CUSMA Rules of Origin Regulations
SOR/2020-155
Registration 2020-06-30
CUSMA Rules of Origin Regulations
P.C. 2020-511 2020-06-29
Her Excellency the Governor General in Council, on the recommendation of the Minister of Finance, pursuant to subsections 16(2)Footnote a and (4)Footnote b of the Customs TariffFootnote c, makes the annexed CUSMA Rules of Origin Regulations.
Return to footnote aS.C. 2001, c. 28, s. 34(1)
Return to footnote bS.C. 2020, c. 1, s. 186
Return to footnote cS.C. 1997, c. 36
PART 1Interpretation
Marginal note:Definitions
1 (1) The following definitions apply in these Regulations.
- accessories, spare parts, tools, or instructional or other information materials
accessories, spare parts, tools, or 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 assembly, repair or use of that good, or as replacements for consumable or interchangeable parts of that good. (accessoires, pièces de rechange, outils, modes d’emploi ou autres documents d’information)
- adjusted to exclude any costs incurred in the international shipment of the 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 the following 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. (ajustée pour exclure tous autres frais engagés pour l’expédition internationale)
- Agreement
Agreement means the Canada–United States–Mexico Agreement. (Accord)
- applicable change in tariff classification
applicable change in tariff classification means, with respect to a non-originating material used in the production of a good, a change in tariff classification specified in a rule set out in Schedule 1 for the tariff provision under which the good is classified. (changement de classification tarifaire applicable)
- aquaculture
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 by regular stocking, feeding or protection from predators. (aquaculture)
- costs incurred in packing
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 labour costs incurred in packing it for shipment, but does not include the costs of preparing and packaging it for retail sale. (frais engagés pour emballer)
- CUSMA country
CUSMA country means a Party to the Agreement. (pays ACEUM)
- Customs Valuation Agreement
Customs Valuation Agreement means the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994, contained in Annex 1A to the Marrakech Agreement Establishing the World Trade Organization, done in Marrackech on 15 April 1994. (Accord sur l’évaluation en douane)
- customs value
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 accordance with regulations made under the Currency Act” is to be read as a reference to “in accordance with subsection 2(1) of the 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 that 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 U.S. Customs and Border Protection in accordance with section 402 of the Tariff Act of 1930 of the United States, 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). (valeur en douane)
- days
days means calendar days, and includes Saturdays, Sundays and holidays. (jours)
- direct labour costs
direct labour costs means costs, including fringe benefits, that are associated with employees who are directly involved in the production of a good. (coûts de la main-d’oeuvre directe)
- direct material costs
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. (coûts des matières directes)
- direct overhead
direct overhead means costs, other than direct material costs and direct labour costs, that are directly associated with the production of a good. (frais généraux directs)
- enterprise
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. (entreprise)
- excluded costs
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. (coûts exclus)
- fungible goods
fungible goods means goods that are interchangeable with another good for commercial purposes and the properties of which are essentially identical. (produits fongibles)
- fungible materials
fungible materials means materials that are interchangeable with another material for commercial purposes and the properties of which are essentially identical. (matières fongibles)
- Harmonized System
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 Importacion y de Exportacion; and
(c) in the case of the United States, the Harmonized Tariff Schedule of the United States. (Système harmonisé)
- identical goods
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. (produits identiques)
- identical materials
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. (matières identiques)
- incorporated
incorporated describes, with respect to the production of a good, a material that is physically incorporated into that good, including 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. (incorporée)
- indirect material
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 moulds;
(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 for which the use in the production of the good can reasonably be demonstrated to be part of that production. (matière indirecte)
- interest costs
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. (frais d’intérêt)
- intermediate material
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). (matière intermédiaire)
- location of the producer
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, if it is located within a radius of 75 km (46.60 miles) from the production site. (emplacement du producteur)
- material
material means a good that is used in the production of another good, and includes a part or ingredient. (matière)
- month
month means a calendar month. (mois)
- national
national means a natural person who is a citizen or permanent resident of a CUSMA 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 of the United States on the date of entry into force of the Agreement. (ressortissant)
- net cost
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. (coût net)
- net cost method
net cost method means the method of calculating the regional value content of a good that is set out in subsection 7(3). (méthode du coût net)
- net cost of a good
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). (coût net d’un produit)
- non-allowable interest costs
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. (frais d’intérêt non admissibles)
- non-originating good
non-originating good means a good that does not qualify as originating under these Regulations. (produit non originaire)
- non-originating material
non-originating material means a material that does not qualify as originating under these Regulations. (matière non originaire)
- originating good
originating good means a good that qualifies as originating under these Regulations. (produit originaire)
- originating material
originating material means a material that qualifies as originating under these Regulations. (matière originaire)
- packaging materials and containers
packaging materials and containers means materials and containers in which a good is packaged for retail sale. (matières de conditionnement et contenants)
- packing materials and containers
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. (matières d’emballage et contenants)
- payments
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. (paiements)
- person
person means a natural person or an enterprise. (personne)
- person of a CUSMA country
person of a CUSMA country means a national or an enterprise constituted or organized under the laws of a CUSMA country. (personne d’un pays ACEUM)
- point of direct shipment
point of direct shipment means the location from which a producer of a good normally ships that good to the buyer of the good. (point d’expédition directe)
- producer
producer means a person who engages in the production of a good. (producteur)
- production
production means growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, breeding, extracting, manufacturing, processing or assembling a good, or aquaculture. (production)
- reasonably allocate
reasonably allocate means to apportion in a manner appropriate to the circumstances. (attribuer de façon raisonnable)
- recovered material
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. (matière récupérée)
- related person
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% 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, meaning they are connected as determined under paragraph 45(3)(a) of the Customs Act. (personne liée)
- remanufactured good
remanufactured good means a good that is classified in Chapters 84 through 90 or under heading 94.02, except for any good classified under heading 84.18, 85.09, 85.10, 85.16 or 87.03 or subheading 8414.51, 8450.11, 8450.12, 8508.11 or 8517.11 and 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. (produit remanufacturé)
- reusable scrap or by-product
reusable scrap or by-product means waste or 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. (déchets récupérables ou sous-produits)
- right to use
right to use, for the purposes of the definition royalties, includes the right to sell or distribute a good. (droit d’utiliser)
- royalties
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 CUSMA countries, engineering, tooling, die-setting, software design and similar computer services, or other services. (redevances)
- sales promotion, marketing and after-sales service costs
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, catalogues, 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, 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 centres;
(i) property insurance premiums, taxes, cost of utilities, and repair and maintenance of sales promotion, marketing and after-sales service offices and distribution centres, 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. (frais de promotion des ventes, de commercialisation et de service après-vente)
- self-produced material
self-produced material means a material that is produced by the producer of a good and used in the production of that good. (matière autoproduite)
- shipping and packing costs
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. (frais d’expédition et d’emballage)
- similar goods
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. (produits similaires)
- similar materials
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. (matières similaires)
- subject to a regional value content requirement
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. (assujetti à une prescription de teneur en valeur régionale)
- tariff provision
tariff provision means a heading, subheading or tariff item. (poste tarifaire)
- territory
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. (territoire)
- total cost
total cost means all product costs, period costs and other costs incurred in the territory of one or more of the CUSMA 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. (coût total)
- transaction value
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 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. (valeur transactionnelle)
- transaction value method
transaction value method means the method of calculating the regional value content of a good that is set out in subsection 7(2). (méthode de la valeur transactionnelle)
- used
used means used or consumed in the production of a good. (utilisé)
- value
value means the value of a good or material for the purpose of calculating customs duties or for the purpose of applying these Regulations. (valeur)
- verification of origin
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 of the United States, as amended. (vérification de l’origine)
Marginal note:Interpretation — similar goods and similar materials
(2) For the purposes of the definitions 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.
Marginal note:Other definitions
(3) 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 or the first four digits of any tariff provision set out in the “Tariff Item” column in the Harmonized System;
(c) subheading refers to any six-digit number or the first six digits of any tariff provision set out in the “Tariff Item” column in the Harmonized System;
(d) tariff item refers to the first eight digits in the tariff classification number under the Harmonized System;
(e) any reference to a tariff item in Chapter 4 of the Agreement or in these Regulations that includes letters is to be read as the appropriate eight-digit number in the Harmonized System as implemented in each CUSMA country; and
(f) books refers to,
(i) with respect to the books of a person that is located in a CUSMA country,
(A) books and other documents that support the recording of revenues, expenses, costs, assets and liabilities and that are maintained in accordance with the Generally Accepted Accounting Principles set out in the publications listed in Schedule 10 with respect to the territory of the CUSMA country in which the person is located, and
(B) financial statements, including note disclosures, that are prepared in accordance with the Generally Accepted Accounting Principles set out in the publications listed in Schedule 10 with respect to the territory of the CUSMA country in which the person is located, and
(ii) with respect to the books of a person that is located outside the territories of the CUSMA countries,
(A) books and other documents that support the recording of revenues, expenses, costs, assets and liabilities and that are maintained in accordance with the Generally Accepted Accounting Principles applied in that location or, if there are no such principles, in accordance with the International Financial Reporting Standards, published by the IFRS Foundation, as amended from time to time, and
(B) financial statements, including note disclosures, that are prepared in accordance with the Generally Accepted Accounting Principles applied in that location or, if there are no such principles, in accordance with the International Financial Reporting Standards, published by the IFRS Foundation, as amended from time to time.
Marginal note:Examples
(4) 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.
Marginal note:References to domestic laws
(5) Except as otherwise provided, references in these Regulations to domestic laws of the CUSMA countries apply to those laws as they are currently in effect and as they may be amended or superseded.
Marginal note:Calculation of total cost
(6) 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 determined in accordance with subsections 8(1) and (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 in accordance with subsection 8(8),
(iii) the value of indirect materials and the value of packing materials and containers is 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), are the costs 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 are to 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.
Marginal note:Period for calculation of total cost
(7) For the purpose of calculating total cost under subsections 5(11), 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) or 16(1) to calculate the regional value content over a period, the total cost is to 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- 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.
Marginal note:Election not modifiable
(8) 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.
Marginal note:Election considered made — period
(9) 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.
Marginal note:Election considered made — cost
(10) With respect to a good exported to a CUSMA country, an election to average is considered to have been made
(a) in the case of an election referred to in subsection 16(1), if the election is received by the customs administration of that CUSMA country; and
(b) in the case of an election referred to in subsection (7), 7(15) or 16(10), if the customs administration of that CUSMA country is informed in writing during the course of a verification of origin of the good that the election has been made.
Marginal note:Conversion of currency
2 (1) 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 day on which the producer acquired the material, that rate, and
(ii) in any other case,
(A) with respect to a producer located in Canada, the rate of exchange referred to in section 5 of the Currency Exchange for Customs Valuation Regulations for the date on which the material was shipped directly to the producer,
(B) with respect to a producer located in Mexico, the rate of exchange published by the Banco de Mexico in the Diario Oficial de la Federacion, under the title “TIPO de cambio para solventar obligaciones denominadas en moneda extranjera pagaderas en la Republica Mexicana”, for the date on which the material was shipped directly to the producer, and
(C) with respect to a producer located in the United States, the rate of exchange referred to in 31 U.S.C. 5151 for the date on which the material was shipped directly to the producer.
Marginal note:Information in other currency in statement
(2) 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 where 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 used by the producer for the purpose of recording the purchase;
(b) if the material was purchased by the producer in a currency other than the currency in which the information in the statement is provided,
(i) 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 day on which the producer acquired the material, that rate, and
(ii) in any other case,
(A) with respect to a producer located in Canada, the rate of exchange referred to in section 5 of the Currency Exchange for Customs Valuation Regulations for the date on which the material was shipped directly to the producer,
(B) with respect to a producer located in Mexico, the rate of exchange published by the Banco de Mexico in the Diario Oficial de la Federacion, under the title “TIPO de cambio para solventar obligaciones denominadas en moneda extranjera pagaderas en la Republica Mexicana”, for the date on which the material was shipped directly to the producer, and
(C) with respect to a producer located in the United States, the rate of exchange referred to in 31 U.S.C. 5151 for the date on which the material was shipped directly to the producer; and
(c) if the material was acquired by the producer other than by a purchase,
(i) if the producer used a rate of exchange for the purposes of recording a transaction in that other currency that occurred within 30 days of the day on which the producer acquired the material, that rate, and
(ii) in any other case,
(A) with respect to a producer located in Canada, the rate of exchange referred to in section 5 of the Currency Exchange for Customs Valuation Regulations for the date on which the material was shipped directly to the producer,
(B) with respect to a producer located in Mexico, the rate of exchange published by the Banco de Mexico in the Diario Oficial de la Federacion, under the title “TIPO de cambio para solventar obligaciones denominadas en moneda extranjera pagaderas en la Republica Mexicana”, for the date on which the material was shipped directly to the producer, and
(C) with respect to a producer located in the United States, the rate of exchange referred to in 31 U.S.C. 5151 for the date on which the material was shipped directly to the producer.
PART 2Originating Goods
Marginal note:Wholly obtained or produced goods
3 (1) A good is originating in the territory of a CUSMA 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 CUSMA countries;
(b) a plant, plant good, vegetable or fungus, grown, harvested, picked or gathered in the territory of one or more of the CUSMA countries;
(c) a live animal born and raised in the territory of one or more of the CUSMA countries;
(d) a good obtained from a live animal in the territory of one or more of the CUSMA countries;
(e) an animal obtained from hunting, trapping, fishing, gathering or capturing in the territory of one or more of the CUSMA countries;
(f) a good obtained from aquaculture in the territory of one or more of the CUSMA countries;
(g) fish, shellfish or other marine life taken from the sea, seabed or subsoil outside the territories of the CUSMA countries and, under international law, outside the territorial sea of non-CUSMA countries, by vessels that are registered, listed or recorded with a CUSMA country and entitled to fly the flag of that CUSMA country;
(h) a good produced from a good referred to in paragraph (g) on board a factory ship, where the factory ship is registered, listed or recorded with a CUSMA country and entitled to fly the flag of that CUSMA country;
(i) a good, other than fish, shellfish or other marine life, taken by a CUSMA country or a person of a CUSMA country from the seabed or subsoil outside the territories of the CUSMA countries, if that CUSMA 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 CUSMA countries, or
(ii) used goods collected in the territory of one or more of the CUSMA countries, provided that 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 CUSMA countries, exclusively from a good referred to in any of paragraphs (a) to (j), or from their derivatives, at any stage of production.
Marginal note:Goods produced from non-originating materials
(2) A good, produced entirely in the territory of one or more of the CUSMA countries, is originating in the territory of a CUSMA country if each of the non-originating materials used in the production of the good satisfies all applicable requirements of Schedule 1 and the good satisfies all other applicable requirements of these Regulations.
Marginal note:Goods produced exclusively from originating materials
(3) A good is originating in the territory of a CUSMA country if the good is produced entirely in the territory of one or more of the CUSMA countries exclusively from originating materials and the good satisfies all other applicable requirements of these Regulations.
Marginal note:Exceptions to change in tariff classification requirements
(4) Except in the case of a good of any of Chapters 61 through 63, a good is originating in the territory of a CUSMA 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 1 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 CUSMA countries,
(ii) the regional value content of the good, calculated in accordance with section 7, is not less than 60% if the transaction value method is used or not less than 50% if the net cost method is used, and
(iii) the good satisfies all other applicable requirements of these Regulations; or
(b) the good was imported into the territory of a CUSMA country in an unassembled or disassembled form but was classified as an assembled good in accordance with Rule 2(a) of the General Rules for the Interpretation of the Harmonized System and
(i) the good is produced entirely in the territory of one or more of the CUSMA countries,
(ii) the regional value content of the good, calculated in accordance with section 7, is not less than 60% if the transaction value method is used or not less than 50% if the net cost method is used, and
(iii) the good satisfies all other applicable requirements of these Regulations.
Marginal note:Interpretation — goods and parts of goods
(5) 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 Notes 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 considered to cover only the goods and parts of the goods that are themselves classified under that subheading.
Marginal note:Requirements to meet one rule
(6) For the purposes of subsection (2), if Schedule 1 sets out two or more alternative rules for the tariff provision under which a good is classified and the good satisfies the requirements of one of those rules, the good need not satisfy the requirements of another of the rules in order to qualify as an originating good.
