4. The Working Group shall meet annually, unless otherwise decided by the Parties, and may meet in person, or by any other means as determined by the Parties.
Chapter 4. RULES OF ORIGIN
Article 4.1. Definitions
For the purposes of this Chapter:
aquaculture means the farming of aquatic organisms, including fish, molluscs, crustaceans, other aquatic invertebrates and aquatic plants from seed stock such as eggs, fry, fingerlings, or larvae, by intervention in the rearing or growth processes to enhance production such as regular stocking, feeding, or protection from predators;
fungible goods or fungible materials means goods or materials that are interchangeable for commercial purposes and the properties of which are essentially identical;
indirect material means a material used in the production, testing, or inspection of a good but not physically incorporated into the good, or a material used in the maintenance of buildings or the operation of equipment associated with the production of a good, including:
(a) fuel and energy;
(b) tools, dies, and molds;
(c) spare parts and materials used in the maintenance of equipment and buildings;
(d) lubricants, greases, compounding materials, and other materials used in production or used to operate equipment and buildings;
(e) gloves, glasses, footwear, clothing, safety equipment, and supplies;
(f) equipment, devices, and supplies used 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 a part of that production;
intermediate material means a material that is self-produced and used in the production of a good, and designated pursuant to Article 4.8 (Intermediate Materials);
material means a good that is used in the production of another good, and includes a part or an ingredient;
net cost means total cost minus sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and non-allowable interest costs that are included in the total cost;
net cost of a good means the net cost that can be reasonably allocated to a good using one of the methods set out in Article 4.5 (Regional Value Content);
non-allowable interest costs means interest costs incurred by a producer that exceed 700 basis points above the applicable federal government interest rate identified in the Uniform Regulations
for comparable maturities;
non-originating good or non-originating material means a good or material that does not qualify as originating under this Chapter;
originating good or originating material means a good or material that qualifies as originating under this Chapter;
packaging materials and containers means materials and containers in which a good is packaged for retail sale;
packing materials and containers means materials and containers that are used to protect a good during transportation;
producer means a person who engages in the production of a good;
production means growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, breeding, extracting, manufacturing, processing, or assembling a good, or aquaculture;
reasonably allocate means to apportion in a manner appropriate to the circumstances;
royalties means payments of any kind, including payments under technical assistance or similar agreements, made as consideration for the use 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 Parties, engineering, tooling, die- setting, software design and similar computer services, or other services;
sales promotion, marketing, and after-sales service costs means the following costs related to sales promotion, marketing, and after-sales service:
(a) sales and marketing promotion; media advertising; advertising and market research; promotional and demonstration materials; exhibits; sales conferences, trade shows, and conventions; banners; marketing displays; free samples; sales, marketing, and after-sales service literature (product brochures, catalogs, technical literature, price lists, service manuals, or sales aid information); establishment and protection of logos and trademarks; sponsorships; wholesale and retail restocking charges; or entertainment;
(b) sales and marketing incentives; consumer, retailer, or wholesaler rebates; or merchandise incentives;
(c) salaries and wages, sales commissions, bonuses, benefits (for example, medical, insurance, or pension), travelling and living expenses, or membership and professional fees for sales promotion, marketing and after-sales service personnel;
(d) recruiting and training of sales promotion, marketing, and after-sales service personnel, and after-sales training of customers' employees, if those costs are identified separately for sales promotion, marketing, and after-sales service of goods on the financial statements or cost accounts of the producer;
(e) product liability insurance;
(f) office supplies for sales promotion, marketing, and after-sales service of goods, if those costs are identified separately for sales promotion, marketing, and after-sales service of goods on the financial statements or cost accounts of the producer;
(g) telephone, mail, and other communications, if those costs are identified separately for sales promotion, marketing, and after-sales service of goods on the financial statements or cost accounts of the producer;
(h) rent and depreciation of sales promotion, marketing, and after-sales service offices, and distribution centers;
(i) property insurance premiums, taxes, cost of utilities, and repair and maintenance of sales promotion, marketing, and after-sales service offices and distribution centers, if those costs are identified separately for sales promotion, marketing, and after- sales service of goods on the financial statements or cost accounts of the producer; and
(j) payments by the producer to other persons for warranty repairs;
self-produced material means a material that is produced by the producer of a good and used in the production of that good;
shipping and packing costs means the costs incurred in packing a good for shipment and shipping the good from the point of direct shipment to the buyer, excluding costs of preparing and packaging the good for retail sale;
total cost means all product costs, period costs, and other costs incurred in the territory of one or more of the Parties, where:
(a) product costs are costs that are associated with the production of a good and include the value of materials, direct labor costs, and direct overheads;
(b) period costs are costs, other than product costs, that are expensed in the period in which they are incurred, such as selling expenses and general and administrative expenses; and
(c) other costs are all costs recorded on the books of the producer that are not product costs or period costs, such as interest.
Total cost does not include profits that are earned by the producer, regardless of whether they are retained by the producer or paid out to other persons as dividends, or taxes paid on those profits, including capital gains taxes;
transaction value means the customs value as determined in accordance with the Customs Valuation Agreement, that is, the price actually paid or payable for a good or material with respect to a transaction of, except for the application of Article 10.3(a) in the Appendix to Annex 4-B (Product-Specific Rules of Origin), 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;
used means used or consumed in the production of goods; and
value means value of a good or material for purposes of calculating customs duties or for the purposes of applying this Chapter.
Article 4.2. Originating Goods
Except as otherwise provided in this Chapter, each Party shall provide that a good is originating if it is:
(a) wholly obtained or produced entirely in the territory of one or more of the Parties, as defined in Article 4.3 (Wholly Obtained or Produced Goods);
(b) produced entirely in the territory of one or more of the Parties using non-originating materials provided the good satisfies all applicable requirements of Annex 4-B (Product-Specific Rules of Origin);
(c) produced entirely in the territory of one or more of the Parties exclusively from originating materials; or
(d) except for a good provided for in Chapter 61 to 63 of the Harmonized System:
(i) produced entirely in the territory of one or more of the Parties;
(ii) one or more of the non-originating materials provided for as parts under the Harmonized System used in the production of the good cannot satisfy the requirements set out in Annex 4-B (Product-Specific Rules of Origin) because both the good and its materials are classified in the same subheading or same heading that is not further subdivided into subheadings or, the good was imported into the territory of a Party in an unassembled or a disassembled form but was classified as an assembled good pursuant to tule 2(a) of the General Rules of Interpretation of the Harmonized System; and
(iii) the regional value content of the good, determined in accordance with Article 4.5 (Regional Value Content), is not less than 60 percent if the transaction value method is used, or not less than 50 percent if the net cost method is used;
and the good satisfies all other applicable requirements of this Chapter.
Article 4.3. Wholly Obtained or Produced Goods
Each Party shall provide that, for the purposes of Article 4.2 (Originating Goods), a good is wholly obtained or produced entirely in the territory of one or more of the Parties if it is:
(a) a mineral good or other naturally occurring substance extracted or taken from there;
(b) a plant, plant good, vegetable, or fungus, grown, cultivated, harvested, picked, or gathered there;
(c) a live animal born and raised there;
(d) a good obtained from a live animal there;
(e) an animal obtained by hunting, trapping, fishing, gathering, or capturing there;
(f) a good obtained from aquaculture there;
(g) fish, shellfish, or other marine life taken from the sea, seabed or subsoil outside the territories of the Parties and, under international law, outside the territorial sea of non-Parties, by vessels that are registered, listed, or recorded with a Party and entitled to fly the flag of that Party;
(h) a good produced from goods referred to in subparagraph (g) on board a factory ship that is registered, listed, or recorded with a Party and entitled to fly the flag of that Party;
(i) a good other than fish, shellfish, and other marine life taken by a Party or a person of a Party from the seabed or subsoil outside the territories of the Parties, provided that Party has the right to exploit that seabed or subsoil;
(j) waste and scrap derived from:
(i) production there, or
(ii) used goods collected there, provided the goods are fit only for the recovery of raw materials; and
(k) a good produced there, exclusively from goods referred to in subparagraphs (a) through (j), or from their derivatives, at any stage of production.
Article 4.4. Treatment of Recovered Materials Used In the Production of a Remanufactured Good
1. Each Party shall provide that a recovered material derived in the territory of one or more of the Parties is treated as originating when it is used in the production of, and incorporated into, a remanufactured good.
2. For greater certainty:
(a) a remanufactured good is originating only if it satisfies the applicable requirements of Article 4.2 (Originating Goods); and
(b) a recovered material that is not used or incorporated in the production of a remanufactured good is originating only if it satisfies the applicable requirements of Article 4.2 (Originating Goods).
Article 4.5. Regional Value Content
1. Except as provided in paragraph 6, each Party shall provide that the regional value content of a good shall be calculated, at the choice of the importer, exporter, or producer of the good, on the basis of either the transaction value method set out in paragraph 2 or the net cost method set out in paragraph 3.
2. Each Party shall provide that an importer, exporter, or producer may calculate the regional value content of a good on the basis of the following transaction value method:
RVC = (TV-VNM)/TV x 100 where RVC is the regional value content, expressed as a percentage;
TV is the transaction value of the good, adjusted to exclude any costs incurred in the international shipment of the good; and
VNM is the value of non-originating materials including materials of undetermined origin used by the producer in the production of the good.
3. Each Party shall provide that an importer, exporter, or producer may calculate the regional value content of a good on the basis of the following net cost method:
RVC = (NC-VNM)/NC x 100
where
RVC is the regional value content, expressed as a percentage; NC is the net cost of the good; and
VNM is the value of non-originating materials including materials of undetermined origin used by the producer in the production of the good.
4. Each Party shall provide that the value of non-originating materials used by the producer in the production of a good shall not, for the purposes of calculating the regional value content of the good under paragraph 2 or 3, include the value of non-originating materials used to produce originating materials that are subsequently used in the production of the good.
5. Each Party shall provide that if a non-originating material is used in the production of a good, the following may be counted as originating content for the purpose of determining whether the good meets a regional value content requirement:
(a) the value of processing of the non-originating materials undertaken in the territory of one or more of the Parties; and
(b) the value of any originating material used in the production of the non-originating material undertaken in the territory of one or more of the Parties.
6. Each Party shall provide that an importer, exporter, or producer shall calculate the regional value content of a good solely on the basis of the net cost method set out in paragraph 3 if the rule under the Annex 4-B (Product-Specific Rules of Origin) does not provide a rule based on the transaction value method.
7. If an importer, exporter, or producer of a good calculates the regional value content of the good on the basis of the transaction value method set out in paragraph 2 and a Party subsequently notifies the importer, exporter, or producer, during the course of a verification pursuant to Chapter 5 (Origin Procedures) that the transaction value of the good, or the value of material used in the production of the good, is required to be adjusted or is unacceptable under Article | of the Customs Valuation Agreement, the exporter, producer, or importer may then also calculate the regional value content of the good on the basis of the net cost method set out in paragraph 3.
8. For the purposes of calculating the net cost of a good under paragraph 3, the producer of the good may:
(a) calculate the total cost incurred with respect to all goods produced by that producer, subtract any 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 of all those goods, and then reasonably allocate the resulting net cost of those goods to the good;
(b) calculate the total cost incurred with respect to all goods produced by that producer, reasonably allocate the total cost to the good, and then subtract any sales promotion, marketing, and after-sales service costs, royalties, shipping and packing costs, and non-allowable interest costs that are included in the portion of the total cost allocated to the good; or
(c) reasonably allocate each cost that forms part of the total cost incurred with respect to the good so that the aggregate of these costs does not include any sales promotion, marketing, and after-sales service costs, royalties, shipping and packing costs, and non-allowable interest costs,
provided that the allocation of all those costs is consistent with the provisions regarding the reasonable allocation of costs set out in the Uniform Regulations.
Article 4.6. Value of Materials Used In Production
Each Party shall provide that, for the purposes of this Chapter, the value of a material is:
(a) for a material imported by the producer of the good, the transaction value of the material at the time of importation, including the costs incurred in the international shipment of the material;
(b) for a material acquired in the territory where the good is produced:
(i) the price paid or payable by the producer in the Party where the producer is located,
(ii) the value as determined for an imported material in subparagraph (a), or
(iii) the earliest ascertainable price paid or payable in the territory of the Party; or
(c) for a material that is self-produced:
(i) all the costs incurred in the production of the material, which includes general expenses, and
(ii) an amount equivalent to the profit added in the normal course of trade, or equal to the profit that is usually reflected in the sale of goods of the same class or kind as the self-produced material that is being valued.
Article 4.7. Further Adjustments to the Value of Materials
1. Each Party shall provide that for a non-originating material or material of undetermined origin, the following expenses may be deducted from the value of the material:
(a) the costs of freight, insurance, packing, and all other costs incurred in transporting the material to the location of the producer of the good;
(b) duties, taxes, and customs brokerage fees on the material paid in the territory of one or mote of the Parties, other than duties and taxes that are waived, refunded, refundable, or otherwise recoverable, which include credit against duty or tax paid or payable; and
(c) the cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of reusable scrap or by-product.
2. If the cost or expense listed in paragraph 1 is unknown or documentary evidence of the amount of the adjustment is not available, then no adjustment is allowed for that particular cost.
Article 4.8. Intermediate Materials
Each Party shall provide that any self-produced material, other than a component identified in Table G of the Appendix to Annex 4-B (Product-Specific Rules of Origin), that is used in the production of a good may be designated by the producer of the good as an intermediate material for the purpose of calculating the regional value content of the good under paragraph 2 or 3 of Article 4.5 (Regional Value Content), provided that if the intermediate material is subject to a regional value content requirement, no other self-produced material subject to a regional value content requirement used in the production of that intermediate material may itself be designated by the producer as an intermediate material.
Article 4.9. Indirect Materials
An indirect material shall be considered to be an originating material without regard to where it is produced.
Article 4.10. Automotive Goods
The Appendix to Annex 4-B (Product-Specific Rules of Origin) includes additional provisions that apply to automotive goods.
Article 4.11. Accumulation
1. Each Party shall provide that a good is originating if the good is produced in the territory of one or more of the Parties by one or more producers, provided that the good satisfies the requirements of Article 4.2 (Originating Goods) and all other applicable requirements in this Chapter.
2. Each Party shall provide that an originating good or material of one or more of the Parties is considered as originating in the territory of another Party when used as a material in the production of a good in the territory of another Party.
3. Each Party shall provide that production undertaken on a non-originating material in the territory of one or more of the Parties may contribute toward the originating status of a good, regardless of whether that production was sufficient to confer originating status to the material itself.
Article 4.12. De Minimis
1. Except as provided in Annex 4-A (Exceptions to Article 4.12 (De Minimis)), each Party shall provide that a good is an originating good if the value of all non-originating materials used in the production of the good that do not undergo an applicable change in tariff classification set out in Annex 4-B (Product- Specific Rules of Origin) is not more than 10 percent:
(a) of the transaction value of the good adjusted to exclude any costs incurred in the international shipment of the good; or
(b) of the total cost of the good, provided that the good satisfies all other applicable requirements of this Chapter.
2. If a good described in paragraph 1 is also subject to a regional value content requirement, the value of those non-originating materials shall be included in the value of non-originating materials for the applicable regional value content requirement.
3. A good that is otherwise subject to a regional value content requirement shall not be required to satisfy the requirement if the value of all non-originating materials used in the production of the good is not more than 10 percent of the transaction value of the good, adjusted to exclude any costs incurred in the international shipment of the good, or the total cost of the good, provided that the good satisfies all other applicable requirements of this Chapter.
4. With respect to a textile or apparel good, Articles 6.1.2 and 6.1.3 (Rules of Origin and Related Matters) apply in place of paragraph 1.
Article 4.13. Fungible Goods and Materials
1. Each Party shall provide that a fungible material or good is originating if:
(a) when originating and non-originating fungible materials are used in the production of a good, 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 Party in which the production is performed; 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 Party from which the good is exported.
2. The inventory management method selected under paragraph 1 must be used throughout the fiscal year of the producer or the person that selected the inventory management method.
3. For greater certainty, an importer may claim that a fungible material or good is originating if the importer, producer, or exporter has physically segregated each fungible material or good as to allow their specific identification.
Article 4.14. Accessories, Spare Parts, Tools, or Instructional or other Information Materials
1. Each Party shall provide that:
(a) in determining whether a good is wholly obtained, or satisfies a process or change in tariff classification requirement as set out in Annex 4-B (Product-Specific Rules of Origin), accessories, spare parts, tools, or instructional or other information materials as described in paragraph 3, are to be disregarded; and
(b) in determining whether a good meets a regional value content requirement, the value of the accessories, spare parts, tools, or instructional or other information materials, as described in paragraph 3, are to be taken into account as originating or non-originating materials, as the case may be, in calculating the regional value content of the good.
2. Each Party shall provide that a good's accessories, spare parts, tools, or instructional or other information materials, as described in paragraph 3, have the originating status of the good with which they are delivered.
3. For the purposes of this Article, accessories, spare parts, tools, or instructional or other information materials are covered when:
(a) the accessories, spare parts, tools, or instructional or other information materials are classified with, delivered with, but not invoiced separately from the good; and