(b) period costs means those costs other than product costs that are expensed in the period in which they are incurred, including selling expenses and general and administrative expenses; and
(c) other costs means all costs recorded on the books of the producer that are not product costs or period costs;
transaction value of the good means the price paid or payable to the producer of the good at the place where the last production was carried out and must include the value of all materials. If there is no price paid or payable or if it does not include the value of all materials, the transaction value of the good:
(a) must include the value of all materials and the cost of production employed in producing the good, calculated in accordance with generally accepted accounting principles; and
(b) may include amounts for general expenses and profit to the producer that can be reasonably allocated to the good;
Any internal taxes which are, or may be, repaid when the good obtained is exported are excluded. If the transaction value of the good includes costs incurred subsequent to the good leaving the place of production, such as transportation, loading, unloading, handling or insurance, those costs are to be excluded; and
value of non-originating materials means the customs value of the material at the time of its importation into a Party, as determined in accordance with the Customs Valuation Agreement. The value of the non-originating material must include any costs incurred in transporting the material to the place of importation, such as transportation, loading, unloading, handling or insurance costs. If the customs value is not known or cannot be ascertained, the value of non-originating materials is the first ascertainable price paid for the materials in a Party.
Article 3.2. Originating Goods
Except as otherwise provided in this Chapter, a good is originating if it is:
(a) wholly obtained or produced entirely in the territory of one or both of the Parties in accordance with Article 3.3;
(b) produced entirely in the territory of one or both of the Parties, exclusively from originating materials; or
(c) produced entirely in the territory of one or both of the Parties, using non-originating materials, provided that the good satisfies the requirements set out in Annex 3-A; and
the good satisfies all other applicable requirements of this Chapter.
Article 3.3. Wholly Obtained or Produced Goods
The following goods are considered wholly obtained or produced entirely in the territory of one or both of the Parties:
(a) a plant, plant good or fungus, grown, cultivated, harvested, picked or gathered there;
(b) a live animal born and raised there;
(c) a good obtained from a live animal there;
(d) an animal obtained by hunting, trapping, fishing, gathering or capturing there;
(e) a good obtained from aquaculture there;
(f) a mineral good or other naturally occurring substance extracted or taken from there;
(g) a good, other than a fish, crustacean, mollusc and other marine life taken by a Party or a person of a Party from the seabed, ocean floor or subsoil outside the territories of the Parties, provided that Party or the person of that Party has the right to exploit that seabed, ocean floor or subsoil in accordance with international law;
(h) a fish, crustacean, mollusc or other marine life taken from the waters, seabed, ocean floor or subsoil outside the territories of the Parties by vessels that are registered, listed or recorded with a Party and entitled to fly the flag of that Party and that Party has the right to exploit those waters, seabed, ocean floor or subsoil in accordance with international law;
(i) a good obtained or produced on board of a factory ship, exclusively from a good referred to in subparagraph (h), provided that the factory ship is registered, listed or recorded with a Party and entitled to fly the flag of that Party;
(j) waste and scrap derived from:
(i) production carried out there; or
(ii) used goods collected there, provided that those goods fit only for the recovery of raw materials; and
(k) a good obtained or produced there exclusively from a good referred to in subparagraphs (a) through (j).
Article 3.4. Regional Value Content
1. Except as provided in paragraph 2, where the applicable rule of origin in Annex 3-A specifies a regional value content requirement, the regional value content shall be calculated as follows:
(a) Focused Value Method: Based on the Value of Specified Non-Originating Materials
RVC = ((TVOG - FVNM) / TVOG) x 100
or
where:
(b) Build-down Method: Based on the Value of Non-Originating Materials
RVC = ((TVOG - VNM) / TVOG) x 100
RVC is the regional value content of a good, expressed as a percentage;
VNM is the value of non-originating materials, including materials of undetermined origin, used in the production of the good;
FVNM is the value of non-originating materials, including materials of undetermined origin, specified in the applicable product-specific-rule in Annex 3-A and used in the production of the good. For greater certainty, non-originating materials that are not specified in the applicable product-specific-rule in Annex 3-A are not taken into account for the purpose of determining FVNM; and
TVOG is the transaction value of the good.
2. For the purposes of a good of heading 87.03, subheading 8704.21, 8704.31, 8704.41 or 8704.51, at the choice of an exporter or a producer of that good, where the applicable rule of origin in Annex 3-A specifies a regional value content requirement, the regional value content shall be calculated as follows:
(a) Build-down Method: Based on the Value of Non-Originating Materials
RVC = ((TVOG - VNM) / TVOG) x 100
or
where:
(b) Net Cost Method
RVC = ((NC - VNM) / NC) x 100
RVC is the regional value content of a good, expressed as a percentage;
VNM is the value of non-originating materials, including materials of undetermined origin, used in the production of the good;
NC is the net cost of the good determined in accordance with paragraphs 3 and 4; and
TVOG is the transaction value of the good.
3. For the purposes of calculating the net cost of a good as set out in paragraph 2, 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, royalty, shipping and packing costs and non-allowable interest cost 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, royalty, shipping and packing costs and non-allowable interest cost 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 by that producer with respect to the good so that the aggregate of these costs does not include any sales promotion, marketing and after-sales service costs, royalty, shipping and packing costs, or non-allowable interest cost.
4. For the purposes of calculating the net cost of a good under paragraph 2, the producer may average its calculation over its fiscal year using any one of the following categories, on the basis of either all motor vehicles produced by that producer in the category or only those motor vehicles in the category that are produced by that producer and exported to the territory of the other Party:
(a) the same model line of motor vehicles in the same class of vehicles produced in the same plant in the territory of a Party;
(b) the same model line of motor vehicles produced in the same plant in the territory of a Party;
(c) the same model line of motor vehicles produced in the territory of a Party;
(d) the same class of motor vehicles produced in the same plant in the territory of a Party; or
(e) any other category as the Parties may decide.
5. Each Party shall provide that all costs considered for the calculation of regional value content are recorded and maintained in conformity with the generally accepted accounting principles applicable in the territory of a Party where the good is produced.
Article 3.5. Accumulation
1. A good is originating if the good is produced in the territory of one or both of the Parties by one or more producers, provided that the good satisfies the requirements of Article 3.2 and all other applicable requirements in this Chapter.
2. An originating good or material of a Party is considered as originating in the territory of the other Party when it is used as a material in the production of a good in the territory of that Party.
3. An exporter may take into account production carried out on a non-originating material in the other Party for the purposes of determining the originating status of a good.
4. Subject to paragraph 5, if, as permitted by the WTO Agreement, each Party has a free trade agreement with the same non-party, a material from that non-party may be taken into consideration by the exporter when determining if a good is originating under this Agreement.
5. Each Party shall apply paragraph 4 only if equivalent provisions are in force between each Party and the non-party and upon agreement by the Parties on the applicable conditions.
Article 3.6. Materials Used In Production
If a non-originating material undergoes further production in the territory of one or both of the Parties and it satisfies the requirements of this Chapter, the material is treated as originating when determining the originating status of the subsequently produced good, regardless of whether that material was produced by the producer of the good.
Article 3.7. De Minimis
1. A good that does not satisfy the applicable change in tariff classification pursuant to Annex 3-A is an originating good if:
(a) for a good, except for a good provided for in Chapters 50 through 63 of the Harmonized System, the value of all non-originating materials used in the production of the good that did not undergo the required change in tariff classification does not exceed 10 per cent of the transaction value of the good;
(b) for a good provided for in Chapters 50 through 60 of the Harmonized System, the total weight of all non-originating materials used in the production of the good that did not undergo the required change in tariff classification does not exceed 15 per cent of the total weight of that good; or
(c) for a good provided for in Chapters 61 through 63 of the Harmonized System, the total weight of all non-originating materials in the component of the good that determines the tariff classification of the good that did not undergo the required change in tariff classification does not exceed 15 per cent of the total weight of that component; and
the good satisfies all other applicable requirements of this Chapter.
2. If a good described in paragraph 1 is also subject to a maximum value or weight of non-originating materials as set out in Annex 3-A, the maximum value or weight of the non-originating materials shall not be exceeded through the application of paragraph 1.
Article 3.8. Treatment of Recovered Materials Used In Production of a Remanufactured Good
1. A recovered material derived in the territory of one or both 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 3.2; 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 3.2.
3. This Article applies to a remanufactured good classified in Harmonized System Chapters 84 through 90, except:
(a) a good classified in subheading 8407.31, 8407.32, 8407.33, 8407.34, 8407.90, or 8408.20; or
(b) parts of subheading 8409.91 or 8409.99 for use in the production of a good referred to in subparagraph (a).
Article 3.9. Fungible Goods and Materials
1. A fungible good or material is treated as originating based on the:
(a) physical segregation of each fungible good or material; or
(b) use of any inventory management method recognized in the generally accepted accounting principles of the Party in which production is performed if the fungible good or material is commingled.
2. Once a particular inventory management method is selected under paragraph 1, that method shall continue to be used for those fungible goods or materials throughout the fiscal year of the person that selected the inventory management method.
Article 3.10. Indirect Materials
1. An indirect material is considered to be originating without regard to where it is produced.
2. For the purposes of this Article, an indirect material means a good used in the production, testing or inspection of another good but not physically incorporated into that other good, or a material used in the maintenance of buildings or the operation of equipment associated with the production of a good, such as:
(a) fuel, energy, catalysts and solvents;
(b) equipment, devices and supplies used for testing or inspection of the goods;
(c) gloves, glasses, footwear, clothing, safety equipment and supplies;
(d) tools, dies and moulds;
(e) spare parts and materials used in the maintenance of equipment and buildings;
(f) lubricants, greases, compounding materials and other materials used in production, or used to operate equipment or in the maintenance of buildings; and
(g) any other material that is not incorporated into the good but the use of which in the production of the good can reasonably be demonstrated to be a part of that production.
