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CUSMA Rules of Origin Regulations (SOR/2020-155)

Regulations are current to 2022-05-02 and last amended on 2020-07-01. Previous Versions

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 InventorySales
(Receipts of Material A)(Shipments of Good A)
Date blank line(m/d/y)Quantity (units)Unit CostFootnote for *($)Total Value ($)Quantity (units)
12/18/20100 (OFootnote for 1)1.00100
12/27/20100 (NFootnote for 2)1.10110
01/01/21200 (OIFootnote for 3)
01/01/211,000 (O)1.001,000
01/05/211,000 (N)1.101,100
01/10/21100
01/10/211,000 (O)1.051,050
01/15/21700
01/16/212,000 (N)1.102,200
01/20/211,000
01/23/21900

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 InventorySales
(Receipts of Material A)(Non-Originating Material)(Shipments of Good A)
Dateblank line (m/d/y)Quantity (units)Total Value ($)Unit CostFootnote for *($)Quantity (units)Total Value ($)RatioQuantity (units)
Receipt12/18/20100 (OFootnote for 1)1001.00
Receipt12/27/20100 (NFootnote for 2)1101.10100110.00
NEW AVG INV VALUE200 (OIFootnote for 3)2101.05100105.000.50
Receipt01/01/211,000 (O)1,0001.00
NEW AVG INV VALUE1,2001,2101.01100101.000.08
Receipt01/05/211,000 (N)1,1001.101,0001,100.00
NEW AVG INV VALUE2,2002,3101.051,1001,155.000.50
Shipment01/10/21(100)(105)1.05(50)(52.50)100
Receipt01/10/211,000 (O)1,0501.05
NEW AVG INV VALUE3,1003,2551.051,0501,102.500.34
Shipment01/15/21(700)(735)1.05(238)(249.90)700
Receipt01/16/212,000 (N)2,2001.102,0002,200.00
NEW AVG INV VALUE4,4004,7201.072,8123,008.840.64
Shipment01/20/21(1,000)(1,070)1.07(640)(684.80)1,000
Shipment01/23/21(900)(963)1.07(576)(616.32)900
NEW AVG INV VALUE2,5002,6871.071,5961,707.240.64

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.

 
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