15/21;
    (3) 1,000 units of the 2,000 units of non-originating Good A 
that were received in finished goods inventory on 01/16/21 are 
considered to be the 1,000 units of Good A shipped on 01/20/21; and
    (4) 900 units of the remaining 1,000 units of non-originating 
Good A that were received in finished goods inventory on 01/16/21 
are considered to be the 900 units of Good A shipped on 01/23/21.

Example 3: Average Method

    Exporter A chooses to determine the origin of Good A on a 
monthly basis. Exporter A exported 3,000 units of Good A during the 
month of February 2021. The origin of the units of Good A exported 
during that month is determined on the basis of the preceding month, 
that is January 2021.
    By applying the average method:
    The ratio of originating goods to all goods in finished goods 
inventory for the month of January 2021 is 40.4% (2,100 units/5,200 
units);
    based on that ratio, 1,212 units (3,000 units x .404) of Good A 
shipped in February 2021 are considered to be originating goods and 
1,788 units (3,000 units-1,212 units) of Good A are considered to be 
non-originating goods; and
    that ratio is applied to the units of Good A remaining in 
finished goods inventory on January 31, 2021: 1,010 units (2,500 
units x .404) are considered to be originating goods and 1,490 units 
(2,500 units-1,010 units) are considered to be non-originating 
goods.

Schedule IX (Method for Calculating Non-Allowable Interest Costs)

Definitions and Interpretation

    1 For purposes of this Schedule,
    fixed-rate contract means a loan contract, instalment purchase 
contract or other financing agreement in which the interest rate 
remains constant throughout the life of the contract or agreement;
    linear interpolation means, with respect to the interest rate 
issued by the federal government, the application of the following 
mathematical formula:

A + [((B-A) x (E-D))/(C-D)]

where

A is the interest rate issued by the federal government debt 
obligations that are nearest in maturity but of shorter maturity 
than the weighted average principal maturity of the payment schedule 
under the fixed-rate contract or variable-rate contract to which 
they are being compared,
B is the interest rate issued by the federal government debt 
obligations that are nearest in maturity but of greater maturity 
than the weighted average principal maturity of that payment 
schedule,
C is the maturity of federal government debt obligations that are 
nearest in maturity but of greater maturity than the weighted 
average principal maturity of that payment schedule,
D is the maturity of federal government debt obligations that are 
nearest in maturity but of shorter maturity than the weighted 
average principal maturity of that payment schedule, and
E is the weighted average principal maturity of that payment 
schedule;
    payment schedule means the schedule of payments, whether on a 
weekly, bi-weekly, monthly, yearly or other basis, of principal and 
interest, or any combination thereof, made by a producer to a lender 
in accordance with the terms of a fixed-rate contract or variable-
rate contract;
    variable-rate contract means a loan contract, instalment 
purchase contract or other financing agreement in which the interest 
rate is adjusted at intervals during the life of the contract or 
agreement in accordance with its terms;
    weighted average principal maturity means, with respect to 
fixed-rate contracts and variable-rate contracts, the numbers of 
years, or portion thereof, that is equal to the number obtained by
    (a) dividing the sum of the weighted principal payments,
    (i) in the case of a fixed-rate contract, by the original amount 
of the loan, and
    (ii) in the case of a variable-rate contract, by the principal 
balance at the beginning of the interest rate period for which the 
weighted principal payments were calculated, and
    (b) rounding the amount determined under paragraph (a) to the 
nearest single decimal place and, if that amount is the midpoint 
between two such numbers, to the greater of those two numbers;
    weighted principal payment means,
    (a) with respect to fixed-rate contracts, the amount determined 
by multiplying each principal payment under the contract by the 
number of years, or portion thereof, between the date the producer 
entered into the contract and the date of that principal payment, 
and
    (b) with respect to variable-rate contracts
    (i) the amount determined by multiplying each principal payment 
made during the current interest rate period by the number of years, 
or portion thereof, between the beginning of that interest rate 
period and the date of that payment, and
    (ii) the amount equal to the outstanding principal owing, but 
not necessarily due, at the end of the current interest rate period, 
multiplied by the number of years, or portion thereof, between the 
beginning and the end of that interest rate period;
    interest rate issued by the federal government means
    (a) in the case of a producer located in Canada, the weekly 
average of the yield for federal government debt obligations set out 
in the Bank of Canada's Daily Digest
    (i) if the interest rate is adjusted at intervals of less than 
one year, under the title ``Treasury Bills--1 Month'', and
    (ii) in any other case, under the title ``Government of Canada 
benchmark bond yields--3 Year'', for the week that the producer 
entered into the contract or the week of the most recent interest 
rate adjustment date, if any, under the contract,
    (b) in the case of a producer located in Mexico, the yield for 
federal government debt obligations set out in La Seccion de 
Indicadores Monetarios, Financieros, y de Finanzas Publicas, de los 
Indicadores Economicos, published by the Banco de Mexico under the 
title ``Certificados de la Tesoreria de la Federacion'' for the week 
that the producer entered into the contract or the week of the most 
recent interest rate adjustment date, if any, under the contract, 
and
    (c) in the case of a producer located in the United States, the 
yield for federal government debt obligations set out in the Federal 
Reserve statistical release (H.15) Selected Interest Rates
    (i) if the interest rate is adjusted at intervals of less than 
one year, under the title ``U.S. government securities, Treasury 
bills, Secondary market'', and
    (ii) in any other case, under the title ``U.S. Government 
Securities, Treasury constant maturities'', for the week that the 
producer entered into the contract or the week of the most recent 
interest rate adjustment date, if any, under the contract.