Article 3.11. Accessories, Spare Parts, Tools, and Instructional or other Information Materials
The accessories, spare parts, tools, or instructional or other information materials of a good, are considered originating if the good is an originating good, and these shall be disregarded in determining whether all the non-originating materials used in the production of the good undergo the applicable requirements set out in Annex 3-A provided that:
(a) the accessories, spare parts, tools and instructional or other information materials are classified with, delivered with and not invoiced separately from the good; and
(b) the quantities and value of the accessories, spare parts, tools and instructional or other information materials are customary for that good.
Article 3.12. Packaging Materials and Containers for Retail Sale
1. Packaging materials and containers in which a good is packaged for retail sale, if classified with the good, are disregarded in determining whether a good is originating in accordance with Article 3.2.
2. For the purposes of this Article, “packaging materials and containers” means materials and containers in which a good is packaged for retail sale.
Article 3.13. Packing Materials and Containers for Shipment
1. Packing materials and containers for shipment are disregarded in determining whether a good is originating.
2. For the purposes of this Article, “packing materials and containers” means materials and containers that are used to protect a good during transportation.
Article 3.14. Transit and Transhipment
1. An originating good retains its originating status if the good has been transported from the exporting Party to the importing Party without passing through the territory of a non-party.
2. If an originating good is transported through the territory of one or more non-parties, the good retains its originating status provided that the good:
(a) does not undergo any operation outside the territory of the Parties other than unloading, reloading, splitting up or any other operation necessary to preserve it in good condition; and
(b) remains under the control of the customs authorities in the territory of a non-party.
Article 3.15. Non-Qualifying Operations
1. A good shall not be considered to be an originating good merely by reason of undergoing one or more of the following operations in the territory of a Party:
(a) packaging, re-packaging or breaking up for retail sale of the good;
(b) oiling or applying anti-rust paint or protective coatings to the good; or
(c) disassembly of a new good into its parts.
2. This Article applies to goods produced using non-originating materials.
Chapter 4. ORIGIN PROCEDURES
Article 4.1. Definitions
For the purposes of this Chapter:
competent authority means:
(a) for Canada, the Canada Border Services Agency, or its successor; and
(b) for Ecuador, the Ministry of Production, Foreign Trade, and Investments or the National Customs Service of Ecuador, or their successors;
determination of origin means a determination as to whether a good qualifies as an originating good in accordance with Chapter 3 (Rules of Origin);
identical goods means goods that are the same in all respects, including physical characteristics, quality and reputation, irrespective of minor differences in appearance that are not relevant to a determination of origin of those goods under Chapter 3 (Rules of Origin);
preferential tariff treatment means the duty rate applicable to an originating good under this Agreement; and
value means the value of a good or material for the purposes of calculating customs duties or for purposes of applying Chapter 3 (Rules of Origin).
The following terms have the same meaning as in Article 3.1 (Rules of Origin - Definitions):
(a) material;
(b) originating good or originating material; and
(c) production.
Article 4.2. Claims for Preferential Tariff Treatment
1. The Parties shall establish a certificate of origin for the purposes of certifying that a good being exported from the territory of a Party into the territory of the other Party qualifies as an originating good. The certificate of origin may thereafter be modified as the Parties may decide.
2. Each Party shall provide that an importer may make a claim for preferential tariff treatment, based on a certificate of origin completed by the exporter, producer, or importer for the purposes of certifying that a good being exported from the territory of a Party into the territory of the other Party qualifies as an originating good.
3. Each Party shall implement paragraph 2 with respect to a certificate of origin by the importer seven years after the date of entry into force of this Agreement.
4. The importing Party may:
(a) require that an importer who completes a certificate of origin provide documents or other information to support the certificate;
(b) establish in its laws and regulations conditions that an importer must meet to complete a certificate of origin;
(c) if an importer fails to meet or no longer meets the conditions established under subparagraph (b), prohibit that importer from providing its own certificate as the basis of a claim for preferential tariff treatment; or
(d) if a claim for preferential tariff treatment is based on a certificate of origin completed by an importer, prohibit that importer from making a subsequent claim for preferential tariff treatment for the same importation based on a certificate of origin completed by the exporter or producer.
5. Each Party shall provide that a certificate of origin may apply to:
(a) a single shipment of one or more goods into the territory of a Party; or
(b) multiple shipments of identical goods within any period specified in the certificate of origin, but not exceeding 12 months.
6. A Party shall not reject a claim for preferential tariff treatment for the sole reason that the invoice was issued in a non-party.
7. Each Party shall provide that a certificate of origin for a good imported into its territory be accepted by its customs administration for one year after the date on which the certificate of origin was completed or for a longer period specified by the laws or regulations of the importing Party.
8. Each Party shall allow a certificate of origin to be completed and submitted electronically and shall accept the certificate of origin with an electronic signature. For greater certainty, a portable document format of the certificate of origin with an electronic signature is an acceptable electronic format.