(a) there is no transaction value because the good is not the subject of a sale;
(b) the transaction value of the property cannot be determined because there are restrictions on the transfer or use of the property by the buyer other than those that:
(i) imposed or required by the law or authorities of the Party in which the buyer of the good is located; (ii) limit the geographical territory where the good may be resold; or (iii) do not appreciably affect the value of the good;
(c) the sale or price is dependent on some condition or consideration, the value of which cannot be determined in relation to the good;
(d) directly or indirectly reverts to the seller any part of the proceeds of the resale or of any subsequent transfer or use of the property by the buyer, unless due adjustment can be made in accordance with the provisions of Article 8 of the Customs Valuation Code;
(e) the buyer and seller are related persons and the relationship between them influences the price, except as provided in Article 1.2 of the Customs Valuation Code;
f) the good is sold by the producer to a related person and the volume of sales, in units of quantity of identical or similar goods, sold to related persons, during a period of six months immediately preceding the month in which the producer has sold that good, exceeds 85% of the producer's total sales of those goods during that period;
g) the exporter or producer elects to accumulate the regional value content of the good in accordance with Article 5-08;
h) the good:
(i) is a motor vehicle of heading 8701 or 8702, subheading 8703.21 through 8703.90, or heading 8704, 8705, or 8706; or
(ii) is identified in annex 1 to item 5-15 or annex 2 to item 5-15 and is for use in a motor vehicle of heading 8701 or 8702, subheading 8703.21 through 8703.90, or heading 8704, 8705, or 8706;
(i) the good is designated as an intermediate material in accordance with Article 5-07 and is subject to a regional value content requirement.
Article 5-05. Value of Materials.
1. The value of a material:
(a) shall be the transaction value of the material; or
(b) where there is no transaction value or where the transaction value of the material cannot be determined in accordance with the principles of Article 1 of the Customs Valuation Code, shall be calculated in accordance with the principles of Articles 2 through 7 of that Code.
2. When not considered under 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 per cent of the value of the material, determined in accordance with paragraph 1.
3. Where the producer of the good acquires the 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 producer's location.
4. For purposes of calculating regional value content pursuant to Article 5-04, except as provided in paragraph 2 of Article 5-15, for a motor vehicle identified in paragraph 3 of Article 5-15, or a component identified in Annex 2 to Article 5-15, 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 good in the production of a self-produced originating material that is designated by the producer as an intermediate material in accordance with Article 5-07.
Article 5-06. De Minimis.
1. A good shall be considered originating if the value of all non-originating materials used in the production of the good that do not comply with the corresponding change in tariff classification set out in the Annex to Article 5-03 does not exceed 7% of the transaction value of the good adjusted on the basis indicated in paragraph 2 or 3, as the case may be, of Article 5-04 or, in the cases referred to in subparagraphs a) to e) of paragraph 5 of Article 5-04 if the value of all the non-originating materials referred to above does not exceed 7% of the total cost of the good.
2. When the same good is 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 the Annex to Article 5-03 need not satisfy that requirement if the value of all non-originating materials does not exceed 7% of the transaction value of the good adjusted on the basis indicated in paragraph 2 or 3, as the case may be, of Article 5-04 or in the cases referred to in subparagraphs (a) through (e) of paragraph 5 of Article 5-04, if the value of all the non-originating materials referred to above does not exceed 7% of the total cost of the good.
4. Paragraph 1 does not apply to:
(a) goods covered by Chapters 50 through 63 of the Harmonized System; nor.
(b) 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 covered by Chapters 50 through 63 of the Harmonized System that is non-originating because the fibers and yarns used in the production of the material that determines the tariff classification of that good do not comply with the change in tariff classification provided in the Annex to Article 5-03, shall nevertheless be considered as originating if the total weight of those fibers and yarns of that material does not exceed 7 percent of the total weight of that material.
Article 5-07. Intermediate Materials.
1. For the purposes of calculating the regional value content in accordance with Article 5-04, the producer of a good may designate as intermediate materials, except for the components listed in Annex 2 to Article 5-15 and goods of heading 87.06 for use in motor vehicles covered in paragraph 3 of Article 5-15, any self- produced material used in the production of the good provided that such material complies with the provisions of Article 5-03.
2. Where the intermediate material is subject to a regional value content requirement in accordance with the Annex to Article 5-03, the regional value content shall be calculated on the basis of the net cost method set out in Article 5-04.
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 the Annex to Article 5-01.