General

    2. For purposes of calculating non-allowable interest costs
    (a) with respect to a fixed-rate contract, the interest rate 
under that contract must be compared with the interest rate issued 
by the federal government debt obligations that have maturities of 
the same length as the weighted average principal maturity of the 
payment schedule under the contract (that yield determined by linear 
interpolation, if necessary);
    (b) with respect to a variable-rate contract

[[Page 39750]]

    (i) in which the interest rate is adjusted at intervals of less 
than or equal to one year, the interest rate under that contract 
must be compared with the interest rate issued by the federal 
government on debt obligations that have maturities closest in 
length to the interest rate adjustment period of the contract, and
    (ii) in which the interest rate is adjusted at intervals of 
greater than one year, the interest rate under the contract must be 
compared with the interest rate issued by the federal government on 
debt obligations that have maturities of the same length as the 
weighted average principal maturity of the payment schedule under 
the contract (that yield determined by linear interpolation, if 
necessary); and
    (c) with respect to a fixed-rate or variable-rate contract in 
which the weighted average principal maturity of the payment 
schedule under the contract is greater than the maturities offered 
on federal government debt obligations, the interest rate under the 
contract must be compared to the interest rate issued by the federal 
government on debt obligations that have maturities closest in 
length to the weighted average principal maturity of the payment 
schedule under the contract.

Appendix ``Example'' Illustrating the Application of the Method for 
Calculating Non-Allowable Interest Costs in the Case of a Fixed-Rate 
Contract

    The following example is based on the figures set out in the 
table below and on the following assumptions:
    (a) A producer in a USMCA country borrows $1,000,000 from a 
person of the same USMCA country under a fixed-rate contract;
    (b) under the terms of the contract, the loan is payable in 10 
years with interest paid at the rate of 6 per cent per year on the 
declining principal balance;
    (c) the payment schedule calculated by the lender based on the 
terms of the contract requires the producer to make annual payments 
of principal and interest of $135,867.36 over the life of the 
contract;
    (d) there are no federal government debt obligations that have 
maturities equal to the 6-year weighted average principal maturity 
of the contract; and
    (e) the federal government debt obligations that are nearest in 
maturity to the weighted average principal maturity of the contract 
are of 5- and 7-year maturities, and the yields on them are 4.7 per 
cent and 5.0 per cent, respectively.

----------------------------------------------------------------------------------------------------------------
                                 Principal       Interest        Principal        Payment     Weighted principal
        Years of loan           balance \1\     payment \2\     payment \3\      schedule         payment \4\
----------------------------------------------------------------------------------------------------------------
1...........................     $924,132.04      $60,000.00      $75,867.96     $135,867.96          $75,867.96
2...........................      843,712.00       55,447.92       80,420.04      135,867.96          160,840.08
3...........................      758,466.76       50,622.72       85,245.24      135,867.96          255,735.72
4...........................      668,106.81       45,508.01       90,359.95      135,867.96          361,439.82
5...........................      572,325.26       40,086.41       95,781.55      135,867.96          478,907.76
6...........................      470,796.81       34,339.52      101,528.44      135,867.96          609,170.67
7...........................      363,176.66       28,247.81      107,620.15      135,867.96          753,341.06
8...........................      249,099.30       21,790.60      114,077.36      135,867.96          912,618.88
9...........................      128,177.30       14,945.96      120,922.00      135,867.96        1,088,298.02
10..........................          (0.00)        7,690.66      128,177.32      135.867.96        1,281,773.22
                                                                                             -------------------
                                                                                                   $5,977,993.19
----------------------------------------------------------------------------------------------------------------
\1\ The principal balance represents the loan balance at the end of each full year the loan is in effect and is
  calculated by subtracting the current year's principal payment from the prior year's ending loan balance.
\2\ Interest payments are calculated by multiplying the prior year's ending loan balance by the contract
  interest rate of 6 per cent.
\3\ Principal payments are calculated by subtracting the current year's interest payments from the annual
  payment schedule amount.
\4\ The weighted principal payment is determined by, for each year of the loan, multiplying that year's
  principal payment by the number of years the loan had been in effect at the end of that year.
\5\ The weighted average principal maturity of the contract is calculated by dividing the sum of the weighted
  principal payments by the original loan amount and rounding the amount determined to the nearest decimal
  place.

Weighted Average Principal Maturity

$5,977,993.19/$1,000,000 = 5.977993 or 6 years\5\

    By applying the above method,
    (1) the weighted average principal maturity of the payment 
schedule under the 6 per cent contract is 6 years;
    (2) the yields on the closest maturities for comparable federal 
government debt obligations of 5 years and 7 years are 4.7 per cent 
and 5.0 per cent, respectively; therefore, using linear 
interpolation, the yield on a federal government debt obligation 
that has a maturity equal to the weighted average principal maturity 
of the contract is 4.85 per cent. This number is calculated as 
follows:

4.7 + [((5.0-4.7) x (6-5))/(7-5)]
= 4.7 + 0.15
= 4.85%; and

    (3) the producer's contract interest rate of 6 per cent is 
within 700 basis points of the 4.85 per cent yield on the comparable 
federal government debt obligation; therefore, none of the 
producer's interest costs are considered to be non-allowable 
interest costs for purposes of the definition non-allowable interest 
costs in subsection 1(1) of these Regulations.

``Example'' Illustrating the Application of the Method for Calculating 
Non-allowable Interest Costs in the Case of a Variable-Rate Contract

    The following example is based on the figures set out in the 
tables below and on the following assumptions:
    (a) a producer in a USMCA country borrows $1,000,000 from a 
person of the same USMCA country under a variable-rate contract;
    (b) under the terms of the contract, the loan is payable in 10 
years with interest paid at the rate of 6 per cent per year for the 
first two years and 8 per cent per year for the next two years on 
the principal balance, with rates adjusted each two years after 
that;
    (c) the payment schedule calculated by the lender based on the 
terms of the contract requires the producer to make annual payments 
of principal and interest of $135,867.96 for the first two years of 
the loan, and of $146,818.34 for the next two years of the loan;
    (d) there are no federal government debt obligations that have 
maturities equal to the 1.9-year weighted average principal maturity 
of the first two years of the contract;
    (e) there are no federal government debt obligations that have 
maturities equal to the 1.9-year weighted average principal maturity 
of the third and fourth years of the contract; and
    (f) the federal government debt obligations that are nearest in 
maturity to the weighted average principal maturity of the contract 
are 1- and 2-year maturities, and the yields on them are 3.0 per 
cent and 3.5 per cent respectively.

[[Page 39751]]



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Weighted
                    Beginning of year                        Principal     Interest rate     Interest        Principal        Payment        principal
                                                              balance           (%)           payment         payment        schedule         payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................   $1,000,000.00            6.00      $60,000.00      $75,867.96     $135,867.96      $75,867.96
2.......................................................      924,132.04            6.00       55,447.92       80,420.04      135,867.96    1,848,264.08
                                                         -----------------------------------------------------------------------------------------------
                                                                                                                                           $1,924,132.04
--------------------------------------------------------------------------------------------------------------------------------------------------------

