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

Regulations are current to 2020-09-09

PART IIIRegional Value Content

  •  (1) Except as otherwise provided in subsection (6), the regional value content of a good shall be calculated, at the choice of the exporter or producer of the good, on the basis of either the transaction value method or the net cost 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 II with respect to the transaction in which the producer of the good sold the good, adjusted to an F.O.B. basis; and
    VNM
    is the value of non-originating materials used by the producer in the production of the good, determined in accordance with section 7.
  • (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 in accordance with section 7.
  • (4) For purposes 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 shall not include

    • (a) the value of any non-originating materials used by another producer in the production of originating materials that are subsequently acquired and used by the producer of the good in the production of that good; or

    • (b) the value of any non-originating materials used by the producer in the production of a self-produced material that is an originating material and is designated as an intermediate material.

  • (5) For 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 shall be included in the value of non-originating materials used in the production of the good; and

    • (b) where 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 shall be included in the value of non-originating materials.

  • (6) The regional value content of a good shall be calculated only on the basis of the net cost method where

    • (a) there is no transaction value for the good under subsection 2(1) of Schedule III;

    • (b) the transaction value of the good is unacceptable under subsection 2(2) of Schedule III;

    • (c) the good is sold by the producer to a related person and the volume, by units of quantity, of sales by that producer of identical goods or similar goods, or any combination thereof, to related persons during the six month period immediately preceding the month in which the good is sold exceeds 85 per cent of the producer’s total sales to all persons, whether or not related and regardless of location, of identical goods or similar goods, or any combination thereof, during that period;

    • (d) the good is

      • (i) a motor vehicle,

      • (ii) a good of a tariff provision listed in Schedule IV and is for use in a motor vehicle, either as original equipment or as an after-market part, or

      • (iii) a good of any of subheadings 6401.10 through 6406.10;

    • (e) the exporter or producer chooses to accumulate with respect to the good in accordance with section 12; or

    • (f) the good is an intermediate material and is subject to a regional value-content requirement.

  • (7) If the 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 CCFTA country subsequently notifies that exporter or producer in writing, during the course of a verification of origin, that

    • (a) the transaction value of the good, as determined by the exporter or producer, is required to be adjusted under section 4 of Schedule II or is unacceptable under subsection 2(2) of Schedule III, there is no transaction value for the good under subsection 2(1) of Schedule III or the transaction value method may not be used because of the application of paragraph (6)(c), or

    • (b) the value of any material used in the production of the good, as determined by the exporter or producer, is required to be adjusted under section 5 of Schedule VII or is unacceptable under subsection 2(3) of Schedule VII, or there is no transaction value for the material under subsection 2(2) of Schedule VII or the transaction value method may not be used to calculate the regional value content of the material because of the application of paragraph (6)(c),

    the 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 60 days after the producer receives the notification, or such longer period as that customs administration specifies.

  • (8) If the exporter or producer of a good chooses that the regional value content of the good be calculated on the basis of the net cost method and the customs administration of a CCFTA country subsequently notifies that 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 exporter or producer of the good may not recalculate the regional value content of the good that is the subject of the verification of origin on the basis of the transaction value method.

  • (9) Nothing in subsection (7) shall be construed as preventing any review and appeal under sections 57.1 through 70 of the Customs Act, of an adjustment to or a rejection of

    • (a) the transaction value of the good; or

    • (b) the value of any material used in the production of the good.

  • (10) For purposes of the transaction value method, where 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 VIII.

  • (11) For 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 VI, 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 VI, 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 VI, each cost that forms part of the total cost incurred with respect to the good so that the aggregate of those costs does not include any excluded costs.

  • (12) Total cost under subsection (11) consists of the costs referred to in subsection 2(6), and is calculated in accordance with that subsection.

  • (13) For purposes of calculating net cost under subsection (11),

    • (a) excluded costs shall be the excluded costs that are recorded on the books of the producer of the good;

    • (b) excluded costs that are included in the value of a material that is used in the production of the good shall not be subtracted from or otherwise excluded from the total cost; and

    • (c) excluded costs do not include any amount paid for research and development services performed in the territory of a CCFTA country.

  • (14) For purposes of calculating non-allowable interest costs, the determination of whether interest costs incurred by a producer are more than 700 basis points above the yield on debt obligations of comparable maturities issued by the national government of the country in which the producer is located shall be made in accordance with Schedule X.

  • (15) For 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 10(1), (3) or (6) or 11(1), may be calculated, where 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 month,

      • (ii) any one of the four quarters that fall within the fiscal year of the producer of the good,

      • (iii) either of the two periods of six consecutive months that fall within the fiscal year of the producer of the good, or

      • (iv) the fiscal year of the producer of the good; and

    • (b) using the sums referred to in paragraph (a) as the net cost and the value of non-originating materials, respectively.

  • (16) The calculation made under subsection (15) shall apply with respect to all units of the good produced during the period chosen by the producer under paragraph (15)(a).

  • (17) An election made under subsection (15) may not be rescinded or modified with respect to the goods or the period with respect to which the election is made.

  • (18) Where a producer chooses a month, a quarter or a six month period under subsection (15) with respect to goods, the producer shall be considered to have chosen under that subsection a period or periods of the same duration for the remainder of the producer’s fiscal year with respect to those goods.

  • (19) Where the net cost method is required to be used or has been chosen and an election has been made under subsection (15), the regional value content of the good shall be calculated on the basis of the net cost method over the period chosen under that subsection and for the remainder of the producer’s fiscal year.

  • (20) Except as otherwise provided in subsections 10(10) and 11(9), the producer of a good may calculate the regional value content of the good under the net cost method over the period chosen under paragraph (15)(a) on the basis of estimated costs, including standard costs, budgeted forecasts or other similar estimating procedures.

  • (21) Where the producer calculates the regional value content of a good in accordance with subsection (20), the producer shall 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 and, if the good does not satisfy the regional value-content requirement on the basis of the actual costs during that period, immediately inform any person to whom the producer has provided a Certificate of Origin for the good, or a written statement that the good is an originating good, that the good is a non-originating good.

  • (22) For purposes 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.

  • (23) Each of the following examples is an “Example” as referred to in subsection 2(4).

    Example 1: Subsection 6(3), Net Cost Method

    A producer located in CCFTA country A sells Good A that is subject to a regional value-content requirement to a buyer located in CCFTA country B. The producer of Good A chooses that the regional value content of that good be calculated using the net cost method. All applicable requirements of these Regulations, other than the regional value-content requirement, have been met. The applicable regional value-content requirement is 50 per cent.

    In order to calculate the regional value content of Good A, the producer first calculates the net cost of Good A. Under paragraph 6(11)(a), the net cost is the total cost of Good A (the aggregate of the product costs, period costs and other costs) per unit, minus the excluded costs (the aggregate of the sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs) per unit. The producer uses the following figures to calculate the net cost:

    Product costs:
    Value of originating materials$ 30.00
    Value of non-originating materials40.00
    Other product costs20.00
    Period costs:10.00
    Other costs:0.00
    Total cost of Good A, per unit:$100.00
    Excluded costs:
    Sales promotion, marketing and after-sales service costs$ 5.00
    Royalties2.50
    Shipping and packing costs3.00
    Non-allowable interest costs1.50
    Total excluded costs:$12.00

    The net cost is the total cost of Good A, per unit, minus the excluded costs.

    Total cost of Good A, per unit:$100.00
    Excluded costs:-   12.00
    Net cost of Good A, per unit:$ 88.00

    The value for net cost ($88) and the value of non-originating materials ($40) are needed in order to calculate the regional value content. The producer calculates the regional value content of Good A under the net cost method in the following manner:

    RVC=NC - VNM × 100
    blank lineNC
    =88 - 40 × 100
    blank line88
    =54.5%

    Therefore, under the net cost method, Good A qualifies as an originating good, with a regional value content of 54.5 per cent.

    Example 2: Paragraph 6(6)(c), Net Cost Method Required for Certain Sales to Related Persons

    On June 15, 1997, a producer located in CCFTA country A sells 1,000 units of Good A to a related person, located in CCFTA country B. During the six month period beginning on December 1, 1996 and ending on May 31, 1997, the producer sold 90,000 units of identical goods and similar goods to related persons from various countries, including that buyer. The producer’s total sales of those identical goods and similar goods to all persons from all countries during that six month period were 100,000 units.