4. Ifa 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. When a good referred to in paragraph 2 of Article 5-15 is designated as an intermediate material, that designation shall be technically applied to the calculation of the net cost of that good, and the value of the non-originating materials shall be determined in accordance with the provisions of paragraph 2 of Article 5- 15.
Article 5-08. Cumulation.
For purposes of establishing whether a good is originating, an exporter or producer may cumulate its production with that of one or more producers in the territory of one or both Parties, of materials that are incorporated in the good, so that the production of the materials shall be considered as having been carried out by that exporter or producer, provided that the provisions of Article 5-03 are complied with.
Article 5-09. Expendable Goods and Materials.
1. For the purpose 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 established 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 to 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) "FIFO" (first-in-first-out) is the inventory management method whereby the origin of the number of units of the materials or consumables first received into inventory is considered to be the origin in equal number of units of the materials or consumables first removed from inventory;
(b) "LILO" (last-in-first-out) is the inventory management method by which the origin of the number of units of the materials or consumables last received into inventory is considered as the origin in equal number of units of the materials or consumables first removed from inventory; or
(c) "averaging" is the method of inventory management whereby, except as provided in paragraph 4, the determination as to whether materials or consumables 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 originating materials or consumables that are part of the pre-departure inventory.
TMOYN: total sum of units of originating and non-originating materials or consumables forming part of the pre-departure inventory.
4. In the case where the good 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 fungible materials forming part of the inventory prior to departure.
TMOYN: total value of originating and non-originating consumables in the pre-departure inventory.
5. Once one of the inventory management methods set forth in paragraph 3 has been selected, it shall be used throughout the fiscal year or period.
Article 5-10. Sets.
1. Sets or assortments of goods that are classified according to the provisions of General Rule 3 of the Harmonized System, as well as goods whose description according to 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 the provisions of paragraph 1, a set of goods shall be considered as originating if the value of all the non-originating goods used in the formation of the set does not exceed 7% of the transaction value of the set adjusted on the basis indicated in paragraph 2 or 3, as the case may be, of Article 5-04 or, in the cases referred to in subparagraphs a) to e) of paragraph 5 of Article 5-04, if the value of all the non- originating goods referred to above does not exceed 7% of the total cost of the set.
3. The provisions of this article shall prevail over the specific rules set forth in the annex to article 5-03.
Article 5-11. 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 thereof as reported in the accounting records of the producer of the good.
Article 5-12. Accessories, Spare Parts and Tools.
1. Accessories, spare or replacement parts and tools delivered with the good as part of the usual 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 the Annex to Article 5-03, provided that:
(a) the accessories, spare or replacement parts and tools are not invoiced separately from the good, regardless of whether they are separately itemized or detailed on the invoice itself; and
(b) the quantity and value of such accessories, spare or replacement parts and tools are those customary for the good.
2. Where the good is subject to a regional value content requirement, the value of the accessories, spare or replacement parts and 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.
Article 5-13. Containers and Packaging Materials for Retail Sale.
1. Containers and packaging materials in which a good is presented for retail sale, when classified with the good they contain, shall not be taken into account in deciding whether all non-originating materials used in the production of the good comply with the corresponding change in tariff classification set out in the Annex to Article 5-03.
2. Where the good is subject to the 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 5-14. Containers and Packing Materials for Shipment.
1. Containers and packing materials for transporting the good shall not be taken into account for purposes of establishing whether all non-originating materials used in the production of the good comply with the corresponding change in tariff classification set out in the Annex to Article 5-03.
2. Where the good is subject to the regional value content requirement, the value of the packaging materials for transporting the good shall be considered as originating or non-originating, as the case may be, in calculating the regional value content of the good, and the value of such material shall be the cost thereof reported in the accounting records of the producer of the good.
Article 5-15. Automotive 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 falling under subheading 8701.20, Mexican tariff item 8702.10.03 or 8702.90.04 or Bolivian subheading 8702.10 or 8702.90 when they are motor vehicles designed for the transport of 16 persons or more, subheading 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, or heading 87.05 or 87.06;
(b) motor vehicles of subheading 8701.10 or 8701.30 to 8701.90;
(c) motor vehicles covered by Mexican tariff item 8702.10.01, 8702.10.02, 8702.90.01, 8702.90.02 or 8702.90.03, or Bolivian subheading 8702.10 or 8702.90 when they are motor vehicles designed for the transport of fifteen persons or less, or Bolivian 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 persons or joint ventures in which the producer participates;
original equipment: material that is incorporated into a motor vehicle before the first transfer of title or consignment of the motor vehicle to a person who is not an assembler of the motor vehicle. Such material is:
(a) a good covered by Annex 1 to this Article; or.
b) an assembly of automotive components, an automotive component or a material listed in Annex 2 to this Article;
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 to:
(a) differentiate the motor vehicle from other motor vehicles using the same platform design;
(b) to associate the motor vehicle with other motor vehicles using a different platform design; or Cc) to indicate a platform design;
platform: the primary assembly of a load-carrying structural assembly of a motor vehicle that determines the basic size of that vehicle and forms the structural base that supports the powertrain, and serves to join the motor vehicle in various types of frames, such as body mount, dimensional frame, and unit body;
motor vehicle: that of heading 87.01, 87.02, 87.03, 87.04, 87.05 or 87.06.
2. For purposes of calculating the regional value content in accordance with the net cost method set forth in paragraph 4 of article 5-04 for:
(a) goods that are motor vehicles covered by Mexican tariff item 8702.10.01, 8702.10.02, 8702.90.01, 8702.90.02 or 8702.90.03, or by Bolivian subheading 8702.10 or 8702.90 when they are motor vehicles designed for the transportation of fifteen persons or less, or by subheading 8703.21 through 8703.90, 8704.21 or 8704.31; or
(b) goods covered by Annex 1 to this article when they are subject to a regional value content requirement and are intended to be used as original equipment in the production of goods that are motor vehicles covered by Mexican tariff item 8702.10.01, 8702.10.02, 8702.90.01, 8702.90.02 or 8702.90.03, or in Bolivian subheading 8702.10 or 8702.90 when they are motor vehicles designed for the transport of fifteen persons or less, or in subheading 8703.21 through 8703.90, 8704.21 or 8704.31;
the value of the non-originating materials used by the producer in the production of the good shall be the sum of the values of the non-originating materials, determined in accordance with paragraphs 1 and 2 of Article 5-05, imported from countries that are not Parties, covered in Annex 1 to this Article and which are used in the production of the good or in the production of any material used in the production of the good.
3. For purposes of calculating the regional value content in accordance with the net cost method set out in paragraph 4 of Article 5-04 for goods that are motor vehicles under heading 87.01, under Mexican tariff item 8702.10.03 or 8702.90.04, or under Bolivian subheading 8702.10 or 8702.90 when they are motor vehicles designed for the transport of 16 persons or more, under subheading 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, or heading 87.05 or 87.06, or for a component identified in annex 2 to this article to be used as original equipment in the production of the motor vehicles described in this paragraph, the value of the non- originating materials used by the producer in the production of the good shall be the sum of:
(a) for each material used by the producer and listed in annex 2 to this article, whether or not produced by the producer, at the producer's option, and determined in accordance with article 5-05 or paragraph 3 of article 5-07, either of the following two values:
(i) the value of the non-originating material; or
(ii) the value of the non-originating materials used in the production of that material; and (b) the value of any other non-originating materials used in the production of that material.
(b) the value of any other non-originating material used by the producer, which is not included in Annex 2 to this Article, determined in accordance with Article 5-05 or paragraph 3 of Article 5-07.
4. For purposes of calculating the regional value content of a motor vehicle identified in paragraph 2 or 3, the producer may average the calculation over its fiscal year or period using any of the following categories, either by taking as a basis all motor vehicles in that category, or only motor vehicles in that category that are exported to the territory of the other Party:
(a) the same model line in motor vehicles of the same class of 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; or c) the same model line in motor vehicles produced in the territory of a Party.
5. For purposes of calculating the regional value content of one or all of the goods covered by a tariff classification listed in Annex 1 to this Article, or of a component or material listed in Annex 2 to this Article, that are produced in the same plant, the producer of the good may:
(a) average its calculation:
(i) in the fiscal year or period of the producer of the motor vehicle to whom the good is sold;
(ii) in any quarterly or monthly period; or
(iii) in its own fiscal year or period, if the good is sold as a spare or replacement part;
(b) to calculate the average referred to in subparagraph (a) separately for any or all of the goods sold to one or more producers of motor vehicles; or
(c) in respect of any calculation made under this paragraph, calculate separately the regional value content of the goods that are exported to the territory of the other Party.
6. Notwithstanding the Annex to Article 5-03, the regional value content shall be:
(a) for goods that are motor vehicles under heading 87.01, under Mexican tariff item 8702.10.03 or 8702.90.04, or under Bolivian subheading 8702.10 or 8702.90 when they are motor vehicles designed for the transport of 16 persons or more, under subheading 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, or heading 87.05 or 87.06, 35% according to the net cost method for the fiscal year or period of a producer beginning on the date nearest January 1, 1995 through the fiscal year or period ending on the date nearest January 1, 1997; and
(b) for the goods set out in Annex 1 to this article, subject to the regional value content requirement and intended for use in the motor vehicles covered by paragraphs 2 and 3, except for goods of heading 84.07, 84.08 or subheading 8708.40, when they are intended for use in the motor vehicles included in paragraphs 2 and 3, in which case the regional content as defined in footnotes 4 and 32 of section B of the annex to article 5-03 shall apply, and except for heading 87.06, in which case the provisions of subparagraph (a) shall apply:
(i) 40% under the net cost method, for a producer's fiscal year or period beginning on the earliest date on January 1, 1995 through the fiscal year or period ending on the earliest date on January 1, 2000; and
(ii) 50% under the net cost method, for the fiscal year or period of a producer beginning on the earliest date on January 1, 2000 through the fiscal year or period of a producer ending on the earliest date on January 1, 2005.
Article 5-16. Non-origin Conferring Transactions and Practices.
1. A good shall not be considered as originating solely because of:
(a) dilution in water or other substance that does not materially alter the characteristics of the good;
(b) simple operations intended to ensure the preservation of the goods during transport or storage, such as aeration, refrigeration, removal of damaged parts, drying or addition of substances;
(c) dedusting, sifting, sorting, classifying, selecting, washing, cutting;
(d) packing, repacking or packaging for retail sale;
(e) assembling of goods to form sets or assortments;
(f) the application of marks, labels or similar distinctive signs;
(g) cleaning, including the removal of rust, grease, paint or other coatings; and
(h) the simple assembly of parts and components that are classified as a good under general rule 2 (a) of the Harmonized System. The foregoing shall not apply to goods that had already been assembled, and subsequently disassembled for convenience of packaging, handling or transportation.
2. Any pricing activity or practice, in respect of which it can be demonstrated, on the basis of sufficient evidence, that its purpose is to evade compliance with the provisions of this chapter, shall not confer origin to a good.
3. The provisions of this article shall prevail over the specific rules set forth in the annex to article 5-03.
Article 5-17. Transshipment and Direct Shipment.
1. A good shall not be considered as originating even if it has been produced in accordance with the requirements of Article 5-03, if subsequent to that production, the good undergoes further processing or is subject to any other operation outside the territories of the Parties, except unloading, reloading or any other movement necessary to maintain it in good condition or to transport it to the territory of the other Party.
2. A good shall not lose its originating status when, while in transit through the territory of one or more non- Parties, with or without transshipment or temporary storage, under the supervision of the competent customs authority in those countries:
(a) the transit is justified by geographical reasons or by considerations relating to transportation requirements;
(b) it is not intended for trade, use or employment in the country or countries of transit; and
c) during its transport and storage it is not subjected to operations other than packing, packaging, loading, unloading, or handling to ensure its preservation.
Article 5-18. Consultations and Modifications.
1. The Parties establish the Working Group on Rules of Origin, composed of representatives of each Party, which shall meet at least twice a year and at the request of any Party.
2. The Working Group shall be responsible for:
(a) ensure the effective implementation and administration of this Chapter;
(b) to reach agreement on the interpretation, application and administration of this Chapter;
(c) to review annually, with respect to ineligible interest costs, the percentage points above the highest rate of interest on debt obligations issued by the federal or central government, as the case may be; and
(d) to attend to any other matters agreed by the Parties.
3. The Parties shall consult regularly and cooperate to ensure that this Chapter is implemented effectively, uniformly and in accordance with the spirit and objectives of this Agreement.
4. Any Party that considers that this Chapter requires modification due to changes in the development of production processes or other matters, may submit to the Working Group a proposal for modification for its consideration and the reasons and studies that support it. The Working Group shall submit a report to the Commission to make the pertinent recommendations to the Parties.
Article 5-19. Interpretation.
For purposes of this Chapter, in applying the Customs Valuation Code to determine the origin of a good:
(a) the principles of that Code shall apply to domestic transactions, with such modifications as the circumstances require, as they would apply to international transactions; and
(b) the provisions of this chapter shall prevail over those of that code insofar as they are inconsistent.
Article 5-20. Transitional Provisions on Regional Content.
A good listed in the Annex to this Article subject to the regional content requirement shall comply with a percentage of regional content of not less than: