(h) they are members of the same family (children, brothers, sisters, grandparents, or spouses);
royalties 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:
(a) personnel training, without regard to where performed; and
(b) if performed in the territory of one or both 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 aftersales 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, catalogues, technical literature, price lists, service manuals, sales aid information); establishment and protection of logos and trademarks; sponsorships; wholesale and retail restocking charges; entertainment;
(b) sales and marketing incentives; consumer, retailer or wholesaler rebates;
(c) salaries and wages, sales commissions, bonuses, benefits (for example, medical, insurance, pension), travelling and living expenses, membership and professional fees, for sales promotion, marketing and aftersales service personnel;
(d) recruiting and training of sales promotion, marketing and aftersales service personnel, and aftersales training of customersâ employees, where such costs are identified separately for sales promotion, marketing and aftersales 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 aftersales service of goods, where such costs are identified separately for sales promotion, marketing and aftersales service of goods on the financial statements or cost accounts of the producer;
(g) telephone, mail and other communications, where such costs are identified separately for sales promotion, marketing and aftersales service of goods on the financial statements or cost accounts of the producer;
(h) rent and depreciation of sales promotion, marketing and aftersales service offices and distribution centres;
(i) property insurance premiums, taxes, cost of utilities, and repair and maintenance of sales promotion, marketing and after-sales service offices and distribution centres, where such costs are identified separately for sales promotion, marketing and aftersales 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 repacking costs means the costs incurred in repacking a good and shipping the good outside the territory where the producer or exporter of the good is located;
total cost means the sum of the following:
(a) good;
(b) the cost or value of the direct materials used in the production of the the cost of the direct labour used in production of the good;
(c) a reasonable amount for direct and indirect costs of manufacturing the good, excluding the following:
(i) the costs and expenses of a service provided by the producer of a good to athird party, when the service is not related to the good,
(ii) the costs and losses resulting from the sale of part of the company of the producer, which constitutes a discontinued operation,
(iii) the costs related to the cumulative effect of changes in the application of accounting principles,
(iv) the costs or losses resulting from the sale of a capital good of the producer,
(v) the costs and expenses related to Acts of God or force majeure,
(vi) the earnings obtained by the producer of the good, regardless of whether they were retained by the producer or paid to other persons as dividends and the taxes on those earnings, including the capital gains tax, and
(vii) the interest costs agreed to by related persons in excess of the interest paid at market rates;
transaction value of a good means the price actually paid or payable for a good with respect to a transaction of the producer of the good, adjusted in accordance with the principles of Article 1 and paragraphs 1, 3 and 4 of Article 8 of the Customs Valuation Code, regardless of whether the good is sold for export. For the purposes of this definition, the vendor referred to in the Customs Valuation Code shall be the producer of the good;
transaction value of a material means the price actually paid or payable for a material with respect to a transaction of the producer of the good, adjusted in accordance with the principles of Article 1 and paragraphs 1, 3 and 4 of Article 8 of the Customs Valuation Code, regardless of whether the good or material is sold for export. For the purposes of this definition, the vendor referred to in the Customs Valuation Code shall be the supplier of the material and the buyer referred to in the Customs Valuation Code shall be the producer of the good; and
used means used or consumed in the production of goods.
Article 4-02. Interpretation and Application
1. For the purposes of this Chapter:
(a) the basis for tariff classification is the Harmonized System;
(a) the transaction value of a good or material shall be determined on the basis of the principles of the Customs Valuation Code; and
(b) all the costs referred to in this Chapter shall be recorded and maintained in accordance with the Generally Accepted Accounting Principles applicable in the territory of the Party in which the good is produced.
2. In applying the Customs Valuation Code under this Chapter to determine the origin of a good:
(a) the principles of the Customs Valuation Code shall apply to domestic transactions, with such modifications as may be required by the circumstances, as would apply to international transactions; and
(b) the provisions of this Chapter shall take precedence over the Customs Valuation Code to the extent of any difference.
