(d) goods obtained from hunting, fishing or aquaculture in the territory of one or more of the Parties;
(e) fish, crustaceans and other species obtained from the sea by vessels registered or recorded by a Party and flying the flag of that Party;
(f) goods produced on board factory ships from the goods identified in subparagraph (e), provided that such factory ships are registered or recorded by a Party and fly the flag of that Party;
(g) goods obtained by a Party or a person of a Party from the seabed or subsoil outside the territorial waters, provided that the Party has rights to exploit that seabed or subsoil;
(h) wastes (1) and residues derived from:
(i) production in the territory of one or more of the Parties; or
(ii) goods used or collected in the territory of one or more of the Parties, provided that such goods are used only for the recovery of raw materials; or
(i) goods produced in the territory of one or more of the Parties exclusively from the goods referred to in subparagraphs (a) through (h) or their derivatives, at any stage of production;
related person: a person who is related to another person, in accordance with the following:
(a) one of them holds positions of responsibility or management in one of the other's companies;
(b) are legally recognized as business associates; (c) are in the relationship of employer and employee;
(d) a person has, directly or indirectly, ownership, control or possession of 25 percent or more of the outstanding and voting shares or securities of both;
(e) oneofthem directly or indirectly controls the other; (f) both persons are directly or indirectly controlled by a third party; (g) together they directly or indirectly control a third person; or
(h) are from the same family and include only children, siblings, parents, grandparents or spouses;
generally accepted accounting principles: those on which there is a recognized consensus or which enjoy substantial and authoritative support in the territory of a Party with respect to the recording of revenues, expenses, costs, assets and liabilities, disclosure of information and preparation of financial statements and which are applied in the territory of that Party. These standards may be broad guides of general application, as well as detailed practical rules and procedures;
production: the cultivation, raising, extraction, harvesting, gathering of vegetables or fruits, fishing, hunting, manufacturing, processing or assembling of a commodity;
producer: a person located in the territory of a Party who cultivates, raises, extracts, harvests, collects vegetables or fruits, fishes, hunts, manufactures, processes or assembles a good;
royalties: payments made for the exploitation of intellectual property rights;
used: employed or consumed in the production of goods;
transaction value of a good: the price actually paid or payable for a good in connection with the transaction by the producer of the good in accordance with the principles of Article 1 of the Customs Valuation Agreement, adjusted in accordance with the principles of Articles 8.1, 8.3 and 8.4 thereof, without regard to whether the good is sold for export. For the purposes of this definition, the seller referred to in the Customs Valuation Agreement shall be the producer of the merchandise; and
transaction value of a material: the price actually paid or payable for a material in connection with the transaction of the producer of the good in accordance with the principles of Article 1 of the Customs Valuation Agreement, adjusted in accordance with the principles of Articles 8.1, 8.3 and 8.4 thereof, without regard to whether the material is sold for export. For the purposes of this definition, the seller referred to in the Customs Valuation Agreement shall be the supplier of the material and the buyer referred to in the Customs Valuation Agreement shall be the producer of the goods.
Article 4.2. Instruments for Application and Interpretation
1. For the purposes of this Chapter:
(a) the basis for tariff classification is the Harmonized System;
(b) the determination of the transaction value of a good or material shall be made in accordance with the principles of the Customs Valuation Agreement; and
(c) all costs referred to in this Chapter shall be recorded and maintained in accordance with generally accepted accounting principles applicable in the territory of the Party where the good is produced.
2. For the purposes of this Chapter, when applying the Customs Valuation Agreement to determine the origin of a good:
(a) the principles of that Agreement shall apply to domestic transactions, with such modifications as circumstances may require, as they would apply to international transactions; and
(b) the provisions of this Chapter shall prevail over those of that Agreement insofar as they are incompatible.
Article 4.3. Originating Goods
1. A good is originating when:
(a) is wholly obtained or produced entirely in the territory of one or more of the Parties, as defined in Article 4.1;
(b) is produced in the territory of one or more of the Parties exclusively from materials that qualify as originating under this Chapter;
(c) is produced in the territory of one or more of the Parties from non- originating materials that meet a change in tariff classification and other requirements, as specified in Annex 4.3, and the good complies with the other applicable provisions of this Chapter;
(d) is produced in the territory of one or more of the Parties from non- originating materials that meet a change in tariff classification and other requirements, and the good complies with a regional value content requirement as specified in Annex 4.3, and with the other applicable provisions of this Chapter;
(e) is produced in the territory of one or more of the Parties and meets a regional value content requirement, as specified in Annex 4.3, and complies with the other applicable provisions of this Chapter; or
(f) except for goods provided for in Chapters 61 through 63 of the Harmonized System, the good is produced in the territory of one or more of the Parties, but one or more of the non-originating materials used in the production of the good does not comply with a change in tariff classification because:
(i) the good has been imported into the territory of a Party unassembled or disassembled, but has been classified as an assembled good in accordance with rule 2(a) of the General Rules for the Interpretation of the Harmonized System; or
(ii) the heading for the good is the same for both the good and its parts and that heading is not divided into subheadings or the subheading is the same for both the good and its parts;
provided that the regional value content of the good, determined in accordance with Article 4.4, is not less than 50 percent when using the transaction value method or 41.66 percent when using the net cost method, except as otherwise provided in Annex 4.3, and the good complies with the other applicable provisions of this Chapter
2. For purposes of this Chapter, the production of a good from non-originating materials that meet a change in tariff classification and other requirements, as specified in Annex 4.3, shall be made entirely in the territory of one or more of the Parties, and any regional value content requirement for a good shall be satisfied entirely in the territory of one or more of the Parties.
Article 4.4. Regional Content Value
1. Each Party shall provide that the regional value content of a good shall be calculated, at the option of the exporter or producer of the good, in accordance with the transaction value method set out in paragraph 2 or the net cost method set out in paragraph 4.
2. To calculate the regional value content of a good based on the transaction value method, the following formula shall be applied:
VCR = VT - VMN /VT x 100 where:
VCR: regional content value expressed as a percentage;
VT: transaction value of a good adjusted on a F.O.B. basis, except as provided in paragraph 3; and
VMN: The value of non-originating materials used by the producer in the production of the good, determined in accordance with the provisions of Article 4.5.
3. For the purposes of paragraph 2, where the producer of the good does not export the good directly, the transaction value shall be adjusted to the point at which the buyer receives the good within the territory where the producer is located.
4. To calculate the regional value content of a good based on the net cost method, the following formula shall be applied:
VCR= CN - VMN / CN x 100 where:
VCR: regional value content expressed as a percentage.
CN: net cost of goods.
VMN: The value of non-originating materials used by the producer in the production of the good, determined in accordance with the provisions of Article 4.5.
5. For the purposes of paragraph 2, there shall be no transaction value when the goods are not the subject of a sale or when the circumstances set forth in Article 1.1 of the Customs Valuation Agreement are not met.
In these cases, for the purposes of calculating the regional value content of a good, the producer or exporter may make such calculation based on the following:
(a) the net cost method; or
(b) the transaction value method. In this case, the customs value calculated in accordance with the principles of the Customs Valuation Agreement shall replace the transaction value in the formula of paragraph 2.
6. Except for goods covered by Article 4.16, a producer may average the regional value content of any or all goods falling within the same subheading that are produced in the same plant or in different plants within the territory of a Party, either on the basis of all goods produced by the producer or on the basis of only those goods that are exported to the other Party:
(a) in its fiscal year or period; or
(b) in any monthly, bimonthly, quarterly, quarterly, quarterly or semiannual period.
Article 4.5. Value of Materials
1. The value of a material:
(a) is the transaction value of the material; or
(b) if there is no transaction value or if the transaction value of the material cannot be determined in accordance with the principles of Article 1 of the Customs Valuation Agreement, it shall be calculated in accordance with the principles of Articles 2 to 7 of that Agreement.
2. When not considered in subparagraphs (a) or (b) of paragraph 1, the value of a material shall include:
(a) freight, insurance, packing costs and all other costs incurred in transporting the material to the port of importation in the Party where the producer of the good is located, except as provided in paragraph 3; and
(b) the cost of waste and scrap resulting from the use of the material in the production of the good, less any recovery of these costs, provided that the recovery does not exceed 30 percent of the value of the material, determined in accordance with paragraph 1.
3. When the producer of the good acquires a non-originating material within the territory of the Party where it is located, the value of the material shall not include freight, insurance, packing costs and all other costs incurred in transporting the material from the supplier's warehouse to the place where the producer is located.
4. For purposes of calculating regional value content under Article 4.4, except as provided in Article 4.16.2, for a motor vehicle identified in Article 4.16.3, or a component identified in Annex 4.16(b), the value of non-originating materials used by the producer in the production of a good shall not include the value of non- originating materials used by:
(a) another producer in the production of an originating material that is acquired and used by the producer of the good in the production of that good; or
(b) the producer of the commodity in the production of an intermediate material.
Article 4.6. De Minimis
1. A good shall be considered to be originating if the value of all non-originating materials used in the production of the good that do not comply with the applicable change in tariff classification set out in Annex 4.3 does not exceed 10 percent of the transaction value of the good adjusted on the basis set out in paragraphs 2 or 3, as the case may be, of Article 4.4 or, if the transaction value of the good is not admissible under Article 1 of the Customs Valuation Agreement, if the value of all non-originating materials referred to above does not exceed 10 percent of the total cost of the good.
2. Where the good referred to in paragraph 1 is additionally subject to a regional value content requirement, the value of those non-originating materials shall be taken into account in the calculation of the regional value content of the good and the good shall satisfy the other applicable requirements of this Chapter.
3. A good that is subject to a regional value content requirement set out in Annex 4.3 need not satisfy it if the value of all non-originating materials does not exceed 10 percent of the transaction value of the good adjusted on the basis set out in paragraphs 2 or 3, as the case may be, of Article 4.4, or, where the transaction value of the good is ineligible under Article 1 of the Customs Valuation Agreement, if the value of all non-originating materials referred to above does not exceed 10 percent of the total cost of the good.
4. Paragraph 1 does not apply to:
(a) goods covered by Chapters 50 to 63 of the Harmonized System; and
(6) a non-originating material that is used in the production of goods falling within Chapters 01 through 27 of the Harmonized System, unless the non-originating material falls within a subheading other than that of the good for which origin is being determined in accordance with this Article.
5. A good falling within Chapters 50 through 63 of the Harmonized System that is non-originating because the fibers and yarns, other than elastomeric materials classified in subheading 5402.44 or 5404.11, used in the production of the material that determines the tariff classification of that good, do not comply with the change in tariff classification set out in Annex 4.3, shall nevertheless be considered as originating ifthe total weight of such fibers and yarns of that material does not exceed 10 percent of the total weight of that material.
6. A good of Chapters 50 through 63 of the Harmonized System that is non- originating because the elastomeric materials classified in subheading 5402.44 or 5404.11 used in the production of the material that determines the tariff classification of that good do not comply with the change in tariff classification set out in Annex 4.3 shall nevertheless be considered to be originating if the total weight of the elastomeric materials classified in subheading 5402.44 or 5404.11 does not exceed 7 percent of the total weight of that material.
Article 4.7. Intermediate Materials
1. For purposes of calculating regional value content under Article 4.4, the producer of a good may designate as an intermediate material any self-produced material used in the production of that good, provided that such material complies with Article 4.3, except for the components listed in Annex 4.16(b) and goods of heading 87.06 intended for use in motor vehicles covered by Article 4.16.3.
2. Where an intermediate material is designated and is subject to a regional value content requirement under Annex 4.3, the regional value content shall be calculated as set out in paragraph 5(a) or (b) of Article 4.4.
3. For purposes of calculating the regional value content of the good, the value of the intermediate material shall be the total cost that can reasonably be assigned to that intermediate material in accordance with Annex 4.4.
4. If a material designated as an 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, in turn, be designated by the producer as an intermediate material.
5. Where a good referred to in Article 4.16.2 is designated as an intermediate material, that designation shall apply only to the calculation of the net cost of that good, and the value of non-originating materials shall be determined in accordance with Article 4.16.2.
Article 4.8. Accumulation
1. Each Party shall provide that:
(a) goods or materials originating in one or more of the Parties, incorporated into a good in the territory of another Party, shall be considered as originating in the territory of that other Party; or
(6) a good is originating when the good is produced in the territory of one or more of the Parties by one or more producers, provided that the good meets the requirements of Article 4.3 and the other applicable requirements of this Chapter.
2. For purposes of cumulation of origin under this Article, the Parties shall apply to an originating good under this Agreement the rate of customs duty set out in Chapter III (National Treatment and Market Access for Goods), provided that:
(a) originating materials originating under this Agreement used in the production of a good in a Central American Party are, in accordance with this Agreement, free of customs duties between Mexico and the Party that produced the material. Notwithstanding the provisions of paragraph 1, in the determination of origin of such good, materials obtained in the Party that do not comply with the above requirements shall be considered as if they had been obtained in a non-Party; or
(b) originating materials pursuant to this Agreement used in the production of a good in Mexico do not correspond to a material specified in accordance with the applicable regimes set out in Annex A of the General Treaty on Central American Economic Integration and are free of customs duties between the importing Central American Party and the other Central American Party that produced the material. Notwithstanding the provisions of paragraph 1, in the determination of origin of such merchandise, materials obtained in the Party that do not comply with the above requirements shall be considered as if they had been obtained in a non-Party;
(c) for originating materials originating under this Agreement to have a common rule of origin in accordance with Annex 4.3, between the Parties involved in the cumulation of origin.
Article 4.9. Extended Accumulation of Origin
1. Where the Parties have established preferential trade arrangements with a non-Party State or group of States, goods or materials originating in such non-Party that are incorporated in a good or material in the territory of a Party shall be considered as originating in the territory of that Party, provided that they comply with the rules of origin applicable to that good or material in accordance with this Agreement.
2. For the implementation of paragraph 1, each Party shall apply provisions equivalent to those set forth in that paragraph with the non-Party State or group of States. The Parties may also establish such other conditions as they deem necessary for the implementation of paragraph 1.
Article 4.10. Goods and Fungible Materials
1. For the purposes of establishing whether a good is originating, when originating and non-originating fungible materials that are physically mixed or combined in inventory are used in its production, the origin of the materials may be determined by one of the inventory management methods set out in paragraph 3.
2. When originating and non-originating fungible goods are physically mixed or combined in inventory, and prior to their exportation they do not undergo any production process or any other operation in the territory of the Party in which they were physically mixed or combined, other than unloading, reloading or any other movement necessary to maintain the goods in good condition or transport them to the territory of the other Party, the origin of the good may be determined from one of the inventory management methods set out in paragraph 3.
3. The applicable inventory management methods for expendable materials or goods shall be as follows:
(a) "PEPS" (first-in-first-out) is the method of inventory management whereby the origin of the number of units of the materials or consumables first received into inventory is considered as the origin, in equal number of units, of the materials or consumables first issued from inventory;
(b) "UEPS" (last-in-first-out) is the method of inventory management whereby the origin of the number of units of expendable materials or goods received last into inventory is considered to be the origin, in equal number of units, of the expendable materials or goods first out of inventory; or
(c) "averaging" is the method of inventory management whereby, except as provided in paragraph 4, the determination as to whether fungible materials or goods are originating shall be made through the application of the following formula:
PMO = TMO / TMOYN x 100 where:
PMO: average of originating materials or consumables;
TMO: total units of the originating materials or consumables that are part of the pre-departure inventory; and
TMOYN: total sum of units of originating and non-originating fungible materials or goods that are part of the inventory prior to departure.
4. In the case that the merchandise is subject to a regional value content requirement, the determination of the non-originating fungible materials shall be made through the application of the following formula:
PMN = TMN / TMOYN x 100
where:
PMN: average of non-originating materials;
TMN: total value of non-originating consumable materials that are part of the inventory prior to departure; and
TMOYN: total value of originating and non-originating consumables forming part of the pre-departure inventory.
5. Once one of the inventory management methods set forth in paragraph 3 has been selected, it should be used throughout the fiscal year or period.
Article 4.11. Sets or Assortments
1. Sets or assortments of goods that are classified according to rule 3 of the General Rules for the Interpretation of the Harmonized System, as well as goods whose description in accordance with the nomenclature of the Harmonized System is specifically that of a set or assortment, shall qualify as originating, provided that each of the goods contained in the set or assortment complies with the rule of origin that has been established for each of the goods in this Chapter.
2. Notwithstanding paragraph 1, a set or assortment of goods shall be considered originating if the value of all the non-originating goods used in the formation of the set or assortment does not exceed 10 percent of the transaction value of the set or assortment adjusted on the basis indicated in paragraphs 2 or 3 as the case may be of Article 4.4, or where the transaction value of the good cannot be determined in accordance with Article 1 of the Customs Valuation Agreement, if the value of all non-originating goods used in the formation of the set does not exceed 10 percent of the total cost of the set.
3. The provisions of this Article shall prevail over the specific rules of origin set forth in Annex 4.3.
Article 4.12. Indirect Materials
Indirect materials shall be considered as originating without regard to the place of their production and the value of such materials shall be the cost of such materials as reported in the accounting records of the producer of the goods.
Article 4.13. Accessories, Spare Parts and Tools
1. Accessories, spare or replacement parts and tools delivered with the good as part of the normal accessories, spare or replacement parts and tools of the good shall be disregarded in determining whether all non-originating materials used in the production of the good comply with the applicable change in tariff classification set out in Annex 4.3, provided that:
(a) accessories, spare or replacement parts and tools are not invoiced separately from the merchandise, regardless of whether they are itemized or detailed separately on the invoice itself; and
(b) the quantity and value of such accessories, spare or replacement parts and tools are those customary for the goods.
2. When the good is subject to a regional value content requirement, the value of accessories, spare parts and tools shall be taken into account as originating or non-originating materials, as the case may be, when calculating the regional value content of the good.
Article 4.14. Retail Containers and Packaging Materials
1. Containers and packaging materials in which a good is presented for retail sale, when classified with the good they contain, shall be disregarded in deciding whether all non-originating materials used in the production of the good comply with the applicable change in tariff classification set out in Annex 4.3.
2. When the good is subject to a regional value content requirement, the value of retail containers and packaging materials shall be considered as originating or non-originating, as the case may be, in calculating the regional value content of the good.
Article 4.15. Containers and Packing Materials for Shipment
Containers and packing materials for shipment shall not be taken into account in determining whether a good is originating.
Article 4.16. Automotive Industry Goods
1. For the purposes of this Article, the following definitions shall apply:
chassis: the bottom plate of a motor vehicle;
class of motor vehicles: any of the following categories of motor vehicles:
(a) motor vehicles of subheading 8702.10 or 8702.90, when they are motor vehicles designed for the transport of 16 persons or more, or of subheading 8701.20, 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, or of heading 8705 or 8706;
(b) motor vehicles falling under subheading 8701.10 or 8701.30 to 8701.90;
(c) motor vehicles of subheading 8702.10 or 8702.90, when they are motor vehicles designed for the transport of 15 persons or less, or of subheading 8704.21 or 8704.31; or
(d) motor vehicles falling under subheading 8703.21 to 8703.90;
motor vehicle assembler: a producer of motor vehicles and any related person or joint ventures in which the producer participates;
original equipment: material that is incorporated into a motor vehicle prior to the first transfer of title or consignment of the motor vehicle to a person who is not a motor vehicle assembler. Such material is:
(a) a good covered by Annex 4.16(a); or
(b) an automotive component assembly, an automotive component or a material listed in Annex 4.16(b);
model line: a group of motor vehicles having the same platform or the same model name;
model name: the word or group of words, letter or letters, number or numbers or similar designation assigned to a motor vehicle by a marketing division of a motor vehicle assembler for:
(a) differentiate the motor vehicle from other motor vehicles using the same platform design;
(b) associating the motor vehicle with other motor vehicles using a different platform design; or
(c) indicate a platform design;