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CCFTA Rules of Origin Regulations (SOR/97-340)

Regulations are current to 2020-09-09

SCHEDULE IXInventory Management Methods

PART IFungible Materials

Definitions and Interpretation

  • 1 For purposes of 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    average method means the method by which the origin of fungible materials withdrawn from materials inventory is based on the ratio, calculated under section 5, of originating materials and non-originating materials in materials inventory;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of fungible materials first received in materials inventory is considered to be the origin of fungible materials first withdrawn from materials inventory; (méthode PEPS)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of fungible materials last received in materials inventory is considered to be the origin of fungible materials first withdrawn from materials inventory; (méthode DEPS)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 inventory management methods for determining whether fungible materials referred to in paragraph 7(16)(a) of these Regulations are originating materials are the following:

    • (a) specific identification method;

    • (b) FIFO method;

    • (c) LIFO method; and

    • (d) average method.

  • 3 Where a producer of a good or a person from whom the producer acquired the materials that are used in the production of the good chooses an inventory management method referred to in section 2, that method, including the averaging period chosen in the case of the average method, shall be used from the time the choice is made until the end of the fiscal year of the producer or person.

Specific Identification Method

    • 4 (1) Except as otherwise provided under subsection (2), where the producer or person referred to in section 3 chooses the specific identification method, the producer or person shall physically segregate, in materials inventory, originating materials that are fungible materials from non-originating materials that are fungible materials.

    • (2) Where 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 Where the producer or person referred to in section 3 chooses the average method, the origin of fungible materials withdrawn from materials inventory is determined on the basis of the ratio of originating materials and non-originating materials in materials inventory that is calculated under sections 6 through 8.

    • 6 (1) Except as otherwise provided in sections 7 and 8, the ratio is calculated with respect to a one-month or three-month period, at the choice of the producer or person, by dividing

      • (a) the sum of

        • (i) the total units of originating materials or non-originating materials that are fungible materials and that were in materials inventory at the beginning of the preceding one-month or three-month period, and

        • (ii) the total units of originating materials or non-originating materials that are fungible materials and that were received in materials inventory during that preceding one-month or three-month period

      by

      • (b) the sum of

        • (i) the total units of originating materials and non-originating materials that are fungible materials and that were in materials inventory at the beginning of the preceding one-month or three-month period, and

        • (ii) the total units of originating materials and non-originating materials that are fungible materials and that were received in materials inventory during that preceding one-month or three-month period.

    • (2) The ratio calculated with respect to a preceding one-month or three-month period under subsection (1) is applied to the fungible materials remaining in materials inventory at the end of the preceding one-month or three-month period.

    • 7 (1) Where the good is subject to a regional value-content requirement and the regional value content is calculated under the net cost method and the producer or person chooses to average over a period under subsections 6(15), 10(1), (3) or (6) or 11(1) of these Regulations, the ratio is calculated with respect to that period by dividing

      • (a) the sum of

        • (i) the total units of originating materials or non-originating materials that are fungible materials and that were in materials inventory at the beginning of the period, and

        • (ii) the total units of originating materials or non-originating materials that are fungible materials and that were received in materials inventory during that period

      by

      • (b) the sum of

        • (i) the total units of originating materials and non-originating materials that are fungible materials and that were in materials inventory at the beginning of the period, and

        • (ii) the total units of originating materials and non-originating materials that are fungible materials and that were received in materials inventory during that period.

    • (2) The ratio calculated with respect to a period under subsection (1) is applied to the fungible materials remaining in materials inventory at the end of the period.

    • 8 (1) Where the good is subject to a regional value-content requirement and the regional value content of that good is calculated under the transaction value method or the net cost method, the ratio is calculated with respect to each shipment of the good by dividing

      • (a) the total units of originating materials or non-originating materials that are fungible materials and that were in materials inventory prior to the shipment

      by

      • (b) the total units of originating materials and non-originating materials that are fungible materials and that were in materials inventory prior to the shipment.

    • (2) The ratio calculated with respect to a shipment of a good under subsection (1) is applied to the fungible materials remaining in materials inventory after the shipment.

Manner of Dealing with Opening Inventory

    • 9 (1) Except as otherwise provided under subsections (2) and (3), where the producer or person referred to in section 3 has fungible materials in opening inventory, the origin of those fungible materials is determined by

      • (a) identifying, in the books of the producer or person, the latest receipts of fungible materials that add up to the amount of fungible materials in opening inventory;

      • (b) 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) Where 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 IIFungible Goods

Definitions and Interpretation

  • 10 For purposes of 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 inventory management methods for determining whether fungible goods referred to in paragraph 7(16)(b) of these Regulations are originating goods are the following:

    • (a) specific identification method;

    • (b) FIFO method;

    • (c) LIFO method; and

    • (d) average method.