Marginal note:Special rule for certain goods
(7) A good is originating in the territory of a CUSMA country if the good is referred to in Schedule 2 and is imported from the territory of a CUSMA country.
Marginal note:Self-produced material — considered material
(8) 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 a material used in the production of a good into which the self-produced material is incorporated.
Marginal note:Examples
(9) Each of the following is an “Example” as referred to in subsection 1(4).
- Example 1 (subsection (2)): The component that determines the tariff classification of a textile or apparel good
Producer A, located in a CUSMA 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 1, 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 in 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 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 that the good be cut or knit to shape and sewn or otherwise assembled in the territory of one or more of the CUSMA 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 CUSMA countries, and therefore the women’s wool overcoats would be considered to be originating goods.
- Example 2 (subsection (2)):
Producer A, located in a CUSMA country, produces t-shirts of subheading 6109.10 from knit cotton and polyester fabric (60% cotton and 40% polyester), which are 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 Rule 1 of the General Rules of Interpretation of the Harmonized System 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 (2)): Note 2 contained in Section XI – Textiles and Textile Articles (Chapters 50 through 63)
Producer A, located in a CUSMA 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 1, which indicates goods classified in any of Chapters 50 through 63 is considered to be originating, regardless of whether the rayon filaments used in its production are non-originating materials, if 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 1 allows, all of the materials used in the production of the fabrics are originating materials, and since General Interpretative Note (d) of Schedule 1 provides that a change in tariff classification requirement of a product-specific rule of origin applies only to non-originating materials, the fabrics are considered to be originating goods.
- Example 4 (subsection (2)): Notes 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 CUSMA 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 subheading 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’s suits are originating goods, Producer A should take into account Note 2 of Chapter 62 of Schedule 1, 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 originating fabric used to make the outer part of the suit is the component of the suit that determines the tariff classification in subheading 6203.12 because it constitutes the predominant material by weight and makes up 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 Producer A should take into account the second paragraph of Note 5 of Chapter 62 of Schedule 1, which requires that the pocket bag fabric must be formed and finished in the territory of one or more of the CUSMA countries from yarn wholly formed in one or more of the CUSMA countries.
In this case, for the production of men’s suits, Producer A uses non-originating fabric for the pocket bag, and that fabric was not formed and finished in the territory of one or more of the CUSMA countries; therefore, the suits would be considered to be non-originating goods.
- Example 5 (subsection (7)):
A wholesaler located in CUSMA Country A imports non-originating storage units provided for in subheading 8471.70 from outside the territory of the CUSMA countries. The wholesaler resells the storage units to a buyer in CUSMA 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 1 for goods of subheading 8471.70 when imported into the territory of CUSMA Country B.
Despite the rule in Schedule 1, the storage units of subheading 8471.70 are considered originating goods when they are imported into the territory of CUSMA Country B because they are referred to in Schedule 2 and were imported from the territory of another CUSMA country.
The buyer in CUSMA 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 is originating, the buyer in CUSMA Country B may treat the storage units of subheading 8471.70 as originating materials.
- Example 6 (subsection (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 CUSMA country, produces Good A. In the production process, Producer A uses the originating Material X and the non-originating Material Y to produce Material Z. Material Z is a self-produced material that will be used to produce Good A.
The rule set out in Schedule 1 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 classified in a different heading 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 of considering the self-produced Material Z to be the material that must undergo a change in tariff classification. As Material Z is classified in a different heading than that of Good A, Material Z satisfies the requirements of the applicable change in tariff classification and Good A would qualify as an originating good.
Marginal note:Treatment of recovered materials used in production of remanufactured good
4 (1) A recovered material derived in the territory of one or more of the CUSMA countries is 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 ensure sound working condition; and
(c) it is used in the production of and incorporated into a remanufactured good.
Marginal note:Recovered material not used in remanufactured good
(2) 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 of section 3 and it satisfies all other applicable requirements of these Regulations.
Marginal note:Requirements of Schedule 1
(3) A remanufactured good is originating in the territory of a CUSMA country only if it satisfies the applicable requirements established in Schedule 1 and satisfies all other applicable requirements of these Regulations.
Marginal note:Examples
(4) Each of the following examples is an “Example” as referred to in subsection 1(4).
- Example 1:
In July 2023, Producer A located in a CUSMA 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 CUSMA 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 6 apply. Because the water pump is a part listed in Table B of Part 6, the RVC required is 70% under the net cost method or 80% under the transaction value method.
- The producer chooses to calculate the regional value content of the good under the net cost method as follows:
- Water pump net cost =
$ 1,000 - Value of originating recovered materials =$600
- Value other originating materials =$20
- Value of non-originating materials =$280
RVC = (NC − VNM) ÷ NC × 100 = ($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:
Producer A, located in a CUSMA country, uses recovered materials derived in the territory of a CUSMA 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 CUSMA country and then subject to cleaning, inspecting and technical tests to verify that they are in 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 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 Schedule 1 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 1, the remanufactured bulldozers are originating goods.
Marginal note:De minimis rule — non-originating materials
5 (1) Except as otherwise provided in subsection (3), a good is originating in the territory of a CUSMA 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 CUSMA countries is not more than 10%
(i) of the transaction value of the good determined in accordance with Schedule 3 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 value content requirement under the rule in which the applicable change in tariff classification is specified, the value of those non-originating materials is 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.
Marginal note:Only one rule to satisfy
(2) If Schedule 1 sets out two or more alternative rules for the tariff provision under which the good is classified and if the good is considered an originating good under one of those rules in accordance with subsection (1), the good need not satisfy the requirements of any alternative rule in order to be originating.
Marginal note:Exceptions
(3) Subsections (1) and (2) do not apply to
(a) a non-originating material of any of headings 04.01 through 04.06 or a non-originating material that is a dairy preparation containing over 10% by dry weight of milk solids of subheading 1901.90 or 2106.90, used in the production of a good of any of headings 04.01 through 04.06;
(b) a non-originating material of any of headings 04.01 through 04.06 or a non-originating material that is a dairy preparation containing over 10% by dry weight of milk solids of subheading 1901.90 or 2106.90, used in the production of
(i) infant preparations containing over 10% by dry weight of milk solids of subheading 1901.10,
(ii) mixes and doughs, containing over 25% by dry weight of butterfat, not put up for retail sale of subheading 1901.20,
(iii) dairy preparations containing over 10% 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 2202.99, or
(vi) animal feeds containing over 10% by dry weight of milk solids of subheading 2309.90;
(c) a non-originating material of heading 08.05 or any of 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 2202.99;
(d) a non-originating material of Chapter 9 that is used in the production of instant coffee, not flavoured, 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;
(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 a pear, peach or apricot of Chapter 8 or 20 and 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 subheading 2009.90 or tariff item 2106.90.92 or 2202.99.22;
(j) a non-originating material of any of headings 22.03 through 22.08 that is used in the production of a good 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 to be 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.
Marginal note:De minimis rule — regional value content requirement
(4) A good that is subject to a regional value content requirement is originating in the territory of a CUSMA 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 10%
(i) of the transaction value of the good, determined in accordance with Schedule 3 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.
Marginal note:Value non-originating materials — subsections (1) and (4)
(5) For the purposes of subsections (1) and (4), the value of non-originating materials is to be determined in accordance with subsections 8(1) to (6).
Marginal note:De minimis rule — textile goods
(6) 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 is considered originating in the territory of a CUSMA country if
(a) the total weight of all those non-originating materials is not more than 10% of the total weight of the good, of which the total weight of elastomeric content may not exceed 7% of the total weight of the good; and
(b) the good satisfies all other applicable requirements of these Regulations.
Marginal note:De minimis rule — apparel and textile goods
(7) A good of any of Chapters 61 through 63 that contains non-originating fibres or yarns in the component of the good that determines the tariff classification that do not satisfy the applicable change in tariff classification requirements is considered originating in the territory of a CUSMA country if
(a) the total weight of all those non-originating materials is not more than 10% of the total weight of that component, of which the total weight of elastomeric content may not exceed 7% of the total weight of the component; and
(b) the good satisfies all other applicable requirements of these Regulations.
Marginal note:Component
(8) For the purposes of subsection (7),
(a) the component of a good that determines the tariff classification of that good must be identified in accordance with the first of the following General Rules for the Interpretation of the Harmonized System under which the identification can be determined, namely Rule 3(b), Rule 3(c) and Rule 4; and
(b) if the component of the good that determines the tariff classification of the good is a blend of two or more fibres or yarns, all fibres and yarns used in the production of the component must be taken into account in determining the weight of fibres and yarns in that component.
Marginal note:Applicable requirements — materials used in component
(9) For the purpose of determining if a good of any of Chapters 61 through 63 is originating, the requirements set out in Schedule 1 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 this section as applicable to a good of any of Chapters 61 through 63, only the materials used in the component that determines the tariff classification is taken into account in the de minimis calculation.
Marginal note:Exception
(10) Subsection (7) does not apply to sewing thread, narrow elastic bands or pocket bag fabric that is 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 1.
Marginal note:Calculation of total cost — choice of methods
(11) For the purposes of subparagraphs (1)(a)(ii) and (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 5; 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 5.
Marginal note:Calculation of total cost
(12) The 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).
Marginal note:Value of non-originating materials — other methods
(13) 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 recognized in the Generally Accepted Accounting Principles of the CUSMA country where the production was performed or a method set out in Schedule 8 is not 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 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 Generally Accepted Accounting Principles of the CUSMA country where the material was produced or one of the methods set out in Schedule 7 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 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 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 (4)(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 following conditions are met, the value of those non-originating materials is the sum of the values of the 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 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 (4)(a) applies with respect to that good, and
(iii) the producer elects under paragraph 1(7)(b) that, for the purposes of subsection (11), the total cost of the good be calculated over a given 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 Generally Accepted Accounting Principles of the CUSMA country where the production was performed or one of the methods set out in Schedule 7.
Marginal note:Value of non-originating materials — production of good
(14) 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 Generally Accepted Accounting Principles of the CUSMA country where the production was performed or one of the methods set out in Schedule 7.
Marginal note:Examples illustrating de minimis rules
(15) Each of the following examples is an “Example” as referred to in subsection 1(4).
- Example 1 (subsection (1)):
Producer A, located in a CUSMA country, uses originating materials and non-originating materials in the production of aluminium powder of heading 76.03. The product-specific rule of origin set out in Schedule 1 for heading 76.03 specifies a change in tariff classification from any other Chapter. There is no applicable regional value content requirement for this heading. Therefore, in order for the aluminium powder to qualify as an originating good under the rule set out in Schedule 1, 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 aluminium powder are originating materials, with the exception of a small amount of aluminium scrap of heading 76.02, that is in the same Chapter as the aluminium powder. Under subsection (1), if the value of the non-originating aluminium scrap does not exceed 10% of the transaction value of the aluminium powder or the total cost of the aluminium powder, whichever is applicable, the aluminium powder would be considered an originating good.
- Example 2 (subsection (2)):
Producer A, located in a CUSMA country, uses originating materials and non-originating materials in the production of fans of subheading 8414.59. There are two alternative rules established in Schedule 1 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 are 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 (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 10% 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 (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 (2)):
Producer A, located in a CUSMA country, uses originating materials and non-originating materials in the production of a copper anode of heading 74.02. The product-specific rule of origin set out in Schedule 1 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. Therefore, 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 (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 10% 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 10% limit.
However, the rule set out in Schedule 1 for heading 74.02 specifies both a change in tariff classification and a regional value content requirement. Under paragraph (1)(b), in order to be considered an originating good, the copper anode must also, except as otherwise provided in subsection (4), satisfy the regional value content requirement specified in that rule. As provided in paragraph (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 (4)):
Producer A, located in a CUSMA country, primarily uses originating materials in the production of shoes of heading 64.05. The product-specific rule of origin set out in Schedule 1 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 (4), if the value of all of the non-originating materials used in the production of the shoes does not exceed 10% 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 1 in order to be considered originating goods.
- Example 5 (subsection (4)):
Producer A, located in a CUSMA country, produces barbers’ chairs of subheading 9402.10. The product-specific rule of origin set out in Schedule 1 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 1, 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 the specified regional value content requirement.
However, under subsection (4), if the value of the non-originating materials does not exceed 10% of the transaction value of the barbers’ chairs or the total cost of the barbers’ chairs, whichever is applicable, the barbers’ chairs are 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 (6)):
Producer A, located in a CUSMA country, manufactures an infant diaper, classified in heading 96.19, consisting of an outer shell of 94% nylon and 6% elastomeric fabric by weight and a terry knit cotton absorbent crotch. All materials used are produced in a CUSMA country, except for the elastomeric fabric, which is from a non-CUSMA country. The elastomeric fabric is only 6% of the total weight of the diaper. The good satisfies all other applicable requirements of these Regulations. Therefore, the product is considered originating from a CUSMA country as per subsection (6).
- Example 7 (subsection (6)):
Producer A, located in a CUSMA 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 1 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 the 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 (6), if the total weight of the non-originating cotton yarn does not exceed 10% of the total weight of the cotton fabric, it would be considered an originating good.
- Example 8 (subsections (7) and (8)):
Producer A, located in a CUSMA 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 in subheading 6204.41.
The product-specific rule of origin set out in Schedule 1 for subheading 6204.41, under which the dress is classified, specifies both a change in tariff classification from any other Chapter, except from those headings and Chapters under which certain yarns and fabrics, including combed wool yarn and wool fabric, are classified, and a requirement that the good be cut and sewn or otherwise assembled in the territory of one or more of the CUSMA 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 CUSMA 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 CUSMA 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 CUSMA 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 (7), if the total weight of the non-originating combed wool yarn does not exceed 10% 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 (7)):
Producer A, located in a CUSMA country, manufactures women’s knit sweaters, which have knit bodies and woven sleeves. The knit body is composed of 95% polyester and 5% spandex, by weight. The sleeves are made of non-CUSMA woven fabric that is 100% polyester. All materials of the knit body are from a CUSMA country, except for the spandex, which is from a non-CUSMA country. The sweater is cut and sewn in a CUSMA 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 1 for subheading 6110.30 is that the good is both cut (or knit to shape) and sewn or otherwise assembled in the territory of one or more of the CUSMA countries. The sleeves are disregarded in determining whether the sweater originates in a CUSMA 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% 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 7% 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 CUSMA country.
- Example 10 (subsection (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 is 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 fibres and yarns that do not satisfy a tariff change rule, the de minimis provision is calculated on the basis of the total weight of the non-originating fibres or yarns used in the production of the fabric that makes up the body of the shirt. The weight of these non-originating fibres or yarns must be 10% or less of the total weight of that fabric and any elastomeric content must be 7% 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 the 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 fibres and yarns used in the production of the shirt that do not satisfy a tariff change rule must be 10% or less of the total weight of the shirt, and any elastomeric content must be 7% or less of the total weight of the shirt, for the shirt to be considered as an originating good.
- Example 11 (subsection (9)):
Producer A, located in a CUSMA country, produces women’s blouses of subheading 6206.40 from a fabric also produced by Producer A that is composed of 90% by weight of 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’s blouses that determines its tariff classification in subheading 6206.40.
The product-specific rule of origin of Schedule 1 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 CUSMA countries.
In this case, the non-originating lyocell yarn 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 1, 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 any of Chapters 61 through 63 that contains non-originating fibres or yarns in the component of the good that determines its tariff classification that do not satisfy the applicable change in tariff classification, is nonetheless considered an originating good if the total weight of all those fibres or yarns is not more than 10% of the total weight of that component, of which the total weight of elastomeric content may not exceed 7% 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% 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% of such total weight, the women’s blouses qualify as originating goods.
- Example 12 (subsection (10)):
A producer located in a country manufactures boys’ swimwear of subheading 6211.11 from fabric that has been woven in a CUSMA country from yarn spun in a CUSMA 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 the non-originating narrow elastic of heading 60.02 in the waistband, and provided the garment is imported into a CUSMA 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 (7) does not apply to the narrow elastic of heading 60.02 and the good is therefore a non-originating good.
Marginal note:Set
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.
Marginal note:Requirement
(2) Except as otherwise set out in Schedule 1, a set is originating in the territory of a CUSMA country only if each good in the set is an originating good and both the set and the goods in the set meet the other applicable requirements of these Regulations.
Marginal note:Exceptions
(3) Despite subsection (2), a set is originating only if the value of all the non-originating goods included in the set does not exceed 10% of the value of the set.
Marginal note:Value
(4) For the purposes of subsection (3), the value of non-originating goods in the set and the value of the set must be calculated in the same manner as the value of non-originating materials is determined in accordance with section 8 and the value of the good determined in accordance with section 7.
Marginal note:Example
(5) Each of the following examples is an “Example” 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, this section applies with respect to that set. The paint, paper and wooden box are all originating as they undergo the changes required in Schedule 1. The paint brushes, which represent 4% of the value of the set, are produced in the territory of a non-CUSMA country and are therefore non-originating. The set is nonetheless originating.
- Example 2 (subsection (2)):
Producer A, located in a CUSMA 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 1 applies. 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 1, 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 CUSMA country, produces the nail nipper, cuticle scissors and nail clipper included in the set, and all qualify as originating goods. 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 requirement of the applicable change in tariff classification 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 CUSMA 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 (subsection (3)): Pants set
Producer A makes a pants set, consisting of 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 CUSMA country. The sewing thread is formed and finished in a CUSMA country. The pocket bag fabric is formed and finished in a CUSMA country, of yarn wholly formed in a CUSMA country. The trousers are cut and sewn in CUSMA country A. A polyester webbing belt with a metal buckle is made in a non-CUSMA country and shipped to CUSMA 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 in subheading 6203.42. The rule of origin set out in Schedule 1 for subheading 6203.42 requires that the trousers be made from fabric produced in a CUSMA country from yarn produced in a CUSMA country. The trousers satisfy the product-specific rules of origin set out in Schedule 1 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.
- Example 4 (subsection (3)): Shirt and tie set
Producer A makes a boys’ shirt and tie set in a CUSMA country. The shirt is constructed from 55% cotton, 45% polyester, solid colour, dyed, woven fabric, classified in subheading 5210.31. The fabric contains 73.2 total yarns per square centimetre and 76 metric yarns. The shirt is packaged in a retail polybag with a coordinating colour, 100% polyester, woven fabric tie. The yarns used in the shirt fabric are spun in a non-CUSMA country and the fabric is woven and dyed in the same non-CUSMA country. The shirt fabric is sent to the CUSMA country where it is cut and sewn into finished garments. The coordinating tie is made in a non-CUSMA 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 of origin for heading 62.05 set out in Schedule 1 and is considered originating because it is wholly made from fabric of subheading 5210.31 (not of square construction, containing more than 70 warp ends and filling picks per square centimetre, of average yarn number exceeding 70 metric) and cut and sewn into finished garments in the CUSMA 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 the purposes of the sets rule, provided the tie is valued at 10% or less of the value of the set, the set will be considered 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 considered as an originating good.
- Example 5 (subsection (3)): Chef set
Producer A, located in a CUSMA 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% of the value of the set, is produced in the territory of a non-CUSMA country and is therefore non-originating. The set is nonetheless an originating good because less than 10% of the value of the set is non-originating.
PART 3Regional Value Content
Marginal note:Calculation
7 (1) Except as otherwise provided in subsection (6), the regional value content of a good must 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.
Marginal note:Transaction value method
(2) 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 3 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.
Marginal note:Net cost method
(3) 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, in accordance with section 8.
Marginal note:Non-originating materials — values not included
(4) 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.
Marginal note:Self-produced material
(5) 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.
Marginal note:Net cost method — when required
(6) The regional value content of a good must be calculated only on the basis of the net cost method if Schedule 1 does not provide a rule for the good based on the transaction value method.
Marginal note:Net cost method — change permitted
(7) 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 CUSMA 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 that importer, exporter or producer, is required to be adjusted under section 4 of Schedule 3, or
(b) the value of any material used in the production of the good, as determined by that importer, exporter or producer, is required to be adjusted under section 4 of Schedule 6,
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 the producer receives the notification, or such longer period as that customs administration specifies.
Marginal note:Net cost method — no change permitted
(8) If the importer, exporter or producer of a good calculates the regional value content of the good on the basis of the net cost method and the customs administration of a CUSMA 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.
Marginal note:Clarification
(9) Nothing in subsection (7) is to be construed as preventing any review or appeal under Article 5.15 of the Agreement, as implemented in each CUSMA 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.
Marginal note:Value of identical non-originating materials
(10) 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 7.
Marginal note:Calculating net cost of good
(11) 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 5, 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 5, 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 5, 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.
Marginal note:Calculation of total cost
(12) 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).
Marginal note:Calculation of net cost of good
(13) For the purpose of calculating the net cost under subsection (11),
(a) excluded costs are 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 are not to 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 CUSMA country.
Marginal note:Non-allowable interest
(14) 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 9.
Marginal note:Use of averaging over a period
(15) 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- 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.
Marginal note:Application
(16) 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).
Marginal note:No change to goods or period
(17) An election made under subsection (15) may not be rescinded or modified with respect to the goods or the period to which the election is made.
Marginal note:Period considered to be chosen
(18) If a producer chooses a one-, three- or six-month period under subsection (15) with respect to a good, 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.
Marginal note:Method and period for remainder of fiscal year
(19) If the use of the net cost method is required or chosen and an election is 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.
Marginal note:Analysis of actual cost
(20) Except as otherwise provided in subsection 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.
Marginal note:Option to treat any material as non-originating
(21) 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.
Marginal note:Examples
(22) Each of the following examples is an “Example” as referred to in subsection 1(4).
- Example 1: Point of direct shipment (with respect to the definition adjusted to exclude any costs incurred in the international shipment of the good)
A producer has only one factory at which the producer manufactures office chairs. Because the factory is located close to transportation facilities, all units of the finished good are stored in a factory warehouse 200 m from the end of the production line. Goods are shipped worldwide from this warehouse. The point of direct shipment is the warehouse.
- Example 2: Point of direct shipment (with respect to the definition 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 CUSMA 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: Point of direct shipment (with respect to the definition adjusted to exclude any costs incurred in the international shipment of the good)
A producer has only one factory, located near the centre of one of the CUSMA countries, at which the producer manufactures office chairs. The office chairs are shipped from that factory to three warehouses leased by the producer, one on the west coast, one near the factory and one on the east coast. The office chairs are shipped to buyers from these warehouses, the shipping location depending on the shipping distance from the buyer. Buyers closest to the west coast warehouse are normally supplied by the west coast warehouse, buyers closest to the east coast are normally supplied by the warehouse located on the east coast and buyers closest to the warehouse near the factory are normally supplied by that warehouse. In this case, the point of direct shipment is the location of the warehouse from which the office chairs are normally shipped to customers in the location in which the buyer is located.
- Example 4 (subsection (3)): Net cost method
A producer located in CUSMA country A sells Good A that is subject to a regional value content requirement to a buyer located in CUSMA country B. The producer of Good A chooses to calculate the regional value content of that good 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%.
In order to calculate the regional value content of Good A, the producer first calculates the net cost of Good A. Under paragraph (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:
- Excluded costs:
- Sales promotion, marketing and after-sales service costs$5.00
- Royalties$2.50
- Shipping and packing costs$3.00
- Non-allowable interest costs$1.50
- Total excluded costs:
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:
The 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%.
- Example 5 (paragraph (11)(a)):
A producer in a CUSMA 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
$2,000Value of non-originating materials
$1,000Other 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:
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:
The net cost must then be reasonably allocated, in accordance with Schedule 5, to Good A and Good B.
- Example 6 (paragraph (11)(b)):
A producer in a CUSMA 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
$2,000Value of non-originating materials
$1,000Other product costs
$2,400
Period costs (including $1,200 in excluded costs):
$3,200Other costs:
$400Total cost of Good A and Good B:
Under paragraph (11)(b), the total cost of Good A and Good B is then reasonably allocated, in accordance with Schedule 5, to those goods. The costs are allocated in the following manner:
Allocated to Good A Allocated to Good B Total cost ($9,000 for both Good A and Good B) $5,220 $3,780 The excluded costs ($1,200) that are included in the total cost allocated to Good A and Good B, in accordance with Schedule 5, are subtracted from that amount.
Total excluded costs: Excluded cost allocated to Good A ($) Excluded cost allocated to Good B ($) Sales promotion, marketing and after-sale service costs
$500290 210 Royalties
$200116 84 Shipping and packing costs
$500290 210 Net cost (total cost minus excluded costs): $4,524 $3,276 Therefore the net cost of Good A is $4,524 and the net cost of Good B is $3,276.
- Example 7 (paragraph (11)(c)):
A producer located in a CUSMA 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 is reasonably allocated, in accordance with Schedule 5, to Good C and Good D.
Total cost: Good C and Good D (in thousands of dollars) Allocated to Good C (in thousands of dollars) Allocated to Good D (in thousands of dollars) Product costs: Value of originating materials
100 0 100 Value of non-originating materials
900 800 100 Other product costs
500 300 200 Period costs (including $420 in excluded costs): 5,679 3,036 2,643 Minus excluded costs 420 300 120 Other costs: 0 0 0 Total cost (aggregate of product costs, period costs and other costs): 6,759 3,836 2,923 - Example 8 (subsection (12)):
Producer A, located in a CUSMA country, produces Good A that is subject to a regional value content requirement. The producer chooses to calculate the regional value content of that good using the net cost method. Producer A buys Material X from Producer B, located in a CUSMA 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 moulds to be used in the production of Material X. The cost of the moulds 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 6, the value of the moulds is included in the value of Material X. Therefore, the cost of the moulds 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 (12)):
Producer A, located in a CUSMA country, produces Good A that is subject to a regional value content requirement. The producer chooses to calculate the regional value content of that good using the net cost method and averages the calculation over the producer’s fiscal year under subsection (15). Producer A determines that during that fiscal year Producer A incurred a gain on foreign currency conversion of $10,000 and a loss on foreign currency conversion of $8,000, resulting in a net gain of $2,000. Producer A also determines that $7,000 of the gain on foreign currency conversion and $6,000 of the loss on foreign currency conversion is related to the purchase of non-originating materials used in the production of Good A and $3,000 of the gain on foreign currency conversion and $2,000 of the loss on foreign currency conversion is not related to the production of Good A. The producer determines that the total cost of Good A is $45,000 before deducting the $1,000 net gain on foreign currency conversion related to the production of Good A. The total cost of Good A is therefore $44,000. That $1,000 net gain is not included in the value of non-originating materials under subsection 8(1).
- Example 10 (subsection (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 4Material
Marginal note:Value of material used in production
8 (1) 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 subsections 5(1) and (4), the value of a material that is used in the production of the good is
(a) except as otherwise provided in subsection (4), if the material is imported by the producer of the good into the territory of the CUSMA 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 CUSMA country in which the good is produced
(i) the price paid or payable by the producer in the CUSMA country where the producer is located,
(ii) the value as determined for an imported material in paragraph (a), or
(iii) the earliest ascertainable price paid or payable in the territory of the CUSMA 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, including 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 if 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.
Marginal note:Adjustments
(2) 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 CUSMA 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 CUSMA 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.
Marginal note:Documentary evidence required
(3) If the cost or expense listed in subsection (2) is unknown or documentary evidence of the amount of the adjustment is not available, no adjustment is to be made for that particular cost or expense.
Marginal note:Unacceptable transaction value
(4) For the purposes of paragraph (1)(a), if the transaction value of the material referred to in that paragraph is unacceptable or if there is no transaction value in accordance with Schedule 4, the value of the material must be determined in accordance with Schedule 6 and, if the costs referred to in subsection (2) are included in that value, those costs may be deducted from that value.
Marginal note:Costs recorded on books
(5) For the purposes of subsection (1), the costs referred to in paragraph (1)(c) are the costs referred to in that paragraph that are recorded on the books of the producer of the good.
Marginal note:Designation of self-produced material as intermediate material
(6) 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.
Marginal note:Particulars
(7) 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(6), 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).
Marginal note:Value of intermediate material
(8) The value of an intermediate material 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 intermediate material in accordance with Schedule 5; 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 5.
Marginal note:Calculation of total cost
(9) 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).
Marginal note:Rescission of designation
(10) If a producer of a good designates a self-produced material as an intermediate material under subsection (6) and the customs administration of a CUSMA 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 in which case the regional value content of the good is to be calculated as though the self-produced material were not so designated.
Marginal note:Effect of rescission
(11) A producer of a good who rescinds a designation under subsection (10) may, not later than 30 days after the day on which the customs administration referred to in subsection (10) notifies the producer in writing that the self-produced material is a non-originating material, designate as an intermediate material another self-produced material that is incorporated into the good, subject to the proviso set out in subsection (6).
Marginal note:Second rescission
(12) 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 in which case the regional value content of the good is to 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.
Marginal note:Indirect materials
(13) For the purpose of determining whether a good is an originating good, an indirect material that is used in the production of the good
(a) is 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, has a value that is equal to the costs of that material that are recorded on the books of the producer of the good.
Marginal note:Packaging materials and containers
(14) Packaging materials and containers, if classified under the Harmonized System with the good that is packaged therein, must 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.
Marginal note:Value of packaging materials and containers — cases where taken into account
(15) If packaging materials and containers are classified under the Harmonized System with the good that is packaged therein and that good is subject to a regional value content requirement, the value of those packaging materials and containers must 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.
Marginal note:Packaging materials and containers — self-produced
(16) 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).
Marginal note:Packing materials and containers
(17) For the purpose of determining whether a good is an originating good, packing materials and containers are disregarded.
Marginal note:Fungible materials and fungible goods
(18) A fungible material or fungible good is an originating good 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 CUSMA 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 CUSMA country in which the production is performed or an inventory management method set out in Schedule 8; 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 CUSMA country from which the good is exported or an inventory management method set out in Schedule 8.
Marginal note:Choice for fiscal year
(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.
Marginal note:Claim
(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 so as to allow its specific identification.
Marginal note:Choice of inventory management method
(21) 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.
Marginal note:Written notice
(22) A choice of inventory management methods under subsection (18) is considered to have been made when the customs administration of the CUSMA 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.
Marginal note:Accessories, spare parts, tools, or instructional or other information materials
(23) For the purposes of subsections (24) to (27), accessories, spare parts, tools, or instructional or other information materials are covered when
(a) they are classified and 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.
Marginal note:Exclusion
(24) 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 the non-originating materials used in the production of the good satisfy a process or change in tariff classification requirement set out in Schedule 1; or
(c) under subsection 5(1), the value of non-originating materials that do not undergo an applicable change in tariff classification.
Marginal note:Value for regional value content
(25) 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.
Marginal note:Designation
(26) 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).
Marginal note:Originating status
(27) 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.
Marginal note:Examples illustrating the provisions on materials
(28) Each of the following examples is an “Example” as referred to in subsection 1(4).
- Example 1 (subsection (4)): Transaction value not determined in a manner consistent with Schedule 6
Producer A, located in CUSMA country A, imports a bicycle chainring into CUSMA country A. Producer A purchased the chainring from a middleman located in CUSMA country B. The middleman purchased the chainring from a manufacturer located in CUSMA country B. Under the laws of CUSMA country A that implement the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, 1994, 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 CUSMA country C. The bicycle is subject to a regional value content requirement.
Under subsection 3(1) of Schedule 6, 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 that 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 6 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 (4) applies and the chainring is valued in accordance with Schedule 6.
- Example 2 (subsection (7)): Value of intermediate materials
A producer located in a CUSMA country produces a bicycle that is subject to a regional value content requirement under subsection 3(2). The producer also produces a chainring that 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 subsection 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:
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 1, the chainring would, under subsection 3(2) qualify as an originating material. The cost 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 the regional value content of the bicycle. Because the chainring is 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:
- Example 3 (subsection (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 (1). The following situations demonstrate how this is achieved:
Situation A
A producer located in a CUSMA country produces a bicycle that is subject to a regional value content requirement of 50% 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 CUSMA country. The value of the frame determined in accordance with subsection (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:
- Excluded costs (included in period costs):$0.20
- Net cost of the bicycle:
The regional value content of the bicycle is calculated as follows:
RVC = (NC − VNM) ÷ NC × 100 = ($23.40 − $5.50) ÷ $23.40 × 100 = 76.5% The regional value content of the bicycle is 76.5% and the bicycle, therefore, qualifies as an originating good.