    The total quantity of identical goods and similar goods sold by the producer to related persons during that six month period was 90 per cent of the producer’s total sales of those identical goods and similar goods to all persons. Under paragraph 6(6)(c), the producer must use the net cost method to calculate the regional value content of Good A sold in June 1997, because the 85 per cent limit was exceeded.

    Example 3: Paragraph 6(11)(a)

    A producer in a CCFTA country produces Good A and Good B during the producer’s fiscal year.

    The producer uses the following figures, which are recorded on the producer’s books and represent all of the costs incurred with respect to both Good A and Good B, to calculate the net cost of those goods:

    Product costs:
    Value of originating materials$2,000
    Value of non-originating materials1,000
    Other product costs2,400
    Period costs (including $1,200 of excluded costs):3,200
    Other costs:400
    Total cost of Good A and Good B:$9,000

    The net cost is the total cost of Good A and Good B, minus the excluded costs incurred with respect to those goods.

    Total cost of Good A and Good B:$9,000
    Excluded costs:-  1,200
    Net cost of Good A and Good B:$7,800

    The net cost must then be reasonably allocated, in accordance with Schedule VI, to Good A and Good B.

    Example 4: Paragraph 6(11)(b)

    A producer located in a CCFTA country produces Good A and Good B during the producer’s fiscal year. In order to calculate the regional value content of Good A and Good B, the producer uses the following figures that are recorded on the producer’s books and incurred with respect to those goods:

    Product costs:
    Value of originating materials$2,000
    Value of non-originating materials1,000
    Other product costs2,400
    Period costs (including $1,200 of excluded costs):3,200
    Other costs:400
    Total cost of Good A and Good B:$9,000

    Under paragraph 6(11)(b), the total cost of Good A and Good B is then reasonably allocated, in accordance with Schedule VI, to those goods. The costs are allocated in the following manner:

    Allocated to Good AAllocated 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 total cost allocated to Good A and Good B, in accordance with Schedule VI, are subtracted from that amount.

    Total Excluded CostsExcluded Cost Allocated to Good AExcluded Cost Allocated to Good B
    Sales promotion, marketing and after-sale service costs:$500   $290    $210
    Royalties:  200     116       84
    Shipping and packing costs:  500     290     210
    Net cost (total cost minus excluded costs):$4,524$3,276

    The net cost of Good A is thus $4,524, and the net cost of Good B is $3,276.

    Example 5: Paragraph 6(11)(c)

    A producer located in a CCFTA 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 VI, 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 of excluded costs):5,6793,0362,643
    Minus excluded costs:   420   300   120
    Other costs:       0       0       0
    Total cost (aggregate of product costs, period costs and other costs):6,7593,8362,923

    Example 6: Subsection 6(12)

    Producer A, located in a CCFTA country, produces Good A that is subject to a regional value-content requirement. The producer chooses that the regional value content of that good be calculated using the net cost method and averages the calculation over the producer’s fiscal year under subsection 6(15). Producer A determines that during that fiscal year Producer A incurred a gain on currency conversion of $10,000 and a loss on currency conversion of $8,000, resulting in a net gain of $2,000. Producer A also determines that $7,000 of the gain on currency conversion and $6,000 of the loss on currency conversion are related to the purchase of non-originating materials used in the production of Good A, and $3,000 of the gain on currency conversion and $2,000 of the loss on currency conversion are not related to the production of Good A. The producer determines that the total cost of Good A is $45,000 before taking into account the $1,000 net gain on 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 subsections 7(1) and (2).

    Example 7: Subsection 6(12)

    Given the same facts as in example 6, except that Producer A determines that $6,000 of the gain on currency conversion and $7,000 of the loss on currency conversion are related to the purchase of non-originating materials used in the production of Good A. The total cost of Good A is $45,000, before taking into account the $1,000 net loss on currency conversion related to the production of Good A. The total cost of Good A is therefore $46,000. The $1,000 net loss is not included in the value of non-originating materials under subsections 7(1) and (2).

  • (24) [Repealed, SOR/2004-298, s. 2]

  • SOR/2004-298, s. 2
 
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