Article 4-03. Originating Goods
1. Except as otherwise provided in this Chapter, a good shall originate in the territory of a Party where:
(a) the good is wholly obtained or produced entirely in the territory of one or both of the Parties, as defined in Article 4-01;
(b) the good is produced entirely in the territory of one or both of the Parties exclusively from originating materials as defined in this Chapter;
(c) the good is produced in the territory of one or both of the Parties from non-originating materials that undergo a change in tariff classification and meet other requirements, as set out in Annex 4-03, and the good satisfies all other applicable provisions of this Chapter;
(d) the good is produced in the territory of one or both of the Parties from non-originating materials that undergo a change in tariff classification and meet other requirements and the good satisfies the regional value content, as set out in Annex 4-03, and all other applicable provisions of this Chapter;
(e) the good is produced in the territory of one of both of the Parties and satisfies the regional value content as specified in Annex 4-03 and all other applicable requirements of this Chapter; or
(f) except for a good provided for in Chapters 61 through 63 of the Harmonized System, the good is produced entirely in the territory of one or both of the Parties but one or more of the non-originating materials that are used in the production of the good do not undergo a change in tariff classification because:
(i) 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 Rule 2(a) of the General Rules of Interpretation of the Harmonized System, or
(ii) the heading for the good provides for and specifically describes both the good itself and its parts and is not further subdivided into subheadings, or the subheading for the good provides for and specifically describes both the good itself and its parts,
provided that the regional value content of the good, determined in accordance with Article 4-04, is not less than 50 per cent where the transaction value method is used, or is not less than 40 per cent where the net cost method is used, and that the good satisfies all other applicable requirements of this Chapter, unless the applicable rule of Annex 4-03 under which it is classified specifies a different regional value content requirement, in which case that requirement is to be applied.
2. For the purposes of this Chapter, a good produced from non-originating materials that undergo a change in tariff classification and satisfy the other requirements set out in Article 4-03 shall have been produced entirely in the territory of one or both Parties and the entire regional value content of the good shall be met in the territory of one or both Parties.
Article 4-04. Regional Value Content
1. Except as provided in paragraph 5, each Party shall provide that the regional value content of a good shall be calculated, at the choice of the exporter or producer of the good, on the basis of either the transaction value method set out in paragraph 2 or the net cost method set out in paragraph 4.
2. The regional value content of a good may be calculated 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 a F.O.B. basis, except as provided in paragraph 3; and
VNM is the value of non-originating materials used by the producer in the production of the good, determined in accordance with Article 4-05.
2. For the purposes of paragraph 2, where the producer of the good does not export it directly, the transaction value shall be adjusted to the point at which the purchaser receives the good within the territory where the producer is located.
3. The regional value content of a good may be calculated 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 used by the producer in the production of the good, determined in accordance with Article 4-05.
5. Each Party shall provide that an 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 4 where:
(a) there is no transaction value for the good because it is not for sale;
(b) the transaction value of the good cannot be determined owing to restrictions on the assignment or use of the good by the buyer with the exception of those that:
(i) are imposed or required by the law or the authorities of the Party in which the purchaser of the good is located,
(ii) limit the geographical territory in which the good can be resold, or
(ii) do not substantially affect the value of the good;
(c) the sale or the price depends on a condition or consideration whose value cannot be determined in relation to the good;
(d) part of the proceeds from the resale of the product or from any subsequent assignment or use of the good by the buyer reverts directly or indirectly to the vendor, unless the necessary adjustment can be made in accordance with Article 8 of the Customs Valuation Code;
(e) the buyer and the vendor are related persons and the relationship between them influences the price, except as provided in paragraph 2, Article 1, of the Customs Valuation Code;
(f) the good is sold by the producer to arelated person and the volume, by units of quantity, of sales of identical or similar goods sold to related persons during the six-month period immediately preceding the month in which the good is sold by the producer exceeds 85 per cent of the producer's total sales of such goods during that period;
(g) the exporter or producer chooses to accumulate the regional value content of the good in accordance with Article 4-08; or
(h) the good is designated as an intermediate material under Article 4-07 and is subject to a regional value-content requirement.
6. If an 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 exporter or producer, during the course of a verification pursuant to Chapter 5 (Customs Procedures), that the transaction value of the good, or the value of any material used in the production of the good, is required to be adjusted or is unacceptable under paragraph 5, the exporter or producer may then also calculate the regional value content of the good on the basis of the net cost method set out in paragraph 4.
7. With the exception of the goods covered in Article 4-15, a producer may average the regional value content of one or all of the goods included in the same subheading, that are produced by the same plant or in different plants in the territory of a Party, either taking as the base all the goods produced by the producer or only the goods that are exported to the other Party:
(a) in the fiscal year or period; or
(b) in any monthly, bimonthly, quarterly, four-monthly or semiannual period.
8. Article 20-10 (Revocations and Transitory Provisions) shall apply to goods classified in subheadings 8422.40 and 8431.43.
Article 4-05. Value of Materials
1. The value of a material shall:
(a) be the transaction value of the material; or
(b) in the event that there is no transaction value or the transaction value of the material is unacceptable under Article 1 of the Customs Valuation Code, be determined in accordance with Articles 2 through 7 of the Customs Valuation Code.
2. Where not included under paragraph 1 (a) or (b), the value of a material shall include:
(a) freight, insurance, packing and all other costs incurred in transporting the material from the port of importation in the territory of the Party where the producer is located, except as provided in paragraph 3;
(b) the cost of waste and spoilage resulting from the use of the material in the production of the good, less any costs recovered, provided the recovery does not exceed 30 per cent of the value of the material, determined in accordance with paragraph 1.
3. Where the producer of a good buys anon-originating material in the territory of the Party where the producer is located, the value of the non-originating material shall not include freight, insurance, packing or any other cost incurred in transporting the material from the warehouse of the supplier to the location of the producer.
4. To calculate the regional value content under Article 4-04, the value of the non-originating materials used by the producer in the production of a good shall not include the value of the non-originating materials used by:
(a) another producer in the production of an originating material that is purchased and used by the producer of the good in its production; or
(b) the producer of the good in the production of a self-manufactured originating material, designated by the producer as an intermediate material in accordance with Article 4-07.
Article 4-06. De Minimis
1. A good shall be considered to be 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 4-03 is not more than eight per cent of the transaction value of the good, adjusted on the basis of Article 4-04 (2) or (3) as appropriate, or in the cases referred to in Article 4-04 (5), if the value of all non-originating materials is not more than eight per cent of the total cost of the good.
2. If a good mentioned in paragraph 1 is also subject to a regional value content requirement, the value of such non-originating materials shall be taken into account in calculating the regional value content of the good and the good must satisfy all other applicable requirements of this Chapter.
3. A good that is subject to a regional value-content requirement established in Annex 4-03 shall not be required to satisfy such requirement if the value of all non- originating materials is not more than eight per cent of the transaction value of the good, adjusted on the basis of Article 4-04 (2) or (3) as appropriate, or in the cases referred to in Article 4-04 (5), if the value of all non-originating materials is not more than eight per cent of the total cost.
4. Paragraph 1 does not apply to:
(a) goods provided for in Chapter 50 through 63 of the Harmonized System; or
(b) a non-originating material used in the production of a good provided for in Chapter 1 through 27 of the Harmonized System unless the non-originating material is provided for in a different subheading than the good for which origin is being determined under this Article.
Article 4-07. Intermediate Materials
1. For the purposes of calculating the regional value content under Article 4-04, the producer of a good may designate as an intermediate material, any self-produced material used in the production of the good, provided such maiterial is an originating good as established in Article 4-03.
2. Where an intermediate material is subject to a regional value content under Annex 4-03, the value shall be calculated on the basis of the net cost method established in Article 4-04 (4).
3. For the purposes of calculating the regional value content of a good, the value of the intermediate material shall be the total cost that can reasonably be assigned to that intermediate material as established in the Uniform Regulations of this Chapter.
4. If a material designated as an intermediate material is subject to a regional value content, no other self-produced material subject to a regional value content used in the production of that intermediate material may be designated by the producer as an intermediate material.
5. Except where two or more producers accumulate their production under Article 4-08, the restriction established in paragraph 4 shall not apply to an intermediate material used by another producer in the production of a material that is subsequently purchased and used in the production of a good by the producer mentioned in paragraph 4.
Article 4-08. Accumulation
1. For the purposes of determining whether a good is an originating good, the producer of a good may choose to accumulate own production with that of one or more producers in the territory of one or both Parties of materials that are incorporated into that good, so that the production of the materials is considered to have been performed by that producer, provided the good complies with the requirements of Article 4-03.
2. In cases in which the accumulated good is subject to a regional value-content requirement, the calculation shall be performed on the basis of the net cost method.
Article 4-09. Fungible Goods and Materials
1. For the purposes of determining whether a good is an originating good when originating and non-originating fungible materials are commingled in the inventory, the origin of the materials may be determined on the basis of any of the inventory management methods set out in the Uniform Regulations.
2. Where originating and non-originating fungible goods are commingled in the inventory and do not undergo any productive process or any other operation in the territory of the Party in which they were commingled, other than unloading, reloading or any other movement necessary to maintain the goods in good condition or ship them to the territory of the other Party, the origin of the good may be determined on the basis of any of the inventory management methods set out in the Uniform Regulations.
3. Once one of the inventory management methods set out in the Uniform Regulations has been selected, it shall be used during the entire fiscal year or period.
Article 4-10. Sets and Assortments
1. Sets and assortments of goods classified as provided in Rule 3 of the General Rules of Interpretation, of the Harmonized System and goods whose description under the nomenclature of the Harmonized System is specifically that of a set or assortment shall qualify as originating, provided that each of the goods in the set or assortment complies with the rule of origin 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 to form the set or assortment does not exceed eight per cent of the transaction value of the set or assortment, adjusted on the basis of paragraph 2 or 3 of Article 4-04 as applicable or, in the cases referred to in Article 4-04 (5), if the value of all the non-originating goods does not exceed eight per cent of the total value of the set or assortment.
3. The provisions of this Article shall take precedence over the specific rules established in Annex 4-03.
Article 4-11. Indirect Materials
An indirect material shall be considered to be an originating material without regard to where it is produced and the value of such material shall be the cost reported in the accounting records of the producer of the good.
Article 4-12. Accessories, Spare Parts and Tools
1. Accessories, spare parts or tools delivered with the good that form part of the good's standard accessories, spare parts, or tools shall be disregarded in determining whether all the non-originating materials used in the production of the good undergo the applicable change in tariff classification set out in Annex 4-03, provided that:
(a) the accessories, spare parts or tools are not invoiced separately from the good, regardless of whether they are listed separately in the invoice; and
(b) the quantities and value of the accessories, spare parts or tools are customary for the good.
2. If the good is subject to a regional value-content requirement, the value of the accessories, spare parts or tools shall be taken into account as originating or non-originating materials, as the case may be, in calculating the regional value content of the good.
3. For the purposes of paragraph 2, where the accessories, spare parts or tools are self-produced, the producer may opt to designate them as intermediate materials under Article 4-07.
Article 4-13. Packaging Materials and Containers for Retail Sale
1. Packaging materials and containers in which a good is packaged for retail sale shall, if classified with the good in the Harmonized System, be disregarded in determining whether all the non-originating materials used in the production of the good undergo the applicable change in tariff classification set out in Annex 4-03.
2. If the good is subject to a regional value-content requirement, the value of such packaging materials and containers shall be taken into account as originating or non-originating materials, as the case may be, in calculating the regional value content of the good.
3. For the purposes of paragraph 2, when the packaging materials and containers are self-produced, the producer may designate them as intermediate materials under Article 4-07.
Article 4-14. Packing Materials and Containers for Shipment
Packing materials and containers in which a good is packed for shipment shall be disregarded in determining whether:
(a) the non-originating materials used in the production of the good undergo an applicable change in tariff classification set out in Annex 4-03; and
(b) the good satisfies a regional value-content requirement.
Article 4-15. Automotive Goods
1. For the purposes of this Article:
class of motor vehicles means any one of the following categories of motor vehicles:
(a) motor vehicles in subheading 8701.20, 8702.10. or 8702.90 (vehicles for the transport of 16 or more persons), or subheading 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90 or heading 87.05 or 87.06;
(b) motor vehicles in subheading 8701.10 or 8701.30 through 8701.90;
(c) motor vehicles in subheading 8702.10 or 8702.90 (vehicles for the transport of 15 or fewer persons), or subheading 8704.21 or 8704.31; or
(d) motor vehicles in subheading 8703.21 through 8703.90;
model line means a group of motor vehicles having the same platform or model name;
model name means the word, group of words, letter, number or similar designation assigned to a motor vehicle by a marketing division of a motor vehicle assembler:
(a) to differentiate the motor vehicle from other motor vehicles that use the same platform design;
(b) to associate the motor vehicle with other motor vehicles that use a different platform design; or
(c) to denote a platform design;
motor vehicle means a good included in heading 87.01, 87.02, 87.03, 87.04, 87.05 or 87.06;
platform means the platform primary load-bearing structural assembly of a motor vehicle determining the basic size of the motor vehicle, and is the structural base that supports the driveline and links the suspension components of the motor vehicle for various types of frames, such as the body-on-frame or space-frame, and monocoques; and underbody means the floor pan of a motor vehicle.
2. For purposes of calculating the regional value content of a motor vehicle, 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 in the category or only those motor vehicles in the category that are 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;