Situation B
A producer located in a CUSMA country produces a bicycle that is subject to a regional value content requirement of 50% under the net cost method. The bicycle satisfies all other applicable requirements of these Regulations. The producer self-produces the bicycle frame that 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:
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:$0.10
- Total additional costs:
The producer does not designate the bicycle frame as an intermediate material under subsection (6). The net cost of the bicycle is calculated as follows:
Costs of the bicycle frame (not designated as an intermediate material) ($) Additional costs to produce the bicycle ($) Total ($) Product costs: Value of originating materials
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% and the bicycle, therefore, does not qualify as an originating good.
Situation C
A producer located in a CUSMA country produces a bicycle that is subject to a regional value content requirement of 50% under the net cost method. The bicycle satisfies all other applicable requirements of these Regulations. The producer self-produces the bicycle frame that 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:
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:$0.10
- Total additional costs:
The producer designates the frame as an intermediate material under subsection (6). The frame qualifies as an originating material under subsection 3(2). Therefore, the value of non-originating materials used in the production of the frame is not included in the value of non-originating materials for the purpose of calculating the regional value content of the bicycle. The net cost of the bicycle is calculated as follows:
Costs of the bicycle frame (designated as an intermediate material) ($) Additional costs to produce the bicycle ($) Total ($) 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% 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 CUSMA 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%.
Producer A sells the switches to Producer B, located in CUSMA 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 (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 a CUSMA 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 (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, located in CUSMA 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 CUSMA 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 (6), designate all of the self-produced materials as intermediate materials. The proviso set out in subsection (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 (23)):
The following are examples of accessories, spare parts, tools, or instructional or other information materials that are delivered with a good and form part of the good’s standard accessories, spare parts, tools, or instructional or other information materials:
(a) consumables that must be replaced at regular intervals, such as dust collectors for an air-conditioning system;
(b) carrying cases for equipment;
(c) dust covers for machines;
(d) operational manuals for vehicles;
(e) brackets to attach equipment to a wall;
(f) bicycle tool kits or car jacks;
(g) sets of wrenches to change the bit on a chuck;
(h) brushes or other tools to clean out machines; 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 CUSMA country, produces a well-water pump that is subject to a regional value content requirement. The producer chooses to calculate the regional value content of that good using the net cost method. Producer A buys a mould-injected plastic water flow sensor from Producer B, located in the same CUSMA country, and uses it in the production of the pump. Producer A provides to Producer B, at no charge, moulds to be used in the production of the water flow sensor. The moulds 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 moulds are considered to be an originating material because they are an indirect material. However, under subsection (13) they have a value of nil because the cost of the moulds 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 moulds that is recorded on the books of Producer A is expensed in the current year. Under section 4 of Schedule 6, the value of the moulds (see subparagraph 4(1)(b)(ii) of Schedule 6) 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 moulds, 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 moulds, is included in the value of non-originating materials for the purposes of calculating the regional value content of the well-water pump.
PART 5General Provisions
Marginal note:Accumulation
9 (1) Subject to subsections (2) to (5),
(a) a good is originating if it is produced in the territory of one or more of the CUSMA countries by one or more producers and it 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 CUSMA countries is considered as originating in the territory of another CUSMA country if it is used as a material in the production of a good in the territory of that other CUSMA country; and
(c) production undertaken on a non-originating material in the territory of one or more of the CUSMA countries may contribute to the originating status of a good, regardless of whether that production was sufficient to confer originating status to the material itself.
Marginal note:Accumulation — net cost method
(2) 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
(a) states the net cost incurred and the value of non-originating materials used by the producer of the material in the production of that material,
(i) the net cost incurred by the producer of the good with respect to the material 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) to (c), and
(ii) 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; or
(b) states any amount, other than an amount that includes any of the value of non-originating materials, that is part of the net cost incurred by the producer of the material in the production of that material,
(i) the net cost incurred by the producer of the good with respect to the material is 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 the value of the material, determined in accordance with subsection 8(1), minus the amount stated in the statement.
Marginal note:Accumulation — transaction value method
(3) 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.
Marginal note:Averaging — net cost method
(4) 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 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) to (c), and
(ii) 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; or
(b) states any amount, other than an amount that includes any of the value 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 of them, 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 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 the value of the material, determined in accordance with subsection 8(1), minus the amount stated in the statement.
Marginal note:Averaging — transaction value method
(5) 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.
Marginal note:Single producer
(6) 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 is considered to be the production of the producer of the good.
Marginal note:Particulars
(7) 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 any of subsections (2) to (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 CUSMA 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 any of subsections (2) to (5) that concerns the value of materials or costs must be in the same currency as the currency of the country in which the person who provided the statement is located.
Marginal note:Examples
(8) Each of the following examples is an “Example” as referred to in subsection 1(4).
- Example 1 (subsection (1)):
Producer A, located in CUSMA country A, imports unfinished bearing rings provided for in subheading 8482.99 into CUSMA country A from the territory of a non-CUSMA country. 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:
- 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:
- Excluded costs (included in period costs):$0.05
- Net cost of the finished bearing rings, per unit:
Producer A sells the finished bearing rings to Producer B, who is located in CUSMA country A, for $1.50 each. Producer B further processes them into bearings and intends to export the bearings to CUSMA country B. Although the bearings satisfy the applicable change in tariff classification, the bearings are subject to a regional value content requirement.
Situation A
Producer B does not choose to accumulate costs incurred by Producer A with respect to the bearing rings used in the production of the bearings. The net cost of the bearings (per unit) is calculated as follows:
- Product costs:
- Value of originating materials$0.45
- Value of non-originating materials (value, per unit, of the bearing rings purchased from Producer A)$1.50
- Other product costs$0.75
- Period costs (including $0.05 in excluded costs):$0.15
- Other costs:$0.05
- Total cost of the bearings, per unit:
- Excluded costs (included in period costs):$0.05
- Net cost of the bearings, per unit:
Under the net cost method, the regional value content of the bearings is
RVC = (NC − VNM) ÷ NC × 100 = ($2.85 − $1.50) ÷ $2.85 × 100 = 47.4% 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 (2)(a) to Producer B. The net cost of the bearings (per unit) is calculated as follows:
- Product costs:
- Value of originating materials ($0.45 + $0.15)$0.60
- Value of non-originating materials (value, per unit, of the unfinished bearing rings imported by Producer A)$0.75
- Other product costs ($0.75 + $0.35)$1.10
- Period costs (($0.15 + $0.15), including $0.10 in excluded costs):$0.30
- Other costs ($0.05 + $0.05):$0.10
- Total cost of the bearings, per unit:
- Excluded costs (included in period costs):$0.10
- Net cost of the bearings, per unit:
Under the net cost method, the regional value content of the bearings is
RVC = (NC − VNM) ÷ NC × 100 = ($2.75 − $0.75) ÷ $2.75 × 100 = 72.7% 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 (2)(b) that specifies an amount equal to the net cost minus the value of non-originating materials used to produce the finished bearing rings ($1.40 - $0.75 = $0.65). The net cost of the bearings (per unit) is calculated as follows:
- Product costs:
- Value of originating materials ($0.45 + $0.65)$1.10
- Value of non-originating materials ($1.50 − $0.65)$0.85
- Other product costs$0.75
- Period costs (including $0.05 in excluded costs):$0.15
- Other costs:$0.05
- Total cost of the bearings, per unit:
- Excluded costs (included in period costs):$0.05
- Net cost of the bearings, per unit:
Under the net cost method, the regional value content of the bearings is
RVC = (NC − VNM) ÷ NC × 100 = ($2.85 − $0.85) ÷ $2.85× 100 = 70.2% 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 (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:
- Excluded costs (included in period costs):$0.05
- Net cost of the bearings, per unit:
Under the net cost method, the regional value content of the bearing is
RVC = (NC − VNM) ÷ NC × 100 = ($2.85 − $1.15) ÷ $2.85 × 100 = 59.6% Therefore, the bearings are originating goods.
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 (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 follow:
- Product costs:
- Transaction value of the bearings, per unit$3.15
- Costs incurred, per unit, in the international shipment of the good (included in transaction value of the bearings)$0.15
- Transaction value, per unit, adjusted to exclude any costs incurred in the international shipment of the good$3.00
- Value of non-originating materials (value, per unit, of the unfinished bearing rings imported by Producer A)$0.75
Under the transaction value method, the regional value content of the bearing 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% under transaction value method, the bearings are originating goods.
- Example 2 (subsection (1)):
Producer A, located in CUSMA 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 CUSMA 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 subsection (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 satisfies the applicable change of tariff classification for heading 52.08. The woven fabric of cotton is considered as an originating good.
Producer B, in order to choose to accumulate Producer A’s production, must have a statement described in subparagraph (7)(a)(ii).
Marginal note:Transport requirements — retention of originating status
10 (1) If an originating good is transported outside the territories of the CUSMA countries, the good retains its originating status if
(a) the good remains under customs control outside the territories of the CUSMA countries; and
(b) the good does not undergo further production or any other operation outside the territories of the CUSMA countries, other than unloading, reloading, separation from a bulk shipment, storing, labelling or other marking required by the importing CUSMA country or any other operation necessary to transport the good to the territory of the importing CUSMA 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 removing units of the good that are spoiled or damaged and present a danger to the remaining units of the good.
Marginal note:Good entirely non-originating
(2) A good that is a non-originating good by application of subsection (1) is considered to be entirely non-originating for the purposes of these Regulations.
Marginal note:Exceptions for certain goods
(3) 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 CUSMA 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 CUSMA 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 CUSMA 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 CUSMA countries does not result in a change in the tariff classification of the good to any other subheading.
Marginal note:Exceptions
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 6Automotive Goods
Definitions
Marginal note:Definitions
12 The following definitions apply in this Part.
- aftermarket 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. (pièce destinée au marché du service après-vente)
- all-terrain vehicle
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 or Canadian on-road standards. (véhicule tout-terrain)
- annual purchase value
annual purchase value or 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 CUSMA country. (valeur annuelle des achats)
- average base hourly wage rate
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 the workers performing that work are paid on a salary, piece-rate, or day-rate basis. It includes all hours performed by full-time, part time, temporary and seasonal workers. The rate of pay does not include benefits, bonuses, 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 hourly base wage rate calculation.
For direct production workers, the average base hourly wage rate of pay is calculated based on all of 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 other worker who 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. (taux horaire moyen de la rémunération de base)
- class of motor vehicles
class of motor vehicles means one of the following classes 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 any of subheadings 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 subheadings 8703.21 through 8703.90. (catégorie de véhicules automobiles)
- complete motor vehicle assembly process
complete motor vehicle assembly process means the production of a motor vehicle from separate constituent parts, including
(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. (chaîne de montage complète de véhicules automobiles)
- direct production work
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 CUSMA country. It 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.
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 or any 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 other worker that does not have an express or implied compensation agreement with the employer. (travailleur qui participe directement à la production)
- direct production worker
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. (travailleur affecté à la production directe)
- first motor vehicle prototype
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. (premier prototype de véhicule automobile)
- heavy truck
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. (camion lourd)
- high-wage assembly plant for passenger vehicle or light truck parts
high-wage assembly plant for passenger vehicle or light truck parts means a qualifying wage rate production plant that is operated by a producer or by a supplier with whom the producer has a contract of at least three years for the materials listed in paragraphs (a) to (c), provided that the plant is located in the territory of a CUSMA country and that it has 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. (usine de montage à rémunération élevée pour les pièces de véhicules de promenades ou de véhicules utilitaires légers)
- high-wage assembly plant for heavy truck parts
high-wage assembly plant for heavy truck parts means a qualifying wage rate production plant that is operated by a corporate producer or by a supplier with whom the corporate producer has a contract of at least three years for the materials listed in paragraphs (a) to (c), provided that the plant is located in the territory of a CUSMA 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. (usine de montage pour les pièces de camions lourds)
- high-wage labour costs
high-wage labour costs means the sum of wage expenditures, not including benefits, for workers who perform direct production work at a qualifying wage-rate vehicle assembly plant. (coûts de main-d’oeuvre à rémunération élevée)
- high-wage material
high-wage material means a material that is produced in a qualifying wage-rate production plant. (matières à rémunération élevée)
- high-wage technology expenditures
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 CUSMA 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 research and development or information technology are not included. For greater certainty, there is no minimum wage rate associated with high-wage technology expenditures. (dépenses liées à la technologie à rémunération élevée)
- high-wage transportation or related costs for shipping
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 CUSMA 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. (frais de transport ou connexes d’expédition à rémunération élevée)
- LVC
LVC means labour value content. (TVT)
- light truck
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. (véhicule utilitaire léger)
- marque
marque means the trade name used by a separate marketing division of a motor vehicle assembler. (marque)
- model line
model line means a group of motor vehicles having the same platform or model name. (modèle)
- 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. (nom de modèle)
- motorhome or entertainer coach
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. (caravane motorisée ou véhicule récréatif)
- motor vehicle assembler
motor vehicle assembler means a producer of motor vehicles and any related persons or joint ventures in which the producer participates. (monteur de véhicules automobiles)
- new building
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. (nouvel édifice)
- passenger vehicle
passenger vehicle means a vehicle of subheadings 8703.21 through 8703.90, except for
(a) a vehicle with a compression-ignition engine of subheadings 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; and
(e) an ambulance, hearse or prison van. (véhicule de promenade)
- plant
plant means a building, or buildings in close proximity but not necessarily contiguous, machinery, apparatus and fixtures or movables incorporated with an immovable or permanently attached or joined to an immovable, that are under the control of a producer and that are used in the production of
(a) passenger vehicles, light trucks or heavy trucks; or
(b) a good listed in any of Tables A.1 to G. (usine)
- platform
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, space-frame and monocoques. (plate-forme)
- qualifying wage-rate production plant
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 CUSMA country at which the average base hourly wage rate for direct production workers is at least
(a) US$16 in the United States;
(b) CA$20.88 in Canada; and
(c) MXN$294.22 in Mexico. (usine de production à taux de rémunération admissible)
- qualifying wage-rate vehicle assembly plant
qualifying wage-rate vehicle assembly plant means a passenger vehicle, light truck or heavy truck assembly plant located in the territory of a CUSMA 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. (usine de montage de véhicules à taux de rémunération admissible)
- RVC
RVC means regional value content. (TVR)
- refit
refit means a plant closure, for purposes of plant conversion or retooling, for at least three months. (réaménagement)
- size category
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) 2.38 m3 (85 ft3) or less;
(b) more than 2.38 m3 (85 ft3) but less than 2.80 m3 (100 ft3);
(c) 2.80 m3 (100 ft3) or more but not more than 3.08 m3 (110 ft3);
(d) more than 3.08 m3 (110 ft3 but less than 3.36 m3 (120 ft3); or
(e) 3.36 m3 (120 ft3) or more. (catégorie de taille)
- super-core
super-core means the parts listed in column 1 of Table A.2, which are considered as a single part for the purposes of performing an RVC calculation in accordance with subsections 14(10), (11) and (13) and 16(10). (ensemble de pièces essentielles)
- total vehicle plant assembly annual purchase value
total vehicle plant assembly annual purchase value 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 trucks in a plant located in the territory of a CUSMA country. (valeur totale annuelle des achats d’usine de montage de véhicules)
- underbody
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. (soubassement)
- VNM
VNM means the value of non-originating materials. (Version anglaise seulement)
- vehicle that is solely or principally for off-road use
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 or Canadian on-road standards. (véhicule uniquement ou principalement utilisé hors route)
Product-Specific Rules of Origin for Vehicles and Certain Auto Parts
Marginal note:Product-specific rules of origin
13 Except as provided for in section 19, the product-specific rule of origin for a good of headings 87.01 through 87.08 is set out in the following table:
| Harmonized system 2012 | Description |
|---|---|
| 8701.10 | A change to a good of subheading 8701.10 from any other heading, provided there is an RVC of not less than 60% under the net cost method. |
| 8701.20 | A change to a good of subheading 8701.20 from any other heading, provided there is an RVC under the net cost method of not less than
|
| 8701.30 – 8701.90 | A change to a good of subheading 8701.30 through 8701.90 from any other heading, provided there is an RVC of not less than 60% under the net cost method. |
| 8702.10 – 8702.90 |
|
| 8703.10 | A change to a good of subheading 8703.10 from any other heading, provided there is an RVC of not less than
|
| 8703.21 – 8703.90 |
|
| 8704.10 | A change to a good of subheading 8704.10 from any other heading, provided there is an RVC of not less than 60% under the net cost method. |
| 8704.21 |
|
| 8704.22 - 8704.23 |
|
| 8704.31 |
|
| 8704.32 - 8704.90 |
|
| 87.05 | A change to a good of heading 87.05 from any other heading, provided there is an RVC of not less than 60% under the net cost method. |
| 87.06 |
|
| 87.07 |
|
| 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 |
|
| 8708.99.aa |
|
| 8708.99.bb |
|
| 8708.99 |
|
| 8708.99.aa |
|
| 8708.99.bb |
|
| 8708.99 |
|
| 8708.99.aa |
|
| 8708.99.bb |
|
| 8708.99 |
|
Further Requirements Related to the RVC for Passenger Vehicles, Light Trucks and Parts Thereof
Marginal note:Roll-up of originating materials
14 (1) The VNM used by the producer in the production of a passenger vehicle, light truck and parts thereof must not, for the purposes of calculating the RVC of the good, include the VNM 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 shall be taken of the non-originating material contained therein if that good is used in the subsequent production of another good.
Marginal note: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 RVC requirement in this section, section 13 or Schedule 1.
Marginal note:Batteries
(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 this section or Schedule 1.
Marginal note:Passenger vehicle or light truck — parts
(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 VNM for such parts must be calculated in accordance with subsections (7) and (8), or, at the choice of the vehicle producer or exporter, subsections (9) to (11). The net cost of a part must be calculated in accordance with section 7 without regard to the VNM calculation method chosen.
Marginal note:RVC requirement — passenger vehicle or light truck
(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 RVC requirement of section 13 or Schedule 1 to be considered originating.
Marginal note:Advanced batteries
(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 RVC requirements set out in Schedule 1.
Marginal note:VNM determination
(7) For the purpose of subsections (4) to (6), when calculating the RVC of a part listed in column 1 of Table A.2, the VNM must be determined, at the choice of the vehicle producer or exporter, by taking into consideration
(a) the VNM 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.
Marginal note:Materials not listed in column 2
(8) For the purposes of an RVC 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 and any parts not listed in column 2 of Table A.2 — or materials or components used to produce such parts — are not to be part of the VNM calculation.
Marginal note:Non-application
(9) Subsections (7) and (8) do not apply when calculating the RVC 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 1.
Marginal note:Super-core part
(10) For the purpose of subsections (4) to (6) and as an alternative to determining the VNM based on the method in subsection (7), the RVC of the parts listed in column 1 of Table A.2 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 , and, when calculating the VNM, by 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.
Marginal note:Further production
(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.
Marginal note:Averaging
(12) The RVC requirements for the parts listed in the left hand column 1 of Table A.2 may be averaged in accordance with section 16. Such an average may be calculated using the average RVC for each individual parts category in column 1 of Table A.2, or by calculating the average RVC for all parts in column 1 of Table A.2 by treating them as a single part, defined as a super-core. Once this average, by either methodology, exceeds the thresholds set out in subsection (13), all parts used to calculate this average are considered originating.
Marginal note:RVC thresholds — Tables A.1 and A.2
(13) For the purposes of subsections (2), (7) and (10), the following RVC thresholds apply to parts for use as original equipment listed under Table A.1 and column 1 of Table A.2:
(a) 66% under the net cost method or 76% under the transaction value method, beginning on July 1, 2020 and ending on June 30, 2021;
(b) 69% under the net cost method or 79% under the transaction value method, beginning on July 1, 2021 and ending on June 30, 2022;
(c) 72% under the net cost method or 82% under the transaction value method, beginning on July 1, 2022 and ending on June 30, 2023; and
(d) 75% under the net cost method or 85% under the transaction value method, beginning on July 1, 2023.
Marginal note:Requirements — parts listed in Table B
(14) Despite the RVC requirements set out in Schedule 1, a material listed in Table B is considered originating if it satisfies the applicable change in tariff classification requirement or the applicable RVC requirement provided in Schedule 1.
Marginal note:RVC thresholds — Table B
(15) For the purposes of subsection (14), the following RVC thresholds apply to parts for use as original equipment listed under Table B:
(a) 62.5% under the net cost method or 72.5% under the transaction value method, beginning on July 1, 2020 and ending on June 30, 2021;
(b) 65% under the net cost method or 75% under the transaction value method, beginning on July 1, 2021 and ending on June 30, 2022;
(c) 67.5% under the net cost method or 77.5% under the transaction value method, beginning on July 1, 2022 and ending on June 30, 2023; and
(d) 70% under the net cost method or 80% under the transaction value method, beginning on July 1, 2023.
Marginal note:Requirements — parts listed in Table C
(16) Despite the RVC requirements set out in Schedule 1, a material listed in Table C is originating if it meets the applicable change in tariff classification requirement or the applicable RVC requirement provided in Schedule 1.
Marginal note:RVC thresholds — Table C
(17) For the purposes of subsection (16), the following RVC thresholds apply to parts for use as original equipment listed under Table C:
(a) 62% under the net cost method or 72% under the transaction value method, beginning on July 1, 2020 and ending on June 30, 2021;
(b) 63% under the net cost method or 73% under the transaction value method, beginning on July 1, 2021 and ending on June 30, 2022;
(c) 64% under the net cost method or 74% under the transaction value method, beginning on July 1, 2022 and ending on June 30, 2023; and
(d) 65% under the net cost method or 75% under the transaction value method, beginning on July 1, 2023.
Marginal note:Non-application
(18) For greater certainty, subsections (13), (15) and (17) do not apply to aftermarket parts.
Further RVC Requirements — Heavy Trucks and Parts Thereof
Marginal note:RVC — VNM
15 (1) The VNM used by the producer in the production of a heavy truck and parts thereof must not, for the purposes of calculating the RVC of the good, include the VNM used to produce originating materials that are subsequently used in the production of the good.
Marginal note:RVC thresholds
(2) Despite the Product Specific Rules of Origin in Schedule 1, the following RVC thresholds apply to parts listed in Table D that are for use in a heavy truck:
(a) 60% under the net cost method or 70% under the transaction value method if the corresponding rule includes a transaction value method, beginning on July 1, 2020 and ending on June 30, 2024;
(b) 64% under the net cost method or 74% under the transaction value method if the corresponding rule includes a transaction value method, beginning on July 1, 2024 and ending on June 30, 2027; and
(c) 70% under the net cost method or 80% under the transaction value method if the corresponding rule includes a transaction value method, beginning on July 1, 2027.
Marginal note:RVC thresholds
(3) Despite the Product Specific Rules of Origin in Schedule 1, the following RVC thresholds apply to parts listed in Table E that are for use in a heavy truck:
(a) 50% under the net cost method or 60% under the transaction value method if the corresponding rule includes a transaction value method, beginning on July 1, 2020 and ending on June 30, 2024;
(b) 54% under the net cost method or 64% under the transaction value method if the corresponding rule includes a transaction value method, beginning on July 1, 2024 and ending on June 30, 2027; and
(c) 60% under the net cost method or 70% under the transaction value method if the corresponding rule includes a transaction value method, beginning on July 1, 2027.
Marginal note:RVC requirement — engines, gear box, chassis
(4) Despite section 13 or Schedule 1, an engine of heading 84.07 or 84.08, 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 RVC requirement in subsection (2).
Averaging for Passenger Vehicles, Light Trucks and Heavy Trucks
Marginal note:Categories
16 (1) For the purposes of calculating the RVC 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 CUSMA 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 CUSMA country;
(b) the same class of motor vehicles produced in the same plant in the territory of a CUSMA country;
(c) the same model line or same class of motor vehicles produced in the territory of a CUSMA country; and
(d) any other category as the CUSMA countries may decide.
Marginal note:Vehicles — same model line or class
(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 RVC requirements.
Marginal note:Information requirements
(3) If a producer chooses to use averaging for the purposes of calculating RVC, 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; and
(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 and the CUSMA country or countries to which the vehicles are exported.
Marginal note: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 RVC 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 LVC, for the period beginning on July 1, 2020 and ending at the end of the following fiscal year.
Marginal note:Optional transitional period
(5) A producer may calculate its RVC
(a) for passenger vehicles, light trucks, other vehicles, core parts listed in Table A2 that are used in the production of passenger vehicles, or light trucks, an automotive good listed in Tables A.1, B, and C and the steel and aluminum purchasing and labour value content requirements for passenger vehicles and light trucks for the following periods:
(i) beginning on July 1, 2020 and ending on June 30, 2021,
(ii) beginning on July 1, 2021 and ending on June 30, 2022,
(iii) beginning on July 1, 2022 and ending on June 30, 2023
(iv) beginning on July 1, 2023 until the end of the producer’s fiscal year; and
(b) for heavy trucks, an automotive good listed in Tables D or E and the steel and aluminum purchasing and labour value content requirements for heavy trucks,
(i) beginning on July 1, 2023 and ending on June 30, 2024,
(ii) beginning on July 1, 2024 and ending on June 30, 2025,
(iii) beginning on July 1, 2025 and ending on June 30, 2026,
(iv) beginning on July 1, 2026 and ending on June 30, 2027, and
(v) beginning on July 1, 2027 until the end of the producer’s fiscal year.
Marginal note:Timely filing of choice to average
(6) If a producer chooses to average its RVC calculations the producer must notify the customs administration of the CUSMA 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.
Marginal note:No modification or rescission
(7) The producer may not modify or rescind the category of passenger vehicles, light trucks, heavy trucks or other vehicle or the period that they have notified the customs authority they intend to use for their averaged RVC calculation.
Marginal note:Net costs and VNM included — RVC
(8) For purposes of sections 13 to 15, if a producer chooses to average its net cost calculation, the net costs incurred and the VNM 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, and
(b) those passenger vehicles, light trucks or heavy trucks to be exported to the territory of one or more of the CUSMA 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 RVC under any of the categories set out in subsection (1).
Marginal note:Averaging based on estimated costs
(9) If the producer of a passenger vehicle, light truck, heavy truck or other vehicle has calculated the RVC 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. If the motor vehicle does not satisfy the RVC requirement on the basis of the actual costs, the producer must 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.
Marginal note:Averaging period
(10) Subject to subsection (11), for the purpose of calculating the RVC 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) to (d).
Marginal note:Condition
(11) The calculation may be averaged under subsection (10) provided that the good was produced during the fiscal year, quarter or month forming the basis for the calculation in which
(a) the average in paragraph (10)(a) is calculated separately for those goods sold to one or more passenger vehicle, light truck or heavy truck producer; or
(b) the average in paragraph (10)(a) or (b) is calculated separately for those goods that are exported to the territory of another CUSMA country.
Marginal note:Example
(12) The following example is an “example” as referred to in subsection 1(4):
- Subsection 16(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 RVC over the 18-month period beginning on July 1, 2020 and ending on December 31, 2021.
Steel and Aluminum
Marginal note:Passenger vehicle, light truck or heavy truck
17 (1) In addition to meeting the requirements of sections 13 to 16 or Schedule 1, a passenger vehicle, light truck or heavy truck is originating only if, during a time period under subsection (7) , 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 CUSMA countries of steel and aluminum listed in Table S are of originating goods.
Marginal note:Automotive parts
(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.
Marginal note:Application
(3) 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 and purchases by the vehicle producer from a steel service centre or a steel distributor. It 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.
Marginal note:Other uses
(4) 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 moulds.
Marginal note:Steel — originating
(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 and ending on June 30, 2027, the good satisfies the applicable requirements established in section 13 or Schedule 1 and all other applicable requirements of these Regulations; and
(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 CUSMA 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.
Marginal note:Value of steel and aluminum
(6) A vehicle producer must calculate the value of steel and aluminum purchases in subsection (1) using
(a) for steel or aluminum imported or acquired in the territory of a CUSMA country,
(i) the price paid or payable by the producer in the CUSMA 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; and
(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.
Marginal note:Calculation period
(7) For the purposes of subsection (1), the producer may calculate the purchases made
(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.
Marginal note:Estimates
(8) If the producer chooses to base a steel or aluminium calculation on paragraph (7)(c), (d) or (e), that calculation may be based on the producer’s estimated purchases for the applicable period.
Marginal note:Option for calculation
(9) For the purposes of 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 CUSMA countries;
(b) all motor vehicles exported to the territory of one or more CUSMA 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 CUSMA countries; or,
(d) all motor vehicles in a category set out in subsection 16(1) exported to the territory of one or more CUSMA countries.
Marginal note:Different periods
(10) The producer may choose different periods for the purposes of its steel and aluminium calculations.
Marginal note:Year end analysis
(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. If the passenger vehicle, light truck, or heavy truck does not satisfy the steel or aluminum requirement on the basis of the actual purchases, the purchaser must 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.
Labour Value Content
Marginal note:LVC requirements — passenger vehicles
18 (1) In addition to the requirements in sections 13 to 17 and Schedule 1, a passenger vehicle is originating only if the vehicle producer certifies that the passenger vehicle meets an LVC requirement of
(a) 30%, consisting of at least 15 percentage points of high-wage material and labour 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 and ending on June 30, 2021;
(b) 33%, consisting of at least 18 percentage points of high-wage material and labour 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 and ending on June 30, 2022;
(c) 36%, consisting of at least 21 percentage points of high-wage material and labour 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 and ending on June 30, 2023; and
(d) 40%, consisting of at least 25 percentage points of high-wage material and labour 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.
Marginal note:LVC requirement — light trucks or heavy trucks
(2) In addition to the requirements set out in sections 13 through 17 and Schedule 1, a light truck or heavy truck is originating only if the vehicle producer certifies that the truck meets an LVC requirement of 45%, consisting of at least 30 percentage points based on high-wage material and labour expenditures, no more than 10 percentage points based on technology expenditures and no more than 5 percentage points based on high-wage assembly expenditures.
Marginal note:Calculation of LVC requirement
(3) For purposes of an LVC calculation for a passenger vehicle, light truck or heavy truck, a producer must include
(a) an amount for high-wage materials used in production;
(b) an amount for high-wage labour 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; or
(e) a credit for high-wage assembly expenditures.
Marginal note:High wage materials
(4) 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 CUSMA country.
Marginal note:Certification periods
(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 from July 1, 2020 until December 31, 2020 or from July 1, 2020 until June 30, 2021. In subsequent periods, the certification of a qualifying-wage-rate production plant based on a 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.
Marginal note:LVC calculation
(6) For the purpose of meeting the LVC requirement a producer must use one of the following formulas:
(a) the requirement based on net cost is determined by the formula
LVC = (((HWLC + HWM) ) ÷ NC X 100) + HWTC + HWAC
where
- HWLC
- is the sum of the high-wage labour costs incurred in the assembly of the vehicle;
- HWM
- is the sum or the high-wage material expenditures used in production;
- NC
- is the net cost of the vehicle;
- HWTC
- is the credit for high-wage technology expenditures; and
- HWAC
- is the credit for high-wage assembly expenditures.
(b) the requirement based on total annual purchase value is determined by the formula
LVC = (((APV + HWLC) ) ÷ ((TAPV + HWLC)) X 100) + HWTC + HWAC
where
- APV
- is the annual purchase value of high-wage material expenditures;
- HWLC
- is the sum of the high-wage labour costs incurred in the assembly of the vehicle which may be included in the numerator at the choice of the producer and, if included, must also be included in the denominator;
- TAPV
- is the total vehicle plant assembly annual purchase value of parts and materials for use in the production of the vehicle;
- HWTC
- is the credit for high-wage technology expenditures; and
- HWAC
- is the credit for high-wage assembly expenditures.
Marginal note:High-wage material expenditures
(7) The high wage material expenditures is calculated by adding the APV or net cost, depending on the formula used, of
(a) a self-produced high-wage material used in the production of a vehicle;
(b) an imported or acquired high-wage material used in the production of a vehicle;
(c) 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) a high wage material used in the production of a part or material that is subsequently used in the production of a vehicle.
Marginal note:Recommendation
(8) It is suggested, but not required, that the vehicle producer calculate the high-wage material and labour expenditures in the order described in subsection (7). A vehicle producer need not calculate the elements in paragraph (7)(b) to (d) if the previous element or elements is sufficient to meet the LVC requirement.
Marginal note:High-wage technology expenditures credit
(9) The HWTC is based on annual vehicle producer expenditures at the corporate level in one or more CUSMA countries on wages paid by the producer for research and development or information technology, calculated as a percentage of total annual vehicle producer expenditures on wages paid to direct production workers in one or more CUSMA countries. Expenditures on capital or other non-wage costs for research and development or information technology are not included.
Marginal note:HWTC calculation
(10) The HWTC is determined by the formula
Marginal note:Wages for research and development
(11) For the purposes of subsection (10), expenditures on wages for research and development include wage expenditures on prototype development, design, engineering, testing and certifying operations.
Marginal note:HWAC — passenger vehicles or light trucks
(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 — a contract of a minimum of three years — with such a plant.
Marginal note:HWAC — heavy trucks
(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 — a contract with a minimum of three years — for those parts with such a plant.
Marginal note:Minimum number of parts
(14) A high-wage assembly plant for passenger vehicle or light truck parts or for heavy truck parts need only have the capacity to produce the minimum amount of parts specified in the definitions of those terms in section 12. 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.
Marginal note:Averaging for LVC requirements
(15) For the purposes 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 CUSMA countries:
(a) the same model line of vehicles in the same class of vehicles produced in the same plant in the territory of a CUSMA country;
(b) the same class of vehicles produced in the same plant in the territory of a CUSMA country;
(c) the same model line of vehicles or same class of vehicles produced in the territory of a CUSMA country; or
(d) any other category as the CUSMA countries may decide.
Marginal note:Election requirements
(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, or
(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 CUSMA 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 LVC 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 CUSMA country to which vehicles in that category are to be exported during the period covered by the election, at least 10 days before the day on which the producer’s fiscal year begins or such shorter period as that customs administration may accept.
Marginal note:No recisions or modifications
(17) An election filed for the vehicles referred to in subsection (15) may not be rescinded or modified with respect to the category or basis of calculation.
Marginal note:LVC and net cost
(18) If a producer files an election under paragraph (16)(a), it must include the LVC 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 CUSMA countries that fall within the category chosen by the producer.
Marginal note:LVC periods
(19) For the purposes of determining the LVC in this section, the producer may base the calculation on
(a) the previous fiscal year of the producer;
(b) the previous calendar year;
(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.
Marginal note: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 CUSMA countries. Based on this aggregate amount, the producer may attribute an amount for transportation or related costs for shipping for the purposes of the LVC calculation. Transportation or related costs for shipping incurred in transporting a material from outside the territories of the CUSMA countries to the territory of a CUSMA country are not included in this calculation.
Marginal note:Value of materials
(21) The value of both originating and non-originating materials must be taken into account for the purpose of calculating the LVC 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).
Marginal note:Excess LVC
(22) For the period ending July 1, 2027, if a producer certifies an LVC for a heavy truck that is higher than 45% 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 RVC percentages under section 13, provided that the RVC percentage is not below 60%.
Alternative Staging Regime
Marginal note:Eligible vehicles
19 (1) For the purposes of this section, eligible vehicles are passenger vehicles or light trucks for which an alternative staging regime has been approved by the CUSMA countries.
Marginal note:Applicable requirements
(2) Despite sections 13 to 18, eligible vehicles are subject to the requirements set out in subsection (4) from July 1, 2020 until 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.
Marginal note:Non-eligible vehicles
(3) Passenger vehicles or light trucks that are not eligible vehicles may qualify as originating under the rules of origin established in sections 13 to 18 and any other applicable requirements established in these Regulations.
Marginal note:Requirements
(4) Eligible vehicles are considered originating if they meet the following requirements:
(a) an RVC of not less than 62.5 percent, under the net cost method;
(b) for parts listed in Table A.1,
(i) an RVC of not less than 62.5%, if the net cost method is used,
(ii) an RVC of not less than 72.5%, if the transaction value method is used and the corresponding rule includes a transaction value method, and
(iii) in the case of a lithium-ion batteries of subheading 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% of a vehicle producer’s purchases of steel and at least 70% of a vehicle producer’s purchases of aluminum, by value, must qualify as originating under the rules of origin established in Schedule 1 unless the producer has been exempted from this requirement under an approved alternative staging regime; and
(d) an LVC of at least 25%, consisting of at least 10 percentage points of high-wage material and manufacturing expenditures, no more than 10 percentage points of high-wage technology expenditures and no more than five percentage points of high-wage assembly expenditures.
Marginal note:Exemption — core parts
(5) Eligible vehicles are exempt from the core parts requirement set out in section 14.
Marginal note:Methods and calculations
(6) All methods and calculations for the requirements applicable to eligible vehicles are to be based on the applicable provisions in these Regulations.
Marginal note:Transitional
(7) Vehicles that are presently covered under the alternative staging regime described in Article 403.6 of the North American Free Trade Agreement as of November 30, 2019 may continue to use this regime, including any regulations that were in effect prior to entry into force of the Agreement, according to each CUSMA 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 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.
RVC for Other Vehicles
Marginal note:VNM
20 (1) The VNM used by the producer in the production of other vehicles and parts thereof shall not, for the purposes of calculating the RVC of the good, include the VNM used to produce originating materials that are subsequently used in the production of the good.
Marginal note:RVC requirements
(2) Despite section 13 and Schedule 1, the RVC requirement is 62.5% 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 or a prison van of subheading 8703.21 through 8703.90;
(f) a vehicle solely or principally for off-road use of subheading 8703.21 through 8703.90;
(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 referred to in paragraphs (a) to (g).
Marginal note:RVC requirements
(3) Despite section 13 and Schedule 1, the RVC requirement is 60% 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 (a); or
(c) except for a good in paragraph (b) or of subheading 8482.10 through 8482.80, 8483.20 or 8483.30, a good in Table F that is subject to an RVC requirement and that is for use in a motor vehicle in paragraphs (2)(a) to (g) or (3)(a).
Marginal note:RVC calculation
(4) For the purpose of calculating the RVC under the net cost method for a good that is a motor vehicle referred to in paragraphs (2)(a) to (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) to (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 VNM used by the producer in the production of the good is 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, either
(i) the value of such material that is non-originating, or
(ii) the VNM 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.
Marginal note:VNM
(5) For greater certainty, despite subsection (4), for the purposes of a good that is a motor vehicle provided for in paragraphs (2)(a) through (g) or (3)(a), the VNM is the sum of the values of all non-originating materials used by the producer in the production of the vehicle.
Marginal note:Averaging calculation
(6) For the purpose of calculating the RVC of a motor vehicle covered by subsection (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 CUSMA 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 CUSMA country;
(b) the same class of motor vehicles produced in the same plant in the territory of a CUSMA country; or
(c) the same model line of motor vehicles produced in the territory of a CUSMA country.
Marginal note:Averaging calculation
(7) For the purpose of calculating the RVC 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 CUSMA countries.
Marginal note:RVC requirement
(8) The RVC requirement for a motor vehicle identified in subsection (2) or (3) is
(a) 50% 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 CUSMA 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% 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, than was assembled by the motor vehicle assembler in the plant before the refit.
TABLE A.1Core parts for passenger vehicles and light trucks
Note: The RVC requirements set out in sections 13 or 14 or Schedule 1 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 1 is the alternative that includes the phrase “for any other good.”
| Harmonized system 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 |
TABLE A.2Parts and components for determining the origin of passenger vehicles and light trucks under sections 13 or 14 or Schedule 1
Note: 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.
| Column 1 (the parts listed in this column may be referred to collectively as a super-core part) | Column 2 | |
|---|---|---|
| Parts | Components | 6-DIGIT HS SUBHEADING |
| Engines | Spark-ignition reciprocating or rotary internal combustion piston engines and Compression-ignition internal combustion piston engines (diesel or semi-diesel engines) |
|
| Heads |
| |
| Blocks |
| |
| Crankshafts | ex 8483.10 | |
| Crankcases |
| |
| Pistons | ex 8409.91 | |
| Rods |
| |
| Head subassembly |
| |
| Transmissions | Gear boxes | ex 8708.40 |
| Transmission cases | ex 8708.40 | |
| Torque converters |
| |
| Torque converter housings |
| |
| Gears and gear blanks |
| |
| Clutches, including continuously variable transmissions, but not parts thereof | ex 8708.93 | |
| Valve body assembly |
| |
| Body and chassis | Major stampings that form the “body in white” or chassis frame |
|
| Major body panel stampings |
| |
| Secondary panel stampings | ex 8708.29 | |
| Structural panel stampings |
| |
| Stamped Frame components |
| |
| Axles | Drive-axles with differential, whether or not provided with other transmission components, and non-driving axles | ex 8708.50 |
| Axle shafts | ex 8708.50 | |
| Axle housings | ex 8708.50 | |
| Axle hubs |
| |
| Carriers | ex 8708.50 | |
| Differentials | ex 8708.50 | |
| Suspension systems | Suspension systems (including shock absorbers) | ex 8708.80 |
| 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, steering columns and steering boxes | ex 8708.94 |
| Steering columns | ex 8708.94 | |
| Steering gears/racks | ex 8708.94 | |
| Control units |
| |
| Advanced batteries | 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 |
|
TABLE BPrincipal parts for passenger vehicles and light trucks
Note: The RVC requirements set out in section 13 or 14 or Schedule 1 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 1 is the alternative that includes the phrase “for any other good.”
| Harmonized system 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 750W 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 |
TABLE CComplementary parts for passenger vehicles and light trucks
Note: The RVC requirements set out in sections 13 or 14 or Schedule 1 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 1 is the alternative that includes the phrase “for any other good.”
| Harmonized system 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 |
| 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 |
TABLE DPrincipal parts for heavy trucks
Note: The RVC requirements set out in sections 13 or 15 or Schedule 1 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 1 is the alternative that includes the phrase “for any other good.”
| Harmonized system 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 |
| 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 750W 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 |
TABLE EComplementary parts for heavy trucks
Note: The RVC requirements set out in sections 13 or 15 or Schedule 1 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 1 is the alternative that includes the phrase “for any other good.”
| Harmonized system 2012 | Description |
|---|---|
| 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 |
TABLE FParts for other vehicles
Note: The RVC requirements set out in section 20 or Schedule 1 apply to a good for use in a vehicle specified in subsections 20(2) and (3).
| Harmonized system 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 2,000cc |
| 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 |
| 8414.59.aa | Other fans (turbochargers and superchargers for motor vehicles, where not provided for under subheading 8414.80) |
| 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) |
| 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 |
| 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 750W but not exceeding 75 kW of a kind used for the propulsion of vehicles of Chapter 87 |
| 8507.20.aa, 8507.30.aa, 8507.40.aa and 8507.80.aa | Batteries that provide primary source for 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 GList of components and materials for other vehicles
- Component: Engines provided for in heading 84.07 or 84.08
1 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.
- Component: Gear boxes (transmissions) provided for in subheading 8708.40
2 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.
TABLE SSteel and Aluminum
Note: The following table lists the HS subheadings for steel and aluminum subject to the CUSMA 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.
| Description | Harmonized System (6 digits) | |
|---|---|---|
| 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 | 7210.30 | |
| Otherwise plated or coated with zinc, Other (Not Corrugated) | 7210.49 | |
| Other plated or coated with aluminum | 7210.69 | |
| Other: Clad; Other: Electrolytically coated or plated with base metal, Other | 7210.90 | |
| 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 | 7211.14 | |
| Other | 7211.19 | |
| Not further worked than cold-rolled (cold-reduced), Containing by weight less than 0.25 percent of carbon: | 7211.23 | |
| 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 | 7212.20 | |
| Otherwise plated or coated with zinc | 7212.30 | |
| Bars and rods, hot-rolled, in irregularly wound coils, of iron or non-alloy steel: | ||
| Other, of free-cutting steel | 7213.20 | |
| 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-cutting steel | 7214.30 | |
| Of rectangular (other than square) cross-section | 7214.91 | |
| Other: Other | 7214.99 | |
| Flat-rolled products of other alloy steel, of a width of 600 mm or more | ||
| Other, not further worked than hot-rolled, in coils: | 7225.30 | |
| Other, not further worked than hot-rolled, not in coils: | 7225.40 | |
| Other, not further worked than cold-rolled (cold-reduced): | 7225.50 | |
| Electrolytically plated or coated with zinc | 7225.91 | |
| Other: Otherwise plated or coated with zinc | 7225.92 | |
| Other: Other | 7225.99 | |
| 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): | 7226.91 | |
| Not further worked than cold-rolled (cold-reduced) | 7226.92 | |
| Other | 7226.99 | |
| Bars and rods, hot-rolled, in irregularly wound coils, of other alloy steel | ||
| Of silico-manganese steel | 7227.20 | |
| 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 high speed steel | 7228.10 | |
| Bars and rods, of silico-manganese steel | 7228.20 | |
| Other bars and rods, not further worked than hot-rolled, hot-drawn or extruded | 7228.30 | |
| 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 circular cross section, of iron or nonalloy steel | 7306.30 | |
| Other, welded, of circular cross section, of other alloy steel | 7306.50 | |
| 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” | ex 8708.29 | |
| Stamped frame components that form the chassis frame | ex 8708.99 |
| Description | HS HEADING OR SUBHEADING | |
|---|---|---|
| Aluminum | ||
| Unwrought aluminum | 76.01 | |
| Aluminum waste and scrap | 76.02 | |
| Aluminum bars, rods and profiles | 76.04 | |
| Aluminum wire | 76.05 | |
| Aluminum plates, sheets and strips, of a thickness exceeding 0.2 mm | 76.06 | |
| Aluminum tubes and pipes | 76.08 | |
| 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” | ex 8708.29 | |
| Stamped frame components that form the chassis frame | ex 8708.99 |
PART 7Coming into Force
Marginal note:S.C. 2020, c. 1
Footnote *21 These Regulations come into force on the day on which section 186 of the Canada–United States–Mexico Agreement Implementation Act comes into force, but if they are registered after that day, they come into force on the day on which they are registered.
Return to footnote *[Note: Regulations in force July 1, 2020, see SI/2020-33, as amended by SI/2020-46.]
SCHEDULE 1(Subsections 1(1) and 3(2), paragraph 3(4)(a), subsections 3(6) and (9), 4(3) and (4), 5(2), (9), (10) and (15), 6(2) and (5) and 7(6), paragraph 8(24)(b), subsections 8(28), 14(2), (3), (5), (6), (9), (14) and (16), 15(2) to (4) and 17(1), paragraph 17(5)(a), subsections 18(1) and (2), paragraph 19(4)(c), subsections 20(2) and (3) and Tables A.1 to F of Part 6)Product-Specific Rules of Origin
1 The contents of this Schedule are deemed to be the contents of sections A, B and C of Annex 4-B of the Agreement with the following adaptations and the rules of interpretation under section 2, except that in the case of a good in subheading 1517.10 traded between Canada and the United States, the rule of origin is a change from heading 15.11 or any other Chapter:
(a) any reference to Party or Parties is to be read, respectively, as a CUSMA country or CUSMA countries;
(b) in paragraph (h) of section A, the references “in Tables A.1, B, C, D, E, F or G of the Appendix to this Annex” and “the provisions of the Appendix to this Annex” are to be read, respectively, as “in Tables A.1, B, C, D, E, F or G of Part 6 of these Regulations” and “the provisions of Part 6 of these Regulations”;
(c) in the notes in Chapters 7 and 8, the note in subheading 0910.99 of Chapter 9, the note in headings 11.01-11.09 of Chapter 11, the note in subheadings 1209.10-1209.30 of Chapter 12, the note in subheadings 1302.11-1302.32 of Chapter 13, notes 1 and 2 in subheadings 20.01-20.07 of Chapter 20 and the note in heading 27.10 of Chapter 27, the references to subparagraph (k) of Annex 4-A and paragraph 1 of Article 4.12 are to be read, respectively, as subsection 5(3) of these Regulations and subsection 5(1) of these Regulations;
(d) in footnotes 1 to 50 of section B, the reference “the provisions of the Appendix to this Annex” is to be read as “the provisions of Part 6 of these Regulations”;
(e) in the note in subheading 8523.52, the note in subheadings 8541.10-8542.90, the note in subheadings 8543.90 and the note in subheading 8548.90 of Chapter 85, the reference to Article 4.18 is to be read as a reference to section 10 of these Regulations.
(f) in Chapter 87, the reference “The Appendix” is to be read as “Part 6 of these Regulations”.
