(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 and 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;
material means a good that is used in the production of another good;
non-originating good or non-originating material means a good or material that does not qualify as originating in accordance with this Chapter,
originating good or originating material means a good or material that qualifies as originating in accordance with this Chapter,
packing materials and containers for shipment means goods used to protect another good during its transportation, but does not include the packaging materials or containers in which a good is packaged for retail sale;
producer means a person who engages in the production of a good;
production means operations including growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, collecting, breeding, extracting, aquaculture, gathering, manufacturing, processing or assembling a good; transaction value means the price actually paid or payable for the good when sold for export or other value determined in accordance with the Customs Valuation Agreement; and
value of the good means the transaction value of the good excluding any costs incurred in the international shipment of the good.
Article 3.2. 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 established in Article 3.3 (Wholly Obtained or Produced Goods);
(b) produced entirely in the territory of one or more of the Parties, exclusively from originating materials; or
(c) 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 3-D (Product-Specific Rules of Origin),
and the good satisfies all other applicable requirements of this Chapter.
Article 3.3. Wholly Obtained or Produced Goods
Each Party shall provide that for the purposes of Article 3.2 (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 plant or plant good, 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 or other naturally occurring substance, not included in subparagraphs (a) through (c), extracted or taken from there;
(g) fish, shellfish and other marine life taken from the sea, seabed or subsoil outside the territories of the Parties and, in accordance with 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, and beyond areas over which non-Parties exercise jurisdiction provided that Party or person of that Party has the right to exploit that seabed or subsoil in accordance with international law;
(j) a good that is:
(i) waste or scrap derived from production there; or
(ii) waste or scrap derived from used goods collected there, provided that those 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.
Article 3.4. Treatment of Recovered Materials Used In 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 3.2 (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 3.2 (Originating Goods).
Article 3.5. Regional Value Content
1. Each Party shall provide that a regional value content requirement specified in this Chapter, including related Annexes, to determine whether a good is originating, is calculated as follows:
(a) Focused Value Method: Based on the Value of Specified Non- Originating Materials
RVC = Value of the Good - FVNM / Value of the Goofd x 100
(b) Build-down Method: Based on the Value of Non-Originating Materials
RVC = Value of the Good - VNM / Value of the Good x 100
(c) Build-up Method: Based on the Value of Originating Materials
RVC = VOM / Value of the Good x 100 or
(d) Net Cost Method (for Automotive Goods Only)
RVC = NC - VNM / NC x 100
where:
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 Article 3.9 (Net Cost);
FVNM is the value of non-originating materials, including materials of undetermined origin, specified in the applicable product-specific-rule (PSR) in Annex 3-D (Product-Specific Rules of Origin) and used in the production of the good. For greater certainty, non-originating materials that are not specified in the applicable PSR in Annex 3-D (Product-Specific Rules of Origin) are not taken into account for the purpose of determining FVNM; and
VOM is the value of originating materials used in the production of the good in the territory of one or more of the Parties.
2. 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 3.6. Materials Used In Production
1. Each Party shall provide that if a non-originating material undergoes further production such that 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.
2. 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.
Article 3.7. 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 3.8. Further Adjustments to the Value of Materials
1. Each Party shall provide that for an originating material, the following expenses may be added to the value of the material, if not included under Article 3.7 (Value of Materials Used in Production):
(a) the costs of freight, insurance, packing and all other costs incurred to transport 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 more 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. 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 more 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.
3. If the cost or expense listed in paragraph 1 or 2 is unknown or documentary evidence of the amount of the adjustment is not available, then no adjustment is allowed for that particular cost.
Article 3.9. Net Cost
1. If Annex 3-D (Product-Specific Rules of Origin) specifies a regional value content requirement to determine whether an automotive good of subheading 8407.31 through 8407.34, 8408.20, subheading 8409.91 through 8409.99, heading 87.01 through 87.09 or heading 87.11 is originating, each Party shall provide that the requirement to determine the origin of that good based on the Net Cost Method is calculated as set out under Article 3.5 (Regional Value Content).
2. For the purposes of this Article:
(a) 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; and
(b) net cost of the good means the net cost that can be reasonably allocated to the good, using one of the following methods:
(i) calculating the total cost incurred with respect to all automotive goods produced by that producer, subtracting 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 allocating the resulting net cost of those goods to the good;
(ii) calculating the total cost incurred with respect to all automotive goods produced by that producer, reasonably allocating the total cost to the good, and then subtracting 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
(iii) reasonably allocating 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 Generally Accepted Accounting Principles.
3. Each Party shall provide that, for the purposes of the Net Cost Method for motor vehicles of heading 87.01 through 87.06 or heading 87.11, the calculation may be averaged over the producer's fiscal year using any one of the following categories, on the basis of all motor vehicles in the category or only those motor vehicles in the category that are exported to the territory of another Party:
(a) the same model line of motor vehicles in the same class of motor vehicles produced in the same plant in the territory of a Party;
(b) the same class 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; or
(d) any other category as the Parties may decide.
4. Each Party shall provide that, for the purposes of the Net Cost Method in paragraphs 1 and 2, for automotive materials of subheading 8407.31 through 8407.34, 8408.20, heading 84.09, 87.06, 87.07, or 87.08, produced in the same plant, a calculation may be averaged:
(a) over the fiscal year of the motor vehicle producer to whom the good is sold
(b) over any quarter or month; or
(c) over the fiscal year of the producer of the automotive material, provided that the good was produced during the fiscal year, quarter or month forming the basis for the calculation, in which:
(i) the average in subparagraph (a) is calculated separately for those goods sold to one or more motor vehicle producers; or
(ii) the average in subparagraph (a) or (b) is calculated separately for those goods that are exported to the territory of another Party.
5. For the purposes of this Article:
(a) class of motor vehicles means any one of the following categories of motor vehicles:
(i) motor vehicles classified under subheading 8701.20, motor vehicles for the transport of 16 or more persons classified under subheading 8702.10 or 8702.90, and motor vehicles classified under subheading 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, or heading 87.05 or 87.06;
(ii) motor vehicles classified under subheading 8701.10 or subheadings 8701.30 through 8701.90;
(iii) motor vehicles for the transport of 15 or fewer persons classified under subheading 8702.10 or 8702.90, and motor vehicles classified under subheading 8704.21 or 8704.31;
(iv) motor vehicles classified under subheadings 8703.21 through 8703.90; or
(v) motor vehicles classified under heading 87.11.
(b) model line of motor vehicles means a group of motor vehicles having the same platform or model name;
(c) non-allowable interest costs means interest costs incurred by a producer that exceed 700 basis points above the yield on debt obligations of comparable maturities issued by the central level of government of the Party in which the producer is located;
(d) reasonably allocate means to apportion in a manner appropriate under Generally Accepted Accounting Principles;
(e) royalty means payments of any kind, including payments under technical assistance or similar agreements, made as consideration for the use or right to use any copyright; literary, artistic or scientific work; patent; trademark; design; model; plan; secret formula or process, excluding those payments under technical assistance or similar agreements that can be related to specific services such as:
(i) personnel training, without regard to where that training is performed; or
(ii) engineering, tooling, die-setting, software design and similar computer services, or other services, if performed in the territory of one or more of the Parties;
(f) sales promotion, marketing and after-sales service costs means the following costs related to sales promotion, marketing and after-sales service:
(i) 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 (good brochures, catalogues, technical literature, price lists, service manuals and sales aid information); establishment and protection of logos and trademarks; sponsorships; wholesale and retail restocking charges; and entertainment;
(ii) sales and marketing incentives; consumer, retailer or wholesaler rebates; and merchandise incentives;
(iii) salaries and wages; sales commissions; bonuses; benefits (for example, medical, insurance or pension benefits); travelling and living expenses; and membership and professional fees for sales promotion, marketing and after-sales service personnel;
(iv) 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;
(v) liability insurance for goods;
(vi) 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;
(vii) 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;
(viii) rent and depreciation of sales promotion, marketing and after-sales service offices and distribution centres;
(ix) property insurance premiums, taxes, cost of utilities, and repair and maintenance of sales promotion, marketing and after-sales service offices and distribution centres, 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 payments by the producer to other persons for warranty repairs;
(g) shipping and packing costs means the costs incurred to pack a good for shipment and to ship the good from the point of direct shipment to the buyer, excluding costs to prepare and package the good for retail sale; and
(h) total cost means all product costs, period costs and other costs for a good incurred in the territory of one or more of the Parties, where:
(i) product costs are costs that are associated with the production of a good and include the value of materials, direct labour costs and direct overheads;
(ii) 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
(iii) 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.
Article 3.10. 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 in Article 3.2 (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 that is used in the production of another good in the territory of another Party is considered as originating in the territory of the other Party.
3. Each Party shall provide that production undertaken on a non-originating material in the territory of one or more of the Parties by one or more producers may contribute toward the originating content of a good for the purpose of determining its origin, regardless of whether that production was sufficient to confer originating status to the material itself.
Article 3.11. De Minimis
1. Except as provided in Annex 3-C (Exceptions to Article 3.11 (De Minimis)), each Party shall provide that a good that contains non-originating materials that do not satisfy the applicable change in tariff classification requirement specified in Annex 3-D (Product-Specific Rules of Origin) for the good is nonetheless an originating good if the value of all those materials does not exceed 10 per cent of the value of the good, as defined under Article 3.1 (Definitions), and the good meets all the other applicable requirements of this Chapter.
2. Paragraph 1 applies only when using a non-originating material in the production of another good.
3. 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.
4. With respect to a textile or apparel good, Article 4.2 (Rules of Origin and Related Matters) applies in place of paragraph 1.
Article 3.12. Fungible Goods or Materials
Each Party shall provide that 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 recognised in the Generally Accepted Accounting Principles if the fungible good or material is commingled, provided that the inventory management method selected is used throughout the fiscal year of the person that selected the inventory management method.
Article 3.13. Accessories, Spare Parts, Tools and 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 3-D (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, and instructional or other information materials are covered when:
(a) the accessories, spare parts, tools and instructional or other information materials are classified with, delivered with but not invoiced separately from the good; and
(b) the types, quantities, and value of the accessories, spare parts, tools and instructional or other information materials are customary for that good.