  • 12 Where an exporter of a good or a person from whom the exporter acquired the good chooses an inventory management method referred to in section 11, that method, including the averaging period chosen in the case of the average method, shall be used from the time the choice is made until the end of the fiscal year of the exporter or person.

Specific Identification Method

    • 13 (1) Except as provided under subsection (2), where the exporter or person referred to in section 12 chooses the specific identification method, the exporter or person shall physically segregate, in finished goods inventory, originating goods that are fungible goods from non-originating goods that are fungible goods.

    • (2) Where 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) Where 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-month or three-month period, at the choice of the exporter or person, is determined on the basis of the ratio of originating goods and non-originating goods in finished goods inventory for the preceding one-month or three-month period that is calculated by dividing

      • (a) the sum of

        • (i) the total units of originating goods or non-originating goods that are fungible goods and that were in finished goods inventory at the beginning of the preceding one-month or three-month period, and

        • (ii) the total units of originating goods or non-originating goods that are fungible goods and that were received in finished goods inventory during that preceding one-month or three-month period

      by

      • (b) the sum of

        • (i) the total units of originating goods and non-originating goods that are fungible goods and that were in finished goods inventory at the beginning of the preceding one-month or three-month period, and

        • (ii) the total units of originating goods and non-originating goods that are fungible goods and that were received in finished goods inventory during that preceding one-month or three-month period.

    • (2) The ratio calculated with respect to a preceding one-month or three-month period under subsection (1) is applied to the fungible goods remaining in finished goods inventory at the end of the preceding one-month or three-month period.

Manner of Dealing with Opening Inventory

    • 15 (1) Except as otherwise provided under subsections (2) and (3), where the exporter or person referred to in section 12 has fungible goods in opening inventory, the origin of those fungible goods is determined by

      • (a) identifying, in the books of the exporter or person, the latest receipts of fungible goods that add up to the amount of fungible goods in opening inventory;

      • (b) determining the origin of the fungible goods that make up those receipts; and

      • (c) considering the origin of those fungible goods to be the origin of the fungible goods in opening inventory.

    • (2) Where the exporter or person chooses the specific identification method and has, in opening inventory, originating goods or non-originating goods that are fungible goods and that are marked with an origin identifier, the origin of those fungible goods is determined on the basis of the origin identifier.

    • (3) The exporter or person may consider all fungible goods in opening inventory to be non-originating goods.

APPENDIX A“Examples” Illustrating the Application of the Inventory Management Methods To Determine the Origin of Fungible Materials

The following examples are based on the figures set out in the table below and on the following assumptions:

  • (a) originating Material A and non-originating Material A that are fungible materials are used in the production of Good A;

  • (b) one unit of Material A is used to produce one unit of Good A;

  • (c) Material A is only used in the production of Good A;

  • (d) all other materials used in the production of Good A are originating materials; and

  • (e) the producer of Good A exports all shipments of Good A to the territory of a CCFTA country.

MATERIALS INVENTORYSALES
(RECEIPTS OF MATERIAL A)(SHIPMENTS OF GOOD A)
DATE blank line(M/D/Y)QUANTITY (UNITS)UNIT COSTFootnote for *TOTAL VALUEQUANTITY (UNITS)
05/18/97100 (OFootnote for 1)$1.00$  100
05/27/97100 (NFootnote for 2)  1.10    110
06/01/97200 (OIFootnote for 3)
06/01/971,000 (O)  1.00 1,000
06/05/971,000 (N)  1.10 1,100
06/10/97  100
06/10/971,000 (O)  1.05 1,050
06/15/97  700
06/16/972,000 (N)  1.10 2,200
06/20/971,000
06/23/97  900

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 05/18/97 are considered to have been used in the production of the 100 units of Good A shipped on 06/10/97; 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 05/27/97 and 600 units of the 1,000 units of originating Material A that were received in materials inventory on 06/01/97 are considered to have been used in the production of the 700 units of Good A shipped on 06/15/97; 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 06/01/97 and 600 units of the 1,000 units of non-originating Material A that were received in materials inventory on 06/05/97 are considered to have been used in the production of the 1,000 units of Good A shipped on 06/20/97; 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 06/05/97 and 500 units of the 1,000 units of originating Material A that were received in materials inventory on 06/10/97 are considered to have been used in the production of the 900 units of Good A shipped on 06/23/97; 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, where originating Material A is used in the production of Good A, Good A is an originating good and, where 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 06/05/97 are considered to have been used in the production of the 100 units of Good A shipped on 06/10/97;
  • (2) 
    700 units of the 1,000 units of originating Material A that were received in materials inventory on 06/10/97 are considered to have been used in the production of the 700 units of Good A shipped on 06/15/97;
  • (3) 
    1,000 units of the 2,000 units of non-originating Material A that were received in materials inventory on 06/16/97 are considered to have been used in the production of the 1,000 units of Good A shipped on 06/20/97; and
  • (4) 
    900 units of the remaining 1,000 units of non-originating Material A that were received in materials inventory on 06/16/97 are considered to have been used in the production of the 900 units of Good A shipped on 06/23/97.