Weighted Average Principal Maturity

$1,924,132.04/$1,000,000 = 1.92413204 or 1.9 years

    By applying the above method:
    (1) The weighted average principal maturity of the payment 
schedule of the first two years of the contract is 1.9 years;
    (2) the yield on the closest maturities of federal government 
debt obligations of 1 year and 2 years are 3.0 and 3.5 per cent, 
respectively; therefore, using linear interpolation, the yield on a 
federal government debt obligation that has a maturity equal to the 
weighted average principal maturity of the payment schedule of the 
first two years of the contract is 3.45 per cent. This amount is 
calculated as follows:

3.0 + [((3.5-3.0) x (1.9-1.0))/(2.0-1.0)];
= 3.0 + 0.45
= 3.45%; and

    (3) the producer's contract rate of 6 per cent for the first two 
years of the loan is within 700 basis points of the 3.45 per cent 
interest rate issued by the federal government on debt obligations 
that have maturities equal to the 1.9-year weighted average 
principal maturity of the payment schedule of the first two years of 
the producer's loan contract; therefore, none of the producer's 
interest costs are considered to be non-allowable interest costs for 
purposes of the definition non-allowable interest costs in 
subsection 1(1) of these Regulations.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                             Weighted
                    Beginning of year                        Principal     Interest rate     Interest        Principal        Payment        principal
                                                              balance           (%)           payment         payment        schedule         payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................   $1,000,000.00            6.00      $60,000.00      $75,867.96     $135,867.96  ..............
2.......................................................      924,132.04            6.00       55,447.92       80,420.04      135,867.96  ..............
3.......................................................      843,712.01            8.00       67,496.96       79,321.38      146,818.34      $79,321.38
4.......................................................      764,390.62            8.00       61,151.25       85,667.09      146,818.34    1,528,781.24
                                                         -----------------------------------------------------------------------------------------------
                                                                                                                                           $1,608,102.62
--------------------------------------------------------------------------------------------------------------------------------------------------------

Weighted Average Principal Maturity

$1,608,102.62/$843,712.01 = 1.905985 or 1.9 years

    By applying the above method:
    (1) The weighted average principal maturity of the payment 
schedule under the first two years of the contract is 1.9 years;
    (2) the federal government debt obligations that are nearest in 
maturities to the weighted average principal maturity of the 
contract are 1- and 2-year maturities, and the yields on them are 
3.0 and 3.5 per cent, respectively; therefore, using linear 
interpolation, the yield on a federal government debt obligation 
that has a maturity equal to the weighted average principal maturity 
of the payment schedule of the first two years of the contract is 
3.45 per cent. This amount is calculated as follows:

3.0 + [((3.5-3.0) x (1.9-1.0))/(2.0-1.0)];
= 3.0 + 0.45
= 3.45%

    (3) the producer's contract interest rate, for the third and 
fourth years of the loan, of 8 per cent is within 700 basis points 
of the 3.45 per cent interest rate issued by the federal government 
on debt obligations that have maturities equal to the 1.9-year 
weighted average principal maturity of the payment schedule under 
the third and fourth years of the producer's loan contract; 
therefore, none of the producer's interest costs are considered to 
be non-allowable interest costs for purposes of the definition non-
allowable interest costs in subsection 1(1) of these Regulations.

Schedule X (Generally Accepted Accounting Principles)

    1. Generally Accepted Accounting Principles means the recognized 
consensus or substantial authoritative support in the territory of a 
USMCA country with respect to the recording of revenues, expenses, 
costs, assets and liabilities, disclosure of information and 
preparation of financial statements. These standards may be broad 
guidelines of general application as well as detailed standards, 
practices and procedures.
    2. For purposes of Generally Accepted Accounting Principles, the 
recognized consensus or authoritative support are referred to or set 
out in the following publications:
    (a) With respect to the territory of Canada, The Chartered 
Professional Accountants of Canada Handbook, as updated from time to 
time;
    (b) with respect to the territory of Mexico, Los Principios de 
Contabilidad Generalmente Aceptados, issued by the Instituto 
Mexicano de Contadores P[uacute]blicos A.C. (IMCP), including the 
boletines complementarios, as updated from time to time; and
    (c) with respect to the territory of the United States, 
Financial Accounting Standards Board (FASB) Accounting Standards 
Codification and any interpretive guidance recognized by the 
American Institute of Certified Public Accountants (AICPA).

    Dated: June 23, 2020.
Robert E. Perez,
Deputy Commissioner, U.S. Customs and Border Protection.

    Approved:
Timothy E. Skud,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 2020-13865 Filed 6-30-20; 8:45 am]
BILLING CODE 9111-14-P