2 The following rules of interpretation apply in this Schedule:
(a) for the purposes of Chapter 61, Note 2 or Chapter 62, Note 3, a fabric of subheading 5806.20 or heading 60.02 is considered formed from yarn and finished in the territory of one or more of the CUSMA countries 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 CUSMA 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, sewing thread is considered formed and finished in the territory of one or more of the CUSMA countries 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 CUSMA 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 purposes of Chapter 61, Note 4 and Chapter 62, Note 5, pocket fabric is formed and finished in the territory of one or more of the CUSMA countries 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 CUSMA countries and includes non-originating fibre used in the production of the yarn used to produce the pocket fabric;
(d) for the purposes of Chapter 61, Note 4 or Chapter 62, Note 5, 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), but visible pockets such as patch pockets, cargo pockets, or typical shirt pockets are not subject to these notes;
e) for the purposes of Chapter 61, Note 4 or Chapter 62, Note 5, yarn is considered wholly formed in the territory of one or more of the CUSMA countries 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 fibres into yarn, or both, and ending with a finished single or plied yarn, took place in the territory of one or more of the CUSMA 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, a fabric of heading 59.03 is considered formed and finished in the territory of one or more of the CUSMA countries 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 CUSMA countries, even if non-originating fibre or yarn is used in the production of the fabric of heading 59.03.
SCHEDULE 2(Subsections 3(7) and (9))
Goods Set Out in Table 2.10.1 of Chapter 2 of the Agreement
| |
|---|---|
8471.30 | |
8471.41 | |
8471.49 | |
| |
8471.50 | |
| |
| Combined Input/Output Units | |
8471.60.00 | |
| Display Units | |
8528.42.00 | |
8528.52.00 | |
8528.62.00 | |
| Other Input or Output Units | |
8471.60.00 | |
| |
8471.70 | |
| |
8471.80 | |
| |
8443.99 | parts of machines of subheadings 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 |
8529.90.10 8529.90.50 8529.90.90 | parts of monitors and projectors of subheadings 8528.42, 8528.52 and 8528.62 |
| |
8504.40.30 | |
8504.40.90 | |
8504.90.10 | |
8504.90.20 | |
8504.90.90 | |
SCHEDULE 3(Subparagraphs 5(1)(a)(i) and (4)(a)(i), subsection 7(2), paragraph 7(7)(a) and Schedules 4 and 5)Value of Goods
1 Unless otherwise stated, the following definitions apply in this Schedule.
- buyer
buyer refers to a person who purchases a good from the producer. (acheteur)
- buying commissions
buying commissions means fees paid by a buyer to that buyer’s agent or mandatary for the agent or mandatary’s services in representing the buyer in the purchase of a good. (commission d’achat)
- producer
producer refers to the producer of the good being valued. (producteur)
2 For the 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, are not 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, if the buyer, by agreement with the producer, undertakes activities relating to the marketing of the good, the costs of such activities are not to be added to the price actually paid or payable.
(3) The transaction value is not to include the following charges or costs, if 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) if 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 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) materials, other than indirect materials, used in the production of the good,
(ii) tools, dies, moulds and similar indirect materials used in the production of the good,
(iii) indirect materials, other than any of the indirect materials referred to in subparagraph (ii) or in paragraph (c), (e) or (f) of the definition indirect material 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 CUSMA 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 CUSMA 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 in the territory of the CUSMA country in which the producer is located who is not a related person, 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 in the territory of the CUSMA country in which the producer is located who is not a related person 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 CUSMA 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) to (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 and 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 the 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) is
(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 5, 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 5; 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 5, 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 5.
(9) Except as otherwise provided in subsections (11) and (12), the value of the elements referred to in subparagraphs (1)(b)(ii) to (iv) is
(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) to (iv) were previously used by or on behalf of the buyer, the value of those 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 buyer or a person related to the buyer, the value of those 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) to (iv), if 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 if contracts or firm commitments exist for that production. For an illustration of this, a buyer provides the producer with a mould 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 mould 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.
(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 4(Subsection 8(4))Unacceptable Transaction Value
1 Unless otherwise stated, the following definitions apply in this Schedule.
- buyer
buyer refers to a person who purchases a good from the producer. (acheteur)
- producer
producer refers to the producer of the good being valued. (producteur)
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 disposal 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 CUSMA 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 3; 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 conditions or considerations referred to in paragraph (2)(b) include the following circumstances:
(a) the producer establishes the price actually paid or payable for the good on condition that the buyer will also buy other goods in specified quantities;
(b) the price actually paid or payable for the good is dependent on the price or prices at which the buyer sells other goods to the producer; and
(c) the price actually paid or payable is established on the basis of a form of payment extraneous to the good, such as when 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 the purposes of paragraph (2)(b), conditions or considerations relating to the production or marketing of the good do 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 3, the transaction value cannot be determined under 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 5(Subsections 5(11), 7(11) and (22) and 8(8) and Schedules 3 and 6)Reasonable Allocation of Costs
Interpretation
1 The following definitions apply in this Schedule.
- costs
costs means any costs that are included in total cost and that can or must be allocated in a reasonable manner under subsections 5(11), 7(11) and 8(8) of these Regulations, subsection 4(8) of Schedule 3 and subsections 4(8) and 9(3) of Schedule 6. (coûts)
- discontinued operation
discontinued operation, in the case of a producer located in a CUSMA country, has the meaning set out in that CUSMA country’s Generally Accepted Accounting Principles. (activité abandonnée)
- indirect overhead
indirect overhead means period costs and other costs. (frais généraux indirects)
- internal management purpose
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. (fins de gestion interne)
- overhead
overhead means costs, other than direct material costs and direct labour costs. (frais généraux)
2 (1) In this Schedule, a reference to “producer”, for the purposes of subsection 4(8) of Schedule 3, is to be read as a reference to “buyer”.
(2) In this Schedule, a reference to “good”
(a) for the 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 the purposes of subsection 8(8) of these Regulations, is to be read as a reference to “intermediate material”;
(c) for the 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 the purposes of subsection 4(8) of Schedule 3, is to be read as a reference to “packaging materials and containers or the elements”; and
(e) for the purposes of subsection 4(8) of Schedule 6, is to 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 labour costs, or part thereof, and that method reasonably reflects the direct labour 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 labour costs, on the basis of any method that reasonably reflects the direct labour 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 are considered reasonably allocated if
(a) for the 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 if the service is not related to the good;
(b) gains or losses resulting from the disposal of a discontinued operation, except gains or losses related to the production of the good;
(c) cumulative effects of accounting changes reported in accordance with a specific requirement of the applicable Generally Accepted Accounting Principles; and
(d) gains or losses resulting from the sale of a capital asset of the producer.
8 Any costs allocated under section 3 on the basis of a cost allocation method that is used for an internal management purpose solely to qualify a good as an originating good are considered not to be reasonably allocated.
APPENDIX ACost 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, if 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 labour hours
- Direct labour 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 Labour Hours
A producer who produces Good A and Good B may allocate overhead on the basis of direct labour hours spent to produce Good A and Good B. A total of 8,000 direct labour 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 = 0.625
Good B: 3,000 hours ÷ 8,000 hours = 0.375
Allocation of overhead to Good A and Good B:
Good A: $6,000,000 × 0.625 = $3,750,000
Good B: $6,000,000 × 0.375 = $2,250,000
Example 2: Direct Labour 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 labour 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 = 0.833
Good B: $10,000 ÷ $60,000 = 0.167
Allocation of Overhead to Good A and Good B:
Good A: $6,000,000 × 0.833 = $4,998,000
Good B: $6,000,000 × 0.167 = $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 = 0.667
Good B: 50,000 units ÷ 150,000 units = 0.333
Allocation of overhead to Good A and Good B:
Good A: $6,000,000 × 0.667 = $4,002,000
Good B: $6,000,000 × 0.333 = $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 = 0.40
Good B: 1,800 machine-hours ÷ 3,000 machine-hours = 0.60
Allocation of machine-related overhead to Good A and Good B:
Good A: $6,000,000 × 0.40 = $2,400,000
Good B: $6,000,000 × 0.60 = $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 per unit and 200 units of Good B at $3,000 per unit. The amount of overhead to be allocated is $6,000,000.
Total sales dollars for Good A and Good B:
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 = 0.93
Good B: $600,000 ÷ $8,600,000 = 0.07
Allocation of overhead to Good A and Good B:
Good A: $6,000,000 × 0.93 = $5,580,000
Good B: $6,000,000 × 0.07 = $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 ft2: 40,000 ft2 with respect to Good A and 60,000 ft2 with respect to Good B. The amount of overhead to be allocated is $6,000,000.
Calculation of the ratios:
Good A: 40,000 ft2 ÷ 100,000 ft2 = 0.40
Good B: 60,000 ft2 ÷ 100,000 ft2 = 0.60
Allocation of overhead (utilities) to Good A and Good B:
Good A: $6,000,000 × 0.40 = $2,400,000
Good B: $6,000,000 × 0.60 = $3,600,000
APPENDIX BDirect Labour and Direct Material Ratio Method
Calculation of Direct Labour and Direct Material Ratio
For each good produced by the producer, a direct labour and direct material ratio is calculated by the formula
DLDMR = (DLC + DMC) ÷ (TDLC + TDMC)
where
- DLDMR
- is the direct labour and direct material ratio for the good;
- DLC
- is the direct labour costs of the good;
- DMC
- is the direct material costs of the good;
- TDLC
- is the total direct labour 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 as determined 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 labour 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 labour and direct material ratio used to allocate overhead to the good is used to determine the amount of excluded costs to be subtracted from the overhead allocated to the good.
Examples
Example 1
The following example illustrates the application of the direct labour and direct material ratio method used by a producer of a good to allocate overhead if 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 labour costs (DLC) | 5 | 5 | 10 |
| Direct material costs (DMC) | 10 | 5 | 15 |
| Totals | 15 | 10 | 25 |
Overhead allocated to Good A
OAG (Good A) = O ($30) × DLDMR ($15 ÷ $25)
OAG (Good A) = $18.00
Overhead allocated to Good B
OAG (Good B) = O ($30) × DLDMR ($10 ÷ $25)
OAG (Good B) = $12.00
Example 2
The following example illustrates the application of the direct labour and direct material ratio method used by a producer of a good to allocate overhead if the producer chooses to calculate the net cost of the good in accordance with paragraph 7(11)(b) of these Regulations and if 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
APPENDIX CDirect 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 labour costs of the good;
- DMC
- is the direct material costs of the good;
- DO
- is the direct overhead related to the good;
- TDLC
- is the total direct labour 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 related to all goods produced by the producer.
Allocation of Indirect Overhead to a Good
Indirect overhead is allocated to a good as determined 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,
(a) if excluded costs are included in direct overhead to be allocated to a good, those excluded costs are subtracted from the direct overhead allocated to the good; and
(b) if excluded costs are included in 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 if 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 labour costs (DLC) | 5 | 5 | 10 |
| Direct material costs (DMC) | 10 | 5 | 15 |
| Direct overhead (DO) | 8 | 2 | 10 |
| Totals | 23 | 12 | 35 |
Indirect overhead allocated to Good A
IOAG (Good A) = IO ($30) × DCR ($23 ÷ $35)
IOAG (Good A) = $19.71
Indirect overhead allocated to Good B
IOAG (Good B) = IO ($30) × DCR ($12 ÷ $35)
IOAG (Good B) = $10.29
Example 2
The following example illustrates the application of the direct cost ratio method used by a producer of a good to allocate indirect overhead if the producer chooses to calculate the net cost of the good in accordance with paragraph 7(11)(b) of these Regulations and if 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
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 6(Paragraph 7(7)(b), subsections 7(22), 8(4) and (28) and Schedule 5)Value of Materials
1 Unless otherwise stated, the following definitions apply in this Schedule.
- buying commissions
buying commissions means fees paid by a producer to that producer’s agent or mandatary for the agent or mandatary’s services in representing the producer in the purchase of a material. (commission d’achat)
- materials of the same class or kind
materials of the same class or kind means, with respect to materials being valued, materials that are within a group or range of materials that
(a) is produced by a particular industry or industry sector; and
(b) includes identical materials or similar materials. (matières de même nature ou de même espèce)
- producer
producer refers to the producer who uses the material in the production of a good that is subject to a regional value content requirement. (producteur)
- seller
seller refers to a person who sells the material being valued to the producer. (vendeur)
2 (1) Except as otherwise provided in 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 disposal 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 CUSMA 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 conditions or considerations referred to in paragraph (3)(b) include the following circumstances:
(a) the seller establishes the price actually paid or payable for the material on condition that the producer will also buy other materials or goods in specified quantities;
(b) the price actually paid or payable for the material is dependent on the price or prices at which the producer sells other materials or goods to the seller of the material; and
(c) the price actually paid or payable is established on the basis of a form of payment extraneous to the material, such as if 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 the purposes of paragraph (3)(b), conditions or considerations relating to the use of the material must not render the transaction value unacceptable, such as if 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) materials, other than indirect materials, used in the production of the material being valued,
(ii) tools, dies, moulds and similar indirect materials used in the production of the material being valued,
(iii) indirect materials, other than those referred to in subparagraph (ii) or in paragraph (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, plans and sketches made outside the territory of the CUSMA 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 CUSMA 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 under this section to the price actually paid or payable 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 under subsection (1) to the price actually paid or payable, 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) if the elements are imported from outside the territory of the CUSMA country in which the seller is located, the customs value of the elements;
(b) if 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 CUSMA country in which the seller is located, the price actually paid or payable for the elements;
(c) if the producer, or a related person on behalf of the producer, acquires the elements other than through a purchase from a person who is not a related person in the territory of the CUSMA country in which the seller is located, 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) if the elements are produced by the producer, or by a related person, in the territory of the CUSMA country in which the seller is located, the total cost of 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) to (d), 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:
(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, less 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) is
(a) if the elements are produced by the producer, at the choice of the producer,
(i) the total cost that was incurred with respect to all goods produced by the producer and calculated on the basis of the costs that are recorded on the books of the producer and that can be reasonably allocated to the elements in accordance with Schedule 5, or
(ii) the aggregate of each cost that was incurred by the producer and 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 and that can be reasonably allocated to the elements in accordance with Schedule 5; 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 that was incurred with respect to all goods produced by that related person and calculated on the basis of the costs that are recorded on the books of that person and that can be reasonably allocated to the elements in accordance with Schedule 5, or
(ii) the aggregate of each cost that was incurred by that related person and 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 and that can be reasonably allocated to the elements in accordance with Schedule 5.
(9) Except as provided in subsections (11) and (12), the value of the elements referred to in subparagraphs (1)(b)(ii) to (iv) is
(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) to (iv) were previously used by or on behalf of the producer, the value of those 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 those elements is 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) to (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 if contracts or firm commitments exist for that production. For an illustration of this, a producer provides the seller with a mould 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 mould 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 if 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 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.
(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 must 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 an adjustment under subsection (2) to take into account different commercial levels or different quantities is that the adjustment be made only on the basis of evidence that clearly establishes that the 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 of those values 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. If 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 an adjustment under subsection (2) to take into account different commercial levels or different quantities is that the adjustment be made only on the basis of evidence that clearly establishes that the 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 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, if the value cannot be determined under that section, under section 10 unless, 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 CUSMA 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, if the producer does not sell those identical materials or similar materials, by a person at the same commercial 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 persons 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 CUSMA 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 CUSMA 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 CUSMA 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) For the purposes of subsection (1) unit price at which those identical materials or similar materials are sold, in the greatest aggregate quantity 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.
Sale Quantity Unit Price ($) Number of Sales Total 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 CUSMA 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 CUSMA 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) if the material being valued is imported by the producer into the territory of the CUSMA country in which the producer is located, to persons located in the territory of the CUSMA 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) if the material being valued is acquired by the producer from another person located in the territory of the CUSMA country in which the producer is located, to persons located in the territory of the CUSMA 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) The value referred to in subsection (1) must include the following costs, to the extent they are not already included under paragraph (1)(a) or (b) and, provided that the elements are supplied directly or indirectly to the producer of the material being valued free of charge or at a reduced cost for use in the production of that material:
(a) the value of the elements referred to in subparagraph 4(1)(b)(i) as determined in accordance with subsections 4(6) and (7); and
(b) the value of the elements referred to in subparagraphs 4(1)(b)(ii) to (iv) as determined in accordance with subsection 4(9) and reasonably allocated to the material in accordance with subsection 4(13).
(3) For the 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 5.
(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 CUSMA country, the information must be prepared in accordance with the Generally Accepted Accounting Principles set out in the publications listed for that territory in Schedule 10.