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 VALUEUNIT COSTFootnote for *QUANTITY (UNITS)TOTAL VALUERATIOQUANTITY (UNITS)
Receipt05/18/97    100 (OFootnote for 1)$  100$1.00
Receipt05/27/97    100 (NFootnote for 2)    110  1.10   100$  110.00
NEW AVG INV VALUE    200 (OIFootnote for 3)    210  1.05   100    105.000.50
Receipt06/01/97 1,000 (O) 1,000  1.00
NEW AVG INV VALUE 1,200 1,210  1.01   100    101.000.08
Receipt06/05/97 1,000 (N) 1,100  1.101,000 1,100.00
NEW AVG INV VALUE 2,200 2,310  1.051,100 1,155.000.50
Shipment06/10/97  (100)   (105)  1.05   (50)    (52.50)  100
Receipt06/10/97 1,000 (O) 1,050  1.05
NEW AVG INV VALUE 3,100 3,255  1.051,050 1,102.500.34
Shipment06/15/97  (700)   (735)  1.05  (238)  (249.90)  700
Receipt06/16/97 2,000 (N) 2,200  1.102,000 2,200.00
NEW AVG INV VALUE 4,400 4,720  1.072,812 3,008.840.64
Shipment06/20/97(1,000)(1,070)  1.07  (640)  (684.80)1,000
Shipment06/23/97  (900)   (963)  1.07  (576)  (616.32)  900
NEW AVG INV VALUE 2,500 2,687  1.071,596 1,707.240.64

By applying the average method:

  • (1) 
    before the shipment of the 100 units of Material A on 06/10/97, the ratio of units of originating Material A to total units of Material A in materials inventory was .50 (1,100 units/2,200 units) and the ratio of units of non-originating Material A to total units of Material A in materials inventory was .50 (1,100 units/2,200 units);
    • based on those ratios, 50 units (100 units × .50) of originating Material A and 50 units (100 units x .50) of non-originating Material A are considered to have been used in the production of the 100 units of Good A shipped on 06/10/97; therefore, the value of non-originating Material A used in the production of those goods is considered to be $52.50 [100 units x $1.05 (average unit value) × .50];
    • the ratios are applied to the units of Material A remaining in materials inventory after the shipment: 1,050 units (2,100 units × .50) are considered to be originating materials and 1,050 units (2,100 units × .50) are considered to be non-originating materials;
  • (2) 
    before the shipment of the 700 units of Good A on 06/15/97, the ratio of units of originating Material A to total units of Material A in materials inventory was 66% (2,050 units/3,100 units) and the ratio of units of non-originating Material A to total units of Material A in materials inventory was 34% (1,050 units/3,100 units);
    • based on those ratios, 462 units (700 units × .66) of originating Material A and 238 units (700 units x .34) of non-originating Material A are considered to have been used in the production of the 700 units of Good A shipped on 06/15/97; therefore, the value of non-originating Material A used in the production of those goods is considered to be $249.90 [700 units × $1.05 (average unit value) × 34%];
    • the ratios are applied to the units of Material A remaining in materials inventory after the shipment: 1,584 units (2,400 units × .66) are considered to be originating materials and 816 units (2,400 units × .34) are considered to be non-originating materials;
  • (3) 
    before the shipment of the 1,000 units of Material A on 06/20/97, the ratio of units of originating Material A to total units of Material A in materials inventory was 36% (1,584 units/4,400 units) and the ratio of units of non-originating Material A to total units of Material A in materials inventory was 64% (2,816 units/4,400 units);
    • based on those ratios, 360 units (1,000 units × .36) of originating Material A and 640 units (1,000 units × .64) of non-originating Material A are considered to have been used in the production of the 1,000 units of Good A shipped on 06/20/97; therefore, the value of non-originating Material A used in the production of those goods is considered to be $684.80 [1,000 units × $1.07 (average unit value) × 64%];
    • those ratios are applied to the units of Material A remaining in materials inventory after the shipment: 1,224 units (3,400 units × .36) are considered to be originating materials and 2,176 units (3,400 units × .64) are considered to be non-originating materials;
  • (4) 
    before the shipment of the 900 units of Good A on 06/23/97, the ratio of units of originating Material A to total units of Material A in materials inventory was 36% (1,224 units/3,400 units) and the ratio of units of non-originating Material A to total units of Material A in materials inventory was 64% (2,176 units/3,400 units);
    • based on those ratios, 324 units (900 units x .36) of originating Material A and 576 units (900 units × .64) of non-originating Material A are considered to have been used in the production of the 900 units of Good A shipped on 06/23/97; therefore, the value of non-originating Material A used in the production of those goods is considered to be $616.32 [900 units × $1.07 (average unit value) × 64%];
    • those ratios are applied to the units of Material A remaining in materials inventory after the shipment: 900 units (2,500 units × .36) are considered to be originating materials and 1,600 units (2,500 units × .64) are considered to be non-originating materials.

Example 4: Average method

Good A is subject to an applicable regional value-content requirement. Producer A is using the net cost method and is averaging over a period of one month under paragraph 6(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 June 1997 is 40.4% (2,100 units/5,200 units);

based on that ratio, 1,091 units (2,700 units × .404) of originating Material A and 1,609 units (2,700 units - 1,091 units) of non-originating Material A are considered to have been used in the production of the 2,700 units of Good A shipped in June 1997; therefore, the value of non-originating materials used in the production of those goods is considered to be $0.64 per unit [$5,560 (total value of Material A in materials inventory)/5,200 (units of Material A in materials inventory) = $1.07 (average unit value) × (1 - .404)] or $1,728 ($0.64 x 2,700 units); and

that ratio is applied to the units of Material A remaining in materials inventory on June 30, 1997: 1,010 units (2,500 units × .404) are considered to be originating materials and 1,490 units (2,500 units - 1,010 units) are considered to be non-originating materials.

APPENDIX B“Examples” Illustrating the Application of the Inventory Management Methods To Determine the Origin of Fungible Goods

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

FINISHED GOODS INVENTORYSALES
(RECEIPTS OF GOOD A)(SHIPMENTS OF GOOD A)
DATEQUANTITYQUANTITY
(M/D/Y)(UNITS)(UNITS)
05/18/97      100 (OFootnote for 1)
05/27/97     100 (NFootnote for 2)
06/01/97      200 (OIFootnote for 3)
06/01/97 1,000 (O)
06/05/971,000 (N)
06/10/97   100
06/10/971,000 (O)
06/15/97  700
06/16/972,000 (N)
06/20/971,000
06/23/97  900

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 05/18/97 are considered to be the 100 units of Good A shipped on 06/10/97;
  • (2) 
    the 100 units of non-originating Good A in opening inventory that were received in finished goods inventory on 05/27/97 and 600 units of the 1,000 units of originating Good A that were received in finished goods inventory on 06/01/97 are considered to be the 700 units of Good A shipped on 06/15/97;
  • (3) 
    the remaining 400 units of the 1,000 units of originating Good A that were received in finished goods inventory on 06/01/97 and 600 units of the 1,000 units of non-originating Good A that were received in finished goods inventory on 06/05/97 are considered to be the 1,000 units of Good A shipped on 06/20/97; and
  • (4) 
    the remaining 400 units of the 1,000 units of non-originating Good A that were received in finished goods inventory on 06/05/97 and 500 units of the 1,000 units of originating Good A that were received in finished goods inventory on 06/10/97 are considered to be the 900 units of Good A shipped on 06/23/97.

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 06/05/97 are considered to be the 100 units of Good A shipped on 06/10/97;
  • (2) 
    700 units of the 1,000 units of originating Good A that were received in finished goods inventory on 06/10/97 are considered to be the 700 units of Good A shipped on 06/15/97;
  • (3) 
    1,000 units of the 2,000 units of non-originating Good A that were received in finished goods inventory on 06/16/97 are considered to be the 1,000 units of Good A shipped on 06/20/97; and
  • (4) 
    900 units of the remaining 1,000 units of non-originating Good A that were received in finished goods inventory on 06/16/97 are considered to be the 900 units of Good A shipped on 06/23/97.

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 July 1997. The origin of the units of Good A exported during that month is determined on the basis of the preceding month, that is June 1997.

By applying the average method:

the ratio of originating goods to all goods in finished goods inventory for the month of June 1997 is 40.4% (2,100 units/5,200 units);

based on that ratio, 1,212 units (3,000 units x .404) of Good A shipped in July 1997 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 June 30, 1997: 1,010 units (2,500 units x .404) are considered to be originating goods and 1,490 units (2,500 units - 1,010 units) are considered to be non-originating goods.

  • SOR/2004-298, s. 222(E)
 
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