Chapter Four: Rules of Origin

Article 408: Indirect Materials

An indirect material shall be considered to be an originating material without regard to where it is produced.

Article 409: Packaging Materials and Containers for Retail Sale

Packaging materials and containers in which a good is packaged for retail sale shall, if classified with the good, be disregarded in determining whether all the nonoriginating materials used in the production of the good undergo the applicable change in tariff classification set out in Annex 401, and, if the good is subject to a regional valuecontent 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.

Article 410: Packing Materials and Containers for Shipment

Packing materials and containers in which the good is packed for shipment shall be disregarded in determining whether:

    a) the nonoriginating materials used in the production of the good undergo an applicable change in tariff classification set out in Annex 401; and

    b) the good satisfies a regional valuecontent requirement.

Article 411: Trans-shipment

A good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of Article 401 if, subsequent to that production, the good undergoes further production or any other operation outside the territories of the Parties, 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 Party.

Article 412: NonQualifying Operations

A good shall not be considered to be an originating good merely by reason of:

    a) mere dilution with water or another substance that does not materially alter the characteristics of the good; or

    (b) any production or pricing practice in respect of which it may be demonstrated, on the basis of a preponderance of evidence, that the object was to circumvent this Chapter.

Article 413: Interpretation and Application

For purposes of this Chapter:

    a) the basis for tariff classification in this Chapter is the Harmonized System;

    b) where a good referred to by a tariff item number is described in parentheses following the tariff item number, the description is provided for purposes of reference only;

    c) where applying Article 401(d), the determination of whether a heading or subheading under the Harmonized System 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, or the General Rules of Interpretation, the Chapter Notes or the Section Notes of the Harmonized System;

    d) in applying the Customs Valuation Code under this Chapter,

      (i) 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,

      (ii) the provisions of this Chapter shall take precedence over the Customs Valuation Code to the extent of any difference, and (iii) the definitions in Article 415 shall take precedence over the definitions in the Customs Valuation Code to the extent of any difference; and

    e) all 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.

Article 414: Consultation and Modifications

    1. The Parties shall consult regularly to ensure that this Chapter is administered effectively, uniformly and consistently with the spirit and objectives of this Agreement, and shall cooperate in the administration of this Chapter in accordance with Chapter Five.

    2. Any Party that considers that this Chapter requires modification to take into account developments in production processes or other matters may submit a proposed modification along with supporting rationale and any studies to the other Parties for consideration and any appropriate action under Chapter Five.

Article 415: Definitions

For purposes of this Chapter:

class of motor vehicles means any one of the following categories of motor vehicles:

    a) motor vehicles provided for in subheading 8701.20, tariff item 8702.10.aa or 8702.90.aa (vehicles for the transport of 16 or more persons), subheading 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, or heading 87.05 and 87.06;

    b) motor vehicles provided for in subheading 8701.10 or 8701.30 through 8701.90;

    c) motor vehicles provided for in tariff item 8702.10.bb or 8702.90.bb (vehicles for the transport of 15 or fewer persons), or subheading 8704.21 and 8704.31; or

    d) motor vehicles provided for in subheading 8703.21 through 8703.90;

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;

fungible goods or fungible materials means goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical;

goods wholly obtained or produced entirely in the territory of one or more of the Parties means:

    a) mineral goods extracted in the territory of one or more of the Parties;

    b) vegetable goods, as such goods are defined in the Harmonized System, harvested in the territory of one or more of the Parties;

    c) live animals born and raised in the territory of one or more of the Parties;

    d) goods obtained from hunting, trapping or fishing in the territory of one or more of the Parties;

    e) goods (fish, shellfish and other marine life) taken from the sea by vessels registered or recorded with a Party and flying its flag;

    f) goods produced on board factory ships from the goods referred to in subparagraph (e) provided such factory ships are registered or recorded with that Party and fly its flag;

    g) goods taken by a Party or a person of a Party from the seabed or beneath the seabed outside territorial waters, provided that a Party has rights to exploit such seabed;

    h) goods taken from outer space, provided they are obtained by a Party or a person of a Party and not processed in a nonParty;

    (i) waste and scrap derived from

      (i) production in the territory of one or more of the Parties, or

      (ii) used goods collected in the territory of one or more of the Parties, provided such goods are fit only for the recovery of raw materials; and

    (j) goods produced in the territory of one or more of the Parties exclusively from goods referred to in subparagraphs (a) through (i), or from their derivatives, at any stage of production;

identical or similar goods means "identical goods" and "similar goods", respectively, as defined in the Customs Valuation Code;

indirect material means a good used in the production, testing or inspection of a good but not physically incorporated into the good, or a good used in the maintenance of buildings or the operation of equipment associated with the production of a good, including:

    a) fuel and energy;

    b) tools, dies and molds;

    c) spare parts and materials used in the maintenance of equipment and buildings;

    d) lubricants, greases, compounding materials and other materials used in production or used to operate equipment and buildings;

    e) gloves, glasses, footwear, clothing, safety equipment and supplies;

    f) equipment, devices, and supplies used for testing or inspecting the goods;

    g) catalysts and solvents; and

    h) any other goods that are not incorporated into the good but whose use in the production of the good can reasonably be demonstrated to be a part of that production;

intermediate material means a material that is self-produced and used in the production of a good, and designated pursuant to Article 402(10);

marque means the trade name used by a separate marketing division of a motor vehicle assembler;

material means a good that is used in the production of another good, and includes a part or an ingredient;

model line means a group of motor vehicles having the same platform or model name;

motor vehicle assembler means a producer of motor vehicles and any related persons or joint ventures in which the producer participates;

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;

net cost means total cost minus sales promotion, marketing and aftersales service costs, royalties, shipping and packing costs, and nonallowable interest costs that are included in the total cost;

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 Article 402(8);

non-allowable interest costs means interest costs incurred by a producer that exceed 700 basis points above the applicable federal government interest rate identified in the Uniform Regulations for comparable maturities;

non-originating good or non-originating material means a good or material that does not qualify as originating under this Chapter;

producer means a person who grows, mines, harvests, fishes, traps, hunts, manufactures, processes or assembles a good;

production means growing, mining, harvesting, fishing, trapping, hunting, manufacturing, processing or assembling a good;

reasonably allocate means to apportion in a manner appropriate to the circumstances;

refit means a plant closure, for purposes of plant conversion or retooling, that lasts at least three months;

related person means a person related to another person on the basis that:

    a) they are officers or directors of one another's businesses;

    b) they are legally recognized partners in business;

    c) they are employer and employee;

    d) any person directly or indirectly owns, controls or holds 25 percent or more of the outstanding voting stock or shares of each of them;

    e) one of them directly or indirectly controls the other;

    f) both of them are directly or indirectly controlled by a third person; or

    g) they are members of the same family (members of the same family are natural or adoptive children, brothers, sisters, parents, 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 more of the Parties, engineering, tooling, diesetting, 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, catalogs, 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; merchandise incentives;

    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 customers' 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 centers;

    (i) property insurance premiums, taxes, cost of 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 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 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, excluding costs of preparing and packaging the good for retail sale;

size category means for a motor vehicle identified in Article 403(1)(a):

    a) 85 or less cubic feet of passenger and luggage interior volume,

    b) between 85 and 100 cubic feet of passenger and luggage interior volume,

    c) 100 to 110 cubic feet of passenger and luggage interior volume,

    d) between 110 and 120 cubic feet of passenger and luggage interior volume, and

    e) 120 and more cubic feet of passenger and luggage interior volume;

total cost means all product costs, period costs and other costs incurred in the territory of one or more of the Parties;

transaction value means the price actually paid or payable for a good or material with respect to a transaction of, except for the application of Article 403(1) or 403(2)(a), 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, regardless of whether the good or material is sold for export;

used means used or consumed in the production of goods; and

underbody means the floor pan of a motor vehicle.

Annex 403.1: List of Tariff Provisions for Article 403(1)

Note: For purposes of reference only, descriptions are provided next to the corresponding tariff provision.

40.09 (tubes, pipes and hoses)

4010.10 (rubber belts)

40.11 (tires)

4016.93.aa (rubber, gaskets, washers and other seals for automotive goods)

4016.99.aa (vibration control goods)

7007.11 and 7007.21 (laminated safety glass)

7009.10 (rearview mirrors)

8301.20 (locks for the kind used on motor vehicles)

8407.31 (engines of a cylinder capacity not exceeding 50cc)

8407.32 (engines of a cylinder capacity exceeding 50cc but not exceeding 250cc)

8407.33 (engines of a cylinder capacity exceeding 250cc but not exceeding 1000cc)

8407.34.aa (engines of a cylinder capacity exceeding 1000cc but not exceeding 2000cc);

8407.34.bb (engines of a cylinder capacity exceeding 2000cc)

8408.20 (diesel engines for vehicles of Chapter 87)

84.09 (parts of engines)

8413.30 (pumps)

8414.80.22 (turbochargers and superchargers for motor vehicles, where not provided for under subheading 8414.59)

8414.59.aa (turbochargers and superchargers for motor vehicles, where not provided for under subheading 8414.80)

8415.81 through 8415.83 (air conditioners)

8421.39.aa (catalytic convertors)

8481.20, 8481.30 and 8481.80 (valves)

8482.10 through 8482.80 (ball bearings)

8483.10 through 8483.40 (transmission shafts and housed ball bearings)

8483.50 (flywheels)

8501.10 (electric motors)

8501.20 (electric motors)

8501.31 (electric motors)

8501.32.aa (electric motors that provide primary source for electric powered vehicles of subheading 8703.90)

8507.20.aa, 8507.30.aa, 8507.40.aa and 8507.80.aa (batteries that provide primary source for electric cars)

8511.30 (distributors)

8511.40 (starter motors)

8511.50 (other generators)

8512.20 (other lighting or visual signalling equipment)

8512.40 (windscreen wipers, defrosters)

8519.91 (cassette decks)

8527.21 (radios combined with cassette players)

8527.29 (radios)

8536.50 (switches)

8536.90 (junction boxes)

8537.10.aa (motor control centers)

8539.10 (seal beamed headlamps)

8539.21 (tungsten halogen headlamps)

8544.30 (wire harnesses)

87.06 (chassis)

87.07 (bodies)

8708.10.aa (bumpers but not parts thereof)

8708.21 (safety seat belts)

8708.29.aa (body stampings)

8708.29.bb (inflators and modules for airbags)

8708.29.cc (door assemblies)

8708.29.dd (airbags for use in motor vehicles, where not provided for under subheading 8708.99)

8708.39 (brakes and servobrakes, and parts thereof)

8708.40 (gear boxes, transmissions)

8708.50 (drive axles with differential, whether or not provided with other transmission components)

8708.60 (nondriving axles, and parts thereof)

8708.70.aa (road wheels, but not parts or accessories thereof)

8708.80 (suspension shockabsorbers)

8708.91 (radiators)

8708.92 (silencers (mufflers) and exhaust pipes)

8708.93.aa (clutches, but not parts thereof)

8708.94 (steering wheels, steering columns and steering boxes)

8708.99.aa (vibration control goods containing rubber)

8708.99.bb (double flanged wheel hub units)

8708.99.cc (airbags for use in motor vehicles, where not provided for under subheading 8708.29)

8708.99.dd (halfshafts and drive shafts)

8708.99.ee (other parts for powertrains)

8708.99.ff (parts for suspension systems)

8708.99.gg (parts for steering systems)

8708.99.hh (other parts and accessories not provided for elsewhere in subheading 8708.99)

9031.80 (monitoring devices)

9032.89 (automatic regulating instruments)

9401.20 (seats)

Annex 403.2: List of Components and Materials

1. Component: Engines provided for in heading 84.07 or 84.08

2. Component: Gear boxes (transmissions) provided for in subheading 8708.40

Annex 403.3: Regional Value-Content Calculation for CAMI

1. For purposes of Article 403, in determining whether motor vehicles produced by CAMI Automotive, Inc. ("CAMI") in the territory of Canada and imported into the territory of the United States qualify as originating goods, CAMI may average its calculation of the regional value content of a class of motor vehicles or a model line of motor vehicles produced in a fiscal year in the territory of Canada by CAMI for sale in the territory of one or more of the Parties with the calculation of the regional value content of the corresponding class of motor vehicles or model line of motor vehicles produced in the territory of Canada by General Motors of Canada Limited in the fiscal year that corresponds most closely to CAMI's fiscal year, provided that:

    a) at the beginning of CAMI's fiscal year General Motors of Canada Limited owns 50 percent or more of the voting common stock of CAMI; and

    b) General Motors of Canada Limited, General Motors Corporation, General Motors de Mexico, S.A. de C.V., and any subsidiary directly or indirectly owned by any of them, or by any combination thereof, ("GM") acquires 75 percent or more by unit of quantity of the class of motor vehicles or model line of motor vehicles, as the case may be, that CAMI has produced in the territory of Canada in CAMI's fiscal year for sale in the territory of one or more of the Parties.

2. If GM acquires less than 75 percent by unit of quantity of the class of motor vehicles or model line of motor vehicles, as the case may be, that CAMI has produced in the territory of Canada in CAMI's fiscal year for sale in the territory of one or more of the Parties, CAMI may average in the manner set out in paragraph 1 only those motor vehicles that are acquired by GM for distribution under the GEO marque or other GM marque.

3. In calculating the regional value content of motor vehicles produced by CAMI in the territory of Canada, CAMI may choose to average the calculation in paragraph 1 or 2 over a period of two fiscal years in the event that any motor vehicle assembly plant operated by CAMI or any motor vehicle assembly plant operated by General Motors of Canada Limited with which CAMI is averaging its regional value content is closed for more than two consecutive months:

    a) for the purpose of retooling for a model change, or

    b) as the result of any event or circumstance (other than the imposition of antidumping and countervailing duties, or an interruption of operations resulting from a labor strike, lockout, labor dispute, picketing or boycott of or by employees of CAMI or GM), that CAMI or GM could not reasonably have been expected to avert by corrective action or by exercise of due care and diligence, including a shortage of materials, failure of utilities, or inability to obtain or delay in obtaining raw materials, parts, fuel or utilities.

The averaging may be for CAMI's fiscal year in which a CAMI or any General Motors of Canada Limited plant with which CAMI is averaging is closed and either the previous or subsequent fiscal year. In the event that the period of closure spans two fiscal years, the averaging may be only for those two fiscal years.

    4. For purposes of this Article, where as a result of an amalgamation, reorganization, division or similar transaction:

      a) a motor vehicle producer (the "successor producer") acquires all or substantially all of the assets used by GM, and

      b) the successor producer, directly or indirectly controls, or is controlled by, GM, or both the successor producer and GM are controlled by the same person, the successor producer shall be deemed to be GM.

Continue on to Article 501: Certificate of Origin

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