(5) For the 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 the 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. 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. This is also the case where a material is being launched and the producer accepts 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 inconsistent 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) The question as to whether certain materials are of the same class or kind as the material being valued is determined on a case-by-case basis with reference to the circumstances involved. For the purpose 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 as the material being valued, for which the necessary information can be provided, must 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 to 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 CUSMA 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 CUSMA 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 to 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 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 is 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 90-day requirement could be administered flexibly.
SCHEDULE 7(Paragraphs 5(13)(a) and (d) and subsections 5(14), and 7(10))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
FIFO method means the method by which the value of non-originating materials first received in materials inventory, as 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. (méthode PEPS)
- identical materials
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. (matières identiques)
- LIFO method
LIFO method means the method by which the value of non-originating materials last received in materials inventory, as 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. (méthode DEPS)
- materials inventory
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. (stock de matières)
- rolling average method
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. (méthode de la moyenne mobile)
General
2 For the 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 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, as 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.
APPENDIXExamples 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 and 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 | Sales | ||
|---|---|---|---|
| (Receipts of Materials A) | (Shipments of Good A) | ||
| Date (m/d/y) | Quantity (units) | Unit CostFootnote for *($) | Quantity (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 | ||
Return to footnote *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 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 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 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 × $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; 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 × $1.10).
Example 3: Rolling average method
The following table identifies the average value of non-originating Materials A as determined under the rolling average method. For the purposes of this example, a new average value of non-originating Materials A is calculated after each receipt.
| Materials Inventory | ||||
|---|---|---|---|---|
| Date (m/d/y) | Quantity (units) | Unit Cost* ($) | Total Value ($) | |
| Beginning Inventory | 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 | |
Return to footnote *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 8(Subsections 5(13) and 8(18))Inventory Management Methods
PART 1Fungible Materials
Definitions
1 The following definitions apply in this Part.
- average method
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. (méthode de la moyenne)
- FIFO method
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. (méthode PEPS)
- LIFO method
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. (méthode DEPS)
- 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. (stock de matières)
- opening inventory
opening inventory means the materials inventory at the time an inventory management method is chosen. (stock d’ouverture)
- origin identifier
origin identifier means any mark that identifies fungible materials as originating materials or non-originating materials. (identificateur d’origine)
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 originating materials:
(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 average method is chosen, only one averaging period in each fiscal year of that producer or person in respect of 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 to 8.
6 (1) Except as otherwise provided in sections 7 and 8, the ratio is calculated with respect to a one- 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- 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- 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- 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- or three-month period.
(2) The ratio calculated with respect to a preceding one- or three-month period under subsection (1) is applied to the fungible materials remaining in materials inventory at the end of the preceding one- 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 subsection 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 the 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 the 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 is calculated under the transaction value method or the net cost method, the ratio is calculated with respect to each shipment of the good by dividing
(a) the total units of originating materials or non-originating materials that are fungible materials and that were in materials inventory prior to the shipment,
by
(b) the total units of originating materials and non-originating materials that are fungible materials and that were in materials inventory prior to the shipment.
(2) The ratio calculated with respect to a shipment of a good under subsection (1) is applied to the fungible materials remaining in materials inventory after the shipment.
Manner of Dealing with Opening Inventory
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, on 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) determining the origin of the fungible materials that make up those receipts; and
(c) considering the origin of those fungible materials to be the origin of the fungible materials in opening inventory.
(2) 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 2Fungible Goods
Definitions
10 The following definitions apply in this Part.
- average method
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. (méthode de la moyenne)
- FIFO method
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. (méthode PEPS)
- finished goods inventory
finished goods inventory means an inventory from which fungible goods are sold or otherwise transferred to another person. (stock de produits finis)
- LIFO method
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. (méthode DEPS)
- opening inventory
opening inventory means the finished goods inventory at the time an inventory management method is chosen. (stock d’ouverture)
- origin identifier
origin identifier means any mark that identifies fungible goods as originating goods or non-originating goods. (identificateur d’origine)
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 and, if the average method is chosen, only one averaging period in each fiscal year of that exporter or person in respect of 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 one- 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- 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- 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- 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- 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- or three-month period.
(2) The ratio calculated with respect to a preceding one- or three-month period under subsection (1) is applied to the fungible goods remaining in finished goods inventory at the end of the preceding one- 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, on 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 AExamples 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 CUSMA country.
| Materials Inventory | Sales | |||
|---|---|---|---|---|
| (Receipts of Material A) | (Shipments of Good A) | |||
| Date (m/d/y) | Quantity (units) | Unit CostFootnote for *($) | Total Value ($) | Quantity (units) |
| 12/18/20 | 100 (OFootnote for 1) | 1.00 | 100 | |
| 12/27/20 | 100 (NFootnote for 2) | 1.10 | 110 | |
| 01/01/21 | 200 (OIFootnote for 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 | |||
| 01/23/21 | 900 | |||
Return to footnote *Unit cost is determined in accordance with section 8 of these Regulations.
Return to footnote 1“O” denotes originating materials.
Return to footnote 2“N” denotes non-originating materials.
Return to footnote 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 × $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 × $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 × $1.10).
Example 2: LIFO method
Good A is subject to a change in tariff classification requirement and the non-originating Material A used in the production of Good A does not undergo the applicable change in tariff classification. Therefore, if originating Material A is used in the production of Good A, Good A is an originating good and, if non-originating Material A is used in the production of Good A, Good A is a non-originating good.
By applying the LIFO method,
- (1)100 units of the 1,000 units of non-originating Material A that were received in materials inventory on 01/05/21 are considered to have been used in the production of the 100 units of Good A shipped on 01/10/21;
- (2)700 units of the 1,000 units of originating Material A that were received in materials inventory on 01/10/21 are considered to have been used in the production of the 700 units of Good A shipped on 01/15/21;
- (3)1,000 units of the 2,000 units of non-originating Material A that were received in materials inventory on 01/16/21 are considered to have been used in the production of the 1,000 units of Good A shipped on 01/20/21; and
- (4)900 units of the remaining 1,000 units of non-originating Material A that were received in materials inventory on 01/16/21 are considered to have been used in the production of the 900 units of Good A shipped on 01/23/21.
Example 3: Average method
Good A is subject to an applicable regional value content requirement. Producer A is using the transaction value method to determine the regional value content of Good A. Producer A determines the average value of non-originating Material A and the ratio of originating Material A to total value of originating Material A and non-originating Material A in the following table.
| Material Inventory | Sales | |||||||
|---|---|---|---|---|---|---|---|---|
| (Receipts of Material A) | (Non-Originating Material) | (Shipments of Good A) | ||||||
| Date (m/d/y) | Quantity (units) | Total Value ($) | Unit CostFootnote for *($) | Quantity (units) | Total Value ($) | Ratio | Quantity (units) | |
| Receipt | 12/18/20 | 100 (OFootnote for 1) | 100 | 1.00 | ||||
| Receipt | 12/27/20 | 100 (NFootnote for 2) | 110 | 1.10 | 100 | 110.00 | ||
| NEW AVG INV VALUE | 200 (OIFootnote for 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 | ||
Return to footnote *Unit cost is determined in accordance with section 8 of these Regulations.
Return to footnote 1“O” denotes originating materials.
Return to footnote 2“N” denotes non-originating materials.
Return to footnote 3“OI” denotes opening inventory.
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 0.50 (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 × 0.50) of originating Material A and 50 units (100 units × 0.50) 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%]; and
the ratios are applied to the units of Material A remaining in materials inventory after the shipment: 1,050 units (2,100 units × 0.50) are considered to be originating materials and 1,050 units (2,100 units × 0.50) 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 × 0.66) of originating Material A and 238 units (700 units × 0.34) 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%]; and
the ratios are applied to the units of Material A remaining in materials inventory after the shipment: 1,584 units (2,400 units × 0.66) are considered to be originating materials and 816 units (2,400 units × 0.34) 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 × 0.36) of originating Material A and 640 units (1,000 units × 0.64) 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%]; and
those ratios are applied to the units of Material A remaining in materials inventory after the shipment: 1,224 units (3,400 units × 0.36) are considered to be originating materials and 2,176 units (3,400 units × 0.64) are considered to be non-originating materials; and
- (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 × 0.36) of originating Material A and 576 units (900 units × 0.64) 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 × 0.36) are considered to be originating materials and 1,600 units (2,500 units × 0.64) 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 × 0.404) 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) × (1 − 0.404)] 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 × 0.404) are considered to be originating materials and 1,490 units (2,500 units − 1,010 units) are considered to be non-originating materials.
APPENDIX BExamples 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 | Sales | |
|---|---|---|
| (Receipts of Good A) | (Shipments of Good A) | |
| Date | Quantity | Quantity |
| (m/d/y) | (units) | (units) |
| 12/18/20 | 100 (OFootnote for 1) | |
| 12/27/20 | 100 (NFootnote for 2) | |
| 01/01/21 | 200 (OIFootnote for 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 | |
Return to footnote 1“O” denotes originating goods.
Return to footnote 2“N” denotes non-originating goods.
Return to footnote 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 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 × 0.404) 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 × 0.404) are considered to be originating goods and 1,490 units (2,500 units − 1,010 units) are considered to be non-originating goods.
SCHEDULE 9(Subsection 7(14))Method for Calculating Non-allowable Interest Costs
Definitions
1 The following definitions apply in this Schedule.
- fixed-rate contract
fixed-rate contract means a loan contract, installment purchase contract or other financing agreement in which the interest rate remains constant throughout the life of the contract or agreement. (contrat à taux fixe)
- interest rate issued by the federal government
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 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. (taux d’intérêt fixé par le gouvernement fédéral)
- linear interpolation
linear interpolation means, with respect to the interest rate issued by the federal government, the application of the following formula:
A + [((B - A) × (E - D)) ÷ (C - D)]
where
- A
- is the interest rate issued by the federal government on 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 on 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. (interpolation linéaire)
- 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. (échéancier)
- variable-rate contract
variable-rate contract means a loan contract, installment purchase contract or other financing agreement in which the interest rate is adjusted at intervals during the life of the contract or agreement in accordance with its terms. (contrat à taux variable)
- weighted average principal maturity
weighted average principal maturity means, with respect to fixed-rate contracts or 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, or
(ii) in the case of a variable-rate contract, by the principal balance at the beginning of the interest rate period for which the weighted principal payments were calculated, and
(b) rounding the amount determined under paragraph (a) to the nearest single decimal place and, where that amount is the midpoint between two such numbers, to the greater of those two numbers. (échéance moyenne pondérée applicable au principal)
- weighted principal payment
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 of years, 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 of years, 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 of years, between the beginning and the end of that interest rate period. (paiement de principal pondéré)
General
2 For the purpose 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 on debt obligations that have maturities of the same length as the weighted average principal maturity of the payment schedule under the contract (that interest rate issued by the federal government determined by linear interpolation, if necessary);
(b) with respect to a variable-rate contract
(i) in which the interest rate is adjusted at intervals of less than or equal to one year, the interest rate under that contract 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 interest rate issued by the federal government 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.
APPENDIXExample 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 CUSMA country borrows $1,000,000 from a person of the same CUSMA 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 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 $135,867.36 over the life of the contract;
(d) there are no federal government debt obligations that have maturities equal to the six-year weighted average principal maturity of the contract; and
(e) the federal government debt obligations that are nearest in maturity to the weighted average principal maturity of the contract are of five- and seven-year maturities, and the yields on them are 4.7% and 5.0%, respectively.
| Years of Loan | Principal BalanceFootnote for 1($) | Interest PaymentFootnote for 2($) | Principal PaymentFootnote for 3($) | Payment Schedule ($) | Weighted Principal PaymentFootnote for 4($) |
|---|---|---|---|---|---|
| 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 |
Return to footnote 1The 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.
Return to footnote 2Interest payments are calculated by multiplying the prior year’s ending loan balance by the contract interest rate of 6%.
Return to footnote 3Principal payments are calculated by subtracting the current year’s interest payments from the annual payment schedule amount.
Return to footnote 4The 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.
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
By applying the above method,
(1) the weighted average principal maturity of the payment schedule under the 6% contract is six years;
(2) the interest rates issued by the federal government on the closest maturities for comparable debt obligations of five years and seven years are 4.7% and 5.0%, respectively; therefore, using linear interpolation, the interest rate issued by the federal government that has a maturity equal to the weighted average principal maturity of the contract is 4.85%. 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% is within 700 basis points of the 4.85% interest rate issued by the federal government on debt obligation; therefore, none of the producer’s interest costs are considered to be non-allowable interest costs for the 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 CUSMA country borrows $1,000,000 from a person of the same CUSMA 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 year for the first two years and 8% 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 $146,818.34 for the next two years of the loan;
(d) there are no federal government debt obligations that have maturities equal to the 1.9-year weighted average principal maturity of the first two years of the contract;
(e) there are no federal government debt obligations that have maturities equal to the 1.9-year weighted average principal maturity of the third and fourth years of the contract; and
(f) the federal government debt obligations that are nearest in maturity to the weighted average principal maturity of the contract are one- and two-year maturities, and the yields on them are 3.0% and 3.5%, respectively.
| Beginning of Year | Principal Balance ($) | Interest Rate (%) | Interest Payment ($) | Principal Payment ($) | Payment Schedule ($) | Weighted Principal Payment ($) |
|---|---|---|---|---|---|---|
| 1 | 1,000,000.00 | 6.00 | 60,000.00 | 75,867.96 | 135,867.96 | 75,867.96 |
| 2 | 924,132.04 | 6.00 | 55,447.92 | 80,420.04 | 135,867.96 | 1,848,264.08 |
| $1,924,132.04 |
Weighted Average Principal Maturity
$1,924,132.04 ÷ $1,000,000 = 1.92413204 or 1.9 years
By applying the above method:
(1) the weighted average principal maturity of the payment schedule of the first two years of the contract is 1.9 years;
(2) the interest rate issued by the federal government on the closest maturities of debt obligations of one year and two years are 3.0 and 3.5%, respectively; therefore, using linear interpolation, the interest rate issued by the federal government on debt obligation that has a maturity equal to the weighted average principal maturity of the payment schedule of the first two years of the contract is 3.45%. This amount is calculated as follows:
3.0 + [((3.5 − 3.0) × (1.9 − 1.0)) ÷ (2.0 − 1.0)];
= 3.0 + 0.45
= 3.45%; and
(3) the producer’s contract rate of 6% for the first two years of the loan is within 700 basis points of the 3.45% interest rate issued by the federal government on debt obligations that have maturities equal to the 1.9-year weighted average principal maturity of the payment schedule of the first two years of the producer’s loan contract; therefore, none of the producer’s interest costs are considered to be non-allowable interest costs for the purposes of the definition non-allowable interest costs in subsection 1(1) of these Regulations.
Beginning of Year Principal Balance ($) Interest Rate (%) Interest Payment ($) Principal Payment ($) Payment Schedule ($) Weighted Principal Payment ($) 1 1,000,000.00 6.00 60,000.00 75,867.96 135,867.96 2 924,132.04 6.00 55,447.92 80,420.04 135,867.96 3 843,712.01 8.00 67,496.96 79,321.38 146,818.34 79,321.38 4 764,390.62 8.00 61,151.25 85,667.09 146,818.34 1,528,781.24 1,608,102.62
Weighted Average Principal Maturity
$1,608,102.62 ÷ $843,712.01 = 1.905985 or 1.9 years
By applying the above method:
(1) the weighted average principal maturity of the payment schedule under the first two years of the contract is 1.9 years;
(2) the federal government debt obligations that are nearest in maturities to the weighted average principal maturity of the contract are one- and two-year maturities, and the yields on them are 3.0 and 3.5%, respectively; therefore, using linear interpolation, the interest rate issued by the federal government on 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%. 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% is within 700 basis points of the 3.45% 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 the purposes of the definition non-allowable interest costs in subsection 1(1) of these Regulations.
SCHEDULE 10(Subparagraph 1(3)(f)(i) and Schedule 6)Generally Accepted Accounting Principles
1 Generally Accepted Accounting Principles means the recognized consensus or substantial authoritative support in the territory of a CUSMA 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 the 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 CPA Canada Handbook, as updated from time to time;
(b) with respect to the territory of Mexico, the Normas de Informacion Financiera, published by the Instituto Mexicano de Contadores Públicos 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, as amended from time to time, and any interpretive guidance recognized by the American Institute of Certified Public Accountants (AICPA).
- Date modified: