§ 3332. — Rules of origin.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 19USC3332]
TITLE 19--CUSTOMS DUTIES
CHAPTER 21--NORTH AMERICAN FREE TRADE
SUBCHAPTER II--CUSTOMS PROVISIONS
Sec. 3332. Rules of origin
(a) Originating goods
(1) In general
For purposes of implementing the tariff treatment and
quantitative restrictions provided for under the Agreement, except
as otherwise provided in this section, a good originates in the
territory of a NAFTA country if--
(A) the good is wholly obtained or produced entirely in the
territory of one or more of the NAFTA countries;
(B)(i) each nonoriginating material used in the production
of the good--
(I) undergoes an applicable change in tariff
classification set out in Annex 401 of the Agreement as a
result of production occurring entirely in the territory of
one or more of the NAFTA countries; or
(II) where no change in tariff classification is
required, the good otherwise satisfies the applicable
requirements of such Annex; and
(ii) the good satisfies all other applicable requirements of
this section;
(C) the good is produced entirely in the territory of one or
more of the NAFTA countries exclusively from originating
materials; or
(D) except for a good provided for in chapters 61 through 63
of the HTS, the good is produced entirely in the territory of
one or more of the NAFTA countries, but one or more of the
nonoriginating materials, that are provided for as parts under
the HTS and are used in the production of the good, does not
undergo a change in tariff classification because--
(i) the good was imported into the territory of a NAFTA
country in an unassembled or a disassembled form but was
classified as an assembled good pursuant to General Rule of
Interpretation 2(a) of the HTS; or
(ii)(I) 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
(II) the subheading for the good provides for and
specifically describes both the good itself and its parts.
(2) Special rules
(A) Foreign-trade zones
Subparagraph (B) of paragraph (1) shall not apply to a good
produced in a foreign-trade zone or subzone (established
pursuant to the Act of June 18, 1934, commonly known as the
Foreign Trade Zones Act [19 U.S.C. 81a et seq.]) that is entered
for consumption in the customs territory of the United States.
(B) Regional value-content requirement
For purposes of subparagraph (D) of paragraph (1), a good
shall be treated as originating in a NAFTA country if the
regional value-content of the good, determined in accordance
with subsection (b) of this section, is not less than 60 percent
where the transaction value method is used, or not less than 50
percent where the net cost method is used, and the good
satisfies all other applicable requirements of this section.
(b) Regional value-content
(1) In general
Except as provided in paragraph (5), 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--
(A) the transaction value method described in paragraph (2);
or
(B) the net cost method described in paragraph (3).
(2) Transaction value method
(A) In general
An exporter or producer may calculate the regional value-
content of a good on the basis of the following transaction
value method:
tv-vnm
rvc = ----------------- 100
tv
------------------------------------------------------------------------
(B) Definitions
For purposes of subparagraph (A):
(i) The term ``RVC'' means the regional value-content,
expressed as a percentage.
(ii) The term ``TV'' means the transaction value of the
good adjusted to a F.O.B. basis.
(iii) The term ``VNM'' means the value of nonoriginating
materials used by the producer in the production of the
good.
(3) Net cost method
(A) In general
An exporter or producer may calculate the regional value-
content of a good on the basis of the following net cost method:
nc-vnm
rvc = ----------------- 100
nc
------------------------------------------------------------------------
(B) Definitions
For purposes of subparagraph (A):
(i) The term ``RVC'' means the regional value-content,
expressed as a percentage.
(ii) The term ``NC'' means the net cost of the good.
(iii) The term ``VNM'' means the value of nonoriginating
materials used by the producer in the production of the
good.
(4) Value of nonoriginating materials used in originating
materials
Except as provided in subsection (c)(1) of this section, and for
a motor vehicle identified in subsection (c)(2) of this section or a
component identified in Annex 403.2 of the Agreement, the value of
nonoriginating materials used by the producer in the production of a
good shall not, for purposes of calculating the regional value-
content of the good under paragraph (2) or (3), include the value of
nonoriginating materials used to produce originating materials that
are subsequently used in the production of the good.
(5) Net cost method must be used in certain cases
An exporter or producer shall calculate the regional value-
content of a good solely on the basis of the net cost method
described in paragraph (3), if--
(A) there is no transaction value for the good;
(B) the transaction value of the good is unacceptable under
Article 1 of the Customs Valuation Code;
(C) the good is sold by the producer to a related person and
the volume, by units of quantity, of sales of identical or
similar goods to related persons during the six-month period
immediately preceding the month in which the good is sold
exceeds 85 percent of the producer's total sales of such goods
during that period;
(D) the good is--
(i) a motor vehicle provided for in heading 8701 or
8702, subheadings 8703.21 through 8703.90, or heading 8704,
8705, or 8706;
(ii) identified in Annex 403.1 or 403.2 of the Agreement
and is for use in a motor vehicle provided for in heading
8701 or 8702, subheadings 8703.21 through 8703.90, or
heading 8704, 8705, or 8706;
(iii) provided for in subheadings 6401.10 through
6406.10; or
(iv) a word processing machine provided for in
subheading 8469.10.00;
(E) the exporter or producer chooses to accumulate the
regional value-content of the good in accordance with subsection
(d) of this section; or
(F) the good is designated as an intermediate material under
paragraph (10) and is subject to a regional value-content
requirement.
(6) Net cost method allowed for adjustments
If an exporter or producer of a good calculates the regional
value-content of the good on the basis of the transaction value
method and a NAFTA country subsequently notifies the exporter or
producer, during the course of a verification conducted in
accordance with chapter 5 of the Agreement, that the transaction
value of the good or the value of any material used in the
production of the good must be adjusted or is unacceptable under
Article 1 of the Customs Valuation Code, the exporter or producer
may calculate the regional value-content of the good on the basis of
the net cost method.
(7) Review of adjustment
Nothing in paragraph (6) shall be construed to prevent any
review or appeal available in accordance with article 510 of the
Agreement with respect to an adjustment to or a rejection of--
(A) the transaction value of a good; or
(B) the value of any material used in the production of a
good.
(8) Calculating net cost
The producer may, consistent with regulations implementing this
section, calculate the net cost of a good under paragraph (3), by--
(A) calculating the total cost incurred with respect to all
goods produced by that producer, subtracting any sales
promotion, marketing and after-sales service costs, royalties,
shipping and packing costs, and nonallowable interest costs that
are included in the total cost of all such goods, and reasonably
allocating the resulting net cost of those goods to the good;
(B) calculating the total cost incurred with respect to all
goods produced by that producer, reasonably allocating the total
cost to the good, and subtracting any sales promotion, marketing
and after-sales service costs, royalties, shipping and packing
costs, and nonallowable interest costs that are included in the
portion of the total cost allocated to the good; or
(C) reasonably allocating each cost that is 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, or nonallowable interest costs.
(9) Value of material used in production
Except as provided in paragraph (11), the value of a material
used in the production of a good--
(A) shall--
(i) be the transaction value of the material determined
in accordance with Article 1 of the Customs Valuation Code;
or
(ii) 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; and
(B) if not included under clause (i) or (ii) of subparagraph
(A), shall include--
(i) freight, insurance, packing, and all other costs
incurred in transporting the material to the location of the
producer;
(ii) duties, taxes, and customs brokerage fees paid on
the material in the territory of one or more of the NAFTA
countries; and
(iii) the cost of waste and spoilage resulting from the
use of the material in the production of the good, less the
value of renewable scrap or by-product.
(10) Intermediate material
Except for goods described in subsection (c)(1) of this section,
any self-produced material, other than a component identified in
Annex 403.2 of the Agreement, that is used in the production of a
good may be designated by the producer of the good as an
intermediate material for the purpose of calculating the regional
value-content of the good under paragraph (2) or (3); provided that
if the intermediate material is subject to a regional value-content
requirement, no other self-produced material that is subject to a
regional value-content requirement and is used in the production of
the intermediate material may be designated by the producer as an
intermediate material.
(11) Value of intermediate material
The value of an intermediate material shall be--
(A) the total cost incurred with respect to all goods
produced by the producer of the good that can be reasonably
allocated to the intermediate material; or
(B) the aggregate of each cost that is part of the total
cost incurred with respect to the intermediate material that can
be reasonably allocated to that intermediate material.
(12) Indirect material
The value of an indirect material shall be based on the
Generally Accepted Accounting Principles applicable in the territory
of the NAFTA country in which the good is produced.
(c) Automotive goods
(1) Passenger vehicles and light trucks, and their
automotive parts
For purposes of calculating the regional value-content under the
net cost method for--
(A) a good that is a motor vehicle for the transport of 15
or fewer persons provided for in subheading 8702.10.00 or
8702.90.00, or a motor vehicle provided for in subheadings
8703.21 through 8703.90, or subheading 8704.21 or 8704.31, or
(B) a good provided for in the tariff provisions listed in
Annex 403.1 of the Agreement, that is subject to a regional
value-content requirement and is for use as original equipment
in the production of a motor vehicle for the transport of 15 or
fewer persons provided for in subheading 8702.10.00 or
8702.90.00, or a motor vehicle provided for in subheadings
8703.21 through 8703.90, or subheading 8704.21 or 8704.31,
the value of nonoriginating materials used by the producer in the
production of the good shall be the sum of the values of all
nonoriginating materials, determined in accordance with subsection
(b)(9) of this section at the time the nonoriginating materials are
received by the first person in the territory of a NAFTA country who
takes title to them, that are imported from outside the territories
of the NAFTA countries under the tariff provisions listed in Annex
403.1 of the Agreement and are used in the production of the good or
that are used in the production of any material used in the
production of the good.
(2) Other vehicles and their automotive parts
For purposes of calculating the regional value-content under the
net cost method for a good that is a motor vehicle provided for in
heading 8701, subheading 8704.10, 8704.22, 8704.23, 8704.32, or
8704.90, or heading 8705 or 8706, a motor vehicle for the transport
of 16 or more persons provided for in subheading 8702.10.00 or
8702.90.00, or a component identified in Annex 403.2 of the
Agreement for use as original equipment in the production of the
motor vehicle, the value of nonoriginating materials used by the
producer in the production of the good shall be the sum of--
(A) for each material used by the producer listed in Annex
403.2 of the Agreement, whether or not produced by the producer,
at the choice of the producer and determined in accordance with
subsection (b) of this section, either--
(i) the value of such material that is nonoriginating,
or
(ii) the value of nonoriginating materials used in the
production of such material; and
(B) the value of any other nonoriginating material used by
the producer that is not listed in Annex 403.2 of the Agreement
determined in accordance with subsection (b) of this section.
(3) Averaging permitted
(A) In general
For purposes of calculating the regional value-content of a
motor vehicle described in paragraph (1) or (2), the producer
may average its calculation over its fiscal year, using any of
the categories described in subparagraph (B), on the basis of
either all motor vehicles in the category or on the basis of
only the motor vehicles in the category that are exported to the
territory of one or more of the other NAFTA countries.
(B) Category described
A category is described in this subparagraph if it is--
(i) the same model line of motor vehicles in the same
class of vehicles produced in the same plant in the
territory of a NAFTA country;
(ii) the same class of motor vehicles produced in the
same plant in the territory of a NAFTA country;
(iii) the same model line of motor vehicles produced in
the territory of a NAFTA country; or
(iv) if applicable, the basis set out in Annex 403.3 of
the Agreement.
(4) Annex 403.1 and Annex 403.2
For purposes of calculating the regional value-content for any
or all goods provided for in a tariff provision listed in Annex
403.1 of the Agreement, or a component or material identified in
Annex 403.2 of the Agreement, produced in the same plant, the
producer of the good may--
(A) average its calculation--
(i) over the fiscal year of the motor vehicle producer
to whom the good is sold;
(ii) over any quarter or month; or
(iii) over its fiscal year, if the good is sold as an
aftermarket part;
(B) calculate the average referred to in subparagraph (A)
separately for any or all goods sold to one or more motor
vehicle producers; or
(C) with respect to any calculation under this paragraph,
make a separate calculation for goods that are exported to the
territory of one or more NAFTA countries.
(5) Phase-in of regional value-content requirement
Notwithstanding Annex 401 of the Agreement, and except as
provided in paragraph (6), the regional value-content requirement
shall be--
(A) for a producer's fiscal year beginning on the day
closest to January 1, 1998, and thereafter, 56 percent
calculated under the net cost method, and for a producer's
fiscal year beginning on the day closest to January 1, 2002, and
thereafter, 62.5 percent calculated under the net cost method,
for--
(i) a good that is a motor vehicle for the transport of
15 or fewer persons provided for in subheading 8702.10.00 or
8702.90.00, or a motor vehicle provided for in subheadings
8703.21 through 8703.90, or subheading 8704.21 or 8704.31;
and
(ii) a good provided for in heading 8407 or 8408, or
subheading 8708.40, that is for use in a motor vehicle
identified in clause (i); and
(B) for a producer's fiscal year beginning on the day
closest to January 1, 1998, and thereafter, 55 percent
calculated under the net cost method, and for a producer's
fiscal year beginning on the day closest to January 1, 2002, and
thereafter, 60 percent calculated under the net cost method,
for--
(i) a good that is a motor vehicle provided for in
heading 8701, subheading 8704.10, 8704.22, 8704.23, 8704.32,
or 8704.90, or heading 8705 or 8706, or a motor vehicle for
the transport of 16 or more persons provided for in
subheading 8702.10.00 or 8702.90.00;
(ii) a good provided for in heading 8407 or 8408, or
subheading 8708.40 that is for use in a motor vehicle
identified in clause (i); and
(iii) except for a good identified in subparagraph
(A)(ii) or a good provided for in subheadings 8482.10
through 8482.80, or subheading 8483.20 or 8483.30, a good
identified in Annex 403.1 of the Agreement that is subject
to a regional value-content requirement and is for use in a
motor vehicle identified in subparagraph (A)(i) or (B)(i).
(6) New and refitted plants
The regional value-content requirement for a motor vehicle
identified in paragraph (1) or (2) shall be--
(A) 50 percent for 5 years after the date on which the first
motor vehicle prototype is produced in a plant by a motor
vehicle assembler, if--
(i) it is a motor vehicle of a class, or marque, or,
except for a motor vehicle identified in paragraph (2), size
category and underbody, not previously produced by the motor
vehicle assembler in the territory of any of the NAFTA
countries;
(ii) the plant consists of a new building in which the
motor vehicle is assembled; and
(iii) the plant contains substantially all new machinery
that is used in the assembly of the motor vehicle; or
(B) 50 percent for 2 years after the date on which the first
motor vehicle prototype is produced at a plant following a
refit, if it is a motor vehicle of a class, or marque, or,
except for a motor vehicle identified in paragraph (2), size
category and underbody, different from that assembled by the
motor vehicle assembler in the plant before the refit.
(7) Election for certain vehicles from Canada
In the case of goods provided for in subheadings 8703.21 through
8703.90, or subheading 8704.21 or 8704.31, exported from Canada
directly to the United States, and entered on or after January 1,
1989, and before the date of entry into force of the Agreement
between the United States and Canada, an importer may elect to use
the rules of origin set out in this section in lieu of the rules of
origin contained in section 202 of the United States-Canada Free-
Trade Agreement Implementation Act of 1988 (19 U.S.C. 2112 note) and
may elect to use the method for calculating the value of
nonoriginating materials established in article 403(2) of the
Agreement in lieu of the method established in article 403(1) of the
Agreement for purposes of determining eligibility for preferential
duty treatment under the United States-Canada Free-Trade Agreement.
Any election under this paragraph shall be made in writing to the
Customs Service not later than the date that is 180 days after the
date of entry into force of the Agreement between the United States
and Canada. Any such election may be made only if the liquidation of
such entry has not become final. For purposes of averaging the
calculation of regional value-content for the goods covered by such
entry, where the producer's 1989-1990 fiscal year began after
January 1, 1989, the producer may include the period between January
1, 1989, and the beginning of its first fiscal year after January 1,
1989, as part of fiscal year 1989-1990.
(d) Accumulation
(1) Determination of originating good
For purposes of determining whether a good is an originating
good, the production of the good in the territory of one or more of
the NAFTA countries by one or more producers shall, at the choice of
the exporter or producer of the good, be considered to have been
performed in the territory of any of the NAFTA countries by that
exporter or producer, if--
(A) all nonoriginating materials used in the production of
the good undergo an applicable tariff classification change set
out in Annex 401 of the Agreement;
(B) the good satisfies any applicable regional value-content
requirement; and
(C) the good satisfies all other applicable requirements of
this section.
The requirements of subparagraphs (A) and (B) must be satisfied
entirely in the territory of one or more of the NAFTA countries.
(2) Treatment as single producer
For purposes of subsection (b)(10) of this section, the
production of a producer that chooses to accumulate its production
with that of other producers under paragraph (1) shall be treated as
the production of a single producer.
(e) De minimis amounts of nonoriginating materials
(1) In general
Except as provided in paragraphs (3), (4), (5), and (6), a good
shall be considered to be an originating good if--
(A) the value of all nonoriginating materials used in the
production of the good that do not undergo an applicable change
in tariff classification (set out in Annex 401 of the Agreement)
is not more than 7 percent of the transaction value of the good,
adjusted to a F.O.B. basis, or
(B) where the transaction value of the good is unacceptable
under Article 1 of the Customs Valuation Code, the value of all
such nonoriginating materials is not more than 7 percent of the
total cost of the good,
provided that the good satisfies all other applicable requirements
of this section and, if the good is subject to a regional value-
content requirement, the value of such nonoriginating materials is
taken into account in calculating the regional value-content of the
good.
(2) Goods not subject to regional value-content requirement
A good that is otherwise subject to a regional value-content
requirement shall not be required to satisfy such requirement if--
(A)(i) the value of all nonoriginating materials used in the
production of the good is not more than 7 percent of the
transaction value of the good, adjusted to a F.O.B. basis; or
(ii) where the transaction value of the good is unacceptable
under Article 1 of the Customs Valuation Code, the value of all
nonoriginating materials is not more than 7 percent of the total
cost of the good; and
(B) the good satisfies all other applicable requirements of
this section.
(3) Dairy products, etc.
Paragraph (1) does not apply to--
(A) a nonoriginating material provided for in chapter 4 of
the HTS or a dairy preparation containing over 10 percent by
weight of milk solids provided for in subheading 1901.90.30,
1901.90.40, or 1901.90.80 that is used in the production of a
good provided for in chapter 4 of the HTS;
(B) a nonoriginating material provided for in chapter 4 of
the HTS or a dairy preparation containing over 10 percent by
weight of milk solids provided for in subheading 1901.90.30,
1901.90.40, or 1901.90.80 that is used in the production of--
(i) preparations for infants containing over 10 percent
by weight of milk solids provided for in subheading
1901.10.00;
(ii) mixes and doughs, containing over 25 percent by
weight of butterfat, not put up for retail sale, provided
for in subheading 1901.20.00;
(iii) a dairy preparation containing over 10 percent by
weight of milk solids provided for in subheading 1901.90.30,
1901.90.40, or 1901.90.80;
(iv) a good provided for in heading 2105 or subheading
2106.90.05, or preparations containing over 10 percent by
weight of milk solids provided for in subheading 2106.90.15,
2106.90.40, 2106.90.50, or 2106.90.65;
(v) a good provided for in subheading 2202.90.10 or
2202.90.20; or
(vi) animal feeds containing over 10 percent by weight
of milk solids provided for in subheading 2309.90.30;
(C) a nonoriginating material provided for in heading 0805
or subheadings 2009.11 through 2009.30 that is used in the
production of--
(i) a good provided for in subheadings 2009.11 through
2009.30, or subheading 2106.90.16, or concentrated fruit or
vegetable juice of any single fruit or vegetable, fortified
with minerals or vitamins, provided for in subheading
2106.90.19; or
(ii) a good provided for in subheading 2202.90.30 or
2202.90.35, or fruit or vegetable juice of any single fruit
or vegetable, fortified with minerals or vitamins, provided
for in subheading 2202.90.36;
(D) a nonoriginating material provided for in chapter 9 of
the HTS that is used in the production of instant coffee, not
flavored, provided for in subheading 2101.10.20;
(E) a nonoriginating material provided for in chapter 15 of
the HTS that is used in the production of a good provided for in
headings 1501 through 1508, or heading 1512, 1514, or 1515;
(F) a nonoriginating material provided for in heading 1701
that is used in the production of a good provided for in
headings 1701 through 1703;
(G) a nonoriginating material provided for in chapter 17 of
the HTS or heading 1805 that is used in the production of a good
provided for in subheading 1806.10;
(H) a nonoriginating material provided for in headings 2203
through 2208 that is used in the production of a good provided
for in headings 2207 through 2208;
(I) a nonoriginating material used in the production of--
(i) a good provided for in subheading 7321.11.30;
(ii) a good provided for in subheading 8415.10,
subheadings 8415.81 through 8415.83, subheadings 8418.10
through 8418.21, subheadings 8418.29 through 8418.40,
subheading 8421.12 or 8422.11, subheadings 8450.11 through
8450.20, or subheadings 8451.21 through 8451.29;
(iii) trash compactors provided for in subheading
8479.89.60; or
(iv) a good provided for in subheading 8516.60.40; and
(J) a printed circuit assembly that is a nonoriginating
material used in the production of a good where the applicable
change in tariff classification for the good, as set out in
Annex 401 of the Agreement, places restrictions on the use of
such nonoriginating material.
(4) Certain fruit juices
Paragraph (1) does not apply to a nonoriginating single juice
ingredient provided for in heading 2009 that is used in the
production of--
(A) a good provided for in subheading 2009.90, or
concentrated mixtures of fruit or vegetable juice, fortified
with minerals or vitamins, provided for in subheading
2106.90.19; or
(B) mixtures of fruit or vegetable juices, fortified with
minerals or vitamins, provided for in subheading 2202.90.39.
(5) Goods provided for in chapters 1 through 27 of the HTS
Paragraph (1) does not apply to a nonoriginating material used
in the production of a good provided for in chapters 1 through 27 of
the HTS unless the nonoriginating material is provided for in a
different subheading than the good for which origin is being
determined under this section.
(6) Goods provided for in chapters 50 through 63 of the HTS
A good provided for in chapters 50 through 63 of the HTS, that
does not originate because certain fibers or yarns used in the
production of the component of the good that determines the tariff
classification of the good do not undergo an applicable change in
tariff classification set out in Annex 401 of the Agreement, shall
be considered to be a good that originates if the total weight of
all such fibers or yarns in that component is not more than 7
percent of the total weight of that component.
(f) Fungible goods and materials
For purposes of determining whether a good is an originating good--
(1) if originating and nonoriginating fungible materials are
used in the production of the good, the determination of whether the
materials are originating need not be made through the
identification of any specific fungible material, but may be
determined on the basis of any of the inventory management methods
set out in regulations implementing this section; and
(2) if originating and nonoriginating fungible goods are
commingled and exported in the same form, the determination may be
made on the basis of any of the inventory management methods set out
in regulations implementing this section.
(g) Accessories, spare parts, or tools
(1) In general
Except as provided in paragraph (2), accessories, spare parts,
or tools delivered with the good that form part of the good's
standard accessories, spare parts, or tools shall--
(A) be considered as originating goods if the good is an
originating good, and
(B) be disregarded in determining whether all the
nonoriginating materials used in the production of the good
undergo an applicable change in tariff classification set out in
Annex 401 of the Agreement.
(2) Conditions
Paragraph (1) shall apply only if--
(A) the accessories, spare parts, or tools are not invoiced
separately from the good;
(B) the quantities and value of the accessories, spare
parts, or tools are customary for the good; and
(C) in any case in which the good is subject to a regional
value-content requirement, the value of the accessories, spare
parts, or tools are taken into account as originating or
nonoriginating materials, as the case may be, in calculating the
regional value-content of the good.
(h) Indirect materials
An indirect material shall be considered to be an originating
material without regard to where it is produced.
(i) Packaging materials and containers for retail sale
Packaging materials and containers in which a good is packaged for
retail sale, if classified with the good, shall be disregarded in
determining whether all the nonoriginating materials used in the
production of the good undergo an applicable change in tariff
classification set out in Annex 401 of the Agreement. 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 nonoriginating materials, as the case may be, in
calculating the regional value-content of the good.
(j) Packing materials and containers for shipment
Packing materials and containers in which a good is packed for
shipment shall be disregarded--
(1) in determining whether the nonoriginating materials used in
the production of the good undergo an applicable change in tariff
classification set out in Annex 401 of the Agreement; and
(2) in determining whether the good satisfies a regional value-
content requirement.
(k) Transshipment
A good shall not be considered to be an originating good by reason
of having undergone production that satisfies the requirements of
subsection (a) of this section if, subsequent to that production, the
good undergoes further production or any other operation outside the
territories of the NAFTA countries, other than unloading, reloading, or
any other operation necessary to preserve it in good condition or to
transport the good to the territory of a NAFTA country.
(l) Nonqualifying operations
A good shall not be considered to be an originating good merely by
reason of--
(1) mere dilution with water or another substance that does not
materially alter the characteristics of the good; or
(2) any production or pricing practice with respect to which it
may be demonstrated, by a preponderance of evidence, that the object
was to circumvent this section.
(m) Interpretation and application
For purposes of this section:
(1) The basis for any tariff classification is the HTS.
(2) Except as otherwise expressly provided, whenever in this
section there is a reference to a heading or subheading such
reference shall be a reference to a heading or subheading of the
HTS.
(3) In applying subsection (a)(4) of this section, the
determination of whether a heading or subheading under the HTS
provides for and specifically describes both a good and its parts
shall be made on the basis of the nomenclature of the heading or
subheading, the rules of interpretation, or notes of the HTS.
(4) In applying the Customs Valuation Code--
(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;
(B) the provisions of this section shall take precedence
over the Customs Valuation Code to the extent of any difference;
and
(C) the definitions in subsection (p) of this section shall
take precedence over the definitions in the Customs Valuation
Code to the extent of any difference.
(5) All costs referred to in this section shall be recorded and
maintained in accordance with the Generally Accepted Accounting
Principles applicable in the territory of the NAFTA country in which
the good is produced.
(n) Origin of automatic data processing goods
Notwithstanding any other provision of this section, when the NAFTA
countries apply the rate of duty described in paragraph 1 of section A
of Annex 308.1 of the Agreement to a good provided for under the tariff
provisions set out in Table 308.1.1 of such Annex, the good shall, upon
importation from a NAFTA country, be deemed to originate in the
territory of a NAFTA country for purposes of this section.
(o) Special rule for certain agricultural products
Notwithstanding any other provision of this section, for purposes of
applying a rate of duty to a good provided for in--
(1) heading 1202 that is exported from the territory of Mexico,
if the good is not wholly obtained in the territory of Mexico,
(2) subheading 2008.11 that is exported from the territory of
Mexico, if any material provided for in heading 1202 used in the
production of that good is not wholly obtained in the territory of
Mexico, or
(3) subheading 1806.10.42 or 2106.90.12 that is exported from
the territory of Mexico, if any material provided for in subheading
1701.99 used in the production of that good is not a qualifying
good,
such good shall be treated as a nonoriginating good and, for purposes of
this subsection, the terms ``qualifying good'' and ``wholly obtained in
the territory of'' have the meaning given such terms in paragraph 26 of
section A of Annex 703.2 of the Agreement.
(p) Definitions
For purposes of this section--
(1) Class of motor vehicles
The term ``class of motor vehicles'' means any one of the
following categories of motor vehicles:
(A) Motor vehicles provided for in subheading 8701.20,
subheading 8704.10, 8704.22, 8704.23, 8704.32, or 8704.90, or
heading 8705 or 8706, or motor vehicles designed for the
transport of 16 or more persons provided for in subheading
8702.10.00 or 8702.90.00.
(B) Motor vehicles provided for in subheading 8701.10, or
subheadings 8701.30 through 8701.90.
(C) Motor vehicles for the transport of 15 or fewer persons
provided for in subheading 8702.10.00 or 8702.90.00, or motor
vehicles provided for in subheading 8704.21 or 8704.31.
(D) Motor vehicles provided for in subheadings 8703.21
through 8703.90.
(2) Customs Valuation Code
The term ``Customs Valuation Code'' means the Agreement on
Implementation of Article VII of the General Agreement on Tariffs
and Trade, including its interpretative notes.
(3) F.O.B.
The term ``F.O.B.'' means free on board, regardless of the mode
of transportation, at the point of direct shipment by the seller to
the buyer.
(4) Fungible goods and fungible materials
The terms ``fungible goods'' and ``fungible materials'' mean
goods or materials that are interchangeable for commercial purposes
and whose properties are essentially identical.
(5) Generally Accepted Accounting Principles
The term ``Generally Accepted Accounting Principles'' means the
recognized consensus or substantial authoritative support in the
territory of a NAFTA country with respect to the recording of
revenues, expenses, costs, assets and liabilities, disclosure of
information, and preparation of financial statements. These
standards may be broad guidelines of general application as well as
detailed standards, practices, or procedures.
(6) Goods wholly obtained or produced entirely in the
territory of one or more of the NAFTA countries
The term ``goods wholly obtained or produced entirely in the
territory of one or more of the NAFTA countries'' means--
(A) mineral goods extracted in the territory of one or more
of the NAFTA countries;
(B) vegetable goods harvested in the territory of one or
more of the NAFTA countries;
(C) live animals born and raised in the territory of one or
more of the NAFTA countries;
(D) goods obtained from hunting, trapping, or fishing in the
territory of one or more of the NAFTA countries;
(E) goods (such as fish, shellfish, and other marine life)
taken from the sea by vessels registered or recorded with a
NAFTA country and flying its flag;
(F) goods produced on board factory ships from the goods
referred to in subparagraph (E), if such factory ships are
registered or recorded with that NAFTA country and fly its flag;
(G) goods taken by a NAFTA country or a person of a NAFTA
country from the seabed or beneath the seabed outside
territorial waters, provided that a NAFTA country has rights to
exploit such seabed;
(H) goods taken from outer space, if the goods are obtained
by a NAFTA country or a person of a NAFTA country and not
processed in a country other than a NAFTA country;
(I) waste and scrap derived from--
(i) production in the territory of one or more of the
NAFTA countries; or
(ii) used goods collected in the territory of one or
more of the NAFTA countries, if such goods are fit only for
the recovery of raw materials; and
(J) goods produced in the territory of one or more of the
NAFTA countries exclusively from goods referred to in
subparagraphs (A) through (I), or from their derivatives, at any
stage of production.
(7) Identical or similar goods
The term ``identical or similar goods'' means ``identical
goods'' and ``similar goods'', respectively, as defined in the
Customs Valuation Code.
(8) Indirect material
(A) The term ``indirect material'' means a good--
(i) used in the production, testing, or inspection of a good
but not physically incorporated into the good, or
(ii) used in the maintenance of buildings or the operation
of equipment associated with the production of a good,
in the territory of one or more of the NAFTA countries.
(B) When used for a purpose described in subparagraph (A), the
following materials are among those considered to be indirect
materials:
(i) Fuel and energy.
(ii) Tools, dies, and molds.
(iii) Spare parts and materials used in the maintenance of
equipment and buildings.
(iv) Lubricants, greases, compounding materials, and other
materials used in production or used to operate equipment and
buildings.
(v) Gloves, glasses, footwear, clothing, safety equipment,
and supplies.
(vi) Equipment, devices, and supplies used for testing or
inspecting the goods.
(vii) Catalysts and solvents.
(viii) Any other goods that are not incorporated into the
good, if the use of such goods in the production of the good can
reasonably be demonstrated to be a part of that production.
(9) Intermediate material
The term ``intermediate material'' means a material that is
self-produced, used in the production of a good, and designated
pursuant to subsection (b)(10) of this section.
(10) Marque
The term ``marque'' means the trade name used by a separate
marketing division of a motor vehicle assembler.
(11) Material
The term ``material'' means a good that is used in the
production of another good and includes a part or an ingredient.
(12) Model line
The term ``model line'' means a group of motor vehicles having
the same platform or model name.
(13) Motor vehicle assembler
The term ``motor vehicle assembler'' means a producer of motor
vehicles and any related persons or joint ventures in which the
producer participates.
(14) NAFTA country
The term ``NAFTA country'' means the United States, Canada or
Mexico for such time as the Agreement is in force with respect to
Canada or Mexico, and the United States applies the Agreement to
Canada or Mexico.
(15) New building
The term ``new building'' means a new construction, including at
least the pouring or construction of new foundation and floor, the
erection of a new structure and roof, and installation of new
plumbing, electrical, and other utilities to house a complete
vehicle assembly process.
(16) Net cost
The term ``net cost'' means total cost less sales promotion,
marketing and after-sales service costs, royalties, shipping and
packing costs, and nonallowable interest costs that are included in
the total cost.
(17) Net cost of a good
The term ``net cost of a good'' means the net cost that can be
reasonably allocated to a good using one of the methods set out in
subsection (b)(8) of this section.
(18) Nonallowable interest costs
The term ``nonallowable interest costs'' means interest costs
incurred by a producer as a result of an interest rate that exceeds
the applicable Federal Government interest rate for comparable
maturities by more than 700 basis points, determined pursuant to
regulations implementing this section.
(19) Nonoriginating good; nonoriginating material
The term ``nonoriginating good'' or ``nonoriginating material''
means a good or material that does not qualify as an originating
good or material under the rules of origin set out in this section.
(20) Originating
The term ``originating'' means qualifying under the rules of
origin set out in this section.
(21) Producer
The term ``producer'' means a person who grows, mines, harvests,
fishes, traps, hunts, manufactures, processes, or assembles a good.
(22) Production
The term ``production'' means growing, mining, harvesting,
fishing, trapping, hunting, manufacturing, processing, or assembling
a good.
(23) Reasonably allocate
The term ``reasonably allocate'' means to apportion in a manner
appropriate to the circumstances.
(24) Refit
The term ``refit'' means a plant closure, for purposes of plant
conversion or retooling, that lasts at least 3 months.
(25) Related persons
The term ``related persons'' means persons specified in any of
the following subparagraphs:
(A) Persons who are officers or directors of one another's
businesses.
(B) Persons who are legally recognized partners in business.
(C) Persons who are employer and employee.
(D) Persons one of whom owns, controls, or holds 25 percent
or more of the outstanding voting stock or shares of the other.
(E) Persons if 25 percent or more of the outstanding voting
stock or shares of each of them is directly or indirectly owned,
controlled, or held by a third person.
(F) Persons one of whom is directly or indirectly controlled
by the other.
(G) Persons who are directly or indirectly controlled by a
third person.
(H) Persons who are members of the same family.
For purposes of this paragraph, the term ``members of the same
family'' means natural or adoptive children, brothers, sisters,
parents, grandparents, or spouses.
(26) Royalties
The term ``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. It does not include 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 more of the
NAFTA countries, engineering, tooling, die-setting, software
design and similar computer services, or other services.
(27) Sales promotion, marketing, and after-sales service
costs
The term ``sales promotion, marketing, and after-sales service
costs'' means the costs related to sales promotion, marketing, and
after-sales service for the following:
(A) Sales and marketing promotion, media advertising,
advertising and market research, promotional and demonstration
materials, exhibits, sales conferences, trade shows,
conventions, banners, marketing displays, free samples, sales,
marketing and after-sales service literature (product brochures,
catalogs, technical literature, price lists, service manuals,
sales aid information), establishment and protection of logos
and trademarks, sponsorships, wholesale and retail restocking
charges, and entertainment.
(B) Sales and marketing incentives, consumer, retailer, or
wholesaler rebates, and merchandise incentives.
(C) Salaries and wages, sales commissions, bonuses, benefits
(such as medical, insurance, and pension), traveling and living
expenses, and membership and professional fees for sales
promotion, marketing, and after-sales service personnel.
(D) Recruiting and training of sales promotion, marketing,
and after-sales service personnel, and after-sales training of
customers' employees, where such costs are identified separately
for sales promotion, marketing, and after-sales 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
after-sales service of goods, where such costs are identified
separately for sales promotion, marketing, and after-sales
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 after-sales service of goods on the financial statements or
cost accounts of the producer.
(H) Rent and depreciation of sales promotion, marketing, and
after-sales service offices and distribution centers.
(I) Property insurance, taxes, utilities, and repair and
maintenance of sales promotion, marketing, and after-sales
service offices and distribution centers, where such costs are
identified separately for sales promotion, marketing, and after-
sales service of goods on the financial statements or cost
accounts of the producer.
(J) Payments by the producer to other persons for warranty
repairs.
(28) Self-produced material
The term ``self-produced material'' means a material that is
produced by the producer of a good and used in the production of
that good.
(29) Shipping and packing costs
The term ``shipping and packing costs'' means the costs incurred
in packing a good for shipment and shipping the good from the point
of direct shipment to the buyer, but does not include the costs of
preparing and packaging the good for retail sale.
(30) Size category
The term ``size category'' means with respect to a motor vehicle
identified in subsection (c)(1)(A) of this section--
(A) 85 cubic feet or less of passenger and luggage interior
volume;
(B) more than 85 cubic feet, but less than 100 cubic feet,
of passenger and luggage interior volume;
(C) at least 100 cubic feet, but not more than 110 cubic
feet, of passenger and luggage interior volume;
(D) more than 110 cubic feet, but less than 120 cubic feet,
of passenger and luggage interior volume; and
(E) 120 cubic feet or more of passenger and luggage interior
volume.
(31) Territory
The term ``territory'' means a territory described in Annex
201.1 of the Agreement.
(32) Total cost
The term ``total cost'' means all product costs, period costs,
and other costs incurred in the territory of one or more of the
NAFTA countries.
(33) Transaction value
Except as provided in subsection (c)(1) or (c)(2)(A) of this
section, the term ``transaction value'' means the price actually
paid or payable for a good or material with respect to a transaction
of the producer of the good, adjusted in accordance with the
principles of paragraphs 1, 3, and 4 of Article 8 of the Customs
Valuation Code and determined without regard to whether the good or
material is sold for export.
(34) Underbody
The term ``underbody'' means the floor pan of a motor vehicle.
(35) Used
The term ``used'' means used or consumed in the production of
goods.
(q) Presidential proclamation authority
(1) In general
The President is authorized to proclaim, as a part of the HTS--
(A) the provisions set out in Appendix 6.A of Annex 300-B,
Annex 401, Annex 403.1, Annex 403.2, and Annex 403.3, of the
Agreement, and
(B) any additional subordinate category necessary to carry
out this title \1\ consistent with the Agreement.
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\1\ See References in Text note below.
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(2) Modifications
Subject to the consultation and layover requirements of section
3313 of this title, the President may proclaim--
(A) modifications to the provisions proclaimed under the
authority of paragraph (1)(A), other than the provisions of
paragraph A of Appendix 6 of Annex 300-B and section XI of part
B of Annex 401 of the Agreement; and
(B) a modified version of the definition of any term set out
in subsection (p) of this section (and such modified version of
the definition shall supersede the version in subsection (p) of
this section), but only if the modified version reflects solely
those modifications to the same term in article 415 of the
Agreement that are agreed to by the NAFTA countries before
December 8, 1994.
(3) Special rules for textiles
Notwithstanding the provisions of paragraph (2)(A), and subject
to the consultation and layover requirements of section 3313 of this
title, the President may proclaim--
(A) modifications to the provisions proclaimed under the
authority of paragraph (1)(A) as are necessary to implement an
agreement with one or more of the NAFTA countries pursuant to
paragraph 2 of section 7 of Annex 300-B of the Agreement, and
(B) before December 8, 1994, modifications to correct any
typographical, clerical, or other nonsubstantive technical error
regarding the provisions of Appendix 6.A of Annex 300-B and
section XI of part B of Annex 401 of the Agreement.
(Pub. L. 103-182, title II, Sec. 202, Dec. 8, 1993, 107 Stat. 2069; Pub.
L. 104-295, Sec. 21(a)(2), Oct. 11, 1996, 110 Stat. 3529; Pub. L. 105-
206, title V, Sec. 5003(b)(4), July 22, 1998, 112 Stat. 790.)
References in Text
Act of June 18, 1934, referred to in subsec. (a)(2)(A), is act June
18, 1934, ch. 590, 48 Stat. 998, as amended, which is classified
generally to chapter 1A (Sec. 81a et seq.) of this title. For complete
classification of this Act to the Code, see Tables.
Section 202 of the United States-Canada Free-Trade Agreement
Implementation Act of 1988, referred to in subsec. (c)(7), is section
202 of Pub. L. 100-449, which is set out in a note under section 2112 of
this title.
This title, referred to in subsec. (q)(1)(B), is title II of Pub. L.
103-182, Dec. 8, 1993, 107 Stat. 2068, which enacted this subchapter,
amended sections 58c, 81c, 1304, 1311 to 1313, 1508, 1509, 1514, 1520,
1562, 1592, and 1628 of this title, and enacted provisions set out as
notes under sections 58c, 1304, and 3331 of this title.
Amendments
1998--Subsec. (n). Pub. L. 105-206 struck out ``most-favored-
nation'' before ``rate of duty''.
1996--Subsec. (m)(4)(C). Pub. L. 104-295, Sec. 21(a)(2)(A),
substituted ``subsection (p)'' for ``subsection (o)''.
Subsec. (p)(18). Pub. L. 104-295, Sec. 21(a)(2)(B), substituted
``Federal Government'' for ``federal government''.
Effective Date
Section effective on the date the North American Free Trade
Agreement enters into force with respect to the United States [Jan. 1,
1994], see section 213(b) of Pub. L. 103-182, set out as a note under
section 3331 of this title.
Transfer of Functions
For transfer of functions, personnel, assets, and liabilities of the
United States Customs Service of the Department of the Treasury,
including functions of the Secretary of the Treasury relating thereto,
to the Secretary of Homeland Security, and for treatment of related
references, see sections 203(1), 551(d), 552(d), and 557 of Title 6,
Domestic Security, and the Department of Homeland Security
Reorganization Plan of November 25, 2002, as modified, set out as a note
under section 542 of Title 6.
North American Free Trade Agreement: Entry Into Force
The North American Free Trade Agreement entered into force on Jan.
1, 1994, see note set out under section 3311 of this title.
Section Referred to in Other Sections
This section is referred to in sections 58c, 1514, 1520, 1592, 3301,
3333, 3334, 3391, 3602 of this title.
