[Federal Register Volume 60, Number 172 (Wednesday, September 6, 1995)]
[Rules and Regulations]
[Pages 46334-46463]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-21716]




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Part II





Department of the Treasury





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Customs Service



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19 CFR Parts 10, 12, 24, et al.



North American Free Trade Agreement (NAFTA): Implementation of Interim 
Amendments; Final Rule

Regulatory Standards For Implementation of the North American Free 
Trade Agreement; Notice

  Federal Register / Vol. 60, No. 172 / Wednesday, September 6, 1995 / 
Rules and Regulations   

[[Page 46334]]


DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 10, 12, 24, 123, 134, 162, 174, 177, 178, 181 and 191

[T.D. 95-68]
RIN 1515-AB33


North American Free Trade Agreement

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document adopts as a final rule, with some changes, 
interim amendments to the Customs Regulations which were published in 
the Federal Register on December 30, 1993, as T.D. 94-1 to implement 
the preferential tariff treatment and other Customs-related provisions 
of the North American Free Trade Agreement entered into by the United 
States, Canada and Mexico.

EFFECTIVE DATE: October 1, 1995.

FOR FURTHER INFORMATION CONTACT: Operational Aspects: Joyce Metzger, 
Office of Field Operations (202-927-0792).
    Audit Aspects: William Inch, Office of Strategic Trade (202-927-
1100).
    Legal Aspects: Myles Harmon, Office of Regulations and Rulings 
(202-482-7000).
SUPPLEMENTARY INFORMATION:

Background

    On December 17, 1992, the United States, Canada and Mexico (the 
``Parties'') entered into an agreement, the North American Free Trade 
Agreement (NAFTA). The stated objectives of the NAFTA are to: Eliminate 
barriers to trade in, and facilitate the cross-border movement of, 
goods and services between the territories of the Parties; promote 
conditions of fair competition in the free trade area; increase 
substantially investment opportunities in the territories of the 
Parties; provide adequate and effective protection and enforcement of 
intellectual property rights in each Party's territory; create 
effective procedures for the implementation and application of the 
NAFTA, for its joint administration and for the resolution of disputes; 
and establish a framework for further trilateral, regional and 
multilateral cooperation to expand and enhance the benefits of the 
NAFTA.
    The provisions of the NAFTA were adopted by the United States with 
the enactment of the North American Free Trade Agreement Implementation 
Act (the ``Act''), Pub. L. 103-182, 107 Stat. 2057.
    The principal role of the U.S. Customs Service is to administer the 
provisions of the NAFTA and the Act which relate to the importation of 
goods into the United States from Canada and Mexico. Those Customs-
related NAFTA provisions which require implementation through 
regulation include certain tariff and non-tariff provisions within 
Chapter Three (National Treatment and Market Access for Goods) and the 
provisions of Chapter Four (Rules of Origin) and Chapter Five (Customs 
Procedures).
    The tariff-related provisions within NAFTA Chapter Three which 
require regulatory action by Customs are Article 303 (Restriction on 
Drawback and Duty Deferral Programs), Article 305 (Temporary Admission 
of Goods), Article 306 (Duty-Free Entry of Certain Commercial Samples 
and Printed Advertising Materials) and Article 307 (Goods Re-Entered 
after Repair or Alteration). The non-tariff provisions of Chapter Three 
requiring Customs regulatory action are Article 310 (Customs User 
Fees), Article 311 (Country of Origin Marking) and Annex 300-B (Textile 
and Apparel Goods).
    Chapter Four of the NAFTA sets forth the rules for determining 
whether an imported good qualifies as an originating good of the United 
States, Canada or Mexico (NAFTA country) and, as such, is therefore 
eligible for preferential tariff (duty-free or reduced duty) treatment 
as provided for under Article 302(2) and Annex 302.2 of the NAFTA. 
Under Article 401 within that Chapter, originating goods may be grouped 
in two broad categories: (1) Goods which are wholly obtained or 
produced entirely in one or more NAFTA countries; and (2) goods which 
are produced entirely in one or more NAFTA countries exclusively from 
materials that originate in those countries, or goods which are 
produced entirely in those countries and which satisfy the specific 
rules of origin in NAFTA Annex 401 (change in tariff classification 
requirement and/or regional value-content requirement). Article 402 
sets forth the methods for calculating the regional value content of a 
good and the rules for determining the value of materials used in the 
production of a good. Article 403 sets forth special rules for 
calculating the regional value content in the case of automotive goods. 
Article 404 provides for accumulation of production by two or more 
producers. Article 405 provides a de minimis criterion. The remaining 
Articles within Chapter Four consist of additional sub-rules, 
applicable to the originating good concept, involving fungible 
materials, packaging materials, packing materials, transshipment, and 
non-qualifying operations.
    Chapter Five sets forth the procedural and other customs 
requirements which apply under the NAFTA, in particular with regard to 
claims for preferential tariff treatment. Articles 501-506 of this 
Chapter provide for use of a Certificate of Origin for purposes of 
certifying that an exported good qualifies as an originating good under 
the Chapter Four origin rules, set forth the rights and obligations of 
importers regarding imported goods and of exporters and producers 
regarding exported goods, and set forth the rights and obligations of 
the customs administration of the importing country when conducting a 
verification of the origin of a good and when denying a claim for 
preferential tariff treatment. Article 507 sets forth confidentiality 
principles regarding business information collected pursuant to Chapter 
Five. Article 508 requires each Party to maintain penalties for 
violations of its laws and regulations relating to Chapter Five. 
Article 509 sets forth the obligations for the issuance and application 
of advance rulings by the customs administration of the importing 
country regarding whether a good meets the country of origin marking 
requirements of Article 311 or the origin rules of Chapter Four or 
other NAFTA requirements that apply to certain goods at the time of 
importation. Article 510 extends to exporters and producers of goods 
substantially the same rights of review and appeal accorded to 
importers regarding advance rulings or marking determinations of origin 
or country of origin determinations for purposes of preferential tariff 
treatment. Article 511 requires the Parties to establish, and implement 
through their respective laws or regulations, Uniform Regulations 
regarding the interpretation, application and administration of Chapter 
Four, Chapter Five and any other matter as agreed by the Parties. 
Finally, Articles 512 and 513 set forth procedures for cooperation 
between the Parties regarding the implementation and administration of 
the customs-related aspects of the NAFTA.
    Pursuant to Article 511 of the NAFTA, representatives of the 
Parties engaged in a series of trilateral discussions for the purpose 
of formulating uniform regulatory texts or principles in respect of 
Chapters Four and Five and in respect of certain provisions within 
Chapter Three. As regards Chapter Three, agreement was reached on 
certain principles to be applied for purposes of implementing 

[[Page 46335]]
the drawback provisions of Article 303. With regard to the remaining 
Chapter Three provisions, including the country of origin marking 
provisions of Article 311 and its companion Annex 311 (which provide 
for the establishment of ``Marking Rules'' for purposes of determining 
whether a good constitutes, and thus may be marked as, a good of a 
Party and which set forth disciplines on the methods and procedures for 
the country of origin marking of goods), those provisions were to be 
implemented by each Party independently and as appropriate within each 
Party's statutory and regulatory structure; the U.S. Marking Rules, 
contained in Part 102 of the Customs Regulations, were adopted on an 
interim basis in T.D. 94-4 which was published in the Federal Register 
on January 3, 1994 (59 FR 110). As concerns Chapter Four, the Parties 
agreed, by an exchange of letters dated December 30, 1993, to implement 
substantively verbatim texts of interim regulations covering all of the 
provisions of that Chapter. Finally, in recognition of the different 
existing customs legal and procedural requirements in the three 
countries, in the case of Chapter Five and some provisions of Chapter 
Three the Parties agreed, by an exchange of letters dated December 30, 
1993, to use a standards approach whereby agreement was reached on 
certain minimum principles to be reflected in each Party's regulations, 
with each Party being left free to implement those principles, and any 
other requirements not inconsistent therewith, in accordance with the 
needs of the Party's particular statutory and regulatory framework. The 
trilaterally-agreed standards are set forth in a document entitled 
``Uniform Regulations for the Interpretation, Application, and 
Administration of Chapters Three (National Treatment and Market Access 
for Goods) and Five (Customs Procedures) of the North American Free 
Trade Agreement''; the text of that standards document is reproduced 
for the information of the public in a general notice also appearing in 
this issue of the Federal Register.
    On December 30, 1993, Customs published T.D. 94-1 in the Federal 
Register (58 FR 69460) setting forth interim amendments to the Customs 
Regulations to implement the preferential tariff treatment and other 
Customs-related provisions of the NAFTA in accordance with the 
implementation principles agreed to by the Parties as discussed above. 
In order to provide transparency and facilitate their use, the majority 
of the NAFTA implementing regulations set forth in T.D. 94-1 were 
included within one new Part 181. However, in those cases in which 
NAFTA implementation was more appropriate in the context of an existing 
regulatory provision, the NAFTA regulatory text was incorporated in an 
existing Part within the Customs Regulations. T.D. 94-1 also set forth 
a number of cross-references and other consequential changes to 
existing regulatory provisions to clarify the relationship between 
those existing provisions and the NAFTA implementing regulations. 
Although the interim regulatory amendments were promulgated pursuant to 
the foreign affairs function exception to the general notice, public 
comment, and delayed effective date requirements of 5 U.S.C. 553 and 
took effect on January 1, 1994, in order to coincide with the entry 
into force of the NAFTA, T.D. 94-1 nevertheless provided for the 
submission of public comments thereon which would be considered before 
adoption of the interim regulations as a final rule, and the prescribed 
public comment period closed on March 30, 1994. In addition, two 
correction documents pertaining to T.D. 94-1 were published in the 
Federal Register, one on February 24, 1994 (59 FR 8852) and the other 
on March 31, 1994 (59 FR 15047).

Discussion of Comments

    A total of 15 commenters responded to the solicitation of comments 
on the interim regulations set forth in T.D. 94-1. The comments 
submitted, and the Customs responses thereto, are set forth below.

Part 12, Sec. 12.132 (Textile and Apparel Goods Under the NAFTA)

    Comment: One commenter noted that whereas paragraph (b) of this 
section provides only for preparation of the country of origin 
declaration by the manufacturer or producer of the textile or apparel 
goods, in the case of non-NAFTA goods the declaration may also be 
prepared by the exporter or importer under Sec. 12.130(f). Since the 
NAFTA provision imposes a more strict requirement, this commenter 
suggested that the NAFTA text be aligned on Sec. 12.130(f) so as to 
provide for preparation by the manufacturer, producer, exporter or 
importer.
    Customs response: The U.S. importer should not be allowed to 
prepare the declaration in this context because the importer often 
lacks sufficient knowledge of the actual production and origin of the 
goods. However, when the importer cannot obtain a declaration from the 
manufacturer or producer, Customs would be willing to accept a 
declaration prepared by the exporter, and paragraph (b) (redesignated 
in this document as paragraph (a)(2) as explained below) has been 
modified accordingly.

Part 134, Sec. 134.22 (General Rules for Marking of Containers or 
Holders)

    Comment: One commenter expressed approval of the approach taken in 
new Sec. 134.22(d) regarding the country of origin marking of usual 
containers, in particular with reference to paragraph (d)(2) which, in 
the case of a good of a NAFTA country, removes from consideration the 
additional issue of whether a particular container is capable of reuse 
in determining whether a container must be marked. Notwithstanding the 
fact that this NAFTA rule was specifically intended to implement Annex 
311(7) of the NAFTA, this commenter stated that this approach should 
not be limited to NAFTA goods but rather should be applied universally. 
In support of this suggestion the commenter argued that: (1) The 
standards applicable to usual containers are regulatory rather than 
specifically required by the marking statute (19 U.S.C. 1304) and thus 
can be changed; (2) the NAFTA does not require that its provisions be 
limited to NAFTA trade; and (3) no public policy purpose is served by 
having different usual container marking rules because they create 
confusion for importers and may mislead the consumer regarding the 
origin of the product packaged in the container when it has a different 
marking than that of the container.
    Customs response: The definition of ``usual container'' provided in 
Sec. 134.22(d)(1) applies to all containers, whether they are goods of 
a non-NAFTA country or goods of a NAFTA country. However, different 
regulatory requirements are provided in Part 134 of the Customs 
Regulations for determining whether a usual container is excepted from 
country of origin marking.
    Section 304(b) of the Tariff Act of 1930, as amended (19 U.S.C. 
1304(b)), states in part that:

    . . . Usual containers in use as such at the time of importation 
shall in no case be required to be marked to show the country of 
their own origin.

Thus, although a container may not be a good of a NAFTA country, if it 
is a ``usual container'' as defined in Sec. 134.22(d)(1) of the Customs 
Regulations it may be excepted from marking pursuant to 19 U.S.C. 
1304(b) provided that the conditions of that statutory provision are 
satisfied, as 

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Customs has ruled in HQ 735548 dated February 14, 1995.
    The Part 134 regulations relating to marking of containers from 
non-NAFTA countries (Secs. 134.23 and 134.24) generally draw a 
distinction between reusable and disposable containers in determining 
whether they must be marked to indicate their own country of origin. If 
the containers are determined to be reusable, they are treated as 
separate articles of commerce and are required to be individually 
marked with their country of origin. However, if the containers are 
determined to be disposable, they are not treated as separate articles 
of commerce and are excepted from country of origin marking.
    However, for containers which are determined to be ``goods of a 
NAFTA country'', the distinction between reusable and disposable is not 
applicable in determining the marking requirements for the containers. 
The country of origin marking requirements for containers which are 
``goods of a NAFTA country'' are based primarily on whether the 
container is considered to be a ``usual container''. If it is 
determined to be a ``usual container'', as defined in Sec. 134.22(d)(1) 
of the regulations, the container is not required to be marked with its 
own origin. The fact that a container is capable of repeated use does 
not preclude it from being considered a ``usual container''.
    Section 134.22(d) was included in the interim regulations solely to 
implement Annex 311(7) of the NAFTA, which applies to containers which 
are goods of NAFTA countries. Customs does not believe that the NAFTA 
implementing regulations are the proper vehicle for effecting a change 
in the marking requirements for containers which are goods of non-NAFTA 
countries. Such a change (applying to imports from non-NAFTA countries 
the Sec. 134.22(d)(2) NAFTA ``usual container'' marking exception) 
should be the subject of a separate notice of proposed rulemaking to 
amend Secs. 134.23 and 134.24, so as to give affected parties an 
opportunity to submit any comments they may have.

Part 181, Subpart B (Export Requirements)

Section 181.11
    Comment: With regard to the preparation and use of Certificates of 
Origin in general, one commenter noted that the instructions for field 
6 (Harmonized System tariff classification number) specify use of the 
8-digit number of the country into which the good is imported if the 
good is subject to a specific rule of origin that requires eight 
digits. This commenter suggested that this creates an unnecessary 
burden on exporters because it requires them to cross-reference and 
cross-document the seventh and eighth digits of tariff numbers for each 
NAFTA country and may mean in some cases that three separate 
Certificates would have to be prepared for one part number. Since the 
tariff numbers in field 6 simply identify the rule of origin that the 
exporter used to certify the goods and because the seventh and eighth 
digits in all three countries identify the same goods and the same rule 
of origin, this commenter suggested the following alternative 
solutions: (1) The three governments could publish a single conversion 
list of the tariff numbers for each country for distribution to customs 
officials and the public; or (2) the exporter could be allowed to 
indicate with a ``U'', ``C'' or ``M'' prefix the country of the tariff 
number used in field 6.
    Customs response: Customs does not agree with the proposal of 
allowing classification to be reported at the 6-digit level. Many of 
the specific rules of origin were written at the 7th and 8th digit 
level to capture a desired processing condition. Where this is the 
case, a NAFTA claimant must indicate that the processing it performed 
accomplished the required tariff shift. Reporting a classification 
number at a lesser level would not satisfy this requirement.
    The proposal for publishing a list of all of the rules together 
with references to the 8-digit item numbers may have some merit. It 
should be noted that the tariff items in these rules are reflected 
either in the rules themselves or in the Appendix to Annex 401 of the 
NAFTA. Currently, the NAFTA Parties are exploring within the trilateral 
working groups created under the NAFTA the most appropriate means to 
keep the trading public aware of the changes to the rules, including 
those that involve changes at the 8-digit level. The commenter's 
suggestion will be kept in mind in that context.
    Finally, Customs is of the opinion that the suggestion of utilizing 
a letter prefix to a 6-digit classification number to designate which 
country's tariff schedule is being applied would not be workable. An 
enterprise wishing to take advantage of NAFTA in any one of the NAFTA 
countries must classify according to the actual tariff schedule of the 
importing country at the 7th or 8th digit level as shown in that tariff 
in any case in which the specific origin rule requires a change at that 
level.
    Comment: One commenter raised two issues regarding paragraph (d) 
which provides that if a U.S. exporter or producer has reason to 
believe that a Certificate of Origin completed and signed by him 
contains incorrect information affecting its validity or accuracy, he 
shall within 30 calendar days so notify in writing all persons to whom 
the Certificate was given. First, this commenter suggested a problem 
with the ``within 30 calendar days'' language in that significant 
controversy could arise in trying to pin down exactly on which day the 
exporter or producer had the requisite ``reason to believe''. Second, 
the commenter expressed some confusion as to whether a Certificate 
could be deemed to be incorrect if the information provided thereon was 
accurate when the Certificate was signed, and in this regard the 
commenter questioned whether the notice had to be provided in the 
following circumstances: (1) Whenever there is a change in the product, 
even if a recipient of the Certificate no longer receives the product; 
and (2) where the exporter or producer is uncertain as to which of its 
products the recipient intends to apply the Certificate. Stating that 
the duty to ascertain inaccuracies and search for all Certificate 
recipients is unrealistic and fraught with pitfalls for well-
intentioned exporters or producers, this commenter suggested that 
paragraph (d) be redrafted to more specifically define the obligations 
of Certificate creators.
    Customs response: The comment with regard to the commencement of 
the 30-day period appears to have merit. Accordingly, paragraph (d) of 
Sec. 181.11, as set forth below, has been modified by inserting the 
phrase ``after the date of discovery of the error'' immediately after 
the phrase ``30 calendar days''. This additional language would 
encompass the discovery of an error by any involved party: the 
exporter, producer or verifying customs administration. The condition 
that no formal investigation be begun should be unaffected by the 
addition of this phrase. For purposes of consistency and based on the 
same considerations, a similar modification has been made to the text 
of Sec. 181.21(b) regarding the correction of a declaration.
    With regard to the issue of the specific circumstances in which 
notice of an incorrect Certificate of Origin must be provided, Customs 
would first point out that where information believed by the preparer 
of the Certificate to be accurate is found to be incorrect by a 
verifying customs administration, such information constitutes 
incorrect information which might affect the granting of preferential 
tariff treatment. Accordingly, all recipients of the 

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Certificate must be notified of the incorrect information so that a 
NAFTA claim is not made based on erroneous information.
    Where there is a change to a product and the recipient of the 
Certificate covering that product no longer receives the product, it is 
the position of Customs that if the product change affects the 
eligibility of the product retroactively and if the recipient based its 
claim of NAFTA treatment for that product on an incorrect Certificate, 
the recipient must be sent a corrected Certificate so that it might 
correct its entry. Prospective shipments of the product should be 
covered by a new Certificate given to current importers of the product.
    Finally, as regards a case in which the exporter or producer is 
uncertain as to the specific products to which the recipient intends to 
apply the Certificate, it is the position of Customs that an exporter 
or producer must assume that each recipient of its Certificate intends 
to utilize it for all products listed thereon and thus must be notified 
of any incorrect information appearing on the Certificate.
Section 181.12
    A commenter stated that this section imposes overly broad and 
burdensome recordkeeping requirements on U.S. exporters and producers 
whose goods qualify as originating goods under an origin criterion that 
does not involve a regional value-content requirement. Since in such a 
case data as to cost, value and payment are irrelevant in qualifying as 
an originating good, this commenter states that Sec. 181.12 should be 
written so as to require only that recordkeeping which is necessary to 
demonstrate the correctness of the basis upon which originating status 
is claimed.
    Customs response: The recordkeeping requirements contained in 
paragraph (a) of this section, including the specific types of records 
to be maintained, reflect the provisions of Article 505 of the 
Agreement which was implemented by an amendment to 19 U.S.C. 1508 
effected by section 205 of the Act. Moreover, this comment fails to 
recognize a basic problem that could arise from use of the suggested 
minimalist approach: a customs administration may have no choice but to 
deny a claim for preferential tariff treatment if the claimed basis for 
originating status is not valid and no records have been maintained to 
support an applicable alternative basis involving a regional value-
content requirement.

Part 181, Subpart C (Import Requirements)

Section 181.21
    Comment: With regard to the requirement under paragraph (a) that 
the claim for preferential tariff treatment be based on a Certificate 
of Origin in the possession of the importer, one commenter stated that 
the regulatory provision is unclear as to whether possession of a copy 
of the Certificate would satisfy this requirement. This commenter 
stated that permitting use of copies of a Certificate is necessary 
where there are multiple importer customers, where goods are exported 
to two NAFTA countries, and where a supplier provides a Certificate to 
a central location of a producer which has subsidiaries operating in 
more than one NAFTA country.
    Customs response: Customs believes that this commenter makes a 
valid point. Accordingly, paragraph (a) of Sec. 181.21, as set forth 
below, has been modified to provide for possession of a copy of a 
Certificate of Origin.
    Comment: With regard to the written declaration under paragraph (a) 
and the written correction of a declaration under paragraph (b), a 
commenter suggested that additional provision should be made for 
effecting both actions by electronic means in order to reflect the 
Customs Modernization provisions of the Act.
    Customs response: Although the suggestion has some merit in 
principle, Customs believes that it would be premature at this time to 
revise these paragraphs to provide for electronic means for complying 
with their provisions. As Customs implements the Customs Modernization 
provisions of the Act, it will identify which regulatory activities may 
be performed electronically and will amend the regulations accordingly. 
At that time, these NAFTA provisions will be reviewed and, if 
necessary, brought into line with whatever changes are made elsewhere 
in the Customs Regulations with respect to the electronic filing of 
entry information.
    Comment: One commenter stated that paragraph (b) should require 
that Customs send to the importer's surety a copy of the importer's 
corrected declaration because, if the importer fails to pay the 
required duties, the surety will not be aware of this circumstance 
until the entry is liquidated and demand is made upon the surety.
    Customs response: Customs does not now notify sureties during the 
entry process, and that policy should continue to be applied in the 
context mentioned by this commenter.
    It should also be noted that the failure to deposit estimated 
duties when due is a bond breach, and Customs may make an immediate 
demand in the event of a breach. There is no basis for a different 
procedure when the bond principal breaches that provision at the time 
of entry or when the bond principal breaches that provision at the time 
of filing a corrected declaration.
Section 181.22
    Comment: For purposes of submitting a Certificate of Origin to 
Customs under paragraph (b), one commenter stated that, by referring to 
a Certificate ``signed by the exporter or producer'', the regulation 
appears to permit the exporter to simply provide the producer's 
Certificate to the importer. This commenter suggested that, if this is 
so and if the producer were allowed to execute a single Certificate and 
provide copies thereof to its customer exporters who then could provide 
copies to their customer importers, the following benefits could be 
realized: (1) A producer Certificate would not have to be re-executed 
by exporters; (2) a possessor of a Certificate would always know who 
the producer of the goods was; and (3) administrative effort would be 
reduced by requiring creation of only a single Certificate.
    Customs response: While the commenter's suggestion has some logic 
and merit under the regulatory text as written, Article 501(3) of the 
Agreement (and Sec. 181.11(b) in a U.S. export context) are quite clear 
that an importer's claim for preferential NAFTA tariff treatment can 
only be based on a Certificate of Origin prepared by the exporter of 
the good. Moreover, any Certificate completed by a producer is done 
voluntarily whereas that prepared by the exporter is a requirement for 
claiming NAFTA treatment. In order to remove any ambiguity and ensure 
consistency with the terms of the Agreement, paragraph (b)(2) of 
Sec. 181.22, as set forth below, has been modified by removing the two 
references to ``or producer''.
    Comment: One commenter stated that this section should be modified 
to require that Customs provide notification to the importer's surety 
whenever the importer fails to comply with a request for submission of 
a Certificate of Origin. This would enable a surety to minimize its 
risk in cases involving a series of related importations which result 
in denial of preferential tariff treatment and issuance of a claim for 
increased duty under the surety's bond.
    Customs response: The comment response under Sec. 181.21 above 
regarding 

[[Page 46338]]
notice to a surety applies equally to this comment. Moreover, the 
principal may pay the duty so that no bond breach would occur. In any 
event, the requested change would inject Customs into the contractual 
relationship between the surety and its bond principal. The submission 
of document copies is a matter that is best resolved between the 
principal and its surety.

Part 181, Subpart D (Post-Importation Duty Refund Claims)

Section 181.31
    Comment: One commenter stated that this section should be amended 
to expressly permit sureties to submit post-importation NAFTA claims so 
that sureties may protect their interests, for example in a case where 
the importer is out of business and the surety has a liability on the 
transaction. This commenter argued that this would be a logical and 
much needed extension of surety rights under the administrative 
process, noting in this regard that sureties presently can file 
protests, petitions for relief from liquidated damage claims and 
petitions under 19 U.S.C. 1520(c).
    Customs response: Both Article 502(3) of the Agreement and the U.S. 
implementing statute specifically provide for the filing of a post-
importation claim by the importer. While 19 U.S.C. 1514(c) expressly 
provides for the filing of a protest by a surety in its own right, no 
corresponding surety right is reflected in 19 U.S.C. 1520(d) which was 
added by section 206 of the Act. Of course, a surety or any other party 
acting as a duly authorized agent may file a post-importation claim on 
behalf of its importer principal.
Section 181.32
    Comment: One commenter complained of the post-importation refund 
claim documentary requirements in paragraphs (b)(3)-(5) of this 
section, pointing out that the written statements specified therein 
constitute added and burdensome requirements that are not applied 
either in the case of a NAFTA claim made at the time of entry or in the 
case of any other post-importation claim procedure under Part 173 or 
174 of the Customs Regulations. This commenter therefore suggested 
removal of these requirements.
    Customs response: The written statement requirements for post-
importation claims are designed to prevent an overpayment of a duty 
refund such as drawback. Customs notes that there are parallel NAFTA 
requirements for drawback and duty deferral program participants under 
Part 181 (see Secs. 181.47 (b) and (c) and Sec. 181.53(a)(3)). 
Accordingly, Customs believes that these requirements must be retained.
Section 181.33
    Comment: Two commenters referred to paragraph (d)(3) which provides 
that where the entry covering the good has been liquidated, whether or 
not the liquidation has become final, a post-importation refund claim 
may be denied without reliquidating the entry. One of these commenters 
stated that this section and Part 174 of the Customs Regulations should 
include the right to file a protest within 90 days of the denial of the 
claim whether or not the liquidation has become final. The other 
commenter stated that the regulations do not, but should, provide for 
an administrative appeal process in the case of a denial issued more 
than 90 days after liquidation of the entry.
    Customs response: Customs agrees that a claimant has a right to 
file a protest based on a denial of a NAFTA post-importation claim, 
including in cases in which the claim is denied more than 90 days after 
liquidation of the entry and without reliquidation of the entry, and 
Customs also agrees that the regulations should explicitly reflect this 
right. Accordingly, Sec. 174.12(e)(2), which specifies when the 90-day 
time period for filing a protest begins in the case of a protest 
against a decision not involving a liquidation or reliquidation, has 
been modified as set forth below by the inclusion of a specific 
reference to a claim filed under 19 U.S.C. 1520(d).
    Customs notes that in the case of a denial of a post-importation 
claim on the merits (that is, where the denial is based on a negative 
origin determination rather than on procedural grounds), a person who 
signed a Certificate of Origin relating to the good at issue has a 
right to file a protest against the denial (see 19 U.S.C. 1514(c)(2)(E) 
and interim Sec. 174.12(a)(5) as republished below). In order to 
reflect current Customs practice, Secs. 181.33 (d)(2) and (d)(3), as 
set forth below, have been modified to provide that the notice of 
denial of the claim in such cases shall include a statement regarding 
the right to file a protest against the denial under Part 174 of the 
regulations.

Part 181, Subpart E (Restrictions on Drawback And Duty-Deferral 
Programs)

Section 181.41
    Comment: Two commenters stated that this section implies that the 
effective dates of 1996 and 2001 apply only where preferential tariff 
treatment under NAFTA is claimed. This is not correct and therefore it 
should be made clear that these effective dates apply to all 
merchandise whether or not NAFTA preferential treatment is involved.
    Customs response: Customs agrees that the subpart covers all 
exports to Canada or Mexico, whether a claim for preferential tariff 
treatment is made or not. Accordingly, the second sentence of 
Sec. 181.41, as set forth below, has been modified by inserting a 
period after ``January 1, 2001'' and removing the rest of the sentence.
Section 181.44(a)
    Comment: A commenter pointed out that it is too difficult for the 
drawback claimant to ``discover'' the duty paid on the merchandise when 
it is imported into the United States and when it is imported into 
Canada and Mexico. As an alternative, this commenter suggested that a 
NAFTA control number be placed on the commercial invoice when a 
drawback claim is expected to be filed. Each U.S. exporter could use 
its tax identification number (from the Certificate of Origin) followed 
by a date code and a sequential number. This control number should 
become part of the import records associated with NAFTA claims in 
Canada or Mexico.
    This commenter went on to state that whenever this sequential NAFTA 
drawback control number appears, Canadian or Mexican Customs should 
enter the amount of duty from the import entry, together with the 
control number, into a database which could be downloaded into the U.S. 
Customs computer system. The data could then be accessed by U.S. 
Customs through ABI to determine duties paid upon importation into 
Canada or Mexico. Upon liquidation of the import transaction in Canada 
or Mexico, the computer record would be updated. The drawback claimant 
should be allowed to waive the right to claim a refund of the amount 
equal to the additional duties that would be owed to Canadian or 
Mexican Customs. This would set the date of entry when duties have been 
paid in Canada or Mexico for drawback purposes. The commenter suggested 
that without a link between the three Customs administrations, drawback 
claims will be delayed.
    Customs response: This commenter recognizes that the Agreement and 
the statute require the amount of duty paid in Canada or Mexico to be 
reported. The commenter's proposal to require a drawback control number 
to be placed on the commercial invoice and for the Customs Services of 
the three countries to monitor that number would be extremely 
burdensome. In addition, 

[[Page 46339]]
Customs is aware that many U.S. importers have alleged an inability to 
obtain the foreign invoice. Such inability can only result from a 
failure of the commercial participants to address the issues in a 
timely manner. Drawback claims require that the commercial participants 
resolve these information issues in the terms of the sale before the 
export so that the required information on the completed transaction 
can be presented to Customs to establish any drawback eligibility. 
Paragraph (c) of Sec. 181.47 lists the required evidence.
    Comment: A commenter stated that any claim based on estimates (that 
is, the NAFTA duty rate multiplied by the invoice value) would not take 
into account duty exemptions that may be available to Canadian and 
Mexican importers and that may not be apparent on the face of the 
commercial documents (for example, articles assembled abroad and 
returned). If there are no such exemptions and value can be determined 
on the face of the commercial documents, then the claimant should be 
allowed to base the duty amount on the appropriate NAFTA duty rate in 
Canada or Mexico multiplied by the FOB value.
    Customs response: Drawback claimants cannot base their claims on 
estimates; rather, each claim must be based on the liquidated amount of 
duty paid on the import entry for goods entered into Canada or Mexico.
Section 181.44(b)
    Comment: Two commenters stated that this section is unclear as to 
the calculation of drawback when two or more components are used in the 
process of manufacture. One of these commenters raised the question of 
whether the comparison of duty paid must be between the duty paid on 
each component part and the duty paid on the finished article exported 
to Canada or Mexico or between the total duty paid on all component 
parts and the duty paid on the finished article exported to Canada or 
Mexico. This commenter provided the following example:

    Two parts, X and Z, are imported duty-paid into the United 
States at $2.00 and $4.00, respectively. Assume article Y is 
manufactured and exported to Canada or Mexico and duty of $5.00 is 
due. Does the lesser of the two duties apply to X and Z individually 
(resulting in $6.00 in drawback) or collectively (resulting in $5.00 
in drawback)?

    Customs response: With respect to the duty comparisons, the 
comparison should be made on an individual basis regardless of whether 
two components are used to make one export article or one component, 
such as a chemical, is split into two export articles. Section 181.44, 
as set forth below, has been modified by redesignating paragraphs (b)-
(e) as (c)-(f) and adding a new paragraph (b) which sets forth the 
relative value calculation and individual comparison principle and 
includes the following example:

    Upon importation of Chemical X into the United States, Company A 
entered Chemical X and paid $2.00 in duties. Company A processed 
Chemical X into Products Y and Z, each having the same relative 
value; that is, $1.00 in duty is attributable to Product Y and $1.00 
in duty is attributable to Product Z. Company A exported Product Y 
to Canada and Canada assessed a free rate of duty. Company A 
exported Product Z to Mexico and Mexico assessed the equivalent of 
US$2.00 in duty. There is no entitlement to drawback on the export 
of Product Y to Canada because zero is the lesser amount when 
compared to the $1.00 in duty attributable to Product Y as a result 
of the separation of Chemical X into Products Y and Z. There would 
be entitlement to drawback on the export to Mexico, consisting of 
the $1.00 duty attributable to Product Z, because that amount is the 
lesser amount when comparing the duty paid to the United States and 
the US$ equivalent duty paid to Mexico.
Section 181.44(c)
    Comment: Three commenters expressed concern about the statement in 
Sec. 181.44(c) (redesignated in this document as Sec. 181.44(d) as 
discussed above) that ``same kind and quality'' is synonymous with 
``identical or similar good''. They stated that this terminology should 
not restrict or eliminate rulings and court cases related to same kind 
and quality. Another commenter stated that making the term ``same kind 
and quality'' synonymous with the terms ``identical'' or ``similar'' 
seems to eliminate substitution drawback since identical or similar 
goods are defined in part as ``goods that were produced in the same 
country as that good''. If this is true, then the example in this 
section is incorrect because it allows for the substitution of foreign 
and domestic goods. On a related subject, a commenter raised the point 
that the statement that the two terms are synonymous leaves the door 
open for narrowing the scope of the ``same kind and quality'' provision 
to that of ``identical or similar.'' This commenter was of the view 
that it should be stated that all rulings, court cases or other 
determinations pertaining to same kind and quality will be the guiding 
force in understanding the meaning of ``identical and similar good.''
    Customs response: Although it is true that the term ``same kind and 
quality'' is considered to have the same meaning as the term 
``identical or similar'', Customs does not intend to require that the 
substituted merchandise come from the same country to qualify for 
manufacturing drawback under the NAFTA. Section 181.44(d), as set forth 
below, has been modified to clarify these points.
Section 181.45
    Comment: With regard to the reference in this section to ``same 
condition'' instead of ``unused merchandise'', three commenters 
questioned whether a third unique type of drawback is contemplated by 
this regulation, that is, same condition drawback for NAFTA countries 
and unused drawback or manufacturing drawback for all other countries. 
Otherwise, they stated that the terminology used in the NAFTA and in 19 
U.S.C. 1313(j), as amended by section 632 of the Act, must be 
harmonized. Also on this subject, another commenter stated that, for 
consistency, the term ``same condition drawback'' should be replaced 
with ``unused merchandise drawback.''
    Customs response: The Agreement was signed by the United States on 
December 17, 1992. The United States could not, without reopening 
negotiations with the two other Governments, incorporate changes made 
to its national laws subsequent to December 17, 1992, in its obligation 
to implement the Agreement. Consequently, with respect to trade between 
the three NAFTA parties there will be unavoidable inconsistencies when 
compared with trade between the United States and countries outside the 
Agreement. It is simply impossible to eliminate all differences between 
the provisions of sections 203 and 632 of the Act by regulation. In 
trade between NAFTA countries the provisions of section 203 of the Act 
control. Subpart E can do no more than to implement section 203 of the 
Act.
Section 181.45(b)
    Comment: Two commenters stated that the second sentence of the 
example should be amended to simply read ``X immediately exports the 
desk to Z in Mexico'' because, whether or not duties are owed in 
Mexico, the mere fact of exportation will allow X to obtain a refund of 
99% of the $25.00 in duty paid upon importation of the desk into the 
United States. These commenters went on to state that the fact that Z 
pays duty of $10.00 in Mexico is moot: 19 U.S.C. 1313(j)(1) contains no 
limitation based upon payment of duties in the NAFTA country of import. 
Thus, including the $10.00 Mexican duty in 

[[Page 46340]]
the example rather than a ``whether or not'' phrase regarding payment 
of duty in Mexico, will be confusing to industry and to Customs 
personnel. Since the amount of duty is only germane in calculating the 
``lesser of two duties'' under a manufacturing scenario, these 
commenters stated that the suggested modifications of the example would 
more accurately reflect the law.
    Customs response: The sentence which precedes the example, together 
with the example, illustrates precisely the point made by the comment.
    Comment: A commenter stated that the term ``commercially 
interchangeable'' should be substituted for ``completely fungible'' in 
subparagraph (2) of this section.
    Customs response: In order to avail oneself of full drawback under 
direct identification, the Agreement and implementing legislation 
permit identification of the exported good as the imported good by 
means of a recordkeeping system only if the goods are fungible and 
commingled. Section 181.45(b)(2)(i), as set forth below, has been 
modified as explained below in the response to the comments submitted 
regarding Schedule X of the Appendix to Part 181, and the modified text 
does not include the superfluous word ``completely'' before 
``fungible''.
Section 181.45(c)
    Comment: One commenter stated that the statement ``X exports it 
within 90 days'' in the example under this section should be changed to 
refer to ``within 3 years''.
    Customs response: The period for exportation is clearly stated in 
Sec. 181.45(c). An example cannot impose a further qualification on 
either the statute or implementing regulation. So long as the period is 
less than 3 years the example correctly illustrates the provision.
Section 181.46(b)
    Comment: Two commenters stated that the existing exporter's summary 
procedure and waiver of prior notice provisions and the new provisions 
for ``unused merchandise drawback'' eliminate the need to inspect the 
goods prior to export because it would be too difficult for Customs to 
determine ``unused'' status by visual inspection. These two commenters, 
after stating that the Office of Trade Operations has indicated that 
the required 5 days of prior notice may be shortened to 48 hours, 
suggested that any change to this time period in Part 191 of the 
Customs Regulations should be reflected in the corresponding provision 
in Part 181. In addition, one of these commenters pointed out that 
there never existed a requirement for filing at the port of 
exportation.
    Customs response: Although the exporter's summary procedure and 
waiver of prior notice provisions are not specifically provided for in 
the NAFTA, they are not new to the Drawback Program. Therefore, the 
existence of these two privileges would not be a basis for eliminating 
the physical inspection of the goods. With respect to shortening the 
prior notice period from 5 days to 48 hours, this principle already has 
been considered by Customs in connection with a pending proposed 
revision of Part 191 of the Customs Regulations. Section 181.46(b), as 
set forth below, has been modified to specify a prior notice period of 
2 working days rather than 5 days.
    Comment: One commenter pointed out that the statement in this 
section that ``[g]enerally, for same condition drawback, the claim 
would be filed with the Customs port where the examination would take 
place'' is not practical and not required by law.
    Customs response: Because there are currently no requirements that 
claimants file same condition claims at the port where the examination 
will take place, Customs agrees that this statement should be replaced 
by the following: ``To facilitate expedited processing of claims, 
claimants should file same condition drawback claims in the port where 
the examination would take place''. Section 181.46(b) as set forth 
below has been modified accordingly.
    Comment: A commenter requested that the text of this section be 
replaced by the appropriate sections from Part 191 of the regulations. 
The commenter did not explain the basis for this comment.
    Customs response: Customs believes that the new language set forth 
in the preceding response will at least in part address this comment.
Section 181.47(a)
    Comment: Two commenters stated that this section places an undue 
burden on the claimant because it requires the claimant to monitor the 
enforcement of the Canadian or Mexican Customs regulations. These 
commenters also argued that the section is also unfair in that it 
requires the claimant to have access to duty payment information to 
which it is not privileged, when sometimes the claimant does not even 
know who the ultimate importer is in Canada or Mexico.
    Customs response: The Agreement provides that the amount of the 
duties paid in the destination NAFTA country must be presented by the 
person seeking a refund of that duty from the exporting NAFTA country. 
In order to obtain the refund, the claimant must obtain the cooperation 
of its customer in Canada or Mexico.
Section 181.47(b)(1)
    Comment: Two commenters complained that the Canadian or Mexican 
Customs entry and the document referred to as the ``certification'', 
which are required to be submitted under this section, are too 
difficult for the U.S. exporter to obtain. Two other commenters stated 
that requiring both documents is redundant and contradictory to the 
paperless entry concept. Another commenter suggested that the entry 
documents should not be required but rather should be used only if 
available and that certification should only be provided in the event 
of an audit.
    Customs response: The provision reflects a basic and necessary 
component of a proper NAFTA drawback claim and is not redundant since 
alternative methods may be used to establish that amount as set forth 
in paragraph (c) of Sec. 181.47. As regards the alleged burden imposed 
by this provision, and as noted elsewhere, a drawback claimant will 
need the cooperation of its Mexican or Canadian customer in order to 
benefit under the agreement.
Section 181.47(b)(2)(i)
    Comment: Two commenters believed that the documents required in 
Part 191 of the regulations satisfy the NAFTA requirements. They stated 
that commercial invoices, proof of payment of duties and import 
documents relating to an exportation to a foreign country have never 
been required with drawback claims under Part 191 and should only be 
required in the event of an audit. These two commenters also stated 
that these documents would not be required at the time of filing the 
claim under the exporter's summary procedure.
    Customs response: Paragraph (c) of Sec. 181.47 does not require 
filing of the Canadian or Mexican Customs entry because, under 
subparagraph (4), the drawback claimant may file an affidavit in lieu 
of the Canadian or Mexican entry document provided that certain 
specified information is also submitted. The requirement for these new 
documents is a result of the new ``lesser of the two'' system which is 
part of the NAFTA Agreement. The documents required in Part 191 of the 
regulations would not enable either the claimant or Customs to have 
knowledge of the 

[[Page 46341]]
amount of duties paid upon importation into Canada or Mexico.
    Section 181.47(b)(2)(ii)(G) provides an alternative means for a 
drawback claimant under 19 U.S.C. 1313(j)(1) to show exportation.
Section 181.47(b)(2)(i)(A)
    Comment: Four commenters stated that it is unclear why the tariff 
classification number of the imported merchandise is needed when the 
drawback is based upon the duty paid (regardless of the tariff number). 
These commenters further stated that tariff numbers have never played a 
significant role in drawback before.
    Customs response: The tariff classification number will facilitate 
processing drawback claims by Customs. The use of a number rather than 
a textual description is better adapted to automated processing 
procedures. In the near future, tariff numbers will be required for all 
drawback claims, not just for NAFTA claims. These numbers are needed 
for compiling profiles as part of the planned selectivity system for 
drawback.
    Because drawback claims under the Agreement require a comparison on 
an individual basis, as noted by these same commenters, with respect to 
Sec. 181.45, the line item information is needed in order to process a 
claim under the Agreement.
Section 181.47(b)(2)(i)(B)
    Comment: An objection was raised by three commenters regarding the 
requirement of submission of the commercial invoice because many 
importers do not have a hard copy of this document. These commenters 
argued that submission of the commercial invoice is contrary to the 
Customs modernization provisions of the Act and to the principles of 
automation, and they further stated that the commercial invoice is 
difficult to obtain because it contains proprietary information. Two of 
these commenters also pointed out that Customs will not have sufficient 
staff to review all of this documentation.
    Customs response: Customs agrees that claimants should not be 
required to submit Customs Form 7501 and copies of commercial invoices 
with their claims unless they are requested by Customs. Accordingly, 
Sec. 181.47(b)(2)(i)(B), as set forth below, has been modified to 
specify only ``Customs Form 7501 or the import entry number''. It 
should be noted, however, that claimants (and other parties who provide 
information on which a claim is based) must continue to maintain 
records to support the claim and make them available upon request. This 
includes records of importation and invoice-level information.
Section 181.47(b)(2)(i)(C)
    Comment: Three commenters objected to the inclusion of the Canadian 
and Mexican entry numbers on the exporter's summary procedure because: 
(1) These numbers are not available to the exporter; (2) the exporter's 
summary procedure was not intended for this purpose; and (3) the courts 
have ruled that when information such as this is impossible to obtain 
the ``best evidence available'' must be accepted.
    Customs response: These numbers are needed in order for the NAFTA 
countries to implement a data exchange system which will be used to 
verify the requested amount of drawback based on the ``lesser of the 
two'' system. The NAFTA parties will provide each with a tape of entry 
numbers and corresponding duty payments so that claimed amounts may be 
verified on a spot-check basis. Entry numbers are needed for this 
system to work.
Section 181.47(b)(2)(i)(D)
    Comment: Three commenters stated that the NAFTA regulations should 
require only ``evidence of exportation'', as is required in Part 191 of 
the regulations, rather than the ``proof of exportation'' provided for 
in this section and in other sections of these NAFTA regulations.
    Customs response: Customs agrees that the term ``evidence'' should 
be substituted for the term ``proof'' in each such context in order to 
be consistent with Part 191 of the regulations, and the Subpart E 
texts, as set forth below, have been appropriately modified throughout.
Section 181.47(b)(2)(i)(E)
    Comment: Three commenters stated that waivers of rights to drawback 
are already available in the form of certificates of delivery and 
certificates of manufacture, and therefore any additional waiver 
requirement is redundant.
    Customs response: The certificate of delivery does not waive any 
right to drawback particularly in light of the right to transfer 
substitute merchandise. This certificate makes it absolutely clear to 
the certifier that it may not claim any drawback with respect to the 
merchandise covered by the waiver.
    Comment: A commenter questioned the validity of the waiver of the 
right to drawback by the importer in favor of the exporter when 
Sec. 181.48(a) clearly states that the exporter is entitled to 
drawback.
    Customs response: A waiver is needed from the importer who 
transfers any merchandise to a manufacturer and issues a certificate of 
delivery. A manufacturer who transfers merchandise to an exporter and 
issues a certificate of manufacture and delivery also needs to issue a 
waiver.
Section 181.47(b)(2)(i)(F)
    Comment: Three commenters stated that the requirement that the 
drawback claimant provide a certification that he has not issued a 
Certificate of Origin for the goods to another party, or that he will 
notify Customs if he does so, is not valid because there is no NAFTA 
provision that precludes drawback when NAFTA preference is taken. One 
commenter stated that the separate certification or affidavit is not 
needed because it is well known that double dipping is illegal.
    Customs response: The requirement is necessary since it is far from 
obvious that providing a Certificate of Origin which enables a Mexican 
or Canadian importer to obtain a duty reduction or refund from Mexico 
or Canada would be considered illegal double-dipping by a United States 
drawback claimant since that claimant would not necessarily benefit 
directly from the actions of its customers.
    Comment: Another commenter took issue with the requirement for an 
affidavit by a manufacturing claimant certifying that no other claim 
has been filed on the goods. This commenter stated that once the 
claimant receives either a certificate of delivery or a certificate of 
manufacture and delivery, he can only certify that he has not made any 
other claim on the goods. The manufacturing claimant will not know 
whether the importer or any other party makes a claim on the goods.
    Customs response: The commenter appears to compare the requirements 
of Sec. 181.47(b)(2)(i)(F) and Sec. 181.51(b). The Customs 
recordkeeping statute, 19 U.S.C. 1508, as amended by section 205 of the 
Act, does not prohibit a drawback claimant from providing an affidavit 
on the preparation of a Certificate of Origin with the drawback claim. 
It does require a drawback claimant to report such facts within 30 days 
of filing a drawback claim if that claimant has not already done so.
    Informed compliance means that the Government is under an 
obligation to inform persons who deal with it which acts are 
proscribed. The regulation which requires a certification that the same 
import entry for the same designation of goods has not been used in 
more than one claim fulfills that obligation.

[[Page 46342]]

Section 181.47(b)(2)(ii)(A)
    Comment: Two commenters stated that the requirement for the tariff 
classification at entry is superfluous.
    Customs response: As already pointed out, in the near future tariff 
numbers will be required for all drawback claims, not just for NAFTA 
claims. These numbers are needed for compiling profiles as part of the 
planned selectivity system for drawback.
Section 181.47(b)(2)(ii)(B)
    Comment: Four commenters stated that the requirement regarding 
submission of commercial invoices is in conflict with the requirements 
of the Customs modernization provisions of the Act and is a step 
backwards in the automation process. These commenters further argued 
that these documents are impossible to obtain when the claimant is not 
the importer. One of these commenters suggested requiring a pro forma 
invoice instead for same condition claims in order to resolve the 
latter problem. Another of these commenters stated that the detail 
required in this section may not be available due to automation and 
paperless entries and that it should be changed to refer to Customs 
Form 7501 and any appropriate documentation which identifies the 
subject goods. Another commenter stated that the entry documents (such 
as Customs Form 7501) may not be available because of confidentiality 
considerations.
    Customs response: Again, Customs agrees that claimants should not 
be required to submit commercial invoices with their claims. 
Accordingly, Sec. 181.47(b)(2)(ii)(B), as set forth below, has been 
modified by removing the two references to commercial invoices, and 
Sec. 181.47(b)(2)(iii)(B), as set forth below, has been similarly 
modified for purposes of consistency. However, Customs would again 
point out that claimants (and other parties who provide information on 
which a claim is based) must possess and maintain records to support 
the claim and make them available upon request. This includes records 
of importation and invoice-level information.
Section 181.47(b)(2)(ii)(G)
    Comment: Two commenters stated that this section should begin with 
the words ``If exporter summary procedures are not in force''. In 
addition, two commenters stated that the words ``* * * and signed in 
ink'' should be deleted because obtaining an original ink signature on 
a nonnegotiable copy of a document is an unnecessary burden. Finally, 
one commenter stated that this section does not take into account 
claimants using procedures under Sec. 191.51 of the regulations and 
that it should be amended to reflect that fact.
    Customs response: Customs agrees that where the exporter's summary 
procedure is approved for the claimant, the requirement in 
Sec. 181.47(b)(2)(ii)(G) is not applicable; accordingly, this section 
as set forth below has been modified by adding at the beginning of the 
first sentence the words ``If a claimant is not approved for the 
exporter's summary procedure,''. In addition, while the evidence of 
export document must be signed, Customs agrees that the signature need 
not be in ink; accordingly, the section as set forth below has been 
modified by removing the words ``and signed in ink'' from the first 
sentence. Finally, Customs agrees that this section should reflect that 
evidence of exportation may also be established in accordance with the 
provisions of Sec. 191.51; accordingly, Sec. 181.47(b)(2)(ii)(G), as 
set forth below, has been modified by adding at the end of the first 
sentence the words ``, or any other evidence of exportation provided 
for in Sec. 191.51 of this chapter''.
Section 181.47(b)(2)(ii)(H)
    Comment: Three commenters stated that providing a waiver from the 
importer is redundant since a certificate of delivery already serves 
the same purpose. One of these commenters suggested that if Customs 
must have it, it should be provided for directly on the certificate of 
delivery.
    Customs response: A certificate of delivery does not in itself 
constitute a waiver of the right to claim drawback. Thus, an explicit 
waiver is necessary.
    Customs agrees in principle that the waiver could be incorporated 
into the certificate of delivery form. However, until that form is 
revised to include the waiver, a separate waiver is needed.
Section 181.47(b)(2)(ii)(I)
    Comment: One commenter recommended that the affidavit be 
incorporated onto the ``J'' side of Customs Form 7539, but with 
reference to ``designated goods'' changed to ``identified goods''. 
Another commenter stated that the affidavit is unnecessary but that if 
Customs must have it, it should be included on the drawback entry form 
instead.
    Customs response: So long as the affidavit is included with the 
drawback entry, the legal requirement will be satisfied.
Section 181.47(b)(2)(iii)(B)
    Comment: One commenter objected to the requirement of submission of 
the commercial invoice because it will not be available in hard copy. 
This commenter stated that a pro forma invoice would solve this 
problem.
    Customs response: Customs took the position in promulgating 19 CFR 
191.142(b)(6) that drawback under 19 U.S.C. 1313(c) is payable to an 
exporter claimant who is the importer of record or the actual owner 
named in the import entry. There is nothing in section 203 or 632 of 
the Act which would require a change to that position. As such, it is 
unclear why the person who ordered the merchandise and who determined 
that the merchandise did not meet the order specifications would not 
have the original invoice issued by the foreign supplier.
Section 181.47(b)(2)(iii)(C)
    Comment: It was pointed out by a commenter that import documents 
for foreign countries are not available to the U.S. seller and that it 
is virtually impossible for the U.S. seller to obtain proof of payment 
and final duty determination notices.
    Customs response: The commenter has misread the section. 
Subparagraph (C) states the evidence needed to show that the 
specifications were not met.
Section 181.47(c)
    Comment: Two commenters stated that the phrase ``for purposes of 
evidence of duties paid'' is confusing in that Sec. 181.47(a) also 
refers to ``evidence of exportation''. They also suggested that Customs 
may want to consider a single definition for ``evidence of 
exportation'' as has always been done under Part 191 of the regulations 
and introduce specific requirements only for 19 U.S.C. 1313 (a) or (b) 
drawback for ``evidence of duties paid'' since this information is 
germane only to manufacturing drawback when calculating the ``lesser of 
the two duties''.
    Customs response: It would be quite difficult for Customs to draft 
an affidavit for the parties. The language needed to demonstrate that 
the claimant's goods were received by its Mexican or Canadian customer 
and the amount of duty paid to Canada or Mexico by that customer would 
depend on that customer's statement.
    There is a difference between the provision on exportation in 
Sec. 181.47(b)(2)(ii)(G) (which has specific reference to 19 U.S.C. 
1313(j)(1)) and the provision in Sec. 181.47(c). Because in the former 
case there is full drawback available without a comparison between the 
duty that was paid in the United States and the duty paid in Canada or 
Mexico, the provisions necessarily 

[[Page 46343]]
differ. The provisions of Sec. 181.47(c) also apply in a NAFTA context 
to other duty reduction programs such as temporary importations under 
bond, bonded warehouses, and foreign trade zones (see 
Sec. 181.53(a)(3)).
Section 181.48
    Comment: With regard to paragraphs (b) and (c), two commenters 
pointed out that the wording is confusing and not consistent with 
``mainline'' drawback in that, under Part 191 of the regulations and 
under the Customs modernization provisions of the Act, it is always the 
exporter of record who is entitled to drawback. One of these commenters 
suggested the following alternative language: ``The exporter of record 
is entitled to the drawback unless the exporter directs in writing that 
another entity receive the drawback refund.''
    Customs response: The provision in Sec. 181.48(b) follows the 
position set forth in 19 CFR 191.142(b)(6). Section 181.48(c) is 
consistent with current law regarding the identity of the claimant for 
same condition drawback. The Customs modernization provisions of the 
Act followed this interpretation with respect to the identity of the 
claimant for unused merchandise drawback.
Section 181.49
    Comment: One commenter stated that this section does not specify 
which records are required to be kept by the exporter, importer, 
manufacturer or producer. This commenter argued that Customs 
recordkeeping requirements are strictly limited to those records which 
are referenced in the statute and that this is consistent with 
Congressional intent under H.R. 3450. This commenter also suggested 
that Customs review the commentary in the House Report with regard to 
section 632 of the Act and that Customs also compare Sec. 181.49 to 
Sec. 181.53(g).
    Customs response: The types of records are set forth in 
Sec. 181.47(b); this section simply sets the retention period. Since 
payment occurs in most instances under the accelerated payment program 
before liquidation takes place, the period starts and ends earlier. In 
any event, Sec. 181.49 follows the existing policy set forth in 19 CFR 
191.5. Customs notes that 19 U.S.C. 1313(t), which was added by section 
632 of the Act, makes the general recordkeeping requirements set forth 
in 19 U.S.C. 1508(c) applicable in the context of drawback certificates 
and provides that the retention period starts on the date the 
certificate is issued in the case of a person who issues a certificate 
relating to another person's drawback claim. Accordingly, Sec. 181.49, 
as set forth below, has been modified by adding at the end the 
following sentence: ``However, any person who issues a drawback 
certificate that enables another person to make or perfect a drawback 
claim shall keep records in support of that certificate commencing on 
the date that the certificate is issued and shall retain those records 
for three years following the date of payment of the claim.''
Section 181.50(a)
    Comment: A commenter raised the issue that whereas the regulations 
require that the amount of duties paid to Canada or Mexico be 
``established'' as a prerequisite to the completion of the claim, they 
do not provide instructions as to how these duty amounts will be 
established and they do not prescribe a time frame in which the duty 
amounts will be settled for the purpose of finalizing the claim.
    Customs response: This section describes generally the process by 
which Customs will determine the amount of drawback to be paid. A 
directive for the guidance of Customs officers will address the 
internal Customs procedures that will implement the process in detail. 
With regard to the time frame issue, see the discussion of 
Sec. 181.50(b) below.
Section 181.50(b)
    Comment: Two commenters stated that requiring liquidation of 
entries made in Mexico and Canada before a drawback claim is liquidated 
eliminates most drawback claims from the Customs modernization act 
bypass system. In a related comment, another commenter stated that this 
section is in conflict with the Customs modernization provisions of the 
Act in a bypass (selectivity) system context because the liquidation of 
all designated import entries is no longer required for drawback 
liquidation. This commenter argued that requiring that there be prior 
liquidation of the import entry in Canada or Mexico undermines the 
process and conflicts with the requirement for fair and reasonable 
procedures as described in the legislative history accompanying the 
Customs modernization provisions of the Act.
    Customs response: Customs will not be able to determine the 
``lesser of'' the two duties unless the final amount of duties paid 
upon entry to Canada or Mexico is available. See also the response to 
the next comment.
    Comment: A commenter stated that a time limit for liquidations is 
needed and that the current indefinite time period is in conflict with 
the intent expressed by Congress in the new drawback provisions 
contained in section 632 of the Act. In this regard this commenter 
referred to the accompanying House Report in which it was stated that 
``the Committee expects that Customs should issue drawback regulations 
which take into consideration the various time limitations for 
recordkeeping, filing claims, amendments and clarifications and for 
auditing and liquidating drawback claims.''
    Customs response: There is no requirement under the law that 
provides for a specific time period for liquidation of drawback claims, 
and practical considerations (including differences in the entry laws 
of the three NAFTA Parties) militate against imposing a strict time 
limit for liquidation of a drawback claim.
    On a related subject, the United States and Canada have agreed that 
each import transaction involving goods subject to a NAFTA drawback 
claim in the exporting country should be monitored for a period of 3 
years so that appropriate information may be provided to the exporting 
country for purposes of applying the ``lesser of'' rule; this 3-year 
period was chosen because it represents in most cases the time during 
which all factors affecting ultimate finalization of the import entry 
(including changes to the entry made by the importer after importation) 
would be set. Accordingly, Sec. 181.50(b) as set forth below has been 
modified to provide that a drawback claim shall not be liquidated for a 
period of 3 years after the date of entry of the goods in Canada or 
Mexico.
    Comment: A commenter made the following suggestion with respect to 
the policy that liquidation of the drawback claim not occur until the 
liquidation of the Canadian or Mexican customs entry has become final: 
In order to avoid a long waiting period, a waiver of the right to 
challenge the amount of estimated Canadian or Mexican duties should be 
established. Under this procedure, the claimant would agree to waive 
the right to claim any additional duties owed to Canadian or Mexican 
Customs.
    Customs response: The commenter alleges that liquidation of a 
drawback claim can be done more quickly if the right to challenge the 
amount of duties assessed by Canada or Mexico is waived. However, a 
U.S. drawback claimant, unless it is also the importer into Mexico or 
Canada, has no right to waive the amount of duty paid by the Mexican or 
Canadian importer. Also, a system involving payment of drawback claims 
based upon the waiving of rights to challenge the Canadian or Mexican 
duty amounts could result in the United 

[[Page 46344]]
States issuing an overpayment to the drawback claimant each time the 
import entry was liquidated for a lower amount of duties. The change to 
Sec. 181.50(b) discussed in the response to the preceding comment 
represents Customs view regarding the proper time period during which 
liquidation of a drawback claim should not take place.
Section 181.50(c)
    Comment: With respect to the requirement that a person who receives 
a drawback refund through accelerated payment must repay the duties if 
a NAFTA claim is adversely affected thereafter, a commenter stated that 
this should be amended to state that repayment is not required until 
the adverse decision has been made final by the courts and/or by 
operation of law.
    Customs response: The suggestion that a claimant who receives an 
accelerated payment before liquidation need not repay it until the 
adverse action which makes that accelerated payment erroneous would be 
acceptable if the bond required the recipient to repay the principal 
sum with interest running from the date that Customs made the 
accelerated payment and until repaid. Since that process could take 
years, the bond amounts would have to be increased accordingly to 
protect the revenue. Accordingly, Customs concludes that the obligation 
to repay arises whenever an administrative action occurs which affects 
the NAFTA drawback claim.
Section 181.51(a)
    Comment: Three commenters noted that certifying that an entry was 
not designated and paid on a prior drawback claim is unnecessary 
because a claimant that knowingly does this is guilty of fraud, and the 
Compliance Program and the civil penalties should offer sufficient 
protection against fraudulent claims.
    Customs response: Customs believes that the regulation serves a 
useful purpose in reminding the claimant to exercise care to make 
certain that double claims are not made.
Section 181.51(b)
    Comment: A commenter stated that the requirement for the claimant 
to state that no Certificate of Origin has been provided for the goods 
should be changed to a statement that no other ``NAFTA'' Certificate of 
Origin has been provided for the goods. This is because sometimes 
exporters may use Certificates of Origin for other purposes (for 
example, for enforcement of trade sanctions).
    Customs response: The first sentence under Sec. 181.51(b) refers to 
a Certificate of Origin ``provided for under Sec. 181.11(a)'', and the 
second sentence refers to ``any such'' Certificate of Origin; as such 
the Certificate of Origin cannot be mistaken for any other certificate 
of origin that may apply to other laws. Therefore, use of ``NAFTA'' as 
suggested would be redundant and thus inappropriate.
    Comment: A commenter referred specifically to the requirement that 
the claimant provide notice of whether another person has prepared a 
NAFTA Certificate of Origin for those goods. This commenter stated that 
this is in conflict with the new regulation that the claimant provide 
an affidavit that no Certificate of Origin has been provided for those 
goods.
    Customs response: Section 181.47(b)(2)(i)(F) requires a claimant to 
affirm that no NAFTA Certificate of Origin was provided ``except as 
stated on the drawback claim''. Section 181.51(b) supplements that 
provision and makes it clear that a claimant who provides a NAFTA 
Certificate of Origin must report that fact to Customs.
    Comment: A commenter stated that new subsection (t) of 19 U.S.C. 
1313 provides that ``any person who issues a certificate which would 
enable another person to claim drawback shall be subject to the 
recordkeeping provisions of this chapter, with the retention period 
beginning on the date that such certificate is issued'' and that the 
interim regulations are deficient in that they do not implement the 
language of this statutory provision. This commenter stated that 
subsection (t) would be helpful because it would establish a retention 
period beginning on the date the certificate was issued, instead of the 
date of payment.
    Customs response: The NAFTA Certificate of Origin record retention 
period is set forth in Sec. 181.12. See 19 U.S.C. 1508(c). The NAFTA 
Certificate of Origin is not a certificate that would enable another 
person to claim drawback. The certificates covered by 19 U.S.C. 1313(t) 
are the certificate of delivery and the certificate of manufacture and 
delivery.
    Comment: A commenter stated that should this regulation remain as 
is, the 30-day window for filing the Certificate of Origin after filing 
the claim will create another administrative nightmare for Customs 
because all of the affidavits regarding Certificates issued (which may 
come in at various times after submission of the drawback entry) will 
have to be matched with previously filed drawback entries. This 
commenter stated that some adjustment should be made in the regulatory 
text to meet this problem.
    Customs response: This comment is unclear because there is no ``30-
day window for filing the Certificate of Origin.'' There are, however, 
two 30-day windows established in this section which involve notifying 
Customs of the existence of a Certificate of Origin for goods on which 
drawback has been paid. These two notification periods are necessary 
because if a drawback claimant prepares a Certificate of Origin for its 
Canadian or Mexican customer, it could result in a reduction of duty 
paid to Canada or Mexico on the goods for which the claimant is basing 
its drawback claim. Therefore, it must be reported to Customs so that 
Customs will be able to track and adjust that drawback claim. A 
drawback claimant who makes a drawback claim and then provides a 
Certificate of Origin to its customer jeopardizes its drawback claim.
Section 181.52
    Comment: Two commenters stated that this provision creates 
contingent liabilities on every claim filed that could go on for a 
significant amount of time and that, therefore, the time frames allowed 
under NAFTA Article 502(3) for duty refunds in Canada and Mexico should 
be clearly indicated. These two commenters also stated that Customs 
will not be able to comply with this requirement without automation, or 
without recording the Canadian or Mexican entry number at the time the 
drawback claim is filed. In this regard, they referred to language 
pertaining to Title VI of H.R. 3450 which states that monitoring of 
drawback information can only be carried out effectively through 
exchange of electronic information.
    Customs response: The commenters are correct. The very nature of 
the Agreement creates that contingent liability because of the 
differences in national laws and the right of an importer to make a 
post-entry NAFTA claim that is expressly provided in the Agreement. The 
alternative that was considered by the three Governments was to 
prohibit all refunds on goods moving from one NAFTA party to another 
NAFTA party. Permitting limited refunds necessarily increases 
uncertainty.
Section 181.53
    General comments: The following general comments were made with 
regard to the operation of this section:
    1. A commenter requested that the effective dates of this section 
be stated at the beginning of the section. 

[[Page 46345]]

    2. One commenter stated that the regulations should address the 
importation of goods from NAFTA countries covered by U.S. duty deferral 
programs, even though there will be some duties which could be deferred 
under these programs until all of the staged duty reductions and 
eliminations under NAFTA have been completed. This commenter also 
asked, if a claim for preferential tariff treatment is filed upon 
importation, whether an importer may file a warehouse entry or 
application for admission to a foreign trade zone and, if the claim is 
valid, whether it will be honored upon warehouse withdrawal or foreign 
trade zone entry for consumption.
    3. A commenter asked whether the ``lesser of the two'' method will 
apply when zero payment of duties is an issue.
    4. A commenter stated that this section does not address 
originating goods which are entered into a bonded warehouse, 
manipulated to the point where they are deemed produced in the bonded 
warehouse, and subsequently withdrawn for consumption in the United 
States.
    5. Three commenters stated that the 60-day allowance for obtaining 
proof of exportation and duty payment in Canada or Mexico should be 
extended to a longer period, and one of these commenters suggested a 
120-day period.
    Customs response: The effective dates are already stated at the 
beginning of Subpart E.
    The comment dealing with imports from NAFTA countries is beyond the 
scope of Subpart E.
    Zero payment of duty into Canada or Mexico will be considered in 
making the comparison. If no duty is paid into Canada or Mexico, there 
will be no duty refund or deferral. Under the agreement, Canada and 
Mexico are required to provide reciprocal treatment of goods sent to 
the United States.
    The treatment of originating goods entered into a warehouse and 
withdrawn for consumption is beyond the scope of Subpart E.
    The 60-day time period was set by Article 303(5) of the Agreement. 
Knowing of the time frame, there is no reason why the beneficiary of 
the refund cannot structure its transfer to ensure that it can comply 
with the time period.
Section 181.53(a)(1)
    Comment: One commenter took issue with the definition of ``duty 
deferral'' provided in this section, stating that Class 2 and 3 customs 
bonded warehouses are excluded from this list, whereas their 
counterparts, ``warehousing/distribution foreign-trade zones'' are not 
excluded. This commenter stated that the initial sentence in 
Sec. 181.53(e) provides a better definition of ``a good that is 
manufactured or otherwise changed in condition in a foreign-trade zone 
* * *''
    Customs response: The comment seems to state that a class 2/8 
warehouse or a class 3/8 warehouse is excluded from coverage of 
Sec. 181.53. Such warehouses are included under Sec. 181.53(b).
Section 181.53(a)(2)
    Comment: A commenter suggested adding to this section the following 
phrase: ``except for a good eligible for full drawback as provided for 
by section 181.45 of this Subpart''. In this regard, this commenter 
stated that NAFTA Article 303(6) provides for several import 
transactions that are unaffected by any limitations on drawback refunds 
or duty-deferral programs. This commenter also stated that Sec. 181.45 
captures these Article 303(6) transactions for drawback refund 
purposes. This commenter also stated that the regulations should 
clearly state that a good departing a foreign-trade zone for export to 
Mexico or Canada under circumstances included in Article 303(6) and/or 
Sec. 181.45 shall not be subject to treatment ``* * * as if it had been 
entered or withdrawn for domestic consumption, and thus subject to 
duty.''
    Customs response: Customs agrees that goods entitled to full 
drawback under Sec. 181.45 should be excluded from this provision. 
Accordingly, Sec. 181.53(a)(2), as set forth below, has been modified 
by the addition of the following sentence: ``However, the provisions of 
this paragraph shall not apply to goods covered by Sec. 181.45.''
    Comment: A commenter questioned the meaning of the phrase 
``treatment as withdrawn for consumption.'' This commenter stated that, 
from an operations standpoint in the case of merchandise shipments from 
foreign trade zones, a ``pro-forma'' Customs Form 3461 and/or Customs 
Form 7501 must be prepared. Since there is no legal provision for a 
pro-forma version of these two forms, this commenter stated that the 
exact methodology of how to do this should be provided in the 
regulations.
    Customs response: With respect to the meaning of ``treatment as 
withdrawn for consumption'' the provision informs the person who 
withdraws that it will be liable for duties on a good withdrawn for 
exportation to Canada or Mexico unless it is exempted by the Agreement 
or statute. As regards documentation requirements, Customs agrees that 
the regulations should incorporate specific provisions setting forth 
the procedural (including documentary) requirements that would apply 
for purposes of Sec. 181.53. However, Customs believes that it would be 
preferable to deal with this matter in a separate Federal Register 
document rather than include such provisions in this final rule 
document. Accordingly, Customs intends to publish in the near future a 
separate document amending Sec. 181.53 to address these procedural 
issues with a view to having appropriate regulations in place on 
January 1, 1996, when the Subpart E provisions go into effect.
Section 181.53(a)(3)
    Comment: A commenter posed several questions about the process of 
``waiver or reduction'' as provided for in this section. Will a pro 
forma Customs entry be prepared and held or will it be filed in some 
manner with Customs? How will the structure of the paperwork be 
organized? Because merchandise that is the subject of the pro forma 
entry will also be the subject of a Customs Form 7512 and Customs Form 
7525, how will the Census reporting structure be organized?
    Customs response: The section sets the legal requirement for 
Customs to waive or reduce the duties paid or owed on goods sent to 
Canada or Mexico. As indicated in the response to the preceding 
comment, the documentary and other procedural aspects of Sec. 181.53 
will be addressed in a separate document.
Section 181.53(e)
    General comments: The following general comments were made with 
regard to the operation of this section:
    1. One commenter stated that, by requiring actual payment of duties 
to Mexico or Canada, these regulations defeat the purpose for which 
this 60-day hiatus was created for foreign trade zones. This purpose 
was to address the paperwork and procedural burden the proposed ``NAFTA 
Drawback'' would impose on Customs and on companies that use foreign 
trade zones and export to Canada and/or Mexico. This commenter saw the 
burden as follows:

Step One--Merchandise shipped from a zone to Mexico and/or Canada with 
an appropriate tariff payment to U.S. Customs.
Step Two--Merchandise arrives in Mexico or Canada with appropriate 
tariff payments made.
Step Three--The U.S. exporter files for NAFTA Drawback with the 
evidence of payment(s) made in Canada or Mexico.

    This commenter went on to state that, originally, the 60-day hiatus 
was 

[[Page 46346]]
expected to provide an opportunity to combine steps one and three but 
that, by requiring payments to be made, this section forces a return 
back to the three-step procedure. As it is, the potential for this 
situation already exists when a Mexican or Canadian importer decides to 
use a deferral program that extends his payment of duties owed beyond 
the 60-day schedule imposed on the U.S. exporter. The regulations and 
H.R. 3450 provide adequate anti-fraud provisions to protect against the 
opportunity for any abuses that the suggested modifications might 
otherwise provide. Moreover, Sec. 181.52 provides for the adjustment of 
drawback payments pursuant to a NAFTA preference claim made subsequent 
to the payment of a NAFTA drawback refund. This commenter therefore 
suggested that in similar fashion such a protection could become part 
of the Sec. 181.53(e) procedures so that evidence of duty paid could be 
based on the duty owed (but not yet paid) in Mexico or Canada.
    2. The same commenter requested that the phrase ``as calculated 
under paragraph (e)(1) or (e)(2)'' in the introductory paragraph of 
this section be replaced by the phrase ``as calculated consistent with 
the provisions of 19 CFR 146 Section 146.65''.
    3. Another commenter stated that this section does not take into 
account that the Customs modernization provisions of the Act allow for 
periodic entry procedures for goods transferred from foreign trade 
zones to be expanded to a monthly timeframe instead of submission of 
entry-by-entry paperwork.
    4. Two commenters stated that the examples provided in this section 
are convoluted and should be replaced. One commenter suggested that the 
examples should set forth the following facts: The imported products 
HTSUS classification; the rate of duty in the United States and in 
Mexico or Canada; dutiable value; and total value. Moreover, it was 
suggested that there should also be an example illustrating NAFTA 
treatment for a good departing a foreign trade zone for Mexico or 
Canada that combines both privileged and non-privileged foreign 
components and/or materials.
    5. A commenter pointed out that there is no provision for mixed 
status merchandise (privileged and nonprivileged). This commenter also 
stated that there is no provision for zone restricted status 
merchandise. Since no production can occur in zone restricted status, 
if storage distribution were not included in the special actions under 
Sec. 181.53, new special provisions for this status would not be 
necessary but should be mentioned.
    6. Two commenters stated that the provision under section 
202(a)(2)(A) of H.R. 3450 should be included in this section or it will 
be misinterpreted. These commenters believed that it should be 
interpreted only to mean that a foreign trade zone cannot be used to 
create a NAFTA originating good qualifying for NAFTA duty reduction. On 
a related subject, another commenter stated that this section does not 
address goods which are processed but not produced in a foreign trade 
zone (processed with non-originating materials). This commenter asked 
whether privileged foreign status would be permitted to ``lock in'' 
NAFTA preferential tariff treatment.
    7. A commenter requested further clarification of the valuation 
methodology included in this section. This commenter further believed 
that weight should not be a factor other than when it is a factor for 
HTSUS purposes and therefore suggested using the language ``in its 
condition and HTSUS quantity.''
    8. A commenter asked what the date of exportation is for NAFTA 
purposes.
    9. A commenter requested that a definition of ``assessed'' be 
provided.
    10. A commenter believed that the requirement for proof of 
exportation in this section is an unnecessary paperwork burden and 
suggested that a summary procedure similar to the one used in drawback 
should be established.
    Customs response: The requirement for the collection of duties is 
set forth in Article 303(5)(a) of the Agreement.
    The inclusion of paragraphs (e)(1) and (2) facilitate having the 
zone withdrawal NAFTA requirements in one part.
    Whether a good is removed under the current weekly entry procedure 
or some other periodic entry procedure will not change the concepts set 
forth in the provision.
    Creating complex examples will tend to obscure the principles 
sought to be illustrated: That is, which duty amounts are to be 
compared? The use of oil is appropriate since the principle is 
illustrated when privileged foreign status is claimed. There is no need 
for a separate example of merchandise consisting of nonprivileged and 
privileged status merchandise since the principles set in both examples 
would apply to such merchandise.
    Export to Canada or Mexico of zone restricted status merchandise 
will not require an entry for consumption. It will require the goods so 
exported to be treated as a withdrawal for consumption for the sole 
purpose of computing whether there should be a reduction or waiver of 
duty.
    The comment on section 202(a)(2) of the Act is beyond the scope of 
Subpart E. It deals with goods that are entered for consumption from a 
zone.
    With respect to the use of weight as part of the valuation 
methodology, Customs does not concur with the suggested change because 
the provisions of this section follow the provisions of the Foreign 
Trade Zones Act (see 19 U.S.C. 81c(a)).
    In the case of a shipment from the United States to Canada or 
Mexico, the date of exportation would be the date on which the goods 
leave the United States with evidence that the person sending those 
goods to Canada or Mexico intends to join them to the commerce of 
Canada or Mexico (see 19 CFR 101.1(k)).
    The common meaning of the term ``assessed'' applies. As such, there 
is no need to provide for a separate definition that repeats the common 
meaning.
    With respect to the proof of export burden under NAFTA, the comment 
fails to recognize that unlike drawback for shipments to non-NAFTA 
countries, the basis for entitlement to a refund, waiver or reduction 
in duty there depends entirely on the article and the amount of duty 
paid to Canada or Mexico. Also, the comment confuses the distinction 
between one drawback claim which may involve many exportations of 
merchandise on which duty was previously paid and specific withdrawals 
on which potential duty liability starts when that merchandise is 
withdrawn from a zone.
Section 181.53(e)(1)
    Comment: A commenter stated that there are imported goods in 
foreign trade zones destined for Canada and/or Mexico under zone 
restricted status (19 CFR 146.44). This commenter stated that a general 
exemption from 19 CFR 146.63(b) should be provided for these goods 
because, for these goods to be entered or withdrawn for domestic 
consumption from an FTZ, Sec. 146.63(b) provides that merchandise in 
zone restricted status may be entered for consumption only when the 
Foreign Trade Zone Board has ruled that the merchandise can be entered 
for consumption. To require rulings on such a routine matter will 
impose an unnecessary procedural burden on the Foreign Trade Zone 
Board, zone users and on Customs.
    Customs response: The issue of goods in a zone restricted status 
will be addressed in the separate document regarding Sec. 181.53 
procedures to be published in the near future as mentioned above. 

[[Page 46347]]

Section 181.53(e)(2)
    Comment: A commenter took issue with the implication of this 
section that payments may be refunded only up to the limits established 
by Sec. 181.44. Specifically, this commenter stated that under these 
regulations the exporter is required to make payments to U.S. Customs 
that might otherwise be unnecessary or larger in amount than is legally 
required for reasons of failure to meet the 60-day deadline. There 
should be an explicit provision that provides for the refund of these 
unnecessary or excessive payments in whole or in part when the evidence 
required by Sec. 181.53 becomes available.
    Customs response: There is no allowance for a time extension or a 
reconsideration of the initial determination in the NAFTA legislation. 
As regards available remedies for any ``unnecessary or excessive'' 
payments referred to by this commenter, this issue will be addressed in 
the separate Sec. 181.53 document to be published as mentioned above.
    Comment: A commenter stated that the 60-day period should be 
defined on a business month basis, not on a daily basis.
    Customs response: As previously stated, the 60-day period was set 
by the three Governments in the Agreement. The purpose of the 60-day 
requirement was to enable the refund claimant to provide the Canadian 
or Mexican entry information so that the appropriate duty comparison 
could be made.
    Comment: A commenter pointed out that separately defining duty 
calculations when treating exports from foreign trade zones as domestic 
entries provides for many questions and potentially disparate 
procedures. To diminish the likelihood for both these questions and 
procedures, this commenter suggested that this section be amended to 
reflect current FTZ regulations that cover entries for consumption.
    Customs response: These procedural issues will be addressed in the 
separate Sec. 181.53 document to be published as mentioned above.
    Comment: A commenter alleged that there is a conflict in this 
section in that the section states that duty is assessed on privileged 
foreign status goods at the time of admission to the zone but in the 
example refers to duty assessed one month after admission.
    Customs response: The commenter is correct. Accordingly, 
Sec. 181.53(e)(2), as set forth below, has been modified by replacing 
the words ``at the time of its admission to'' with the words ``at the 
time privileged status is granted in''.
Section 181.53(g)
    Comment: A commenter stated that the recordkeeping period is 
unclear, and therefore this commenter assumed that the normal 
recordkeeping periods apply to drawback claims and to import entries. 
Two other commenters stated that the 3-year period for record retention 
should be stated to avoid confusion.
    Customs response: Under 19 U.S.C. 1508(c) and the regulations 
thereunder, the periods for record retention vary according to the type 
of transaction involved. With respect to warehouse withdrawals, foreign 
trade zone entries, and temporary importation bond transactions, the 
period is five years from the date of entry. With respect to drawback, 
the period is three years from the payment of drawback to the claimant.
Section 181.53(i)
    Comment: A commenter stated that if this section relates to waiver 
or reduction of duty under duty deferral programs, it is inappropriate 
to state that ``* * * Customs shall reliquidate the NAFTA drawback 
claim'' because that issue already is addressed in Sec. 181.52.
    Customs response: The reference in this section is necessary 
because, while Sec. 181.52 is limited to traditional drawback, 
Sec. 181.53 includes all of the other contexts which are included in 
the term ``NAFTA drawback'' as defined in Sec. 181.1(o) of the 
regulations.
Section 181.54
    Comment: A commenter stated that the open-ended time period for 
U.S. Customs to verify Canadian and Mexican documentation creates 
indefinite contingent liabilities. This commenter suggested that a 
definite time period should be clearly indicated.
    Customs response: Because the national laws differ and because the 
Agreement expressly provides for post-entry claims to be filed up to 
one year after entry, it is impossible to fix one time limit that will 
cover all situations.
Appendix to Part 181
    Additional comments were submitted regarding the relationship 
between the Subpart E provisions and the provisions of Schedule X of 
the Appendix to Part 181. Those comments are addressed below in 
connection with the discussion of the Appendix comments.

Part 181, Subpart G (Origin Verifications and Determinations)

Section 181.72
    Comment: In order to enable sureties to better protect their 
interests, one commenter stated that the regulations should be modified 
to require Customs to provide notice to the surety: (1) When Customs 
commences an origin verification under paragraph (a) involving the bond 
principal's goods; (2) when Customs makes an inquiry of the importer 
under paragraph (c); and (3) whenever the foreign producer or exporter 
or the U.S. importer fails to cooperate during an origin verification.
    Customs response: Requiring such notices to sureties would impose 
an unnecessary burden on Customs. Accordingly, this is a matter more 
appropriate for the surety and its principal to resolve in the context 
of their contractual relationship.
Section 181.75
    Comment: One commenter stated that the regulations should be 
modified to require Customs to provide notice to a surety when a 
negative origin determination is issued to the surety's bond principal 
under paragraph (b).
    Customs response: A negative determination of origin does not 
necessarily result in a bond breach. Consequently, no useful purpose 
under these regulations would be served by obligating Customs to 
provide such notice to the surety. This is a matter that is best left 
to the private parties to resolve as a part of their contractual 
relationship.

Part 181, Appendix (Rules of Origin Regulations)

Section 2
    Comment: The following comments were submitted on the definitions 
and interpretation set forth in section 2:
    1. With regard to the definition of ``direct labor costs'', one 
commenter noted that many companies include direct labor fringe 
benefits as part of their burden, not as part of their direct labor 
costs. Thus, it would be more correct to indicate that the defined term 
``may'' include fringe benefits in costs that are associated with 
employees who are directly involved in the production of a good.
    2. In the definition of ``light-duty vehicle'', a commenter stated 
that the second reference to ``8702.10.60'' should read ``8702.90.60''.
    3. One commenter noted that the definitions and interpretation of 
``similar goods'' and ``similar materials'' are important parts in 
determining 

[[Page 46348]]
eligibility for averaging costs over time where goods are produced in 
the same facility. Given this purpose, this commenter argued that these 
definitions and interpretation are unduly restrictive because goods and 
materials should qualify as ``similar'' for purposes of averaging if 
they simply serve identical functions. For example, if both automatic 
and manual transmissions are otherwise eligible for averaging, the fact 
that these two transmissions may not meet the ``similar characteristics 
and component materials'' definitional standard should not disqualify 
them from averaging. To accomplish this result this commenter suggested 
(1) that the two definitions should be revised to encompass goods and 
materials that ``although not alike in all respects, serve the same 
function'' and (2) that the interpretation should be eliminated because 
it suggests that only identical goods or materials qualify as 
``similar''.
    Customs response: With regard to the first comment, the commenter 
is correct that some companies may include direct labor ``fringe 
benefits'' as part of their overhead. However, for purposes of 
allocating direct labor, the United States, Canada and Mexico agreed 
that the cost of fringe benefits for direct labor must be included in 
the ``direct labor costs''. Salaries and fringe benefits for other than 
direct labor employees may be included as overhead and would be 
allocated according to the methods for overhead in Schedule VII.
    Customs agrees that the second reference to ``8702.10.60'' should 
read ``8702.90.60'' in the definition for ``light-duty vehicle'', and 
the definition, as set forth below, has been modified accordingly.
    Customs disagrees with the statement that goods should be 
considered ``similar'' if they merely serve identical functions. 
Averaging in section 6(15) for regional value content purposes is 
allowed so that a producer would not have to segregate the value of its 
materials and its production costs when there is very little difference 
in the materials and the production costs that would be allocated to 
goods for which NAFTA preference is to be claimed and to goods which 
are to be consumed in a domestic or non-NAFTA market. The use of the 
term ``similar'' provides the necessary balance between the intended 
benefit and the need for assurance that the averaged costs will have a 
real relationship to the goods. For example, although an electric motor 
and a gasoline motor may serve the same function in a model toy, 
averaged costs for non-originating materials and for net costs for 
these two motors would not provide a meaningful measure of the regional 
value content for each type of motor. When this issue was discussed 
trilaterally, it was agreed that the current reference to ``similar'' 
should not be changed.
Section 4
    Comment: With regard to section 4(4) which sets forth exceptions to 
the change in tariff classification requirement for originating goods, 
one commenter stated that subparagraph (b)(iii) should be removed 
because it imposes a further qualification that is not reflected in the 
NAFTA provisions as set forth in General Note 12(b)(iv)(B), HTSUS. 
Specifically, whereas the NAFTA text simply refers to a case where the 
undivided tariff headings or the tariff subheadings for the goods 
``provide for and specifically describe both the goods themselves and 
their parts'', the Appendix text at issue adds a further requirement 
that the non-originating materials and the good ``are not both 
classified as parts of goods under the heading or subheading'' under 
consideration. This commenter suggested that this limiting Appendix 
text is not required by either the language or the purpose of the NAFTA 
provision and that the ``specifically describe'' language of the NAFTA 
text could reasonably apply where the tariff provision is a ``parts'' 
provision because the minimum regional value content requirement would 
still apply.
    Customs response: Customs disagrees. Note 22 to the NAFTA clearly 
states that the phrase ``specifically describes'' in Article 401(d) was 
intended to exclude situations in which both the good and the non-
originating material are classifiable as ``parts'' in the heading or 
subheading under consideration.
Section 6
    Comment: The following comments were submitted on the regional 
value content provisions of section 6:
    1. With regard to subsection (14) which concerns non-allowable 
interest costs, one commenter agreed that the ``700 basis points'' 
standard (above which interest would not be countable toward total 
cost) was appropriately high. However, this commenter stated that, by 
referring to the yield on debt obligations of comparable maturities 
issued by the federal government of ``the country in which the producer 
is located'', this provision could result in disparate treatment of 
similarly situated companies located in different NAFTA countries. In 
order to avoid the possibility that two companies with similar interest 
costs on a debt of the same denomination may face different interest 
caps because their production occurs in different NAFTA countries, this 
commenter stated that subsection (14) should be modified to reflect 
linkage of the interest rate on a debt to the interest rate on 
government debt obligations of the country that issues the debt, so 
that the amount of allowable interest costs would depend on the 
denomination of the debt rather than the location of the company.
    2. One commenter pointed out that in subsection (18) the reference 
to the period chosen in ``subsection (14)(a)'' should properly refer to 
``subsection 15(a)''.
    3. With regard to the examples contained in subsection (20), a 
commenter stated that Example 9 would be more clear if it explained 
that the tooling expensed on the books of Producer A is considered as 
non-originating because the material that the tooling produced is non-
originating.
    Customs response: With regard to the first comment, Customs agrees 
that disparate treatment may arise because the interest caps in the 
NAFTA countries may be different. However, in order to provide 
certainty and stability in this area, the United States, Canada and 
Mexico agreed to apply the interest cap of the NAFTA country in which 
the producer is located.
    Customs agrees that the reference to ``subsection (14)(a)'' should 
properly read ``subsection (15)(a)'' in subsection (18) which, as set 
forth below, has been modified accordingly.
    Although Customs agrees that Example 9 in section 6(20) could be 
more illustrative by addressing the treatment of the cost of tooling as 
a ``non-originating cost'' because it is included in the cost of the 
non-originating material produced by the tooling, Customs also notes 
that this example was merely intended to illustrate how the cost must 
be captured and that it cannot be counted twice. This commenter's 
suggestion, however, has been incorporated as a new Example 8 which has 
been added to section 7(18) (renumbered from 7(17)) as set forth below.
Section 7
    Comment: With regard to section 7(17), one commenter pointed out 
that in the first paragraph of Example 4 the reference to ``Material 
A'' should read ``Material X''.
    Customs response: This typographical error was corrected in a 
document published in the Federal Register on March 31, 1994 (59 FR 
15047).
Section 9
    Comment: With regard to Example 6 under section 9(10), one 
commenter 

[[Page 46349]]
noted that although the example states that the producer designates the 
short block as an intermediate material, the example does not explain 
why this designation is made or what its effect might be on the origin 
of the part or the traced value in the vehicle.
    Customs response: The purpose of Example 6 in section 9(10) is to 
illustrate section 9(9)(a) which provides that the designation of a 
self-produced material as an intermediate material is only effective 
with regard to the calculation of the net cost of the light-duty 
automotive good and, therefore, does not permit the producer to ignore 
the value of the traced materials for purposes of the calculation of 
the value of non-originating materials in the light duty automotive 
good. Customs agrees that, in this case, it may be clearer to state 
that the intermediate material qualifies as an originating material. 
Accordingly, Example 6, as set forth below, has been modified as 
follows: (1) By adding a sentence immediately after the second sentence 
in the first paragraph to read ``The intermediate material qualifies as 
an originating material''; and (2) by changing the last clause in the 
first sentence of the second paragraph to read ``even though the 
intermediate material is an originating material.''
Section 10
    Comment: One commenter alleged that the language of section 10, and 
in particular the language of sections 10(1) and 10(2), is contrary to 
the wording of Article 403(2) of the NAFTA in that the Appendix 
language appears to require only tracing of the value of non-
originating listed materials of the producer of the engine and 
transmission (the components), with two different results depending on 
the factual circumstances: (1) If the producer of the components is 
also the producer of the vehicle, then the tracing must be made through 
to the vehicle; or (2) if the producer of the components and vehicle 
are different, then the tracing stops at the production of the 
components. In other words, where the producer of the vehicle is not 
the producer of the component, that vehicle producer simply applies the 
normal rules of NAFTA Annex 401 to his product because he by definition 
does not ``use'' any material listed in NAFTA Annex 403(2) within the 
meaning of Article 403(2)(a) (it is the component producer who uses the 
listed material, that is, to produce the component, while the vehicle 
producer uses that component to produce the vehicle): thus, the 
component, not being a listed material, becomes the ``other material'' 
referred to in Article 403(2)(b) and is either originating or non-
originating as far as calculation of the regional value content of the 
vehicle is concerned. This commenter, apparently concerned by the 
appearance of a narrower tracing rule under the Appendix text, stated 
that section 10 should be revised to reflect the correct, broader rule 
under the NAFTA text, that is, that the value of non-originating listed 
materials must be traced to the original-equipment engine and 
transmission and through them to the vehicle for purposes of 
calculating the regional value content of the vehicle.
    In the event that the revision suggested above is not done, this 
commenter made the following additional recommendations regarding 
section 10:
    1. As regards subsection (4) concerning the option of using the 
light-duty tracing rules for heavy-duty components, three suggestions 
were made. First, the materials covered by the subsection should be 
expanded to include listed materials and subcomponents. Second, if 
light-duty and heavy-duty vehicles are produced in the same plant, the 
producer should have the option of using the light-duty rules for 
calculating regional value content. Third, paragraph (b) should be 
removed because even if a producer knows the final use of the 
component, he should still have the option of using the light-duty 
rules.
    2. As regards subsection (9)(c) which provides that section 10 does 
not apply to a subcomponent for purposes of calculating its regional 
value content before it is incorporated into a heavy-duty automotive 
good, this commenter questioned the authority for this subsection and 
stated that, if there is no authority for it, then Situation 1 of 
Example 6 under subsection (10) is incorrect. Furthermore, this 
commenter suggested that if there is authority for subsection (9)(c), 
then there is a basis for setting up separate manufacturing companies 
to convert non-originating cost to originating for determining the 
regional value content of a subcomponent that crosses a border, because 
the tracing requirement is eliminated.
    Customs response: Customs disagrees with the commenter's conclusion 
that the text of section 10 does not reflect Article 403(2) of the 
NAFTA which requires that the value of a listed non-originating 
material be ``traced'' through to any heavy-duty automotive good in 
which it is used. The rules in section 10(1) are cumulative. If a 
producer of a heavy-duty automotive good ``uses'' a listed non-
originating material, then paragraph (a), (b) or (c) would apply, 
depending, of course, on the specific facts. If a producer uses an 
automotive component assembly, automotive component or subcomponent, 
then paragraph (d) or (e) would apply, resulting in the ``tracing'' of 
either the values of all non-originating materials that were 
incorporated into that material acquired and used by the producer or 
the entire value of that material acquired and used by the producer. 
The structure of section 10(1) eliminates any doubt that, regardless of 
the stage in which a listed non-originating material is used, the value 
of that listed material must always be included in the value of non-
originating materials when calculating the regional value content of 
any heavy-duty automotive good into which the listed material is 
subsequently incorporated.
    Customs disagrees with this commenter's proposals for redrafting 
section 10(4) because the regulation reflects the relevant NAFTA 
provisions and the intent of the Parties. First, Article 403(2), which 
provides the rule for determining the value of non-originating 
materials in heavy-duty automotive goods, does not apply to listed 
materials or to subcomponents. Second, Article 403 is very clear in 
that it provides a specific rule for light-duty vehicles and a specific 
rule for heavy-duty vehicles. Third, with the exception of the 
situation in which averaging is permitted under Article 403(4) (see 
section 12 of the Appendix), Article 403(2) does not provide for the 
alternative use of the light-duty tracing rule for heavy-duty 
automotive components. In view of the fact that it may be impossible to 
identify interchangeable heavy-duty components and light-duty 
components that are produced in the same plant, the United States, 
Canada and Mexico agreed that the regulations should specifically 
address this situation.
    With regard to the comment on section 10(9)(c) that there is no 
authority to exclude subcomponents from the regional value content 
calculation in section 10, Customs simply notes that the special rule 
set out in Article 403(2) of the NAFTA is for vehicles and components. 
Furthermore, the use of a listed non-originating material in the 
production of a subcomponent does not defeat the ``tracing'' 
requirement applicable to heavy-duty automotive goods. The regulations 
set out in section 10(1) make it clear that the value of a listed non-
originating material will always be traced through to any heavy-duty 
automotive good into which it is incorporated. For example, section 

[[Page 46350]]
10(1)(d) requires the ``tracing'' of a listed non-originating material 
even if it was used in the production of an originating subcomponent.
Section 13
    Comment: The following comments were submitted on the special 
regional value-content requirements contained in section 13:
    1. Two commenters referred to subsection (4) which concerns the 
averaging period for calculation of regional value content for vehicles 
of a new plant or a refit plant.
    One of these commenters noted that paragraph (a)(i) would allow a 
producer to use launch and start-up cost for a period up to 23 months 
as originating content in computing the regional value content. This 
commenter suggested that the cost incurred from the first prototype 
date to the end of the fiscal year in which the first prototype was 
produced should be used for the regional value content calculation for 
the vehicles produced in the first fiscal year.
    The second commenter concluded that subsection (4) allows a motor 
vehicle producer to elect one of the following three periods over which 
regional value content is calculated by averaging: (1) Paragraph (a)(i) 
allows averaging from the date of the production of a prototype through 
the end of the first fiscal year that begins after that date, thus 
allowing the producer to roll the first partial year into the first 
full fiscal year for averaging purposes; (2) paragraph (a)(ii) allows 
averaging over any fiscal year that begins after production of a 
prototype and ends before the end of the special regional value content 
period (the 5-year or 2-year period specified in section 13(2)); and 
(3) paragraph (a)(iii) allows averaging over part of a fiscal year up 
to the last day of that 5-year or 2-year special regional value content 
period. However, this commenter stated that the exact time periods 
covered by these three alternative averaging periods are not clear in 
the Appendix text as written. In addition, this commenter suggested 
that the end of an averaging period involving a special regional value 
content period should coincide with the end of the producer's fiscal 
year because significant accounting problems will arise if the 
averaging period cuts off before the fiscal year end. Thus, for 
example, a 5-year period under section 13(2) would allow averaging for 
full five fiscal years plus that portion of a year beginning with the 
date of production of the first qualifying prototype.
    2. One commenter noted that subsection (5)(h) requires that the 
document in which the election to average is made must be filed at 
least 10 days before the first day of the producer's fiscal year, or 
such other shorter period that the concerned customs administration may 
accept. This commenter recommended that this provision be amended to 
specify ``10 days before the shipment of the first vehicle intended for 
sale''.
    Customs response: Customs agrees that section 13(4)(a)(i) would 
permit a producer to average over a period of up to 23 months. In the 
interest of aligning the averaging period with the period for which the 
special RVC is effective for production from a new plant or a refit 
plant, it was considered to be more practical to combine the initial 
``stub'' period with the first full fiscal year. Paragraphs (a)(ii) and 
(a)(iii) provide for the subsequent full fiscal years and for the final 
stub period, if any.
    Concerning the second comment on section 13(4)(a), Customs first 
notes that the commenter has referred to subparagraphs (i), (ii) and 
(iii) as ``alternative averaging periods''. This is not correct. One, 
two or all three of these subparagraphs could apply in any given 
situation, depending on the length of the special RVC period and the 
relationship of the first year of that period to the beginning of the 
producer's fiscal year.
    In response to the remainder of this commenter's remarks, Customs 
notes that under Article 403(6), the ``years'' in the periods for which 
a special RVC applies to vehicles of a new plant or vehicles of a refit 
plant are not necessarily coterminous with the fiscal year of a 
producer. Under Article 403(6) the ``year'' in the special RVC period 
begins when the first prototype motor vehicle is produced in the new or 
refit plant. Under Article 403(3), the ``year'' in the averaging period 
for the RVC calculation is the fiscal year of a producer. It was the 
intent of the drafters of the regulations to align the averaging period 
with the special RVC period in order to allow a producer to obtain the 
maximum benefit from the statutory 5-year or 2-year special RVC period. 
Customs has no authority to extend or reduce these NAFTA periods which 
are also reflected in section 202(c)(6) of the Act.
    As regards the comment on section 13(5), Customs does not disagree 
entirely with the idea behind the commenter's proposal. Inasmuch as the 
first averaging period would not include the full fiscal year (if the 
first prototype of a motor vehicle is produced in a plant on a date 
after the beginning of the producer's fiscal year), it would appear 
reasonable to allow the producer to file at least 10 days before the 
beginning of the period which will constitute the first period in which 
the producer must average. However, the United States, Canada and 
Mexico agreed that the election should be filed at the same time that 
other elections to average under section 11 must be filed. The 
requirement does not impose an unnecessary hardship on a producer 
because the producer will have the requisite knowledge as to when such 
prototypes will be produced.
Section 15
    Comment: One commenter made the following observations regarding 
section 15 which concerns the inability of a supplier, exporter or 
producer to provide sufficient information during a verification of the 
origin of a good:
    1. Whereas section 15 sets forth alternative means to verify the 
origin or value of a material used in the production of a good when the 
person from whom the producer obtained the material is unable to 
provide sufficient verifying information, when a producer supplies 
verifying information the relevant customs administration should accept 
it. Moreover, the customs administration should have the obligation to 
explain in writing any refusal to accept the offered information 
supporting the origin of the material.
    2. While section 15 properly provides that the customs 
administration shall take into consideration whether the customs 
administration of the importing country issued an advance ruling under 
Article 509 of the NAFTA which concluded that the material is an 
originating material, a provision should be added to authorize a 
``retroactive ruling'' that a material is an originating material (for 
U.S. purposes, this could be done as a request for internal advice as 
provided for in Part 177 of the Customs Regulations). A producer often 
learns of a supplier's financial weakness in advance of problems that 
would make it impossible to obtain the information necessary to verify 
the origin of a material, and a ``retroactive ruling'' provision would 
allow the producer to obtain a ruling that would cover prior periods. 
The procedure for obtaining such a ruling should be consistent with the 
advance ruling provisions, except that the supplier of the material 
should provide exact historical data, including exporter's certificates 
of origin, rather than projected costs. Addition of a retroactive 
ruling provision would also reduce the need to rely on the other 
section 15 

[[Page 46351]]
alternative means to verify the origin of a material.
    Customs response: With regard to the first comment, Customs notes 
that subsection (1) of section 15 provides for factors to be considered 
by a customs administration where, during a verification of a good, a 
producer of a material is unable to supply sufficient verifying 
information for reasons beyond that person's control. The regulation 
thus contemplates the situation in which a verification requires 
information from the producer of the material, perhaps, for example, in 
the form of that person's books or records. It is unclear what the 
commenter's reference is to accepting the information offered. Of 
course, nothing in section 15 precludes the customs administration from 
considering information from the producer of the good or from any other 
source; rather, the section enumerates certain sources of information 
which may provide relevant information. Normally, of course, the 
verification process proceeds by seeking information from the producer 
of that good and, if necessary, from the producer of a material. If the 
customs administration is satisfied with respect to the origin of a 
material by virtue of information provided by the producer of the good, 
then presumably the situation identified in section 15 will not occur. 
The NAFTA countries did not perceive the need to provide for an 
obligation to accept proffered information or to explain any 
unwillingness to do so. Customs does not believe that any amendment in 
this regard is necessary or appropriate.
    As regards the second comment, the commenter accurately observes 
that section 15(1)(a) provides that, among the factors to be 
considered, is whether an advance ruling under Article 509 of the NAFTA 
has been issued with respect to the material. The commenter appears to 
be seeking a separate procedure through which the producer of the good 
could obtain a decision with respect to the origin of a material which 
would presumably affect the origin determination with respect to the 
good. Such a procedure is intrinsic to the verification process. Thus, 
if the outcome of the verification depends on the origin of the 
material, it would be expected that the producer of the good would 
provide such information in its possession to demonstrate where the 
material originated. The customs adminstration would then apply the 
conclusion to the goods subject to the verification. Accordingly, it 
does not appear that there is any need for the regulations to be 
amended in order to meet the concern identified by the commenter.
Schedule III
    Comment: One commenter stated that the valuation provisions of the 
interim regulations should be reviewed and revised to more accurately 
reflect the terms of General Note 12(c), HTSUS, which specifically 
refers to the legal standards set forth in section 402 of the Tariff 
Act of 1930, as amended (19 U.S.C. 1401a). This commenter cited the 
following specific examples in this regard:
    1. Under section 3 of Schedule III, subsection (4) provides for the 
acceptance of transaction value between related parties when the 
producer demonstrates ``that the transaction value of the good in that 
sale closely approximates a test value referred to in subsection (5).'' 
However, the ``test value'' referred to in subsection (5) is limited to 
``the transaction value of identical goods or similar goods sold at or 
about the same time as the good being valued is sold to an unrelated 
buyer who is located in the territory of the NAFTA country in which the 
buyer is located.'' This commenter stated that this is much more 
limited than the comparable statutory provision (19 U.S.C. 
1401a(b)(2)(B)) that applies under General Note 12(c), HTSUS, which 
includes other ``test values'' that can be used to demonstrate the 
acceptability of the transaction value between related parties.
    2. Also under section 3 of Schedule III, subsection (8) appears to 
require that the ``test value'' has been ``previously accepted by the 
customs administration''. This commenter stated that this requirement 
is not contained in the U.S. valuation statute referred to in General 
Note 12(c), HTSUS.
    Customs response: Schedules II, III and VIII of the Appendix to 
Part 181 of the interim NAFTA regulations were based on the Agreement 
on Implementation of Article VII of the General Agreement on Tariffs 
and Trade (the ``Customs Valuation Code,'' or ``Code''), rather than on 
the U.S. valuation statute (19 U.S.C. 1401a), or the valuation statutes 
of Canada or Mexico. Since the Code is a neutral document common to all 
three NAFTA parties, it was therefore decided that the Code should form 
the basis of that part of the regulations that is concerned with how to 
determine regional value content under the transaction value method.
    In regard to the specific points raised by the commenter, the test 
value referred to in Schedule III, section 3(5), is based on the 
transaction value of identical or similar goods since the purpose of 
the test value is to establish whether a transaction value between a 
related producer and seller, determined in accordance with Schedule II, 
is acceptable. Since transaction value is the only method of 
determining the value of a good under Schedule II, there is no 
justification for any alternative bases of determining test values as 
there is under the Code. Just as test values under the Code must be 
based on a value previously accepted by a customs administration, so 
too NAFTA requires that a test value shall have been previously 
accepted.
Schedule VII
    Comment: The following comments were submitted in regard to the 
reasonable allocation of costs provisions contained in Schedule VII:
    1. Two commenters referred specifically to sections 3(1)-(3) which 
concern methods used for internal management purposes by a producer of 
a good to reasonably allocate to that good direct material costs, 
direct labor costs or overhead.
    One of these commenters noted that although the text in each case 
sets forth the criterion of ``benefit, cause or ability to bear'' for 
purposes of determining the reasonableness of the method used, the 
elements of this criterion are neither defined anywhere in the Appendix 
nor further explained in the examples under Schedule VII. This 
commenter suggested that: (1) This criterion should be eliminated, on 
the theory that a cost allocation method used for a (true) internal 
management purpose (that is, as stated in section 7 of Schedule VII, 
not solely for the purpose of qualifying a good as an originating good) 
should satisfy the reasonableness requirement; or (2) at the least, a 
definition or explanation of ``benefit, cause or ability to bear'' 
should be included in the final Appendix texts.
    The second commenter expressed similar views and stated that the 
following interpretation of section 3 should be expressly affirmed in 
the final Appendix text: (1) That section 3 requires a customs 
administration to accept an allocation method that is used by the 
producer of a good for an internal management purpose, unless the 
allocation method is determined to be manifestly unreasonable; and (2) 
that a customs administration bears a heavy burden to disqualify any 
allocation method based on lack of relation to the criterion of 
benefit, cause or ability to bear because an allocation method that is 
used for internal management purposes is presumptively reasonable since 
a company is unlikely to rely on an allocation method for internal 

[[Page 46352]]
decision-making if it does not meet the benefit, cause or ability to 
bear criterion. Consistent with this interpretation, this commenter 
further suggested that section 3 should be revised to reflect a pure 
internal use test because the ``reasonableness'' requirement, based on 
the benefit, cause or ability to bear criterion, does not add 
meaningfully to the rule, injects an unnecessary degree of subjectivity 
into the cost allocation approval process, and is adequately provided 
for by the terms of section 7 of Schedule VII. Finally, this commenter 
recommended that, at a minimum, the following definitions be added to 
the Appendix to clarify the meaning of the ``benefit, cause or ability 
to bear'' criterion:

Benefit or benefits received: This criterion identifies the 
beneficiaries of the outputs of the cost pool and allocates the costs 
in proportion to the benefits received.
Cause or cause and effect: This criterion identifies the outputs of the 
cost pool (any grouping of individual costs) and allocates the costs in 
proportion to the services provided.
Ability to bear: This criterion advocates allocating costs in 
proportion to the cost objective's ability to bear.

    2. With regard to section 6, one commenter stated that paragraph 
(d) should be eliminated so as to permit allocation of a gain or loss 
from the sale of a capital asset consistent with Generally Accepted 
Accounting Principles (GAAP) because, under GAAP, a gain or loss from 
the disposal of an asset constitutes a legitimate element of the total 
cost of the asset. Thus, a gain or loss on depreciation does not 
represent an extraordinary cost, and any write-off on sale or disposal 
of an asset should be reflected in total cost.
    3. One commenter argued that section 7 should be eliminated for 
several reasons. First, section 7 is ambiguous when taken in context 
with section 4, which applies when an allocation method does not 
satisfy section 3 and which requires use of an allocation method that 
is reasonable based on the criterion of benefit, cause or ability to 
bear. The ambiguity exists because, if an internally used allocation 
method is deemed not to satisfy the reasonableness requirement in 
section 3 by virtue of the restriction in section 7, section 4 requires 
the producer of a good to use an alternative allocation method that 
does meet the benefit, cause or ability to bear reasonableness 
criterion. Given the rejection of the internally used allocation method 
under section 3, the only solution under section 4 is to use an 
allocation method that is solely for the purpose of qualifying a good 
as an originating good. This is precisely what section 7 is designed to 
prevent. Second, section 7 is unnecessary because, so long as an 
allocation method meets the reasonableness test under the benefit, 
cause or ability to bear criterion, the purpose of the allocation 
method is irrelevant. Finally, section 7 is redundant given the non-
qualifying operations provision in section 17 of the Appendix as 
regards any production or pricing practice the object of which is to 
circumvent the Appendix. This commenter also suggested that if section 
7 is to be retained, it should, at a minimum, provide specific and 
objective criteria for determining whether a cost allocation method is 
used solely to qualify a good as an originating good.
    Customs response: Customs disagrees with the commenters' 
suggestions that the criteria of ``benefit, cause or ability to bear'' 
are not necessary in section 3, or, in the alternative, that the terms 
should be defined. The terms are recognized principles used in the cost 
accounting industry. They are broad principles that provide a measure 
by which Customs can determine the reasonableness of a cost allocation 
method for an internal management purpose. Customs does not dispute the 
fact that most producers, for one or more internal management purposes, 
are likely to rely on allocation methods that satisfy one of these 
criteria. The regulation, however, is intended to capture all 
situations and, therefore, must necessarily identify criteria against 
which the regulatory requirement is to be measured.
    Concerning the comment on section 6(d), Customs agrees with the 
commenter's analysis of the treatment, for cost accounting purposes, of 
the gain or loss from the sale of a capital asset. However, in this 
case the Parties agreed that, for purposes of a ``reasonable'' 
allocation of costs in the calculation of total cost, such gains or 
losses are not reasonably allocated to a good.
    The commenter's remarks concerning section 7 are understandable 
because the criteria of ``benefit, cause or ability to bear'' are used 
in both sections 3 and 4 to determine whether a cost allocation is 
reasonable. Nevertheless, Customs does not agree that section 7 should 
be eliminated. The structure of Schedule VII requires that, under 
section 3, an allocation method for an internal management purpose is 
to be used if it is a reasonable allocation. However, section 7 states 
that any allocation method for an internal management purpose will, on 
its face, not be accepted as ``reasonable'' if it is solely for the 
purpose of qualifying a good as an originating good. If costs are not 
reasonably allocated under section 3, then the producer is required to 
comply with section 4. Section 4 provides for the use of a method set 
out in the addenda to Schedule VII and/or any method based on one of 
the criteria of benefit, cause or ability to bear.
Schedule VIII
    Comment: With regard to Schedule VIII (value of materials), one 
commenter raised an issue concerning section 3 which operates as an 
exception to the general rule that the transaction value of a material 
is unacceptable if, among other things, the producer and the seller are 
related persons and the relationship between them influenced the price 
actually paid or payable for the material. Referring specifically to 
the first sentence of subsection (7) which states that ``[s]ubsection 
(4) provides an opportunity for the seller or the producer to 
demonstrate that the transaction value closely approximates a test 
value previously accepted by the customs administration of the NAFTA 
country in which the producer is located, and is therefore acceptable 
under subsection (1)'', the commenter suggested the following 
interpretation thereof: the customs administration of the NAFTA country 
into which a good is imported is required to accept (and thus may not 
audit) the transaction value of a material used in the production of 
the good if the customs administration of the country into which the 
material was imported (and where the material was incorporated into the 
exported good) approved that transaction value during a valuation audit 
performed on the material when it was imported. This commenter stated 
that because section 3 is ambiguous, the provision should be clarified 
to reflect this interpretation. In addition, this commenter recommended 
that section 3 be modified to expressly state that the customs 
administration attempting to verify the value of a good that 
incorporates a material must accept any pre-approval or advance ruling 
concerning the value of the material by the customs administration of 
the country into which the material was first imported.
    Customs response: For the purposes of Schedule VIII, unless 
otherwise stated, the term ``customs administration'' is defined as 
``the customs administration of the NAFTA country into whose territory 
the good, in the production of which the material being valued is used, 
is imported.'' Section 3 sets forth the basis for 

[[Page 46353]]
determining whether the transaction value of a material determined 
under section 2(1) is acceptable. One basis under section 3 for 
validating a transaction value of a material is for a seller or 
producer to demonstrate to a customs administration (that is, a customs 
administration as defined above) that the transaction value determined 
in accordance with section 2(1) closely approximates a test value 
previously accepted by the customs administration of the NAFTA country 
in which the producer is located. Accordingly, the regulations permit 
the customs administration of one NAFTA country to accept the 
transaction value of a material if it closely approximates a test value 
determined by the customs administration of another NAFTA country. 
However, this must be demonstrated to the satisfaction of the customs 
administration (as defined for purposes of Schedule VIII), and there is 
no requirement that a customs administration must accept any test value 
put forward by a particular seller or producer.
Schedule X
    Comment: The following comments were submitted regarding Schedule 
X, principally in the context of the drawback and duty-deferral program 
provisions of Subpart E of Part 181:
    1. With respect to the commingling of fungible goods and the 
inventory methods that are allowable to determine the origin of 
materials, one commenter stated that Schedule X excludes identification 
procedures (inventory methods) that have been allowed in drawback such 
as ``lower to higher'', ``higher to lower'' and blanket identification. 
This commenter also stated that FIFO is administratively unworkable and 
economically unfeasible for most companies, in part because the 
association of entry numbers with imported part numbers which is needed 
under FIFO is too detailed. On this same subject, two commenters stated 
that Schedule X is unworkable and not consistent with the intent of 
Congress which, as stated in Ways and Means Report 103-361, was ``* * * 
to provide sufficient flexibility in the inventory accounting methods 
for such goods to make them administratively workable for industry.'' 
Another commenter stated that the words ``completely fungible'' should 
be changed to ``commercially interchangeable'' because of the 
redefinition of the term ``fungible'' in the Customs modernization 
provisions of the Act.
    2. Three commenters raised the issue of commingled fungible goods 
that are 100 percent imported, two of them stating that, in such a 
case, entries for goods (within the appropriate time period) may be 
designated under the inventory averaging procedure and that this is 
supported by the legislative history relating to the Customs 
modernization provisions of the Act. These commenters also stated that, 
in such circumstances, the ``high-to-low'' method or any other Customs 
approved accounting method may be used.
    3. Another commenter stated that the Appendix should not be used 
for the purposes of determining inventory methods because the Appendix 
is generally for rules of origin purposes. This commenter also stated 
that the inventory methods used to support a same condition drawback 
claim should be set forth separately because Article 303 of the NAFTA 
is not subject to the uniform regulations requirement of Chapter 5 of 
the NAFTA.
    4. Two commenters pointed out that Customs should give some thought 
to companies that must keep extremely detailed records such as those 
dealing in footwear, eye wear, finished clothing and other articles 
that are produced in a wide variety of styles, sizes and colors. This 
commenter stated that the requirements of Schedule X are so onerous 
that companies that produce or distribute these types of articles will 
not be able to export to Canada and Mexico for lack of ability to 
comply with these requirements. This commenter also suggested that 
Customs should address the area of former 19 U.S.C. 1313(j)(2) 
substitution drawback claimants in a NAFTA context. In this regard, the 
commenter stated that, assuming such claimants meet the requirements 
for drawback under 19 U.S.C. 1313(j)(1), Customs should recognize that 
they do not need to resubmit any applications for purposes of obtaining 
drawback under 19 U.S.C. 1313(j)(1) in a NAFTA context but rather would 
simply file the claims in accordance with the applicable regulations. 
This commenter, after stating that Customs officials from the Office of 
Trade Operations have indicated that the Schedule X inventory 
procedures will be applied to all 19 U.S.C. 1313(j)(1) drawback claims, 
expressed the view that Schedule X should apply only in the context of 
Part 181.
    5. A commenter pointed out that Secs. 191.141(e) and 191.22, taken 
together, also provide for storage and identification methods and 
provide more options for approved accounting methods than Schedule X 
does. For example, these sections allow use of ``high-to-low'', but 
Schedule X does not. This commenter therefore suggested that the 
provisions of Sec. 191.22 should be used instead of Schedule X.
    6. Two commenters stated that the inventory methods authorized for 
foreign trade zone procedures (Sec. 146.23) should be included in 
Schedule X in order to avoid the need for multiple inventory systems as 
the price for using both trade programs. These commenters cited, as an 
example that these two provisions are not in agreement (at least with 
respect to terminology), the fact that Schedule X calls for a specific 
identification method whereas Sec. 146.23 requires a unique 
identification number. If these two requirements are the same, these 
commenters suggested that the regulatory text should state that this is 
the case.
    7. Another commenter asked whether LIFO and average methods are 
acceptable for drawback and, if so, whether they can be used on exports 
to non-NAFTA countries. If not, this commenter asked whether claimants 
must switch to FIFO or maintain different accounting methods for the 
same goods.
    Customs response: These comments principally address an allegedly 
impractical and unworkable application of the inventory management 
methods of Schedule X as required under Sec. 181.45(b)(2)(i). In sum, 
the commenters argue that the Customs-approved methods in 
Secs. 191.121(e) and 191.22 (drawback) and in Sec. 146.23 (foreign 
trade zones) of the Customs Regulations should be allowed in place of 
the methods set forth in Schedule X.
    Customs disagrees with these comments to the extent that they 
propose an expansion of the allowable methods for determining which 
commingled goods are eligible for full drawback under Sec. 181.45(b). 
Schedule X was promulgated under NAFTA Article 511 and applies, by 
operation of NAFTA Article 303(6)(b), to imported goods which have been 
commingled with fungible goods and which are exported to Canada or 
Mexico in the same condition as when imported into the United States.
    Nevertheless, the number of comments submitted on this point 
suggests that the text of Sec. 181.45(b)(2)(i) could be improved. 
Accordingly, Sec. 181.45(b)(2)(i), as set forth below, has been 
modified to more clearly reflect the intended effect of Article 
303(6)(b), that is, as a narrow exception to the broad operation of 
Article 303 which restricts drawback to the amount determined under the 
``lesser of'' rule. Beginning in 1996 (for exports to Canada) and in 
2001 (for exports to Mexico), same condition substitution drawback will 
be prohibited altogether. The only 

[[Page 46354]]
exceptions are for the goods described in Article 303(6). Thus, ``same 
condition'' drawback for imported goods commingled with fungible goods 
is allowed, but only to the extent that the identity of the imported 
goods is determined by use of one of the approved inventory management 
methods set forth in Schedule X.

Additional Changes to the Regulations

    In addition to the changes to the interim regulatory texts 
discussed above, this document modifies the interim texts to set forth 
changes that are necessary (1) to reflect subsequent trilateral 
discussion and agreement regarding regulatory standards pursuant to 
Article 511 of the NAFTA or (2) based on an independent review of the 
interim texts within Customs. These changes are discussed below.

Changes Pursuant to Trilateral Discussions

    Subsequent to the publication of the interim regulations in T.D. 
94-1, and in keeping with the principle of ongoing cooperation in the 
implementation and administration of the NAFTA as provided for in 
Section F of Chapter Five of the NAFTA, representatives of the United 
States, Canada and Mexico held further meetings which resulted in 
agreement regarding (1) use of the definition of ``conspicuous'' as set 
forth in Annex 311 of the NAFTA, (2) the adoption of an additional 
standard covering denial of preferential tariff treatment based on a 
failure to provide certain documentation in transshipment cases, (3) 
the adoption of additional standards for origin verifications, (4) the 
adoption of additional standards to be applied with regard to requests 
for advance rulings under Article 509 of the NAFTA, and (5) the 
modification of the substantively verbatim texts implementing the rules 
of origin provisions of Chapter Four of the NAFTA. The agreed changes, 
as reflected in the final regulatory texts set forth in this document, 
are summarized below.

Definition of ``Conspicuous''

    During the trilateral discussions it was pointed out that the 
interim amendments to Part 134 did not set forth the definition of 
``conspicuous'' contained in the country of origin marking provisions 
of Annex 311 of the NAFTA. Accordingly, Sec. 134.1 has been modified, 
as set forth below, by the addition of that definition as a new 
paragraph (k). Customs believes that this definition is appropriate for 
both NAFTA and non-NAFTA contexts since the NAFTA definition reflects 
existing Customs practice and regulatory standards (see, for example, 
the last sentence of Sec. 134.41(b)).

Failure to Provide Documents in Transshipment Cases

    The new standard regarding shipping documents provides that 
preferential tariff treatment may be denied to an originating good if 
the good is shipped through or transshipped in a non-NAFTA country and 
the importer does not provide, upon request, copies of the customs 
control documents showing that the good remained under customs control 
while in that non-NAFTA country. Section 181.23, as set forth below, 
has been modified by the addition of a new paragraph (b) to reflect 
this new standard, and Sec. 181.31 (regarding post-importation claims) 
and Sec. 181.71 (regarding origin verifications), as set forth below, 
have been appropriately modified as a consequence of the adoption of 
this new standard.
Origin Verifications

    The Parties agreed to a new standard for origin verifications that 
permits verification of the applicable rate of duty applied to an 
originating good in accordance with NAFTA Annex 302.2 and determination 
of whether a good is a qualifying good for purposes of NAFTA Annex 
703.2. Accordingly, Sec. 181.72 as set forth below has been modified by 
the addition of a new paragraph (a)(2) to reflect this standard.
    In addition, the new standard for origin verifications provides 
that a questionnaire may be completed, at the option of the exporter or 
producer, either in the language of the importing country or in the 
language of the country in which the exporter or producer is located. 
Paragraph (a)(3)(ii) (paragraph (a)(2)(ii) in the interim texts) of 
Sec. 181.72, as set forth below, has been modified accordingly.

Requests for Advance Rulings

    The new trilaterally-agreed standards regarding advance ruling 
requests concern the information required to be submitted with the 
request and therefore only affect Sec. 181.93 of the interim 
regulations. The substantive changes reflected in Sec. 181.93, as set 
forth below, are as follows:
    1. In paragraph (b)(1), which concerns general information to be 
included in the request, the following requirements have been added: 
identification of the specific subject matter of the request; inclusion 
of a statement regarding the accuracy and completeness of the 
information submitted; inclusion of the name and address of the 
exporter and producer of the good where the importer is the requesting 
party; inclusion of the name and address of the producer and importer 
of the good where the exporter is the requesting party; inclusion of 
the name and address of the exporter and importer of the good where the 
producer is the requesting party; submission of copies of advance 
rulings or other rulings issued to the requesting party by Customs 
regarding the tariff classification of the good, if relevant to the 
issue in the advance ruling request; and, if no ruling on tariff 
classification was issued to the requesting party, sufficient 
information to enable Customs to classify the good if relevant to the 
issue in the advance ruling request.
    2. Paragraph (b)(2)(ii), which concerns tariff change rulings, has 
been changed by designating the interim text as subparagraph (A) in 
order to facilitate the addition of a new subparagraph (B) setting 
forth information that must be in an advance ruling request which 
involves an origin issue requiring an assessment of whether materials 
undergo an applicable change in tariff classification.
    3. In paragraph (b)(2)(iii), which concerns rulings on regional 
value content, the following changes have been made: in the first 
sentence, the words ``or under both methods'' have been added to 
reflect the fact that satisfaction of a regional value content 
requirement may involve use of both the transaction value method and 
the net cost method as well as the fact that a ruling on both issues 
may be sought; the second sentence, which sets forth the information to 
be submitted for purposes of the transaction value method, has been 
changed by inserting specific references to relevant provisions of the 
Appendix to Part 181, by adding a requirement for information 
sufficient to calculate the value of each material for which the origin 
is unknown and that is used in the production of the good, by adding a 
requirement for specific information regarding each material that is 
claimed to be an originating material and is used in the production of 
the good, and by adding a requirement specifying information to be 
submitted where the advance ruling request involves an issue as to 
whether the transaction value is acceptable with respect to the good; 
the third sentence, which sets forth the information to be submitted 
for purposes of the net cost method, has been changed by inserting 
specific references to relevant provisions of the Appendix to Part 181, 
by adding references to lists of all ``product, period and other'' 
costs and of all ``excluded'' 

[[Page 46355]]
costs, by limiting the required materials value information to non-
originating materials or materials for which the origin is unknown and 
that are used in the production of the good, and by requiring a 
statement regarding the period over which the net cost calculation is 
to be made; and a new sentence has been added at the end to limit the 
information required to be submitted where the advance ruling request 
concerns only the calculation of an element of a regional value content 
formula.
    4. A new paragraph (b)(2)(iv), with the heading ``NAFTA rulings on 
producer materials'', has been added to specify information that must 
be submitted where the advance ruling request either involves an issue 
with respect to an intermediate material or is submitted by a Canadian 
or Mexican producer of a material and concerns only the origin of such 
material.
    5. Paragraph (b)(5), which requires the submission of information 
regarding prior or current transactions, has been reconfigured to 
facilitate the addition of references to information regarding the 
following: judicial or quasi-judicial review in Canada or Mexico; a 
verification of origin performed in the United States, Canada or 
Mexico; an administrative appeal in the United States, Canada or 
Mexico; a request for an advance ruling in the United States, Canada or 
Mexico; and the status or disposition of any current or prior judicial 
or quasi-judicial review, verification of origin, administrative 
appeal, or advance ruling request.

Chapter Four Rules of Origin

    With regard to the substantively verbatim regulatory texts covering 
the rules of origin provisions of Chapter Four of the NAFTA, which were 
set forth in the interim regulations in the Appendix to Part 181, the 
trilaterally-agreed changes thereto concern clarifications of ambiguous 
provisions, corrections in grammar or punctuation and, in certain 
cases, textual additions to remedy instances in which the original 
trilateral text was incomplete or the intent of the Parties was not 
adequately expressed. These changes, which are incorporated in the text 
of the Appendix to Part 181 as set forth below, are as follows:
Calculation of Total Cost

    Calculation of total cost is required for purposes of the de 
minimis rule in section 5, the net cost method in section 6 and the 
valuation of intermediate materials in sections 7 and 10. However, 
references in the original trilateral texts to the calculation of total 
cost were incomplete in sections 5, 7 and 10. Therefore, in order to 
make it clear as to what costs are included in the ``total cost'' as 
that term is used in the trilateral texts, new subsection (6) has been 
added to section 2, new sections 5(10), 7(7) and 10(9)(f) have been 
added, and consequential changes have been made to the following 
provisions in sections 5, 6 and 7: sections 5(9) (a) and (b) (sections 
5(8) (a) and (b) in the interim texts); section 6(12); and sections 
7(6)(a) and (b).

Effect of Choice to Average

    Throughout the trilateral texts there are references to 
``averaging'' for purposes of determining the net cost of goods, the 
value of materials or the value of traced materials. Whenever a 
producer makes the choice to average, the period over which that 
producer averages cannot be changed, and the duration of the choice to 
average must extend to the end of the fiscal year of that producer. 
Although these requirements were implicit in the original trilateral 
texts, it became apparent that it was necessary to state them 
explicitly. Therefore, new subsections (7) through (10) have been added 
to section 2, and the following changes have been made to the related 
provisions in sections 6 and 12 and in Schedule X: revision of section 
6(15)(a)(ii); addition of new sections 6(18) and 6(19) and 
redesignation of interim sections 6(18) and 6(19) as 6(20) and 6(21); 
in sections 12(5) (a) and (b), addition of the words ``that is evenly 
divisible into the number of months of the producer's fiscal year 
remaining at the beginning of that period''; addition of new sections 
12(6) through 12(9) and redesignation of interim sections 12(6) and 
12(7) as 12(10) and 12(11); and revision of sections 3 and 12 of 
Schedule X.

Averaging For De Minimis and Accumulation

    The original trilateral texts failed to provide specifically for 
the use of averaging in determining the value of the non-originating 
materials in subsections (1) and (5) of section 5 (de minimis), and in 
determining the net cost and value of non-originating materials in 
subsection (2) of section 14 (accumulation). To provide guidance on the 
use of averaging in situations involving de minimis or accumulation, 
new subsections (11) and (12) have been added to section 5 and new 
subsection (3) has been added to section 14. Consequential amendments, 
such as redesignation of subsections and internal references, have also 
been made.

Section 4

    Section 7(10) provides for the situation in which a self-produced 
material may be designated as an intermediate material if it is used in 
the production of a good that is subject to a regional value content 
requirement. It was not clear under the original trilateral texts that 
a self-produced material, used in a good which is not subject to a 
regional value content requirement, could be considered as a material 
for purposes of the NAFTA rules of origin. Accordingly, a new 
subsection (8) has been added to section 4 in order to make it clear 
that a self-produced material may be considered as a material used in 
the production of a good even if the good is not subject to a regional 
value content requirement. Such a self-produced material must have 
either originating or non-originating status under the NAFTA rules of 
origin, and that status will influence the application of a particular 
NAFTA rule of origin to the good produced from that material. In 
addition, a new subsection (9) has been added to section 4 setting 
forth an example to illustrate such a situation.

Section 6

    Article 403 of the NAFTA specifically provides a producer with the 
option to use an averaging method for calculating the net cost for 
automotive goods, and sections 11, 12 and 13 of the trilateral 
regulations implement the specific provisions of Article 403 for 
automotive goods. The NAFTA does not specifically provide for averaging 
with respect to any other goods. However, because it was recognized 
that in many situations non-automotive producers will have to use 
standard or projected costs to calculate the net cost and the value of 
non-originating materials in their goods, an averaging method was 
included in section 6(15) of the trilateral texts in order to permit, 
in a commercially practicable manner, averaging of the values required 
under the net cost method for non-automotive goods. The introductory 
text of section 6(15) as set forth in this document has been amended to 
more clearly state the intent of the Parties, that is, that the 
regional value content calculation for certain automotive goods may not 
be calculated by the ``averaging'' permitted under section 6(15). 
Although this exclusion of automotive goods from the application of 
section 6(15) appears to be a limitation, this is not the case. The 
category of goods for which averaging may be chosen under section 6(15) 
is restricted to goods which are ``identical or similar'' as defined in 
section 2, 

[[Page 46356]]
whereas the various categories of automotive goods for which averaging 
may be chosen under section 11, 12 or 13 are not so restricted. Thus, 
this amendment will provide greater textual clarity but will have 
minimal adverse effect on producers of automotive goods for which 
averaging may be chosen under section 11, 12 or 13.

Section 7

    Under Article 402(9) of the NAFTA, the value of materials is either 
the transaction value (as defined in Article 415) or, if there is no 
transaction value or the transaction value is unacceptable, the value 
determined in accordance with the Articles 2 through 7 of the Customs 
Valuation Code. Section 7(1) and Schedule VIII of the trilateral 
regulations implement the NAFTA with respect to the valuation of 
materials. Section 7(1) states that, if the producer of the good is the 
importer of a material, the value of that material for NAFTA purposes 
is the customs value. However, ``transaction value'' or other value 
used as the basis for the customs value may not, in fact, reflect the 
transaction value ``of the producer'' or other applicable value as 
defined in the NAFTA. Section 7(2) as set forth in this document has 
been revised to make it clear that if the customs value for the 
materials referred to in section 7(1) was not determined in a manner 
consistent with Schedule VIII, then the customs value may not be used 
as the value of the material: in such a case the value of the material 
must be determined according to Schedule VIII. In addition, in order to 
illustrate this principle, a new Example 1 has been added in section 
7(20) (section 7(17) in the interim texts) and interim Examples 1 
through 6 have been renumbered as Examples 2 through 7. For the same 
reasons, similar references to the use of ``customs value'' as the 
value of a material have been clarified by revising sections 9(3) and 
10(3) and section 1(2) of Schedule VIII.
    Paragraph (b) of section 7(12) in the original trilateral texts 
(renumbered in this document as section 7(13)) could have been 
incorrectly interpreted as requiring that self-produced packaging 
materials or containers be valued under subparagraphs (i) or (ii). 
Under such an interpretation, the value of a self-produced material 
would always have to be treated as a non-originating value if the self-
produced material were a non-originating material. However, under the 
NAFTA a producer is not required to treat a self-produced material as a 
material or to designate a self-produced material as an intermediate 
material. Therefore, this unnecessary and potentially confusing 
paragraph (b) has been removed. This change does not affect a 
producer's option to designate self-produced packaging materials as 
intermediate materials if it is in the producer's interest to do so, 
and this point has been clarified by the addition of a new section 
7(14). Similarly, a new section 7(19) has been added to cover 
accessories, spare parts and tools that are self-produced. 
Consequential amendments have also been made by renumbering the 
subsections which follow these new provisions.
    A new Example 8 has also been added to section 7(20) (section 7(17) 
in the interim texts) in order to illustrate the effects of section 
7(1) and section 7(11) (section 7(10) in the interim texts) on a 
situation in which a producer of a good provides an indirect material, 
which is also an assist in this example, to a material producer for use 
in the production of a material that is subsequently used in the 
production of the good. If the indirect material is provided free of 
charge and the cost of the indirect material is not recorded on the 
books of that material producer, section 7(11) provides that the value 
of the indirect material is not included in the regional value content 
calculation under the net cost method for the material when determining 
whether or not the material is originating. However, if, as in this 
example, the indirect material is also an assist and the material that 
is made with benefit of the indirect material is subsequently used in 
the production of a good by the producer who supplied the indirect 
material, section 7(1) provides that the value of the indirect material 
(assist) is included in the value of that material (whether or not 
originating) when calculating the regional value content of the good.

Section 9

    If a traced material has been incorporated into an originating 
material that is then acquired by the producer of a light duty 
automotive good, the value of that traced material may be determined by 
one of the methods set out in section 9(2)(e) or 9(2)(f) of the 
trilateral regulations. Paragraph (e) requires information on the 
actual value of a traced material. Paragraph (f) provides an 
alternative which will always result in a value that represents the 
maximum value of a traced material allowable in the originating 
acquired material.
    In order to provide the supplier of an acquired material with an 
option to pass forward a value that is closer to the actual value of 
the traced material, but which does not require revealing the actual 
value as required in paragraph (e), it was determined that a third 
option should be allowed. Accordingly, a new paragraph (f) has been 
added to provide that the value of the traced material may be an amount 
that is based on the actual regional value content (RVC) of the 
acquired material (rather than the regional value content requirement, 
or RVCR), the amount being represented by the formula VM  x  (1 - RVC). 
As a consequence of the addition of this new paragraph (f), interim 
paragraphs (f) through (h) have been redesignated as (g) through (i), 
the internal cross-references in these paragraphs have been revised to 
reflect these changes, and, in section 9(10), Example 9 has been 
amended and Examples 12 and 13 have been added in order to reflect the 
new option for determining the value of a traced material which has 
been incorporated into an originating material acquired by a producer 
of a light duty automotive good.

Section 10

    A new section 10(1)(d)(ii) has been added to provide, as in the 
case of new section 9(2)(f), for a third alternative method to 
determine the value of a listed non-originating material incorporated 
into an originating material that is acquired for use in the production 
of a heavy duty automotive good. Necessary consequential changes have 
also been made involving renumbering interim subparagraphs (ii) and 
(iii) as (iii) and (iv), changing the affected internal cross-
references in the texts, and making changes in Examples 1, 2 and 4 
under section 10(10) to reflect the new method.
    A new text of Example 10 replaces the interim text in section 
10(10) in order to illustrate the application of section 10(8) which 
allows the use of averaging under the principles of section 12(3) in 
order to determine the value of a non-originating material for purposes 
of the statement required in section 10(1)(b)(ii), section 10(1)(d)(i) 
or section 10(1)(e)(i). The value of a non-originating material, in 
such a case, would not be the value of the acquired material which is a 
listed non-originating material; it would be the value of the non-
originating material incorporated into the listed non-originating 
material by the producer of that listed material.

Section 11

    A new subsection (11) has been added to section 11 setting forth an 
Example to illustrate the options available under section 11(9)(b) in 
the event that a producer of a motor vehicle chooses to 

[[Page 46357]]
average only those motor vehicles to be exported to the territory of 
only one NAFTA country or to the territories of more than one NAFTA 
country.

Section 12

    Section 12(1) has been amended in order to remove an ambiguous 
reference to the averaging of the regional value content for automotive 
component assemblies, automotive components, sub-components or listed 
materials and thereby avoid any misunderstanding with respect to the 
goods that may be averaged together if produced in the same plant. 
Specifically, the words ``any or all automotive component assemblies, 
automotive components, sub-components or listed materials'' have been 
replaced by the words ``an automotive component assembly, an automotive 
component, a subcomponent or a listed material''. The text as amended 
more closely follows the language of NAFTA Article 403(4) (which refers 
to ``a component'' or ``a listed material'' of Annex 403.2) and thus 
makes it clear, for example, that engines and transmissions may not be 
grouped together for purposes of averaging regional value content.
Section 16

    Section 16(1) has been revised in order to provide a clearer 
interpretation with respect to the nature of operations that, when 
performed on an originating good during transshipment through a non-
NAFTA country, do not cause the good to lose its status as an 
originating good. The revised text in subsection (1)(a) further makes 
it clear that, except for goods covered by section 16(3), a good is 
considered not to be an originating good if it is removed from customs 
control when outside the territories of the NAFTA countries.

Schedule VII

    The definition of ``discontinued operations'' in section 1 has been 
revised in both scope and meaning in order to link the term, when used 
with respect to a producer's operations that are located in a NAFTA 
country, to the meaning set out in that NAFTA country's Generally 
Accepted Accounting Principles. This maintains the consistent treatment 
given in the NAFTA to issues related to allocation of costs.
    For similar reasons, the reference in section 6(c) to ``cumulative 
effect of accounting changes'' has been amended to reflect that such 
changes are those reported in accordance with a specific requirement of 
the applicable Generally Accepted Accounting Principles.

Schedule VIII

    The texts of sections 10(1)(c) and 10(3) have been revised in order 
to resolve an ambiguity with respect to which word is modified by the 
phrase ``in the country in which the material is produced''. These 
changes reflect the understanding that the determination of the amount 
added for profit and general expenses depends on whether the material 
is imported by the producer or acquired from another person in the 
territory in which the producer is located. In both cases the amount 
added should be based on sales of materials of the same class or kind 
as that being valued. However, in regard to the former, the 
determination should be based on sales of such materials by producers 
located in the country in which the imported material was produced, 
whereas in the latter, the determination should be based on sales by 
producers located in the same country as the producer of the material 
being valued.

Schedule X

    During the trilateral discussions, it was noted that the first 
table in Addendum A as set forth in the interim Appendix was incomplete 
in that the trilaterally-agreed table included a third column ``Total 
Value'' under the heading ``Materials inventory sales (Receipts of 
material A)''. Accordingly, the first table in Addendum A has been 
corrected to reflect the trilateral text.

Technical Amendments

    Many additional amendments reflected in the texts set forth in this 
document concern simply technical changes relating to matters such as 
punctuation, cross references, typographical format and consequential 
renumbering of provisions. These changes are not intended to have any 
effect on the substance or content of the texts.

Section 181.131

    In light of certain of the trilaterally-agreed changes to the 
Appendix texts as discussed above, the Parties also agreed that it 
would be necessary to have a rule covering the transition from the 
interim Appendix texts to the new Appendix texts in the case of 
producers for whom an averaging period started prior to, and would 
extend beyond, the agreed October 1, 1995, effective date of the new 
Appendix texts. Accordingly, Sec. 181.131 as set forth below has been 
modified by designating the interim text as paragraph (a) and by adding 
new paragraphs (b) and (c) to reflect the agreed-upon transitional 
rules.

Other Changes

    Based on further internal review of the interim regulatory texts, 
Customs has determined that the following additional changes thereto 
should be made.

Section 10.8(a)

    The interim regulatory amendments in T.D. 94-1 included the 
addition of a new paragraph (a) to Sec. 10.8 of the Customs Regulations 
(19 CFR 10.8) to clarify that the provisions of that section do not 
apply in the case of goods returned to the United States after 
exportation for repairs or alterations in Canada or Mexico, for which 
separate provisions were set forth in interim Sec. 181.64. 
Subsequently, on May 17, 1994, Customs published in the Federal 
Register (59 FR 25563) as T.D. 94-47 a final rule document which 
included a complete revision of Sec. 10.8. However, the text of this 
revised Sec. 10.8 did not carry forward the substance of the interim 
NAFTA amendment. Accordingly, this document amends the introductory 
text of Sec. 10.8(a) as published in T.D. 94-47 to incorporate the 
substance of that NAFTA provision.

Section 12.132

    The interim regulatory amendments in T.D. 94-1 included the 
addition of a new Sec. 12.132 to clarify the use of country of origin 
declarations, which were provided for in Sec. 12.130(f) of the Customs 
Regulations (19 CFR 12.130(f)), in the case of textile and apparel 
goods which are subject to the provisions of Annex 300-B of the NAFTA. 
Subsequently, on June 20, 1994, Customs published in the Federal 
Register (59 FR 31519) as T.D. 94-52 an interim rule document which 
amended interim Sec. 12.132 by adding thereto a new paragraph (b) 
requiring submission of a Certificate of Eligibility in connection with 
a claim for NAFTA preferential tariff treatment involving non-
originating textile and apparel goods subject to the tariff preference 
level provisions of Appendix 6.B. to Annex 300-B of the NAFTA. In order 
to ensure that this document accurately reflects current regulatory 
requirements, the text of Sec. 12.132 is republished below to 
incorporate the interim amendment effected by T.D. 94-52. Customs 
intends to publish a separate final rule document in the near future 
which will specifically address T.D. 94-52, including any public 
comments submitted in response thereto.
Section 181.22(a)

    Interim Sec. 181.22(a) provided that the importer must maintain 
documentation relating to an imported good for five 

[[Page 46358]]
years after the date of ``importation'' of the good. In order to 
reflect the requirements of U.S. law (19 U.S.C. 1508(c), as amended by 
section 614 of the Act), Sec. 181.22(a) as set forth below has been 
modified to refer to five years after the date of ``entry'' of the 
good.

Section 181.22(b)(2)

    In addition to the removal of the references to a ``producer'' as 
discussed above, Sec. 181.22(b)(2), as set forth below, has been 
modified to refer to signature of the Certificate of Origin by the 
exporter's authorized agent ``having knowledge of the relevant facts''. 
Customs believes that this change is appropriate to ensure that the 
signature has substantive relevance that goes beyond that of a mere 
agency relationship.

Section 181.22(d)

    The following changes have been made to Sec. 181.22(d) which 
specifies circumstances in which a Certificate of Origin is not 
required:
    1. For editorial and citation purposes, the text as set forth below 
has been rearranged and divided into paragraph (d)(1) (which sets forth 
the general rules for when a Certificate is not required) and paragraph 
(d)(2) (which covers the exception regarding a series of importations).
    2. The introductory text of newly designated paragraph (d)(1) has 
been modified as set forth below by replacing the words ``a Certificate 
of Origin shall not be required for'' with the words ``an importer 
shall not be required to have a Certificate of Origin in his 
possession''. Customs believes that this change is necessary to clarify 
the intent which relates to the basic requirement for possession of a 
Certificate when a claim for preferential tariff treatment is made (see 
the last sentence of Sec. 181.21(a)) rather than to the requirement for 
submission of the Certificate to Customs when requested under 
Sec. 181.21(b).
    3. In order to provide for proper notification and related 
procedural safeguards in a case where a Certificate is required because 
the importation is determined to be part of a series of importations 
that may reasonably be considered to have been undertaken or arranged 
for the purpose of avoiding a certification requirement, the text of 
newly designated paragraph (d)(2), as set forth below, has been 
modified (1) to require written notice to the importer that possession 
of a Certificate covering the importation at issue is required, (2) to 
allow the importer 30 calendar days to obtain a valid Certificate, and 
(3) to specify the consequence of a failure to timely obtain the 
Certificate (denial of the claim for preferential tariff treatment).

Section 181.41

    In Sec. 181.41, which prescribes the applicability of the Subpart E 
``NAFTA drawback'' (as defined in Sec. 181.1(o)) provisions, the first 
sentence has been changed as set forth below by the addition of a 
reference to ``any good that is a `good subject to NAFTA drawback' 
within the meaning of 19 U.S.C. 3333'' in order to (1) incorporate by 
reference the terms of NAFTA Article 303(6) as implemented in U.S. law 
and (2) clarify that those NAFTA Article 303 and U.S. statutory 
standards are applicable under Subpart E both for drawback purposes and 
for purposes of the Sec. 181.53 duty-deferral provisions. In addition, 
for similar clarification purposes, the first sentence of 
Sec. 181.53(a)(2) as set forth below has been changed to refer to a 
```good subject to NAFTA drawback' within the meaning of 19 U.S.C. 
3333''.

Section 181.44

    In Sec. 181.44, which specifies the circumstances in which drawback 
is calculated under the NAFTA ``lesser of the two'' rule, a new 
paragraph (g) has been added as set forth below to cover goods that are 
``unused'' within the meaning of 19 U.S.C. 1313(j)(1) but have changed 
in condition after importation into the United States so as not to be 
eligible for full drawback under Sec. 181.45(b).

Section 181.47

    In order to facilitate Customs processing of NAFTA drawback claims, 
the following changes have been made to the text of interim Sec. 181.47 
which concerns the completion of claims for drawback under Subpart E: 
(1) In paragraph (a), language has been added at the end of the second 
sentence to provide that claims under Subpart E must be filed 
separately from non-NAFTA claims filed under Part 191; and (2) a 
sentence has been added at the end of paragraph (b)(1) to provide for 
inclusion of the word ``NAFTA'' at the top of each drawback entry form 
filed under Subpart E.

Section 181.50

    In Sec. 181.50, which concerns payment and liquidation of drawback 
claims, paragraph (b) as set forth below has been modified (1) to refer 
to when a drawback claim is to be liquidated (rather than when it 
becomes ``final'') and (2) by the addition of a sentence at the end to 
refer to adjustments of drawback claims under 19 U.S.C. 
1508(b)(2)(B)(iii).

Section 181.62

    With regard to interim Sec. 181.62 which concerns duty-free 
treatment of commercial samples of negligible value imported from 
Canada or Mexico, Customs notes that paragraphs (b)(3) and (c) thereof, 
which specifically addressed textile samples, did not devolve from a 
specific statutory provision whereas the remainder of the section did 
reflect the terms of an underlying U.S. statutory provision (subheading 
9811.00.60, HTSUS). Since implementation of the commercial sample 
provision in Article 306 of the NAFTA is a function of what is 
permissible or required under applicable U.S. law (in this case, 
subheading 9811.00.60, HTSUS), Sec. 181.62 as set forth below has been 
modified by the removal of paragraphs (b)(3) and (c).

Section 181.63

    Interim Sec. 181.63, which concerned duty-free treatment of printed 
advertising materials imported from Canada or Mexico, reflected both 
the terms of Article 306 of the NAFTA and the definition of ``printed 
advertising materials'' in Article 318 of the NAFTA; thus, the 
regulatory text referred generically to ``goods classified in Chapter 
49, HTSUS'', which chapter covers some goods for which duty-free 
treatment is not provided. Since U.S. duty treatment of goods covered 
by NAFTA Article 306 is controlled by the terms of the HTSUS, Customs 
has determined that Sec. 181.63 serves no effective purpose and 
therefore should be removed and reserved until such time as appropriate 
changes are made to the HTSUS to reflect the terms of NAFTA Article 
306.

Section 181.64(c)(1)(ii)
    With regard to interim Sec. 181.64 which concerns goods returned 
after repair or alteration in Canada or Mexico, Customs notes that 
paragraph (c)(1)(ii) thereof provides for a declaration by the owner, 
importer, consignee, or agent stating that, among other things, ``the 
goods were not previously imported in bond or admitted into a foreign 
trade zone or imported in similar status''. This statement was included 
in the declaration to address the exception for ``goods subject to 
NAFTA drawback'' in U.S. Note 1 to Subchapter II of Chapter 98, HTSUS. 
That note, which applies to the whole subchapter and thus pertains, 
inter alia, to all articles returned after repair or alteration abroad 
(including those goods repaired or altered in Canada or Mexico and 
covered by Sec. 181.64), sets forth four circumstances 

[[Page 46359]]
in which articles may not be classified and thus receive the duty 
treatment prescribed in the subchapter (under subheading 9802.00.40 or 
9802.00.50 in the case of repaired or altered goods). The note, which 
prior to the NAFTA did not contain the ``NAFTA drawback'' exception 
language, was intended to ensure that goods imported into the United 
States in certain circumstances in which duty is not paid or is later 
refunded (for example, duty-free under a temporary importation bond or 
with subsequent drawback of duties upon exportation), and which are 
subsequently exported (for example, for repair or alteration) and then 
returned, do not re-enter the commerce of the United States and again 
escape full duty assessment by virtue of their classification in a 
reduced-duty provision under Subchapter II. The exception in the note 
for ``goods subject to NAFTA drawback'' was added in connection with 
the adoption of the NAFTA in consideration of the fact that the NAFTA 
drawback and duty-deferral provisions (see Subpart E of Part 181 below) 
render the note unnecessary in a NAFTA context because assessment of 
duty is required prior to exportation to Canada or Mexico under the 
NAFTA drawback provisions (see the definition of ``NAFTA drawback'' in 
Sec. 181.1(o) below).
    On further review, Customs believes that the language in the 
declaration quoted above does not adequately address the basic issue 
under U.S. Note 1 to Subchapter II of Chapter 98, HTSUS, that is, 
whether the imported goods were subject to NAFTA drawback. In other 
words, if the goods were subject to NAFTA drawback, then none of the 
restrictions in the note would apply and the note would not be a bar to 
classification of the repaired or altered goods in the subchapter. On 
the other hand, if the goods were not subject to NAFTA drawback and one 
of the restrictions in the note applied to the goods, then the note 
would operate as a bar to classification of the repaired or altered 
goods in the subchapter. Accordingly, the declaration in 
Sec. 181.64(c)(1)(ii), as set forth below, has been modified in this 
regard to more accurately reflect the minimum information that Customs 
must have to ensure compliance with the applicable statutory standard.

Section 181.72(a)(2)(i)

    In order to provide necessary flexibility to Customs and at the 
same time reflect the method most often employed by Customs, 
Sec. 181.72(a)(2)(i), which concerns origin verification letters, has 
been modified as set forth below to provide that the verification 
letter ``may be on Customs Form 28 or other appropriate format''.

Section 181.72(d)(2)(ii)

    In Sec. 181.72(d)(2)(ii) which concerns the consequences of a 
failure on the part of the exporter or producer of a good to respond to 
a follow-up verification letter or questionnaire, the introductory text 
has been modified as set forth below to provide that Customs may 
``consider the good to be non-originating and consequently may'' deny 
preferential tariff treatment on the good. Customs believes that the 
reference to non-originating status in this context is necessary if the 
follow-up letter or questionnaire is to include the ``written 
determination'' (that is, a determination as to whether the good is an 
originating good) referred to in paragraphs (d)(1)(i) and 
(d)(2)(ii)(A).
Section 181.73(a)

    Section 181.73(a), which requires written notification prior to 
conducting a verification visit in Canada or Mexico, has been modified 
as set forth below by removing from the first sentence the words ``, 
including a follow-up to an earlier visit,''. On further review, 
Customs has determined that this requirement is neither reflected in 
the text of the Agreement nor otherwise necessary since the procedural 
safeguards afforded by the notification requirement are covered by the 
notification given prior to the initial visit. Moreover, requiring 
written notification (and, thus, written consent under Sec. 181.74) 
prior to each follow-up visit would impose an unreasonable 
administrative burden on Customs and could compromise the overall 
effectiveness of the verification visit process.

Section 181.75(a)(2)

    Section 181.75(a)(2) requires that a written origin determination 
include a statement setting forth the findings of fact made in 
connection with the origin verification and upon which the origin 
determination is based. An exception has been added to this section as 
set forth below to cover the case of a negative origin determination 
where specific findings of fact cannot be made because of a failure to 
respond to a follow-up verification letter or questionnaire. Customs 
believes that this change is necessary because, under modified 
Sec. 181.72(d)(2)(ii) as discussed above, the negative origin 
determination may result merely from a failure on the part of the 
exporter or producer of the good to respond to the follow-up letter or 
questionnaire.

Section 181.75(b)(2)(iv)

    Section 181.75(b)(2)(iv) as set forth below has been modified by 
the addition of language at the end to cover cases where an exporter or 
producer would protest the negative origin determination itself rather 
than the liquidation of an entry (for example, where the importer's 
NAFTA claim was made in a protest rather than as part of the entry 
process).

Section 181.76(a)

    Section 181.76(a) has been modified as set forth below to provide 
that an origin determination ``may be applied'' (rather than ``shall be 
effective'') upon issuance of the determination, and the provisions 
regarding the negative origin determination exception to this general 
rule have been set forth as a new paragraph (b). Customs believes that 
these editorial changes are necessary to align on terminology used 
elsewhere in Sec. 181.76 and to reflect the fact that a Customs 
decision regarding a rate of duty takes effect only when actually 
applied to a transaction (that is, in connection with the liquidation 
of an entry).

Section 181.76(c)

    In Sec. 181.76(c) (Sec. 181.76(b) in the interim texts), which 
concerns the application of origin determinations where there is a 
pattern of conduct by an exporter or producer involving false or 
unsupported representations on Certificates of Origin that a good 
qualifies as an originating good, the first sentence as set forth below 
has been modified (1) to state that Customs may ``deny subsequent 
claims for'' (rather than ``withhold'') preferential tariff treatment 
and (2) by adding at the end the words ``, provided that advance 
written notice of the intent to deny such claims is given to the 
importer.'' The first change is intended both to conform the text to 
the legal responsibility of Customs in connection with the entry and 
liquidation process and to reflect the intent of the underlying NAFTA 
provision which is prospective in nature. The second change is simply 
intended to ensure that the importer will receive appropriate notice of 
the intended action by Customs. In addition, as a consequence of the 
replacement of the word ``withhold'' in Sec. 181.76(c), Sec. 181.71 as 
set forth below has been modified by removing the words ``or withhold'' 
before the words ``preferential tariff treatment''.

Section 181.76(e)

    In Sec. 181.76(e) (Sec. 181.76(d) in the interim texts), which 
limits the application of negative origin 

[[Page 46360]]
determinations to prior importations in certain specified 
circumstances, the first sentence as set forth below has been modified 
by adding at the end the words ``and on which that person did in fact 
rely.'' Customs believes that this change is necessary because the 
underlying NAFTA provision is founded on the principle of equitable 
relief based on detrimental reliance, and there can be no occasion for 
equitable relief if no reliance, and thus no detriment, has occurred.
Section 181.76(f)

    Section 181.76(f) (Sec. 181.76(e) in the interim texts) has been 
modified as set forth below (1) by replacing ``denies'' with ``proposes 
to deny'', (2) by replacing ``effective date of the denial'' with 
``application of the determination'', and (3) and by adding after ``90 
calendar days'' the words ``from the date of issuance of the 
determination''. Customs believes that these changes are appropriate 
for purposes of precision as regards the procedures discussed in the 
section.

Section 181.81

    Interim Sec. 181.81 concerned the applicability of penalties to 
NAFTA transactions and consisted of a general statement (paragraph (a)) 
and a specific provision regarding false certifications by U.S. 
exporters or producers (paragraph (b)). On further review of this 
section, Customs believes that interim paragraph (b) is redundant and 
thus unnecessary because its purpose is already achieved by the general 
interim paragraph (a) statement. Accordingly, Sec. 181.81 as set forth 
below has been modified to reflect only the text contained in interim 
paragraph (a).

Section 181.100(b)(3)

    Section 181.100(b)(3) concerns the effective date for a 
modification or revocation of an advance ruling and provides for a 
delayed effective date of up to 90 days in some circumstances. In a 
case where the delay is requested by the party to whom the ruling 
letter was issued, the text, as set forth below, has been modified to 
refer to reliance ``in good faith'' rather than to reliance that is 
``reasonable''. This change aligns the text on the standard set forth 
in Article 509(8) of the NAFTA.

Conclusion

    Accordingly, based on the comments received and the analysis of 
those comments as set forth above, and based on the additional 
considerations discussed above, Customs believes that the interim 
regulations published in T.D. 94-1 should be adopted as a final rule 
with certain changes thereto as discussed above and as set forth below. 
Although this document sets forth the majority of the interim 
regulatory amendments adopted herein as a final rule and thus both 
republishes portions of the interim texts without change and amends 
other portions of the interim texts to incorporate the changes 
discussed above, it does not republish those unchanged interim 
amendments, involving the following provisions, which were set forth in 
T.D. 94-1 within an amendatory instruction rather than in full 
regulatory text format: Secs. 10.36a, 10.66, 10.67, 134.1, 134.22, 
134.23, 134.24, 134.32, 134.35, 134.43, 134.44, 174.12, 174.29, 177.0, 
and 177.1. This document also includes an appropriate update of the 
list of information collection approvals contained in Sec. 178.2 of the 
Customs Regulations (19 CFR 178.2).

Inapplicability of Public Notice and Comment Procedures and Delayed 
Effective Date Requirements

    Pursuant to the provisions of 5 U.S.C. 553(a), public notice and 
comment procedures are inapplicable to these final regulations because 
they are within the foreign affairs function of the United States. In 
addition, for the above reason and because the Parties have agreed to 
promulgate final NAFTA implementing regulations with effect from 
October 1, 1995, it is determined that good cause exists under the 
provisions of 5 U.S.C. 553(d)(3) for dispensing with a 30-day delayed 
effective date.

Executive Order 12866

    Because this document involves a foreign affairs function of the 
United States and implements an international agreement, it is not 
subject to the provisions of E.O. 12866.

Regulatory Flexibility Act

    Based on the supplementary information set forth above and because 
these regulations implement obligations of international agreements and 
statutory requirements relating thereto, pursuant to the provisions of 
the Regulatory Flexibility Act (5 U.S.C. 601 et seq.) it is certified 
that the regulations will not have a significant economic impact on a 
substantial number of small entities. Accordingly, the regulations are 
not subject to the regulatory analysis or other requirements of 5 
U.S.C. 603 and 604.

Paperwork Reduction Act

    The collection of information requirements contained in these final 
regulations have been reviewed and approved by the Office of Management 
and Budget in accordance with the Paperwork Reduction Act of 1980 (44 
U.S.C. 3507) under control number 1515-0205. The estimated average 
annual burden associated with this collection is 6.31 hours per 
respondent or recordkeeper. Comments concerning the accuracy of this 
burden estimate and suggestions for reducing this burden should be 
directed to the U.S. Customs Service, Paperwork Management Branch, Room 
6316, 1301 Constitution Avenue, NW., Washington, DC 20229, or the 
Office of Management and Budget, Attention: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503.

Drafting Information

    The principal author of this document was Francis W. Foote, Office 
of Regulations and Rulings, U.S. Customs Service. However, personnel 
from other offices participated in its development.

List of Subjects

19 CFR Part 10

    Alterations, Bonds, Customs duties and inspection, Exports, 
Imports, Preference programs, Repairs, Reporting and recordkeeping 
requirements, Trade agreements.

19 CFR Part 12

    Canada, Customs duties and inspection, Marking, Mexico, Reporting 
and recordkeeping requirements, Textiles and textile products, Trade 
agreements.

19 CFR Part 24

    Accounting, Canada, Customs duties and inspection, Financial and 
accounting procedures, Reporting and recordkeeping requirements, Trade 
agreements, User fees.

19 CFR Part 123

    Canada, Customs duties and inspection, Imports, Mexico, Reporting 
and recordkeeping requirements, Trade agreements.

19 CFR Part 134

    Canada, Country of origin, Customs duties and inspection, Labeling, 
Marking, Mexico, Packaging and containers, Trade agreements.

19 CFR Part 162

    Administrative practice and procedure, Customs duties and 
inspection, Reporting and recordkeeping requirements, Trade agreements. 


[[Page 46361]]


19 CFR Part 174

    Administrative practice and procedure, Customs duties and 
inspection, Reporting and recordkeeping requirements, Trade agreements.

19 CFR Part 177

    Administrative practice and procedure, Courts, Judicial 
proceedings, Rulings, Trade agreements.

19 CFR Part 178

    Administrative practice and procedure, Exports, Imports, Reporting 
and recordkeeping requirements.

19 CFR Part 181

    Administrative practice and procedure, Canada, Customs duties and 
inspection, Exports, Imports, Mexico, Reporting and recordkeeping 
requirements, Trade agreements (North American Free-Trade Agreement).

19 CFR Part 191

    Canada, Commerce, Customs duties and inspection, Drawback, Mexico, 
Reporting and recordkeeping requirements, Trade agreements.

Amendments to the Regulations

    Accordingly, the interim rule amending Parts 10, 12, 24, 123, 134, 
162, 174, 177, 178 and 191 (19 CFR Parts 10, 12, 24, 123, 134, 162, 
174, 177, 178 and 191) and adding Part 181, Customs Regulations (19 CFR 
Part 181), which was published at 58 FR 69460-69565 on December 30, 
1993, and which was corrected at 59 FR 8852 on February 24, 1994, and 
at 59 FR 15047 on March 31, 1994, and the interim rule amending Part 
12, Customs Regulations (19 CFR Part 12), which was published at 59 FR 
31519-31521 on June 20, 1994, are adopted as a final rule with certain 
changes set forth below. The final texts, except for those amendments 
published in T.D. 94-1 which were set forth within an amendatory 
instruction rather than in full regulatory text format, are either 
republished below without change or are set forth below with the 
amendments discussed above under SUPPLEMENTARY INFORMATION.

PART 10--ARTICLES CONDITIONALLY FREE, SUBJECT TO A REDUCED RATE, 
ETC.

    1. The general authority citation for part 10 is revised to read as 
follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States), 1321, 1481, 1484, 1498, 1508, 
1623, 1624, 3314;
* * * * *
    2. Section 10.8 is amended by revising the introductory text of 
paragraph (a) to read as follows:


Sec. 10.8  Articles exported for repairs or alterations.

    (a) Except as otherwise provided for in this section and except in 
the case of goods covered by Sec. 181.64 of this chapter, the following 
documents shall be filed in connection with the entry of articles which 
are returned after having been exported for repairs or alterations and 
which are claimed to be subject to duty only on the value of the 
repairs or alterations performed abroad under subheading 9802.00.40 or 
9802.00.50, Harmonized Tariff Schedule of the United States (HTSUS):
* * * * *
    3. The last sentence of Sec. 10.31(f) is republished to read as 
follows:


Sec. 10.31  Entry; bond.

* * * * *
    (f) * * * In addition, notwithstanding any other provision of this 
paragraph, in the case of professional equipment necessary for carrying 
out the business activity, trade or profession of a business person, 
equipment for the press or for sound or television broadcasting, 
cinematographic equipment, articles imported for sports purposes and 
articles intended for display or demonstration, if brought into the 
United States by a resident of Canada or Mexico and entered under 
Chapter 98, Subchapter XIII, HTSUS, no bond or other security shall be 
required if the entered article is a good originating in Canada or 
Mexico within the meaning of General Note 12, HTSUS.
* * * * *

PART 12--SPECIAL CLASSES OF MERCHANDISE

    1. The authority citation for part 12 continues to read in part as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20, 
Harmonized Tariff Schedule of the United States (HTSUS)), 1624;
* * * * *
    2. Section 12.132 is republished to read as follows:


Sec. 12.132  Textile and apparel goods under the North American Free 
Trade Agreement.

    (a) Country of origin declaration. The provisions of Sec. 12.130(f) 
of this part regarding submission of a country of origin declaration 
shall apply to all textile and apparel goods which are subject to the 
provisions of Annex 300-B of the North American Free Trade Agreement 
(NAFTA). Although a separate country of origin declaration shall not be 
required for such goods for NAFTA purposes, the following additional 
requirements shall apply for purposes of this section:
    (1) All commercial importations of textile and apparel goods shall 
be accompanied by the appropriate declaration;
    (2) A declaration by each U.S., Canadian, and/or Mexican 
manufacturer or producer of the goods, or by the exporter of the goods 
if a declaration cannot be obtained from the manufacturer or producer, 
and, if there are multiple manufacturers or producers, a separate 
declaration by each manufacturer, producer or exporter, shall be 
furnished by the importer. Packaging operations shall not be considered 
manufacture or production for purposes of this paragraph; and
    (3) If the district director is unable to determine the country of 
origin of the goods because the information contained in a declaration 
is incomplete, the shipment to which that declaration pertains shall 
not be entitled to preferential tariff treatment or any other benefit 
under the NAFTA for which it would otherwise be eligible.
    (b) Certificate of Eligibility. In connection with a claim for 
NAFTA preferential tariff treatment involving non-originating textile 
and apparel goods subject to the tariff preference level provisions of 
Appendix 6.B. to Annex 300-B of the NAFTA and Additional U.S. Notes 3 
through 6 to Section XI, Harmonized Tariff Schedule of the United 
States, the importer shall submit to Customs a Certificate of 
Eligibility covering the goods. The Certificate of Eligibility shall be 
properly completed and signed by an authorized official of the Canadian 
or Mexican government and shall be presented to Customs at the time the 
claim for preferential tariff treatment is filed under Sec. 181.21 of 
this chapter. Failure to timely submit the required Certificate of 
Eligibility will result in a denial of the claim.

PART 24--CUSTOMS FINANCIAL AND ACCOUNTING PROCEDURE

    1. The general authority citation for Part 24 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 58a-58c, 66, 1202 (General 
Note 20, Harmonized Tariff Schedule of the United States), 1624; 31 
U.S.C. 9701.
* * * * *
    2. In Sec. 24.22, paragraph (g)(1), the introductory text of 
paragraph (g)(2)(i)(A), and paragraph (g)(2)(iv) are republished to 
read as follows: 

[[Page 46362]]



Sec. 24.22  Fees for certain services.

* * * * *
    (g) Fee for arrival of passengers aboard commercial vessels and 
commercial aircraft.
    (1) Fee. Except as provided in paragraph (g)(2) of this section:
    (i) For the period from January 1, 1994 through September 30, 1997, 
a fee of $6.50 shall be collected and remitted to Customs for services 
provided in connection with the arrival of each passenger aboard a 
commercial vessel or commercial aircraft from outside the customs 
territory of the United States; and
    (ii) Commencing on October 1, 1997, a fee of $5 shall be collected 
and remitted to Customs for services provided in connection with the 
arrival of each passenger aboard a commercial vessel or commercial 
aircraft from a place outside the United States.
    (2) * * *
    (i)(A) Except during the period from January 1, 1994 through 
September 30, 1997, persons whose journey:
* * * * *
    (iv) Except during the period from January 1, 1994 through 
September 30, 1997, persons departing from and returning to the United 
States without having touched a foreign port or place;
* * * * *
    3. Section 24.23(c)(3) is republished to read as follows:


Sec. 24.23  Fees for processing merchandise.

* * * * *
    (c) * * *
    (3) The ad valorem, surcharge, and specific fees provided for under 
paragraphs (b)(1) and (b)(2)(i) of this section shall not apply either 
to goods originating in Canada within the meaning of General Note 9, 
HTSUS, or to goods originating in Canada within the meaning of General 
Note 12, HTSUS, where such goods qualify to be marked as goods of 
Canada pursuant to Annex 311 of the North American Free Trade Agreement 
and without regard to whether the goods are marked. Where originating 
goods as described in the preceding sentence are entered or released 
with other goods that are not originating goods, the ad valorem, 
surcharge, and specific fees shall apply only to those goods which are 
not originating goods.
* * * * *

PART 123--CUSTOMS RELATIONS WITH CANADA AND MEXICO

    1. The authority citation for part 123 continues to read in part as 
follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States (HTSUS)), 1431, 1433, 1624.
* * * * *
    2. The last sentence of Sec. 123.0 is republished to read as 
follows:


Sec. 123.0  Scope.

    * * * Regulations pertaining to the treatment of goods from Canada 
or Mexico under the North American Free Trade Agreement are contained 
in part 181 of this chapter.

PART 134--COUNTRY OF ORIGIN MARKING

    1. The authority citation for part 134 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20, 
Harmonized Tariff Schedule of the United States), 1304, 1624.

    2. The last sentence of Sec. 134.0 is republished to read as 
follows:


Sec. 134.0  Scope.

    * * * Provisions regarding the review and appeal rights of 
exporters and producers resulting from adverse North American Free 
Trade Agreement marking decisions are contained in subpart J of part 
181 of this chapter.
    3. In Sec. 134.1, the last sentence of paragraph (d)(2) and 
paragraphs (g), (h), (i) and (j) are republished, and a new paragraph 
(k) is added, to read as follows:


Sec. 134.1  Definitions.

* * * * *
    (d) * * *
    (2) * * * With respect to a good of a NAFTA country, if the 
manufacturing process does not result in one of the changes prescribed 
in the NAFTA Marking Rules as effecting a change in the article's 
country of origin, the consumer who purchases the article after 
processing will be regarded as the ultimate purchaser.
* * * * *
    (g) Good of a NAFTA country. A ``good of a NAFTA country'' is an 
article for which the country of origin is Canada, Mexico or the United 
States as determined under the NAFTA Marking Rules.
    (h) NAFTA. ``NAFTA'' means the North American Free Trade Agreement 
entered into by the United States, Canada and Mexico on December 17, 
1992.
    (i) NAFTA country. ``NAFTA country'' means the territory of the 
United States, Canada or Mexico, as defined in Annex 201.1 of the 
NAFTA.
    (j) NAFTA Marking Rules. The ``NAFTA Marking Rules'' are the rules 
promulgated for purposes of determining whether a good is a good of a 
NAFTA country.
    (k) Conspicuous. ``Conspicuous'' means capable of being easily seen 
with normal handling of the article or container.
    4. Section 134.22(d) is republished to read as follows:


Sec. 134.22  General rules for marking of containers or holders.

* * * * *
    (d) Usual containers--(1) ``Usual container'' defined. For purposes 
of this subpart, a usual container means the container in which a good 
will ordinarily reach its ultimate purchaser. Containers which are not 
included in the price of the goods with which they are sold, or which 
impart the essential character to the whole, or which have significant 
uses, or lasting value independent of the contents, will generally not 
be regarded as usual containers. However, the fact that a container is 
sturdy and capable of repeated use with its contents does not preclude 
it from being considered a usual container so long as it is the type of 
container in which its contents are ordinarily sold. A usual container 
may be any type of container, including one which is specially shaped 
or fitted to contain a specific good or set of goods such as a camera 
case or an eyeglass case, or packing, storage and transportation 
materials.
    (2) A good of a NAFTA country which is a usual container. A good of 
a NAFTA country which is a usual container, whether or not disposable 
and whether or not imported empty or filled, is not required to be 
marked with its own country of origin. If imported empty, the importer 
must be able to provide satisfactory evidence to Customs at the time of 
importation that it will be used only as a usual container (that it is 
to be filled with goods after importation and that such container is of 
a type in which these goods ordinarily reach the ultimate purchaser).
* * * * *
    5. In Sec. 134.32, paragraphs (p) and (q) are republished to read 
as follows:


Sec. 134.32  General exceptions to marking requirements.

* * * * *
    (p) Goods of a NAFTA country which are original works of art; and
    (q) Goods of a NAFTA country which are provided for in subheading 
6904.10 or heading 8541 or 8542 of the Harmonized Tariff Schedule of 
the United States (HTSUS) (19 U.S.C. 1202).
* * * * *
    6. Section 134.35(b) is republished to read as follows: 

[[Page 46363]]



Sec. 134.35  Articles substantially changed by manufacture.

* * * * *
    (b) Goods of a NAFTA country. A good of a NAFTA country which is to 
be processed in the United States in a manner that would result in the 
good becoming a good of the United States under the NAFTA Marking Rules 
is excepted from marking. Unless the good is processed by the importer 
or on its behalf, the outermost container of the good shall be marked 
in accord with this part.
    7. Section 134.45(a) is republished to read as follows:


Sec. 134.45  Approved markings of country name.

    (a) Language. (1) Except as otherwise provided in paragraph (a)(2) 
of this section, the markings required by this part shall include the 
full English name of the country of origin, unless another marking to 
indicate the English name of the country of origin is specifically 
authorized by the Commissioner of Customs. Notice of acceptable 
markings other than the full English name of the country of origin 
shall be published in the Federal Register and the Customs Bulletin.
    (2) A good of a NAFTA country may be marked with the name of the 
country of origin in English, French or Spanish.
* * * * *

PART 162--RECORDKEEPING, INSPECTION, SEARCH, AND SEIZURE

    1. The authority citation for part 162 continues to read in part as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1624.
* * * * *
    2. The last sentence of Sec. 162.0 is republished to read as 
follows:


Sec. 162.0  Scope.

    * * * Additional provisions concerning records maintenance and 
examination applicable to U.S. importers, exporters and producers under 
the North American Free Trade Agreement are contained in part 181 of 
this chapter.

PART 174--PROTESTS

    1. The authority citation for Part 174 continues to read as 
follows:

    Authority: 19 U.S.C. 66, 1514, 1515, 1624.

    2. The last sentence of Sec. 174.0 is republished to read as 
follows:


Sec. 174.0  Scope.

    * * * Provisions applicable to Canadian and Mexican exporters and 
producers regarding administrative review and appeal of adverse marking 
decisions under the North American Free Trade Agreement are contained 
in part 181 of this chapter.
    3. Section 174.12(a)(5) is republished to read as follows:


Sec. 174.12  Filing of protests.

    (a) * * *
    (5) With respect to a determination of origin under subpart G of 
part 181 of this chapter, any exporter or producer of the merchandise 
subject to that determination, if the exporter or producer completed 
and signed a Certificate of Origin covering the merchandise as provided 
for in Sec. 181.11(a) of this chapter; or
* * * * *
    4. Section 174.12(e)(2) is revised to read as follows:


Sec. 174.12 Filing of protests.

* * * * *
    (e) * * *
    (2) The date of the decision, involving neither a liquidation nor 
reliquidation, as to which the protest is made (e.g., the date of an 
exaction, the date of written notice excluding merchandise from entry 
or delivery under any provision of the Customs laws, the date of a 
refusal to reliquidate under section 520(c)(1) of the Tariff Act of 
1930, as amended, or the date of written notice of a denial of a claim 
filed under section 520(d) of the Tariff Act of 1930, as amended); or
* * * * * 15. Section 174.15 is republished to read as follows:


Sec. 174.15  Consolidation of protests filed by different parties.

    (a) General. Subject to paragraph (b) of this section, separate 
protests relating to one category of merchandise covered by an entry 
shall be considered as a single protest whether filed as a single 
protest or filed as separate protests relating to the same category by 
one or more parties in interest or an authorized agent.
    (b) NAFTA transactions. The following rules shall apply to a 
consolidation of multiple protests concerning a determination of origin 
under subpart G of part 181 of this chapter if one of the protests is 
filed by or on behalf of an exporter or producer described in 
Sec. 174.12(a)(5) of this part:
    (1) If consolidation under paragraph (a) of this section is 
pursuant to specific written requests for consolidation received from 
all interested parties who filed protests under this part, those 
interested parties shall be deemed to have waived their rights to 
confidentiality as regards business information within the meaning of 
Sec. 181.121 of this chapter. In such cases, a separate notice of the 
decision will be issued to each interested party under this part but 
without regard to whether the notice reflects confidential business 
information obtained from one but not all of those interested parties.
    (2) If consolidation under paragraph (a) of this section is done by 
the district director in the absence of specific written requests for 
consolidation from all interested parties who filed protests under this 
part, no waiver of confidentiality by those interested parties shall be 
deemed to have taken place. In such cases, a separate notice of the 
decision will be issued to each interested party and each such notice 
shall adhere to the principle of confidentiality set forth in 
Sec. 181.121 of this chapter.

PART 178--APPROVAL OF INFORMATION COLLECTION REQUIREMENTS

    1. The authority citation for part 178 is revised to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 1624; 44 U.S.C. 3501 et seq.

    2. Section 178.2 is amended by adding new listings to the table in 
numerical order to read as follows:


Sec. 178.2  Listing of OMB control numbers.

                                                                        

[[Page 46364]]
------------------------------------------------------------------------
                                                             OMB control
      19 CFR section                  Description                No.    
------------------------------------------------------------------------
                                                                        
                  *        *        *        *        *                 
Sec.  12.132..............  Country of origin declaration      1515-0205
                             covering textile and apparel               
                             goods under the North American             
                             Free Trade Agreement.                      
                                                                        
                  *        *        *        *        *                 
Sec.  181.11..............  Certificate of Origin for          1515-0205
                             purposes of the North American             
                             Free Trade Agreement.                      
Secs.  181.22 and 181.32..  Claim for preferential tariff      1515-0205
                             treatment under the North                  
                             American Free Trade Agreement.             
Secs.  181.47 and 181.53..  Claim for refund, waiver or        1515-0205
                             reduction of duty under the                
                             drawback and duty deferral                 
                             provisions of the North                    
                             American Free Trade Agreement.             
Sec.  181.64..............  Claim for duty-free or reduced-    1515-0205
                             duty treatment on repaired or              
                             altered goods under the North              
                             American Free Trade Agreement.             
Sec.  181.72..............  Submission of information in       1515-0205
                             connection with origin                     
                             verifications under the North              
                             American Free Trade Agreement.             
Sec.  181.82..............  Statement accompanying             1515-0205
                             corrected declaration or                   
                             notification of incorrect                  
                             certification under the North              
                             American Free Trade Agreement.             
Secs.  181.93-181.96 and    Submission of information in       1515-0205
 181.102.                    connection with requests for               
                             issuance or review of advance              
                             rulings under the North                    
                             American Free Trade Agreement.             
Secs.  181.113, 181.115     Submission of information in       1515-0205
 and 181.116.                connection with the review and             
                             appeal of adverse marking                  
                             decisions under the North                  
                             American Free Trade Agreement.             
Sec.  181.131.............  Claim for preferential tariff      1515-0205
                             treatment under the North                  
                             American Free Trade Agreement.             
                                                                        
                  *        *        *        *        *                 
------------------------------------------------------------------------


    1. Part 181 is revised to read as follows:

PART 181--NORTH AMERICAN FREE TRADE AGREEMENT

Sec.
181.0  Scope.

Subpart A--General Provisions

181.1  Definitions.

Subpart B--Export Requirements

181.11  Certificate of Origin.
181.12  Maintenance and availability of records.
181.13  Failure to comply with requirements.
Subpart C--Import Requirements

181.21  Filing of claim for preferential tariff treatment upon 
importation.
181.22  Maintenance of records and submission of Certificate by 
importer.
181.23  Effect of noncompliance; failure to provide documentation 
regarding transshipment.

Subpart D--Post-Importation Duty Refund Claims

181.31  Right to make post-importation claim and refund duties.
181.32  Filing procedures.
181.33  Customs processing procedures.

Subpart E--Restrictions on Drawback and Duty-Deferral Programs

181.41  Applicability.
181.42  Duties and fees not subject to drawback.
181.43  Eligible goods subject to drawback.
181.44  Calculation of drawback.
181.45  Goods eligible for full drawback.
181.46  Time and place for filing drawback claim.
181.47  Completion of claim for drawback.
181.48  Person entitled to receive drawback.
181.49  Retention of records.
181.50  Liquidation and payment of drawback claims.
181.51  Prevention of improper payment of claims.
181.52  Subsequent claims for preferential tariff treatment.
181.53  Waiver or reduction of duty under duty-deferral programs.
181.54  Verification of claim for drawback, waiver or reduction of 
duties.

Subpart F--Commercial Samples and Goods Returned After Repair or 
Alteration

181.61  Applicability.
181.62  Commercial samples of negligible value.
181.63  [Reserved]
181.64  Goods re-entered after repair or alteration in Canada or 
Mexico.

Subpart G--Origin Verifications and Determinations

181.71  Denial of preferential tariff treatment dependent on origin 
verification and determination.
181.72  Verification scope and method.
181.73  Notification of verification visit.
181.74  Verification visit procedures.
181.75  Issuance of origin determination.
181.76  Application of origin determinations.

Subpart H--Penalties

181.81  Applicability to NAFTA transactions.
181.82  Exceptions to application of penalties.

Subpart I--Advance Ruling Procedures

181.91  Applicability.
181.92  Definitions and general NAFTA advance ruling practice.
181.93  Submission of advance ruling requests.
181.94  Nonconforming requests for advance rulings.
181.95  Oral discussion of issues.
181.96  Change in status of transaction.
181.97  Withdrawal of NAFTA advance ruling requests.
181.98  Situations in which no NAFTA advance ruling may be issued.
181.99  Issuance of NAFTA advance rulings or other advice.
181.100  Effect of NAFTA advance ruling letters; modification and 
revocation.
181.101  Publication of decisions.
181.102  Administrative and judicial review of advance rulings.

Subpart J--Review and Appeal of Adverse Marking Decisions

181.111  Applicability.
181.112  Definitions.
181.113  Request for Basis of Adverse Marking Decision.
181.114  Customs response to request.
181.115  Intervention in importer's protest.
181.116  Petition regarding adverse marking decision.

Subpart K--Confidentiality of Business Information

181.121  Maintenance of confidentiality.
181.122  Disclosure to government authorities.

Subpart L--Rules of Origin

181.131  Rules of origin.

Appendix to Part 181--Rules of Origin Regulations

    Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States), 1624, 3314.
Sec. 181.0  Scope.

    This part implements the duty preference and related Customs 

[[Page 46365]]
    provisions applicable to imported goods under the North American Free 
Trade Agreement (the NAFTA) entered into on December 17, 1992, and 
under the North American Free Trade Agreement Implementation Act (107 
Stat. 2057) (the Act). Except as otherwise specified in this part, the 
procedures and other requirements set forth in this part are in 
addition to the Customs procedures and requirements of general 
application contained elsewhere in this chapter. Additional provisions 
implementing certain aspects of the NAFTA and the Act are contained in 
parts 10, 12, 24, 134 and 174 of this chapter.

Subpart A--General Provisions


Sec. 181.1  Definitions.

    As used in this part, the following terms shall have the meanings 
indicated unless either the context in which they are used requires a 
different meaning or a different definition is prescribed for a 
particular subpart, section or other portion of this part:
    (a) Canada. Canada, when used in a geographical rather than 
governmental context, means the territory of Canada as defined in Annex 
201.1 of the NAFTA.
    (b) Commercial importation. Commercial importation means the 
importation of a good into the United States, Canada or Mexico for the 
purpose of sale, or any commercial, industrial or other like use.
    (c) Customs administration. Customs administration means the 
competent authority that is responsible under the law of the United 
States, Canada or Mexico for the administration of its customs laws and 
regulations.
    (d) Customs duty. Customs duty means any customs or import duty and 
a charge of any kind imposed in connection with the importation of a 
good, including any form of surtax or surcharge in connection with such 
importation, other than any:
    (1) Charge equivalent to an internal tax imposed consistently with 
Article III:2 of the General Agreement on Tariffs and Trade, or any 
equivalent provision of a successor agreement to which the United 
States, Canada and Mexico are party, in respect of like, directly 
competitive or substitutable goods of the United States, Canada or 
Mexico, or in respect of goods from which the imported good has been 
manufactured or produced in whole or in part;
    (2) Antidumping or countervailing duty that is applied pursuant to 
the domestic law of the United States, Canada or Mexico and that is not 
applied inconsistently with Chapter Nineteen of the NAFTA;
    (3) Fee or other charge in connection with importation commensurate 
with the cost of services rendered;
    (4) Premium offered or collected on an imported good arising out of 
any tendering system in respect of the administration of quantitative 
import restrictions, tariff rate quotas or tariff preference levels; 
and
    (5) Fee applied pursuant to section 22 of the U.S. Agricultural 
Adjustment Act, subject to the provisions of Chapter Seven of the 
NAFTA.
    (e) Determination of origin. Determination of origin means a 
determination as to whether a good qualifies as a good originating in 
the United States, Canada and/or Mexico under the rules set forth in 
General Note 12, HTSUS, and in the appendix to this part.
    (f) Exporter. Exporter means an exporter located, and required 
under this part to maintain records regarding exportations of a good, 
in the United States, Canada or Mexico.
    (g) Generally Accepted Accounting Principles. Generally Accepted 
Accounting Principles means the recognized consensus or substantial 
authoritative support in the United States, Canada or Mexico with 
respect to the recording of revenues, expenses, costs, assets and 
liabilities, the disclosure of information and the preparation of 
financial statements. Generally Accepted Accounting Principles under 
this definition may encompass broad guidelines of general application 
as well as detailed standards, practices and procedures.
    (h) HTSUS. HTSUS means the Harmonized Tariff Schedule of the United 
States.
    (i) Importer. Importer means an importer located, and required 
under this part to maintain records regarding importations of a good, 
in the United States, Canada or Mexico.
    (j) Intermediate material. Intermediate material means an 
``intermediate material'' as defined in the appendix to this part.
    (k) Marking Rules. Marking Rules means the ``NAFTA Marking Rules'' 
as defined in Sec. 134.1(j) of this chapter.
    (l) Measure. Measure means any law, regulation, procedure, 
requirement or practice.
    (m) Mexico. Mexico, when used in a geographical rather than 
governmental context, means the territory of Mexico as defined in Annex 
201.1 of the NAFTA.
    (n) NAFTA. NAFTA means the North American Free Trade Agreement 
approved by the Congress under section 101(a) of the North American 
Free Trade Agreement Implementation Act (107 Stat. 2057).
    (o) NAFTA drawback. NAFTA drawback means any drawback, waiver or 
reduction of U.S. customs duty provided for in subpart E of this part.
    (p) Net cost of a good. Net cost of a good means the ``net cost of 
a good'' as defined in the appendix to this part.
    (q) Originating. Originating, when used with regard to a good or a 
material, means a good or material which qualifies as originating in 
the United States, Canada and/or Mexico under the rules set forth in 
General Note 12, HTSUS, and in the appendix to this part.
    (r) Person. Person means a natural person or an enterprise.
    (s) Preferential tariff treatment. Preferential tariff treatment 
means the duty rate applicable to an originating good or to a good to 
which Appendix 6.B. to Annex 300-B of the NAFTA applies.
     (t) Producer. Producer means a producer as defined in the appendix 
to this part.
     (u) Production. Production means production as defined in the 
appendix to this part.
     (v) Transaction value. Transaction value means transaction value 
as defined in the appendix to this part.
     (w) United States. United States, when used in a geographical 
rather than governmental context, means the territory of the United 
States as defined in Annex 201.1 of the NAFTA.
     (x) Used. Used means used as defined in the appendix to this part.
     (y) Value. Value means the value of a good or material for 
purposes of calculating customs duties or for purposes of applying the 
provisions of the appendix to this part.

Subpart B--Export Requirements


Sec. 181.11  Certificate of Origin.

     (a) General. A Certificate of Origin shall be employed to certify 
that a good being exported either from the United States into Canada or 
Mexico or from Canada or Mexico into the United States qualifies as an 
originating good for purposes of preferential tariff treatment under 
the NAFTA.
     (b) Preparation of Certificate in the United States. An exporter 
in the United States who completes and signs a Certificate of Origin 
for the purpose set forth in paragraph (a) of this section shall use 
Customs Form 434 or such other medium or format as approved by the 
Canadian or Mexican customs administration for that purpose. Where the 
U.S. exporter is not the producer of the good, that exporter may 
complete and sign a Certificate on the basis of: 

[[Page 46366]]

     (1) Its knowledge of whether the good qualifies as an originating 
good;
     (2) Its reasonable reliance on the producer's written 
representation that the good qualifies as an originating good; or
    (3) A completed and signed Certificate for the good voluntarily 
provided to the exporter by the producer.
     (c) Submission of Certificate to Customs. An exporter in the 
United States, and a producer in the United States who has voluntarily 
provided a copy of a Certificate of Origin to that exporter pursuant to 
paragraph (b)(3) of this section, shall provide a copy of the 
Certificate to Customs upon request.
     (d) Notification of errors in Certificate. An exporter or producer 
in the United States who has completed and signed a Certificate of 
Origin, and who has reason to believe that the Certificate contains 
information that is not correct, shall within 30 calendar days after 
the date of discovery of the error notify in writing all persons to 
whom the Certificate was given by the exporter or producer of any 
change that could affect the accuracy or validity of the Certificate.


Sec. 181.12  Maintenance and availability of records.

     (a) Maintenance of records--(1) General. An exporter or producer 
in the United States who completes and signs a Certificate of Origin 
shall maintain in the United States, for five years after the date on 
which the Certificate was signed, all records relating to the origin of 
a good for which preferential tariff treatment may be claimed in Canada 
or Mexico, including records associated with:
     (i) The purchase of, cost of, value of, and payment for, the good 
that is exported from the United States;
     (ii) The purchase of, cost of, value of, and payment for, all 
materials, including indirect materials, used in the production of the 
good that is exported from the United States; and
     (iii) The production of the good in the form in which the good is 
exported from the United States.
     (2) Method of maintenance. The records referred to in paragraph 
(a) of this section shall be maintained in accordance with the 
Generally Accepted Accounting Principles applied in the United States 
and may be maintained in hard-copy form, on microfilm or microfiche or 
in automated record storage devices (for example, magnetic discs and 
tapes) if associated computer programs are available to facilitate 
retrieval of the data in a usable form.
     (b) Availability of records--(1) To Customs. For purposes of 
determining compliance with the provisions of this part, the records 
required to be maintained under this section shall be made available 
for examination and inspection by the port director or other 
appropriate Customs officer in the same manner as provided in 
Sec. 162.1d of this chapter in the case of U.S. importer records.
     (2) To the Canadian or Mexican customs administration. If a U.S. 
exporter or producer receives notification of, and consents to, an 
origin verification visit by the Canadian or Mexican customs 
administration under Article 506 of the NAFTA (see Sec. 181.74(e) of 
this part), such consent shall constitute agreement by the U.S. 
exporter or producer to make available to an officer of that customs 
administration all records required to be maintained under this section 
and to provide facilities for the inspection thereof. If, during the 
course of an origin verification of a U.S. producer, the Canadian or 
Mexican customs administration finds that the U.S. producer has failed 
to maintain its records in accordance with the Generally Accepted 
Accounting Principles applied in the United States, that customs 
administration will so inform the U.S. producer in writing and will 
give the U.S. producer 60 calendar days to conform the records to those 
Principles. If a U.S. exporter or producer fails to maintain records or 
make records available to the Canadian or Mexican customs 
administration in accordance with the provisions of this section, or if 
a U.S. producer fails to conform its records to Generally Accepted 
Accounting Principles as provided in this paragraph, the Canadian or 
Mexican customs administration may deny preferential tariff treatment 
to the good that is the subject of the verification visit.


Sec. 181.13  Failure to comply with requirements.

     The port director may apply such measures as the circumstances may 
warrant where an exporter or a producer in the United States fails to 
comply with any requirement of this part.

Subpart C--Import Requirements


Sec. 181.21  Filing of claim for preferential tariff treatment upon 
importation.

     (a) Declaration. In connection with a claim for preferential 
tariff treatment for a good under the NAFTA, the U.S. importer shall 
make a written declaration that the good qualifies for such treatment. 
The written declaration may be made by including on the entry summary, 
or equivalent documentation, the symbol ``CA'' for a good of Canada, or 
the symbol ``MX'' for a good of Mexico, as a prefix to the subheading 
of the HTSUS under which each qualifying good is classified. Except as 
otherwise provided in Sec. 181.22 of this part and except in the case 
of a good to which Appendix 6.B. to Annex 300-B of the NAFTA applies 
(see, however, Sec. 12.132 of this chapter), the declaration shall be 
based on a complete and properly executed original Certificate of 
Origin, or copy thereof, which is in the possession of the importer and 
which covers the good being imported.
     (b) Corrected declaration. If, after making the declaration 
required under paragraph (a) of this section or under Sec. 181.32(b)(2) 
of this part, the U.S. importer has reason to believe that a 
Certificate of Origin on which a declaration was based contains 
information that is not correct, the importer shall within 30 calendar 
days after the date of discovery of the error make a corrected 
declaration and pay any duties that may be due. A corrected declaration 
shall be effected by submission of a letter or other written statement 
to the Customs office where the original declaration was filed.


Sec. 181.22  Maintenance of records and submission of Certificate by 
importer.

     (a) Maintenance of records. Each importer claiming preferential 
tariff treatment for a good imported into the United States shall 
maintain in the United States, for five years after the date of entry 
of the good, all documentation relating to the importation of the good. 
Such documentation shall include a copy of the Certificate of Origin 
and any other relevant records as specified in Sec. 162.1a(a) of this 
chapter.
     (b) Submission of Certificate. An importer who claims preferential 
tariff treatment on a good under Sec. 181.21 of this part shall 
provide, at the request of the port director, a copy of each 
Certificate of Origin pertaining to the good which is in the possession 
of the importer. A Certificate of Origin submitted to Customs under 
this paragraph or under Sec. 181.32(b)(3) of this part:
     (1) Shall be on Customs Form 434, including privately-printed 
copies thereof, or on such other form as approved by the Canadian or 
Mexican customs administration, or, as an alternative to Customs Form 
434 or such other approved form, in an approved computerized format or 
such other medium or format as is approved by the Office of Field 
Operations, U.S. Customs Service, Washington, DC 20229. An alternative 
format must contain the 

[[Page 46367]]
same information and certification set forth on Customs Form 434;
     (2) Shall be signed by the exporter or by the exporter's 
authorized agent having knowledge of the relevant facts;
     (3) Shall be completed either in the English language or in the 
language of the country from which the good is exported. If the 
Certificate is completed in a language other than English, the importer 
shall also provide to the port director, upon request, a written 
English translation thereof;
     (4) Shall be accepted by Customs for four years after the date on 
which the Certificate was signed by the exporter or producer; and
    (5) May be applicable to:
    (i) A single importation of a good into the United States, 
including a single shipment that results in the filing of one or more 
entries and a series of shipments that results in the filing of one 
entry; or
    (ii) Multiple importations of identical goods into the United 
States that occur within a specified period, not exceeding 12 months, 
set out therein by the exporter or producer.
    (c) Acceptance of Certificate. A Certificate of Origin shall be 
accepted by the port director as valid for the purpose set forth in 
Sec. 181.11(a) of this part, provided that the Certificate is 
completed, signed and dated in accordance with the requirements of 
paragraph (b) of this section. If the port director determines that a 
Certificate is illegible or defective or has not been completed in 
accordance with paragraph (b) of this section, the importer shall be 
given a period of not less than five working days to submit a corrected 
Certificate. Acceptance of a Certificate will result in the granting of 
preferential tariff treatment to the imported good unless, in 
connection with an origin verification initiated under subpart G of 
this part or based on a pattern of conduct within the meaning of 
Sec. 181.76(c) of this part, the port director determines that the 
imported good does not qualify as an originating good or should not be 
accorded such treatment for any other reason as specifically provided 
for elsewhere in this part. A Certificate shall not be accepted in 
connection with subsequent importations during a period referred to in 
paragraph (b)(5)(ii) of this section if, based on an origin 
verification under subpart G of this part, the port director determined 
that a previously imported identical good covered by the Certificate 
did not qualify as an originating good.
    (d) Certificate not required--(1) General. Except as otherwise 
provided in paragraph (d)(2) of this section, an importer shall not be 
required to have a Certificate of Origin in his possession for:
    (i) An importation of a good for which the port director has in 
writing waived the requirement for a Certificate of Origin because the 
port director is otherwise satisfied that the good qualifies for 
preferential tariff treatment under the NAFTA;
    (ii) A non-commercial importation of a good; or
    (iii) A commercial importation of a good whose value does not 
exceed US$2,500, provided that, unless waived by the port director, the 
producer, exporter, importer or authorized agent includes on, or 
attaches to, the invoice or other document accompanying the shipment 
the following signed statement:

    I hereby certify that the good covered by this shipment 
qualifies as an originating good for purposes of preferential tariff 
treatment under the NAFTA.

Check One:
( ) Producer
( ) Exporter
( ) Importer
( ) Agent

----------------------------------------------------------------------
Name

----------------------------------------------------------------------
Title

----------------------------------------------------------------------
Address

----------------------------------------------------------------------
Signature and Date

    (2) Exception. If the port director determines that an importation 
described in paragraph (d)(1) of this section forms part of a series of 
importations that may reasonably be considered to have been undertaken 
or arranged for the purpose of avoiding a certification requirement set 
forth in this part, the port director shall notify the importer in 
writing that for that importation the importer must have in his 
possession a valid Certificate of Origin to support the claim for 
preferential tariff treatment. The importer shall have 30 calendar days 
from the date of the written notice to obtain a valid Certificate, and 
a failure to timely obtain the Certificate will result in denial of the 
claim for preferential tariff treatment. For purposes of paragraph 
(d)(2) of this section, a ``series of importations'' means two or more 
entries covering goods arriving on the same day from the same exporter 
and consigned to the same person.
Sec. 181.23  Effect of noncompliance; failure to provide documentation 
regarding transshipment.

    (a) Effect of noncompliance. If the importer fails to comply with 
any requirement under this part, including submission of a Certificate 
of Origin under Sec. 181.22(b) or submission of a corrected Certificate 
under Sec. 181.22(c), the port director may deny preferential tariff 
treatment to the imported good.
    (b) Failure to provide documentation regarding transshipment. Where 
the requirements for preferential tariff treatment set forth elsewhere 
in this part are met, the port director nevertheless may deny 
preferential tariff treatment to an originating good if the good is 
shipped through or transshipped in a country other than the United 
States, Canada or Mexico and the importer of the good does not provide, 
at the request of the port director, copies of the customs control 
documents that indicate to the satisfaction of the port director that 
the good remained under customs control while in such other country.

Subpart D--Post-Importation Duty Refund Claims


Sec. 181.31  Right to make post-importation claim and refund duties.

    Notwithstanding any other available remedy, including the right to 
amend an entry so long as liquidation of the entry has not become 
final, where a good would have qualified as an originating good when it 
was imported into the United States but no claim for preferential 
tariff treatment on that originating good was made at that time under 
Sec. 181.21(a) of this part, the importer of that good may file a claim 
for a refund of any excess duties at any time within one year after the 
date of importation of the good in accordance with the procedures set 
forth in Sec. 181.32 of this part. Subject to the provisions of 
Sec. 181.23 of this part, Customs may refund any excess duties by 
liquidation or reliquidation of the entry covering the good in 
accordance with Sec. 181.33(c) of this part.


Sec. 181.32  Filing procedures.

    (a) Place of filing. A post-importation claim for a refund under 
Sec. 181.31 of this part shall be filed with the director of the port 
at which the entry covering the good was filed.
    (b) Contents of claim. A post-importation claim for a refund shall 
be filed by presentation of the following:
    (1) A written declaration stating that the good qualified as an 
originating good at the time of importation and setting forth the 
number and date of the entry covering the good;
    (2) Subject to Sec. 181.22(d) of this part, a copy of each 
Certificate of Origin (see Sec. 181.11 of this part) pertaining to the 
good;

[[Page 46368]]

    (3) A written statement indicating whether or not the importer of 
the good provided a copy of the entry summary or equivalent 
documentation to any other person. If such documentation was so 
provided, the statement shall identify each recipient by name, Customs 
identification number and address and shall specify the date on which 
the documentation was provided;
    (4) A written statement indicating whether or not the importer of 
the good is aware of any claim for refund, waiver or reduction of 
duties relating to the good within the meaning of Article 303 of the 
NAFTA (see subpart E of this part). If the importer is aware of any 
such claim, the statement shall identify each claim by number and date 
and shall identify the person who made the claim by name, Customs 
identification number and address; and
    (5) A written statement indicating whether or not any person has 
filed a protest or a petition or request for reliquidation relating to 
the good under any provision of law, and if any such protest or 
petition or request for reliquidation has been filed, the statement 
shall identify the protest, petition or request by number and date.


Sec. 181.33  Customs processing procedures.

    (a) Status determination. After receipt of a post-importation claim 
under Sec. 181.32 of this part, the port director shall determine 
whether the entry covering the good has been liquidated and, if 
liquidation has taken place, whether the liquidation has become final.
    (b) Pending protest, petition or request for reliquidation or 
judicial review. If the port director determines that any protest or 
any petition or request for reliquidation relating to the good has not 
been finally decided, the port director shall suspend action on the 
claim filed under this subpart until the decision on the protest, 
petition or request becomes final. If a summons involving the tariff 
classification or dutiability of the good is filed in the Court of 
International Trade, the port director shall suspend action on the 
claim filed under this subpart until judicial review has been 
completed.
    (c) Allowance of claim.--(1) Unliquidated entry. If the port 
director determines that a claim for a refund filed under this subpart 
should be allowed and the entry covering the good has not been 
liquidated, the port director shall take into account the claim for 
refund under this subpart in connection with the liquidation of the 
entry.
    (2) Liquidated entry. If the port director determines that a claim 
for a refund filed under this subpart should be allowed and the entry 
covering the good has been liquidated, whether or not the liquidation 
has become final, the entry must be reliquidated in order to effect a 
refund of duties pursuant to this subpart. If the entry is otherwise to 
be reliquidated based on administrative review of a protest or petition 
for reliquidation or as a result of judicial review, the port director 
shall reliquidate the entry taking into account the claim for refund 
under this subpart.
    (3) Information to be provided to Canada or Mexico. If any 
information is provided to Customs pursuant to Sec. 181.32(b) (4) or 
(5) of this part, that information, together with notice of the 
allowance of the claim and the amount of duty refunded pursuant to this 
subpart, shall be provided by the port director to the customs 
administration of the country from which the good was exported.
    (d) Denial of claim--(1) General. The port director may deny a 
claim for a refund filed under this subpart if the claim was not filed 
timely, if the importer has not complied with the requirements of this 
subpart, if the Certificate of Origin submitted under Sec. 181.32(b)(3) 
of this part cannot be accepted as valid (see Sec. 181.22(c) of this 
part), or if, following initiation of an origin verification under 
Sec. 181.72(a) of this part, the port director determines either that 
the imported good did not qualify as an originating good at the time of 
importation or that a basis exists upon which preferential tariff 
treatment may be denied under Sec. 181.72(d), Sec. 181.74(c) or 
Sec. 181.76(c) of this part.
    (2) Unliquidated entry. If the port director determines that a 
claim for a refund filed under this subpart should be denied and the 
entry covering the good has not been liquidated, the port director 
shall deny the claim in connection with the liquidation of the entry, 
and written notice of the denial and the reason therefor shall be given 
to the importer and, in the case of a denial on the merits, to any 
person who completed and signed a Certificate of Origin relating to the 
good. Each notice of denial given to a person who completed and signed 
a Certificate of Origin shall also include a statement regarding the 
right to file a protest against the denial under part 174 of this 
chapter.
    (3) Liquidated entry. If the port director determines that a claim 
for a refund filed under this subpart should be denied and the entry 
covering the good has been liquidated, whether or not the liquidation 
has become final, the claim may be denied without reliquidation of the 
entry. If the entry is otherwise to be reliquidated based on 
administrative review of a protest or petition for reliquidation or as 
a result of judicial review, such reliquidation may include denial of 
the claim filed under this subpart. In either case, the port director 
shall give written notice of the denial and the reason therefor to the 
importer and, in the case of a denial on the merits, to any person who 
completed and signed a Certificate of Origin relating to the good. Each 
notice of denial given to a person who completed and signed a 
Certificate of Origin shall also include a statement regarding the 
right to file a protest against the denial under part 174 of this 
chapter.

Subpart E--Restrictions on Drawback and Duty-Deferral Programs


Sec. 181.41  Applicability.

    This subpart sets forth the provisions regarding drawback claims 
and duty-deferral programs under Article 303 of the NAFTA and applies 
to any good that is a ``good subject to NAFTA drawback'' within the 
meaning of 19 U.S.C. 3333. Except in the case of Sec. 181.42(d), the 
provisions of this subpart apply to goods which are imported into the 
United States and then subsequently exported from the United States to 
Canada on or after January 1, 1996, or to Mexico on or after January 1, 
2001. The requirements and procedures set forth in this subpart for 
NAFTA drawback are in addition to the general definitions, requirements 
and procedures for all drawback claims set forth in part 191 of this 
chapter, unless otherwise specifically provided in this subpart. Also, 
the requirements and procedures set forth in this subpart for NAFTA 
duty-deferral programs are in addition to the requirements and 
procedures for manipulation, manufacturing and smelting and refining 
warehouses contained in part 19 and part 144 of this chapter, for 
foreign trade zones under part 146 of this chapter, and for temporary 
importations under bond contained in part 10 of this chapter.


Sec. 181.42  Duties and fees not subject to drawback.

    The following duties or fees which may be applicable to a good 
entered for consumption in the Customs territory of the United States 
are not subject to drawback under this subpart:
    (a) Antidumping and countervailing duties;
    (b) A premium offered or collected on a good with respect to 
quantitative import restrictions, tariff rate quotas or tariff 
preference levels; 

[[Page 46369]]

    (c) Fees applied under section 22 of the U.S. Agricultural 
Adjustment Act; and
    (d) Customs duties paid or owed under unused merchandise 
substitution drawback. There shall be no payment of such drawback under 
19 U.S.C. 1313(j)(2) on goods exported to Canada or Mexico on or after 
January 1, 1994.


Sec. 181.43  Eligible goods subject to drawback.

    Except as otherwise provided in this subpart, drawback is 
authorized for an imported good that is entered for consumption and is:
    (a) Subsequently exported to Canada or Mexico (see 19 U.S.C. 
1313(j)(1));
    (b) Used as a material in the production of another good that is 
subsequently exported to Canada or Mexico (see 19 U.S.C. 1313(a)); or
    (c) Substituted by a good of the same kind and quality as defined 
in Sec. 181.44(c) of this subpart and used as a material in the 
production of another good that is subsequently exported to Canada or 
Mexico (see 19 U.S.C. 1313(b)).


Sec. 181.44  Calculation of drawback.

    (a) General. Except in the case of goods specified in Sec. 181.45 
of this part, drawback of the duties previously paid upon importation 
of a good into the United States may be granted by the United States, 
upon presentation of a NAFTA drawback claim under this subpart, on the 
lower amount of:
    (1) The total duties paid or owed on the good in the United States; 
or
    (2) The total amount of duties paid on the exported good upon 
subsequent importation into Canada or Mexico.
    (b) Individual relative value and duty comparison principle. For 
purposes of this section, relative value shall be determined, and the 
comparison between the duties referred to in paragraph (a)(1) of this 
section and the duties referred to in paragraph (a)(2) of this section 
shall be made, separately with reference to each individual exported 
good, including where two components or materials are used to produce 
one exported good or one component or material is divided among 
multiple exported goods.

    Example. Upon importation of Chemical X into the United States, 
Company A entered Chemical X and paid $2.00 in duties. Company A 
processed Chemical X into Products Y and Z, each having the same 
relative value; that is, $1.00 in duty is attributable to Product Y 
and $1.00 in duty is attributable to Product Z. Company A exported 
Product Y to Canada and Canada assessed a free rate of duty. Company 
A exported Product Z to Mexico and Mexico assessed the equivalent of 
US$2.00 in duty. There is no entitlement to drawback on the export 
of Product Y to Canada because zero is the lesser amount when 
compared to the $1.00 in duty attributable to Product Y as a result 
of the separation of Chemical X into Products Y and Z. There would 
be entitlement to drawback on the export to Mexico, consisting of 
the $1.00 duty attributable to Product Z, because that amount is the 
lesser amount when comparing the duty paid to the United States and 
the US$ equivalent duty paid to Mexico.

    (c) Direct identification manufacturing drawback under 19 U.S.C. 
1313(a). Upon presentation of the NAFTA drawback claim under 19 U.S.C. 
1313(a), in which the amount of drawback payable is based on the lesser 
amount of the customs duties paid on the good either to the United 
States or to Canada or Mexico, the amount of drawback refunded shall 
not exceed 99 percent of the duty paid on such imported merchandise 
into the United States.

    Example 1. Upon the importation of Product X to the United 
States from Japan, Company A paid $2.00 in duties. Company A 
manufactured the imported Product X into Product Y, and subsequently 
exported it to Mexico. Mexico assessed the equivalent of US$11.00 in 
duties upon importation of Product Y. Upon presenting a drawback 
claim in the United States, in accordance with 19 U.S.C. 1313(a), 
Company A would be entitled to a refund of 99 percent of the $2.00, 
or $1.98. The $2.00 paid by Company A (less 1 percent) on the 
importation of Product X into the United States is a lesser amount 
of duties than the total amount of customs duties paid to Mexico 
(the equivalent of US$11.00) on Product Y.

    Example 2. Upon the importation of Product X into the United 
States from Hong Kong, Company A entered Product X and paid $5.00 in 
duties. Company A manufactured Product X into Product Y, sold it to 
Company B in Mexico and subsequently exported it to Mexico. Company 
A reserved its right to drawback. Upon Product Y's importation, 
Company B was assessed a free rate of duty. Company A's claim for 
drawback will be denied because Company A is entitled to zero 
drawback for the reason that, as between the duty paid in the United 
States and the duty paid in Mexico, the duty in Mexico was zero.

    (d) Substitution manufacturing drawback under 19 U.S.C. 1313(b). 
Upon presentation of a NAFTA drawback claim under 19 U.S.C. 1313(b), on 
which the amount of drawback payable is based on the lesser amount of 
the customs duties paid on the good either to the United States or to 
Canada or Mexico, the amount of drawback is the same as that which 
would have been allowed had the substituted merchandise used in 
manufacture been itself imported. For purposes of drawback under this 
subpart, the term ``same kind and quality'' used in Sec. 1313(b) (see 
Sec. 191.2(m) of this chapter) shall have the same meaning as the term 
``identical or similar good'' used in Article 303 of the NAFTA except 
that there shall be no requirement that the good be manufactured in the 
same country.

    Example 1. Upon importation of Product X from Japan to the 
United States, Company A paid $5.00 in duties. Company A substituted 
a same kind and quality domestic Product X for the Japanese Product 
X in its production of Product Y under its 19 U.S.C. 1313(b) 
drawback contract. Company A sold Product Y to Company B which 
subsequently exported it to Canada. On the importation of Product Y 
by Company B, Company B paid the equivalent of US$2.00 in duties 
assessed by Revenue Canada and waived its right to drawback to 
Company A. Company A is entitled to obtain drawback under 19 U.S.C. 
1313(b) in the United States in the amount of $1.98 (or 99 percent 
of the US$2.00 equivalent Company B paid in duty to Canada) since 
that $2.00 was the lesser of the total amount of customs duties paid 
on the product to either Canada or the United States.

    Example 2. Same facts as above example, but Company B paid the 
equivalent of US$5.00 to Revenue Canada. Company A is entitled to 
obtain $4.95 in drawback (a refund of 99 percent of $5.00 paid to 
the United States). Since the same amount of duty was assessed by 
each country, drawback is allowable because the drawback paid does 
not exceed the lesser amount paid.

    (e) Meats cured with imported salt. Meats, whether packed or 
smoked, which have been cured with imported salt may be eligible for 
drawback in aggregate amounts of not less than $100 in duties paid on 
the imported salt upon exportation of the meats to Canada or Mexico 
(see 19 U.S.C. 1313(f)).

    Example. Company Z produced Virginia smoked ham on its 
Smithfield, Virginia farm, using 4,000 pounds of imported salt in 
curing the meat. The salt was imported from an HTSUS Column 2 
country, with a duty of $200. Upon exportation of the hams to 
Mexico, Company Z pays the equivalent of US$250.00 in duties to 
Mexico. Company Z is entitled to drawback of the full 100 percent of 
the $200.00 in duties it paid on the importation of the salt into 
the United States because that $200.00 is a lesser amount than the 
total amount of customs duties paid to Mexico on the exported meat.

    (f) Jet aircraft engines. A foreign-built jet aircraft engine that 
has been overhauled, repaired, rebuilt, or reconditioned in the United 
States with the use of imported merchandise, including parts, may be 
eligible for drawback of duties paid on the imported merchandise in 
aggregate amounts of not less than $100 upon exportation of the engine 
to Canada or Mexico (19 U.S.C. 1313(h)).


[[Page 46370]]

    Example. A Swedish-made jet aircraft engine is repaired in the 
United States using imported parts from Korea on which $160.00 in 
duties have been paid by Company W. The engine is subsequently 
exported to Canada by Company W and Company W pays the equivalent of 
US$260.00 in duties to Canada. Upon showing the country in which the 
engine was manufactured and a description of the processing 
performed thereon in the United States on Customs Form 7575-A, 
appropriately modified, Company W is entitled to the full refund of 
the duties paid to the United States since that $160.00 was a lesser 
amount than the duties paid on the engine to Canada.

    (g) Unused goods under 19 U.S.C. 1313(j)(1) that have changed in 
condition. An imported good that is unused in the United States under 
19 U.S.C. 1313(j)(1) and that is shipped to Canada or Mexico not in the 
same condition within the meaning of Sec. 181.45(b)(1) may be eligible 
for drawback under this section, except when the shipment to Canada or 
Mexico does not constitute an exportation under 19 U.S.C. 1313(j)(4).

    Example. Upon importation of Product X from Spain to the United 
States, the U.S. importer pays $10.00 in duties. While in the 
original package in the importer's warehouse, Product X becomes 
damaged. A Canadian purchaser buys Product X and imports it into 
Canada and pays the equivalent of US$5.00 in duties assessed by 
Revenue Canada. The Canadian purchaser who exported Product X from 
the United States to Canada and who otherwise qualifies for drawback 
is entitled to drawback under 19 U.S.C. 1313(j)(1) in the amount of 
$4.95 (99 percent of the US$5.00 equivalent in duties paid to 
Canada). Eligibility for full drawback of the $10.00 in U.S. duties 
under Sec. 181.45(b) would be precluded because Product X, although 
unused, was not exported to Canada in the same condition as when 
imported into the United States within the meaning of 
Sec. 181.45(b)(1).


Sec. 181.45  Goods eligible for full drawback.

    (a) Goods originating in Canada or Mexico. A Canadian or Mexican 
originating good that is dutiable and is imported into the United 
States is eligible for drawback without regard to the limitation on 
drawback set forth in Sec. 181.44 of this part if that originating good 
is:
     (1) Subsequently exported to Canada or Mexico;
    (2) Used as a material in the production of another good that is 
subsequently exported to Canada or Mexico; or
    (3) Substituted by a good of the same kind and quality and used as 
a material in the production of another good that is subsequently 
exported to Canada or Mexico.

    Example. Company A imports a dutiable (3 percent rate) Canadian 
originating good. During Company A's manufacturing process, Company 
A substitutes a German good of the same kind and quality (on which 
duty was paid at a 2.5 percent rate) in the production of another 
good that is subsequently exported to Canada. Company A may 
designate the dutiable Canadian entry and claim full drawback (99 
percent) on the 3 percent duty paid under 19 U.S.C. 1313(b). (Note: 
NAFTA originating goods will continue to receive full drawback as 
they cross NAFTA borders for successive stages of production until 
NAFTA tariffs are fully phased out.)

    (b) Claims under 19 U.S.C 1313(j)(1) for goods in same condition. A 
good imported into the United States and subsequently exported to 
Canada or Mexico in the same condition is eligible for drawback under 
19 U.S.C. 1313(j)(1) without regard to the limitation on drawback set 
forth in Sec. 181.44 of this part.

    Example. X imports a desk into the United States from England 
and pays $25.00 in duty. X immediately exports the desk to Z in 
Mexico and Z pays the equivalent of US$10.00 in Mexican duties. X 
can obtain a refund of 99 percent of the $25.00 paid upon 
importation of the desk into the United States.

    (1) Same condition defined. For purposes of this subpart, a 
reference to a good in the ``same condition'' includes a good that has 
been subjected to any of the following operations provided that no such 
operation materially alters the characteristics of the good:
    (i) Mere dilution with water or another substance;
    (ii) Cleaning, including removal of rust, grease, paint or other 
coatings;
    (iii) Application of preservative, including lubricants, protective 
encapsulation, or preservation paint;
    (iv) Trimming, filing, slitting or cutting;
    (v) Putting up in measured doses, or packing, repacking, packaging 
or repackaging; or
    (vi) Testing, marking, labelling, sorting or grading.
    (2) Commingling of fungible goods--(i) General. Commingling of 
fungible goods in inventory, such as parts, is permissible (see 
Sec. 191.141(e) of this chapter), provided that the entries for 
designation for same condition drawback are identified on the basis of 
an approved inventory method set forth in the appendix to this part.
    (ii) Exception. Agricultural goods imported from Mexico may not be 
commingled with fungible agricultural goods in the United States for 
purposes of same condition drawback under this subpart.
    (c) Goods not conforming to sample or specifications or shipped 
without consent of consignee under 19 U.S.C. 1313(c). An imported good 
exported to Canada or Mexico by reason of failure of the good to 
conform to sample or specification or by reason of shipment of the good 
without the consent of the consignee is eligible for drawback under 19 
U.S.C. 1313(c) without regard to the limitation on drawback set forth 
in Sec. 181.44 of this part. Such a good must be returned to Customs 
custody for exportation under Customs supervision within three years 
after the release from Customs custody.

     Example. X orders, after seeing a sample in the ABC Company's 
catalog, a certain quantity of 2-by-4 lumber from ABC Company 
located in Honduras. ABC Company, having run out of the specific 
lumber, ships instead a different kind of lumber. X rejects the 
lumber because it did not conform to the sample and is asked to send 
it to a customer of ABC in Canada. X exports it within 90 days of 
its release from Customs custody. X may recover 99 percent of the 
$500 duties it paid to U.S. Customs upon the exportation of the 
lumber, or $495.00.

    (d) Certain goods exported to Canada. Goods identified in Annex 
303.6 of the NAFTA and in sections 203(a) (7) and (8) of the North 
American Free Trade Agreement Implementation Act, if exported to 
Canada, are eligible for drawback without regard to the limitation on 
drawback set forth in Sec. 181.44 of this part.


Sec. 181.46  Time and place for filing drawback claim.

    (a) Time of filing. A drawback claim under this subpart shall be 
filed or applied for, as applicable, within 3 years after the date of 
exportation of the goods on which drawback is claimed. No extension 
will be granted unless it is established that a Customs officer was 
responsible for the untimely filing. Drawback shall be allowed only if 
the completed good is exported within 5 years after importation of the 
merchandise identified or designated to support the claim. A good 
subject to a claim for same condition drawback must be exported before 
the close of the 3-year period beginning on the date of importation of 
the good into the United States.
    (b) Place of filing. A drawback claim must be filed at the port(s) 
where the manufacturing drawback contract is on file, whether a general 
rate or specific rate, but exportation need not occur from that port. 
To facilitate expedited processing of claims, claimants should file 
same condition drawback claims in the port where the examination would 
take place (see Sec. 191.141(b)(3) (ii) and (iii) of this chapter). 
Customs must be notified at least 2 working days in advance of the 
intended date of 

[[Page 46371]]
exportation in order to have the opportunity to examine the goods.


Sec. 181.47  Completion of claim for drawback.

    (a) General. A claim for drawback shall be granted, upon the 
submission of appropriate documentation to substantiate compliance with 
the drawback laws and regulations of the United States, evidence of 
exportation to Canada or Mexico, and satisfactory evidence of the 
payment of duties to Canada or Mexico. Unless otherwise provided in 
this subpart, the documentation, filing procedures, time and place 
requirements and other applicable procedures required to determine 
whether a good qualifies for drawback shall be in accordance with the 
provisions of part 191 of this chapter; however, a drawback claim 
subject to the provisions of this subpart shall be filed separately 
from any part 191 drawback claim (that is, a claim that involves goods 
exported to countries other than Canada or Mexico). Claims 
inappropriately filed or otherwise not completed within the 3-year 
period specified in Sec. 181.46 of this part shall be considered 
abandoned.
    (b) Complete drawback claim--(1) General. A complete drawback claim 
under this subpart shall consist of the filing of the appropriate 
completed drawback entry form, evidence of exportation (a copy of the 
Canadian or Mexican customs entry showing the amount of duty paid to 
Canada or Mexico) and its supporting documents, certificate(s) of 
delivery, when necessary, or certificate(s) of manufacture and 
delivery, and a certification from the Canadian or Mexican importer as 
to the amount of duties paid. Each drawback entry form filed under this 
subpart shall be conspicuously marked at the top with the word 
``NAFTA''.
    (2) Specific claims. The following documentation, for the drawback 
claims specified below, must be submitted to Customs in order for a 
drawback claim to be processed under this subpart. Missing 
documentation or incorrect or incomplete information on required 
customs forms or supporting documentation will result in an incomplete 
drawback claim.
    (i) Manufacturing drawback claim. The following shall be submitted 
in connection with a claim for direct identification manufacturing 
drawback or substitution manufacturing drawback:
    (A) A completed Customs Form 331, to establish the manufacture of 
goods made with imported merchandise and, if applicable, the identity 
of substituted domestic, duty-paid or duty-free merchandise, and 
including the tariff classification number of the imported merchandise;
    (B) Customs Form 7501 or the import entry number;
    (C) Exporter's summary procedure, if applicable. For purposes of 
this subpart, the exporter's summary procedure must include the 
Canadian or Mexican customs entry number and the amount of duty paid to 
Canada or Mexico;
    (D) Evidence of exportation and satisfactory evidence of the 
payment of duties in Canada or Mexico, as provided in paragraph (c) of 
this section;
    (E) Waiver of right to drawback. If the person exporting to Canada 
or Mexico was not the importer or the manufacturer, written waivers 
executed by the importer or manufacturer and by any intervening person 
to whom the good was transferred shall be submitted in order for the 
claim to be considered complete; and
    (F) An affidavit of the party claiming drawback stating that no 
other drawback claim has been made on the designated goods, that such 
party has not provided an exporter's Certificate of Origin pertaining 
to the exported goods to another party except as stated on the drawback 
claim, and that the party agrees to notify Customs if he subsequently 
provides such an exporter's Certificate of Origin to any person.
    (ii) Same condition drawback claim under 19 U.S.C. 1313(j)(1). The 
following shall be submitted in connection with a drawback claim 
covering a good in the same condition:
    (A) A completed Customs Form 7539J. In addition, the tariff 
classification number of the imported goods shall be recorded on the 
form;
    (B) Customs Form 7501. The form must show the entry number, date of 
entry, port of importation, date of importation, importing carrier, and 
importer of record or ultimate consignee name and Customs or taxpayer 
identification number. Explicit line item information shall be clearly 
noted on the Customs Form 7501 so that the subject goods are easily 
discernible;
    (C) Customs Form 7505, if applicable, to trace the movement of the 
imported goods after importation;
    (D) The certificate of delivery portion of Customs Form 331, if 
applicable, for purposes of tracing the transfer of ownership of the 
imported goods from the importer to the claimant. This is required if 
the drawback claimant is not the original importer of the merchandise 
which is the subject of a same condition claim;
    (E) Customs Form 7512, if applicable. This is required for 
merchandise which is examined at one port but exported through border 
points outside of that port. Such goods must travel in bond from the 
location where they were examined to the point of the border crossing 
(exportation). If examination is waived, in-bond transportation is not 
required;
    (F) Notification of intent to export or waiver of prior notice;
    (G) Evidence of exportation. If a claimant is not approved for the 
exporter's summary procedure, either a certified Customs Form 7511 or 
an uncertified Customs Form 7511 supported by documentary evidence of 
exportation to Canada or Mexico such as a bill of lading, air waybill, 
freight waybill, export ocean bill of lading, Canadian customs 
manifest, cargo manifest, or certified copies thereof, issued by the 
exporting carrier, or any other evidence of exportation provided for in 
Sec. 191.51 of this chapter. Supporting documentary evidence shall 
establish fully the time and fact of exportation, the identity of the 
exporter, and the identity and location of the ultimate consignee of 
the exported goods;
    (H) Waiver of right to drawback. If the party exporting to Canada 
or Mexico was not the importer, a written waiver from the importer and 
from each intermediate person to whom the goods were transferred shall 
be required in order for the claim to be considered complete; and
    (I) An affidavit of the party claiming drawback stating that no 
other drawback claim has been made on the designated goods.
    (iii) Nonconforming or improperly shipped goods drawback claim. The 
following shall be submitted in the case of goods not conforming to 
sample or specifications or shipped without the consent of the 
consignee and subject to a drawback claim under 19 U.S.C. 1313(c):
    (A) Customs Form 7539C, completed and submitted at the time the 
goods are returned to Customs custody;
    (B) Customs Form 7501 to establish the fact of importation, the 
receipt of the imported goods and the identity of the party to whom 
drawback is payable (see Sec. 181.48(c) of this part);
    (C) Documentary evidence to support the claim that the goods did 
not conform to sample or specifications or were shipped without the 
consent of the consignee. In the case of nonconforming goods, such 
documentation may include a copy of a purchase order and any related 
documents such as a specification sheet, catalogue or 

[[Page 46372]]
advertising brochure from the supplier, the basis for which the order 
was placed, and copy of a letter or telex or credit memo from the 
supplier indicating acceptance of the returned merchandise. This 
documentation is necessary to establish that the goods are, in fact, 
being returned to the party from which they were procured or that they 
are being sent to the supplier's other customer directly;
    (D) Customs Form 7512, if applicable; and
    (E) Evidence of exportation, as provided in paragraph (b)(2)(ii)(G) 
of this section.
    (iv) Meats cured with imported salt. The provisions of paragraph 
(b)(2)(i) of this section relating to direct identification 
manufacturing drawback shall apply to claims for drawback on meats 
cured with imported salt filed under this subpart insofar as applicable 
to and not inconsistent with the provisions of this subpart, and the 
forms referred to in that paragraph shall be modified to show that the 
claim is being made for refund of duties paid on salt used in curing 
meats.
    (v) Jet aircraft engines. The provisions of paragraph (b)(2)(i) of 
this section relating to direct identification manufacturing drawback 
shall apply to claims for drawback on foreign-built jet aircraft 
engines repaired or reconditioned in the United States filed under this 
subpart insofar as applicable to and not inconsistent with the 
provisions of this subpart and the provisions of subpart L of part 191 
of this chapter.
    (c) Evidence of exportation and of duties paid in Canada or Mexico. 
For purposes of this subpart, evidence of exportation and satisfactory 
evidence of payment of duties in Canada or Mexico shall consist of one 
of the following types of documentation, provided that, for purposes of 
evidence of duties paid, such documentation includes the import entry 
number, the date of importation, the tariff classification number, the 
rate of duty and the amount of duties paid:
     (1) In the case of Canada, the Canadian entry document, referred 
to as the Canada Customs Invoice or B-3, presented with either the K-84 
Statement or the Detailed Coding Statement. A Canadian customs document 
that is not accompanied by a valid receipt is not adequate evidence of 
exportation and payment of duty in Canada;
     (2) In the case of Mexico, the Mexican entry document (the 
``pedimento'');
     (3) The final customs duty determination of Canada or Mexico, or a 
copy thereof, respecting the relevant entry; or
     (4) An affidavit, from the person claiming drawback, which is 
based on information received from the importer of the good in Canada 
or Mexico.


Sec. 181.48  Person entitled to receive drawback.

     (a) Manufacturing drawback. The person named as exporter on the 
notice of exportation or on the bill of lading, air waybill, freight 
waybill, Canadian or Mexican customs manifest, cargo manifest, or 
certified copies of these documents, shall be considered the exporter 
and entitled to manufacturing drawback, unless the manufacturer or 
producer shall reserve the right to claim drawback. The manufacturer or 
producer who reserves this right may claim drawback, and he shall 
receive payment upon production of satisfactory evidence that the 
reservation was made with the knowledge and consent of the exporter. 
Drawback also may be granted to the agent of the manufacturer, 
producer, or exporter, or to the person the manufacturer, producer, 
exporter, or agent directs in writing to receive the drawback of 
duties.
     (b) Nonconforming or improperly shipped goods drawback. Only the 
importer of record or the actual owner of the merchandise or its agent 
may claim drawback under 19 U.S.C. 1313(c).
     (c) Same condition drawback. The importer of record on the 
consumption entry is entitled to claim same condition drawback under 19 
U.S.C. 1313(j)(1) unless he has in writing waived his right to claim 
drawback.


Sec. 181.49  Retention of records.

     All records required to be kept by the exporter, importer, 
manufacturer or producer under this subpart with respect to 
manufacturing drawback claims, and all records kept by others which 
complement the records of the importer, exporter, manufacturer or 
producer (see Sec. 191.5 of this chapter) shall be retained for at 
least three years after payment of such claims. However, any person who 
issues a drawback certificate that enables another person to make or 
perfect a drawback claim shall keep records in support of that 
certificate commencing on the date that the certificate is issued and 
shall retain those records for three years following the date of 
payment of the claim.


Sec. 181.50  Liquidation and payment of drawback claims.

     (a) General. When the drawback claim has been fully completed by 
the filing of all required documents, and exportation of the articles 
has been established and the amount of duties paid to Canada or Mexico 
has been established, the entry will be liquidated to determine the 
proper amount of drawback due either in accordance with the limitation 
on drawback set forth in Sec. 181.44 of this part or in accordance with 
the regular drawback calculation. The liquidation procedures of subpart 
G of part 191 of this chapter shall control for purposes of this 
subpart.
     (b) Time for liquidation. A drawback claim shall not be liquidated 
until either a written waiver of the right to protest under 19 U.S.C. 
1514 is filed with Customs or the liquidation of the import entry has 
become final under U.S. law. In addition, except in the case of goods 
covered by Sec. 181.45 of this part, a drawback claim shall not be 
liquidated for a period of 3 years after the date of entry of the goods 
in Canada or Mexico. A drawback claim may be adjusted pursuant to 19 
U.S.C. 1508(b)(2)(B)(iii) even after liquidation of the U.S. import 
entry has become final.
     (c) Accelerated payment. Accelerated drawback payment procedures 
shall apply as set forth in Sec. 191.72 of this chapter. However, a 
person who receives drawback of duties under this procedure shall repay 
the duties paid if a NAFTA drawback claim is adversely affected 
thereafter by administrative or court action.


Sec. 181.51  Prevention of improper payment of claims.

     (a) Double payment of claim. The drawback claimant shall certify 
to Customs that he has not earlier received payment on the same import 
entry for the same designation of goods. If, notwithstanding such a 
certification, such an earlier payment was in fact made to the 
claimant, the claimant shall repay any amount paid on the second claim.
     (b) Preparation of Certificate of Origin. The drawback claimant 
shall, within 30 calendar days after the filing of the drawback claim 
under this subpart, submit to Customs a written statement as to whether 
he has prepared, or has knowledge that another person has prepared, a 
Certificate of Origin provided for under Sec. 181.11(a) of this part 
and pertaining to the goods which are covered by the claim. If, 
following such 30-day period, the claimant prepares, or otherwise 
learns of the existence of, any such Certificate of Origin, the 
claimant shall, within 30 calendar days thereafter, disclose that fact 
to Customs. 

[[Page 46373]]



Sec. 181.52  Subsequent claims for preferential tariff treatment.

     If a claim for a refund of duties is allowed by the Canadian or 
Mexican customs administration under Article 502(3) of the NAFTA (post-
importation claim) or under any other circumstance after drawback has 
been granted under this subpart, the appropriate Customs officer shall 
reliquidate the drawback claim and obtain a refund of the amount paid 
in drawback in excess of the amount permitted to be paid under 
Sec. 181.44 of this part.


Sec. 181.53  Waiver or reduction of duty under duty-deferral programs.

     (a) General--(1) Duty-deferral program defined. For purposes of 
this section, a ``duty-deferral program'' means a measure which 
postpones duty payment upon arrival of a good in the United States, 
including a measure governing manipulation warehouses, manufacturing 
warehouses, smelting and refining warehouses, foreign trade zones, or 
temporary importations under bond under Chapter 98, HTSUS, until 
withdrawn or removed for exportation to Canada or Mexico.
     (2) Treatment as entered or withdrawn for domestic consumption. 
Where a ``good subject to NAFTA drawback'' within the meaning of 19 
U.S.C. 3333 is imported into the United States pursuant to a duty-
deferral program and is subsequently exported to Canada or Mexico or is 
used as a material in the production of another good that is 
subsequently exported to Canada or Mexico, the exported good shall be 
treated, for purposes of this section, as if it had been entered or 
withdrawn for domestic consumption and thus subject to duty. However, 
the provisions of this paragraph shall not apply to goods covered by 
Sec. 181.45.
     (3) Adjustment to duties paid. Customs shall waive or reduce the 
duties paid or owed under paragraph (a)(2) of this section by the 
person who exports the good to Canada or Mexico in accordance with 
paragraphs (b) through (f) of this section, provided that evidence of 
exportation and satisfactory evidence of duties paid in Canada or 
Mexico (see Sec. 181.47(c) of this part) are submitted within 60 
calendar days of the date of exportation.
     (b) Manipulation in warehouse. Where a good subject to NAFTA 
drawback under this subpart is withdrawn from a bonded warehouse (19 
U.S.C. 1562) after manipulation for exportation to Canada or Mexico, 
duty shall be assessed on the good in its condition and quantity, and 
at its weight, at the time of such withdrawal from the warehouse and 
with such additions to, or deductions from, the final appraised value 
as may be necessary by reason of its change in condition. Such duty 
shall be paid no later than 60 calendar days after the date of 
exportation except that, upon presentation of evidence of exportation 
and satisfactory evidence of the amount of any customs duties paid to 
Canada or Mexico on the exported good, the duty shall be waived or 
reduced in an amount that does not exceed the lesser of either the 
total amount of duty payable on the good under this section or the 
total amount of customs duties paid to Canada or Mexico.

    Example. Company B imports toys in bulk and makes a warehouse 
entry into a Class 8 warehouse, whereupon Company B repackages the 
toys for retail sale. Upon withdrawal of the goods from the 
warehouse, $200 in U.S. duty is assessed. Company B exports this 
merchandise to Mexico and pays the equivalent of US$300 in duties. 
Thirty days after exportation from the United States, Company B 
submits to Customs evidence of exportation and a copy of the Mexican 
consumption entry (``pedimento'') as evidence of the payment of the 
US$300 equivalent to Mexico. Customs will waive the collection of 
the $200 assessment since $200 is a lesser amount than the total 
amount of duties paid to Mexico.

     (c) Bonded manufacturing warehouse. Where a good is manufactured 
in a bonded warehouse (19 U.S.C. 1311) with imported materials and is 
then withdrawn for exportation to Canada or Mexico, duty shall be 
assessed on the materials in their condition and quantity, and at their 
weight, at the time of their importation into the United States. Such 
duty shall be paid no later than 60 calendar days after the date of 
exportation except that, upon presentation of evidence of exportation 
and satisfactory evidence of the amount of any customs duties paid to 
Canada or Mexico on the exported good, the duty shall be waived or 
reduced in an amount that does not exceed the lesser of either the 
total amount of duty payable on the materials under this section or the 
total amount of customs duties paid to Canada or Mexico.

    Example. Company N imports tea into the United States and makes 
a Class 6 warehouse entry. Company N manufactures sweetened ice tea 
mix by combining the imported tea with refined cane sugar and other 
flavorings and packaging it in retail size canisters. Upon 
withdrawal of the ice tea mix from the warehouse for immediate 
exportation to Canada, U.S. duty is assessed on the basis of the 
unmanufactured tea in the amount of $900. Company N, however, does 
not pay the duties at this time. Canada assesses the equivalent of 
US$800 on the exported ice tea mix. Company N submits to Customs 
both evidence of exportation to Canada and a Canadian K-84 Statement 
showing payment of the US$800 equivalent in duties to Canada. 
Company N will only be required to pay $100 in U.S. duties out of 
the original $900 bill.

    (d) Bonded smelting or refining warehouse. For any qualifying 
imported metal-bearing materials (19 U.S.C. 1312), duty shall be 
assessed on the imported materials and the charges against the bond 
canceled no later than 60 calendar days after the date of exportation 
of the treated materials to Canada or Mexico either from the bonded 
smelting or refining warehouse or from such other customs bonded 
warehouse after the transfer of the same quantity of material from a 
bonded smelting or refining warehouse. However, upon presentation of 
evidence of exportation and satisfactory evidence of the amount of any 
customs duties paid to Canada or Mexico on the exported treated 
materials, the duty on the imported materials shall be waived or 
reduced in an amount that does not exceed the lesser of either the 
total amount of duty payable on the imported materials under this 
section or the total amount of customs duties paid to Canada or Mexico.
    Example. Company Z imports 47 million pounds of electrolytic 
zinc which is entered into a bonded smelting and refining warehouse 
(Class 7) for processing. Thereafter, Company Z withdraws the 
merchandise and pays $90,000 in U.S. duty on the dutiable quantity 
of metal contained in the imported metal-bearing materials and 
Customs cancels the bond charges. Two weeks later, Company Z secures 
a buyer, Company B, in Canada and exports the merchandise. Upon 
importation of the processed zinc into Canada, the equivalent of 
US$50,000 in duties are assessed against Company B. Company Z would 
like to claim a NAFTA refund under this section. Company Z must 
secure from Company B the necessary Canadian documentation to show 
exportation and to show that the US$50,000 equivalent in duties was 
paid to Revenue Canada in order for Company Z to obtain a refund of 
that amount from Customs.

    (e) Foreign trade zone. For a good that is manufactured or 
otherwise changed in condition in a foreign trade zone (19 U.S.C. 
81c(a)) and then exported from the zone to Canada or Mexico, the duty 
assessed, as calculated under paragraph (e)(1) or (e)(2) of this 
section, shall be paid no later than 60 calendar days after the date of 
exportation of the good to Canada or Mexico except that, upon 
presentation of evidence of exportation and satisfactory evidence of 
the amount of any customs duties paid to Canada or Mexico on the 
exported good, the duty shall be waived or reduced in an amount that 
does not exceed the lesser of either the total amount of duty payable 
on the good under this section 

[[Page 46374]]
or the total amount of customs duties paid to Canada or Mexico.
    (1) Nonprivileged foreign status. In the case of a nonprivileged 
foreign status good, duty is assessed on the good in its condition and 
quantity, and at its weight, at the time of its exportation from the 
zone to Canada or Mexico.

    Example. CMG imports $1,000,000 worth of auto parts from Korea 
and admits them into Foreign-Trade Subzone number 00, claiming 
nonprivileged foreign status. (If the auto parts had been regularly 
entered they would have been dutiable at 4 percent, or $40,000.) CMG 
manufactures subcompact automobiles. Automobiles are dutiable at 2.5 
percent ($25,000) if entered for consumption in the United States. 
CMG withdraws the automobiles from the zone and sells them to XYZ 
who ships them to Mexico. XYZ enters the automobiles in Mexico, pays 
the equivalent of US$20,000 in duty, and does not claim NAFTA 
preferential tariff treatment. Before the expiration of 60 calendar 
days from exportation, CMG submits the required documentation 
showing exportation and payment of duty in Mexico and pays $5,000 in 
duty to Customs representing the difference between the $25,000 
which would have been paid if the automobiles had been entered for 
consumption from the zone and the US$20,000 equivalent paid to 
Mexico by XYZ.

    (2) Privileged foreign status. In the case of a privileged foreign 
status good, duty is assessed on the good in its condition and 
quantity, and at its weight, at the time privileged status is granted 
in the zone.

    Example. O&G, Inc. admits Kuwaiti crude petroleum into its zone 
and requests, one month later, privileged foreign status on the 
crude before refining the crude into motor gasoline and kerosene. 
Upon entry of the refined goods from the zone by O&G, Inc., U.S. 
duty is assessed on the imported crude petroleum in the amount of 
$700 rather than on the refined goods (which would have been 
assessed $1,200). O&G, Inc. then ships the refined goods to Canada. 
D&O is the consignee in Canada and pays the Canadian customs duty 
assessment of the equivalent of US$1,500 on the goods. D&O claims 
NAFTA preferential tariff treatment in Canada. O&G, Inc. potentially 
is entitled to a duty remission of the full $700 assessed in the 
United States. However, if D&O's NAFTA claim is approved and results 
in a refund of duty by Canada, O&G, Inc.'s actual duty remission or 
refund will be reduced by that amount of refund received by D&O in 
excess of $800.

    (f) Temporary importation under bond. Where a good, regardless of 
its origin, was imported temporarily free of duty for repair, 
alteration or processing (subheading 9813.00.05, HTSUS) and is 
subsequently exported to Canada or Mexico, duty shall be assessed on 
the good on the basis of its condition at the time of its importation 
into the United States. Such duty shall be paid no later than 60 
calendar days after the date of exportation except that, upon 
presentation of evidence of exportation and satisfactory evidence of 
the amount of any customs duties paid to Canada or Mexico on the 
exported good, the duty shall be waived or reduced in an amount that 
does not exceed the lesser of the total amount of duty payable on the 
good under this section or the total amount of customs duties paid to 
Canada or Mexico.

    Example. Company A imports glassware under subheading 
9813.00.05, HTSUS. The glassware is from France and would be 
dutiable under a regular consumption entry at $6,000. Company A 
alters the glassware by etching hotel logos on the glassware. Two 
weeks later, Company A sells the glassware to Company B, a Mexican 
company, and ships the glassware to Mexico. Company B enters the 
glassware and is assessed duties in an amount equivalent to US$6,200 
and claims NAFTA preferential tariff treatment. Company B provides a 
copy of the Mexican landing certificate to Company A showing that 
the US$6,200 equivalent in duties was assessed but not yet paid to 
Mexico, and Customs sends a bill to Company A for the $6,000 in U.S. 
duty which Company A pays. If Mexico ultimately denies Company B's 
NAFTA claim and the Mexican duty payment becomes final, Company A, 
upon submission to Customs of evidence of the finality of the 
collection of the US$6,200 equivalent by Mexico, is entitled to a 
refund of the full $6,000 in U.S. duty.

    (g) Recordkeeping requirements. If a person intends to claim a 
waiver or reduction of duty on goods under this section, that person 
shall maintain records concerning the value of all involved goods or 
materials at the time of their importation into the United States and 
concerning the value of the goods at the time of their exportation to 
Canada or Mexico. Failure to maintain adequate records will result in 
denial of the claim for waiver or reduction of duty.
    (h) Failure to timely provide evidence of duties paid or owed to 
Canada or Mexico. If the person who exports the goods to Canada or 
Mexico fails to provide satisfactory evidence of duties paid or owed to 
Canada or Mexico within the 60-day period specified in this section, 
that person will be liable for payment of the full duties assessed 
under this section and without any waiver or reduction thereof.
    (i) Subsequent claims for preferential tariff treatment. If a claim 
for a refund of duties is allowed by the Canadian or Mexican customs 
administration under Article 502(3) of the NAFTA or under any other 
circumstance after duties have been waived or reduced under this 
section, Customs shall reliquidate the NAFTA drawback claim and obtain 
a refund of the amount waived or reduced in excess of the amount 
permitted to be waived or reduced under this section.


Sec. 181.54  Verification of claim for drawback, waiver or reduction of 
duties.

    The allowance of a claim for drawback, waiver or reduction of 
duties submitted under this subpart shall be subject to such 
verification, including verification with the Canadian or Mexican 
customs administration of any documentation obtained in Canada or 
Mexico and submitted in connection with the claim, as Customs may deem 
necessary.

Subpart F--Commercial Samples and Goods Returned After Repair or 
Alteration


Sec. 181.61  Applicability.

    This subpart sets forth the rules which apply for purposes of duty-
free entry of commercial samples of negligible value as provided for in 
Article 306 of the NAFTA and for purposes of the re-entry of goods 
after repair or alteration in Canada or Mexico as provided for in 
Article 307 of the NAFTA.


Sec. 181.62  Commercial samples of negligible value.

    (a) General. Commercial samples of negligible value imported from 
Canada or Mexico may qualify for duty-free entry under subheading 
9811.00.60, HTSUS. For purposes of this section, ``commercial samples 
of negligible value'' means commercial samples which have a value, 
individually or in the aggregate as shipped, of not more than US$1, or 
the equivalent amount in the currency of Canada or Mexico, or which are 
so marked, torn, perforated, or otherwise treated that they are 
unsuitable for sale or for use except as commercial samples.
    (b) Qualification for duty-free entry. Commercial samples of 
negligible value imported from Canada or Mexico will qualify for duty-
free entry under subheading 9811.00.60, HTSUS, only if:
    (1) The samples are imported solely for the purpose of soliciting 
orders for foreign goods; and
    (2) If valued over US$1, the samples are properly marked, torn, 
perforated or otherwise treated prior to arrival in the United States 
so that they are unsuitable for sale or for use except as commercial 
samples.


Sec. 181.63  [Reserved]


Sec. 181.64  Goods re-entered after repair or alteration in Canada or 
Mexico.

    (a) General. This section sets forth the rules which apply for 
purposes of 

[[Page 46375]]
obtaining duty-free or reduced-duty treatment on goods returned after 
repair or alteration in Canada or Mexico as provided for in subheadings 
9802.00.40 and 9802.00.50, HTSUS. Goods returned after having been 
repaired or altered in Mexico, whether or not pursuant to a warranty, 
and goods returned after having been repaired or altered in Canada 
pursuant to a warranty, are eligible for duty-free treatment, provided 
that the requirements of this section are met. Goods returned after 
having been repaired or altered in Canada other than pursuant to a 
warranty are subject to duty upon the value of the repairs or 
alterations using the applicable duty rate under the United States-
Canada Free-Trade Agreement (see Sec. 10.301 of this chapter), provided 
that the requirements of this section are met. For purposes of this 
section, ``repairs or alterations'' means restoration, addition, 
renovation, redyeing, cleaning, resterilizing, or other treatment which 
does not destroy the essential characteristics of, or create a new or 
commercially different good from, the good exported from the United 
States.

    Example. Glass mugs produced in the United States are exported 
to Canada for etching and tempering operations, after which they are 
returned to the United States for sale. The foreign operations 
exceed the scope of an alteration because they are manufacturing 
processes which create commercially different products with distinct 
new characteristics.

     (b) Goods not eligible for duty-free or reduced-duty treatment 
after repair or alteration. The duty-free or reduced-duty treatment 
referred to in paragraph (a) of this section shall not apply to goods 
which, in their condition as exported from the United States to Canada 
or Mexico, are incomplete for their intended use and for which the 
processing operation performed in Canada or Mexico constitutes an 
operation that is performed as a matter of course in the preparation or 
manufacture of finished goods.

    Example. Unflanged metal wheel rims are exported to Canada for a 
flanging operation to strengthen them so as to conform to U.S. Army 
specifications for wheel rims; although the goods when exported from 
the United States are dedicated for use in the making of wheel rims, 
they cannot be used for that purpose until flanged. The flanging 
operation does not constitute a repair or alteration because that 
operation is necessary for the completion of the wheel rims.

    (c) Documentation--(1) Declarations required. Except as otherwise 
provided in this section, the following declarations shall be filed in 
connection with the entry of goods which are returned from Canada or 
Mexico after having been exported for repairs or alterations and which 
are claimed to be duty free or subject to duty only on the value of the 
repairs or alterations performed abroad:
    (i) A declaration from the person who performed such repairs or 
alterations, in substantially the following form:

    I/We, ____________, declare that the goods herein specified are 
the goods which, in the condition in which they were exported from 
the United States, were received by me (us) on ____________, 
19________, from ____________ (name and address of owner or exporter 
in the United States); that they were received by me (us) for the 
sole purpose of being repaired or altered; that only the repairs or 
alterations described below were performed by me (us); that such 
repairs or alterations were (were not) performed pursuant to a 
warranty; that the full cost or (when no charge is made) value of 
such repairs or alterations is correctly stated below; and that no 
substitution whatever has been made to replace any of the goods 
originally received by me (us) from the owner or exporter thereof 
mentioned above.

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                                                     Full cost or (when no charge                               
                      Description of goods and of    is made) value of repairs or    Total value of goods after 
 Marks and numbers       repairs or alterations      alterations (see Subchapter       repairs or alterations   
                                                        II, Chapter 98, HTSUS)                                  
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                     .............................  .............................  .............................
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Date

Signature

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Address

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Capacity

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    (ii) A declaration by the owner, importer, consignee, or agent 
having knowledge of the pertinent facts in substantially the following 
form:

    I, ________________, declare that the (above) (attached) 
declaration by the person who performed the repairs or alterations 
abroad is true and correct to the best of my knowledge and belief; 
that the goods ________ were ________ were not (check one) subject 
to NAFTA drawback; that such goods were exported from the United 
States for repairs or alterations from ________ (port) on ________, 
19____; and that the goods entered in their repaired or altered 
condition are the same goods that were exported on the above date 
and that are identified in the (above) (attached) declaration.

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    (2) Additional documentation. The port director may require such 
additional documentation as is deemed necessary to prove actual 
exportation of the goods from the United States for repairs or 
alterations, such as a foreign customs entry, a foreign customs 
invoice, a foreign landing certificate, bill of lading, or airway bill.
    (3) Waiver of declarations. If the port director concerned is 
satisfied, because of the nature of the goods or production of other 
evidence, that the goods are imported under circumstances meeting the 
requirements of this section, he may waive submission of the 
declarations provided for in paragraph (c)(1) of this section.
    (4) Deposit of estimated duties. For goods returned after having 
been repaired or altered in Canada other than pursuant to a warranty, 
the port director shall require a deposit of estimated duties based 
upon the full cost or value of the repairs or alterations. The cost or 
value of the repairs or alterations performed in Canada other than 
pursuant to a warranty, which is to be set forth in the invoice and 
entry papers as the basis for the assessment of duty for such goods, 
shall be limited to the cost or value of the repairs or alterations 
actually performed in Canada, which shall include all domestic and 
foreign articles furnished for the repairs or alterations but shall not 
include any of the expenses incurred in the United States whether by 
way of engineering costs, preparation of plans or specifications, 
furnishing of tools or equipment for doing the repairs or alterations 
in Canada, or otherwise. 

[[Page 46376]]


Subpart G--Origin Verifications and Determinations


Sec. 181.71  Denial of preferential tariff treatment dependent on 
origin verification and determination.

    Except where a Certificate of Origin either is not submitted when 
requested under Sec. 181.22(b) of this part or is not acceptable and a 
corrected Certificate is not submitted or accepted as provided in 
Sec. 181.22(c) of this part and except as otherwise provided in 
Sec. 181.23 of this part and except in the case of a pattern of conduct 
provided for in Sec. 181.76(c) of this part, Customs shall deny 
preferential tariff treatment on an imported good, or shall deny a 
post-importation claim for a refund filed under subpart D of this part, 
only after initiation of an origin verification under Sec. 181.72(a) of 
this part which results in a determination that the imported good does 
not qualify as an originating good or should not be accorded such 
treatment for any other reason as specifically provided for elsewhere 
in this part.


Sec. 181.72  Verification scope and method.

    (a) General. Subject to paragraph (e) of this section, Customs may 
initiate a verification in order to determine whether a good imported 
into the United States qualifies as an originating good for purposes of 
preferential tariff treatment under the NAFTA as stated on the 
Certificate of Origin pertaining to the good. Such a verification:
    (1) May also involve a verification of the origin of a material 
that is used in the production of a good that is the subject of a 
verification under this section;
    (2) May include verification of the applicable rate of duty applied 
to an originating good in accordance with Annex 302.2 of the NAFTA and 
may include a determination of whether a good is a qualifying good for 
purposes of Annex 703.2 of the NAFTA; and
    (3) Shall be conducted only by means of one or more of the 
following:
    (i) A verification letter which requests information from a 
Canadian or Mexican exporter or producer, including a Canadian or 
Mexican producer of a material, and which identifies the good or 
material that is the subject of the verification. The verification 
letter may be on Customs Form 28 or other appropriate format and may be 
sent:
    (A) By certified or registered mail, or by any other method that 
produces a confirmation of receipt by the exporter or producer; or
    (B) By any other method, regardless of whether it produces proof of 
receipt by the exporter or producer;
    (ii) A written questionnaire sent to an exporter or a producer, 
including a producer of a material, in Canada or Mexico. The 
questionnaire:
    (A) May be sent by certified or registered mail, or by any other 
method that produces a confirmation of receipt by the exporter or 
producer; or
    (B) May be sent by any other method, regardless of whether it 
produces proof of receipt by the exporter or producer; and
    (C) May be completed by the Canadian or Mexican exporter or 
producer either in the English language or in the language of the 
country in which that exporter or producer is located;
    (iii) Visits to the premises of an exporter or a producer, 
including a producer of a material, in Canada or Mexico to review the 
types of records referred to in Sec. 181.12 of this part and observe 
the facilities used in the production of the good or material; and
    (iv) Any other method which results in information from a Canadian 
or Mexican exporter or producer, including a Canadian or Mexican 
producer of a material, that is relevant to the origin determination. 
The information so obtained may form a basis for a negative 
determination regarding a good (see Sec. 181.75(b) of this part) only 
if the information is in writing and is signed by the exporter or 
producer.
    (b) Applicable accounting principles. Any verification of a 
regional value-content requirement undertaken pursuant to paragraph (a) 
of this section shall be conducted in accordance with the Generally 
Accepted Accounting Principles applied in the country from which the 
good was exported to the United States.
    (c) Inquiries to importer not precluded. Nothing in paragraph (a) 
of this section shall preclude Customs from directing inquiries or 
requests to a U.S. importer for documents or other information 
regarding the imported good. If such an inquiry or request involves 
requesting the importer to obtain and provide written information from 
the exporter or producer of the good or from the producer of a material 
that is used in the production of the good, such information shall be 
requested by the importer and provided to the importer by the exporter 
or producer only on a voluntary basis, and a failure or refusal on the 
part of the importer to obtain and provide such information shall not 
be considered a failure of the exporter or producer to provide the 
information and shall not constitute a ground for denying preferential 
tariff treatment on the good.
    (d) Failure to respond to letter or questionnaire.--(1) Nonresponse 
to initial letter or questionnaire. If the exporter or producer, 
including a producer of a material, fails to respond to a verification 
letter or questionnaire sent under paragraph (a)(2)(i) or (a)(2)(ii) of 
this section within 30 calendar days from the date on which the letter 
or questionnaire was sent, or such longer period as may be specified in 
the letter or questionnaire, Customs shall send a follow-up 
verification letter or questionnaire to that exporter or producer. The 
follow-up letter or questionnaire:
    (i) Except where the verification letter or questionnaire only 
involved the origin of a material used in the production of a good and 
was sent to the producer of the material, may include the written 
determination referred to in Sec. 181.75 of this part, provided that 
the information specified in paragraph (b) of that section is also 
included; and
    (ii) Shall be sent:
    (A) By certified or registered mail, or by any other method that 
produces a confirmation of receipt by the exporter or producer, if so 
requested by the customs administration of Canada or Mexico from which 
the good was exported; or
    (B) By any method, if no request under paragraph (d)(1)(ii)(A) of 
this section has been made by the Canadian or Mexican customs 
administration.
    (2) Nonresponse to follow-up letter or questionnaire--(i) Producer 
of a material. If a producer of a material fails to respond to a 
follow-up verification letter or questionnaire sent under paragraph 
(d)(1) of this section, Customs may consider the material to be non-
originating for purposes of determining whether the good to which that 
material relates is an originating good.
    (ii) Exporter or producer of a good. If the exporter or producer of 
a good fails to respond to a follow-up verification letter or 
questionnaire sent under paragraph (d)(1) of this section, Customs may 
consider the good to be non-originating and consequently may deny 
preferential tariff treatment on the good as follows:
    (A) If the follow-up letter or questionnaire included a written 
determination as provided for in paragraph (d)(1)(i) of this section 
and the exporter or producer fails to respond to the follow-up letter 
or questionnaire within 30 calendar days or such longer period as 
specified therein:
    (1) From the date on which the follow-up letter or questionnaire 
and 

[[Page 46377]]
written determination were received by the exporter or producer, if 
sent pursuant to paragraph (d)(1)(ii)(A) of this section; or
    (2) From the date on which the follow-up letter or questionnaire 
and written determination were either received by the exporter or 
producer or sent by Customs, if sent in accordance with paragraph 
(d)(1)(ii)(B) of this section; or
    (B) Provided that the procedures set forth in Secs. 181.75 and 
181.76 of this part are followed, if the follow-up letter or 
questionnaire does not include a written determination as provided for 
in paragraph (d)(1)(i) of this section and the exporter or producer 
fails to respond to the follow-up letter or questionnaire within 30 
calendar days or such longer period as specified in the letter or 
questionnaire:
    (1) From the date on which the follow-up letter or questionnaire 
was received by the exporter or producer, if sent pursuant to paragraph 
(d)(1)(ii)(A) of this section; or
    (2) From the date on which the follow-up letter or questionnaire 
was either received by the exporter or producer or sent by Customs, if 
sent in accordance with paragraph (d)(1)(ii)(B) of this section.
    (e) Calculation of regional value content under net cost method--
(1) General. Where a Canadian or Mexican producer of a good elects to 
calculate the regional value content of a good under the net cost 
method as set forth in General Note 12, HTSUS, and in the appendix to 
this part, Customs may not, during the time period over which that net 
cost is calculated, conduct a verification under Sec. 181.72(a) of this 
part with respect to the regional value content of that good.
    (2) Cost submission for motor vehicles. Where, pursuant to General 
Note 12, HTSUS, and the appendix to this part, a Canadian or Mexican 
producer of a light duty vehicle or heavy duty vehicle, as defined in 
the appendix to this part, elects to average its regional value content 
calculation over its fiscal year, Customs may request, in writing, that 
the producer provide a cost submission reflecting the actual costs 
incurred in the production of the category of motor vehicles for which 
the election was made. Such a written request shall constitute a 
verification letter under paragraph (a)(2)(i) of this section, and the 
requested cost submission shall be submitted to Customs within 180 
calendar days after the close of the producer's fiscal year or within 
60 days from the date on which the request was made, whichever is 
later.


Sec. 181.73  Notification of verification visit.

    (a) Written notification required. Prior to conducting a 
verification visit in Canada or Mexico pursuant to 
Sec. 181.72(a)(2)(iii) of this part, Customs shall give written 
notification of the intention to conduct the visit. Such notification 
shall be delivered:
    (1) By certified or registered mail, or by any other method that 
produces a confirmation of receipt, to the address of the Canadian or 
Mexican exporter or producer whose premises are to be visited;
    (2) To the customs administration of the country in which the visit 
is to occur; and
    (3) If requested by the country in which the visit is to occur, to 
the embassy of that country located in the United States.
    (b) Contents of notification. The notification referred to in 
paragraph (a) of this section shall include:
    (1) The identity of the Customs office and officer issuing the 
notification;
    (2) The name of the Canadian or Mexican exporter or producer of the 
good, or producer of the material, whose premises are to be visited;
    (3) The date and place of the proposed verification visit;
    (4) The object and scope of the proposed verification visit, 
including specific reference to the good or material that is the 
subject of the verification;
    (5) The names and titles of the Customs officers performing the 
proposed verification visit;
    (6) The legal authority for the proposed verification visit; and
    (7) A request that the Canadian or Mexican exporter or producer of 
the good, or producer of the material, provide its written consent for 
the proposed verification visit.


Sec. 181.74  Verification visit procedures.

    (a) Written consent required. Prior to conducting a verification 
visit in Canada or Mexico pursuant to Sec. 181.72(a)(2)(iii) of this 
part, Customs shall obtain the written consent of the Canadian or 
Mexican exporter or producer of the good or producer of the material 
whose premises are to be visited.
    (b) Written consent procedures. The written consent provided for in 
paragraph (a) of this section shall be delivered by certified or 
registered mail, or by any other method that generates a reliable 
receipt, to the Customs officer who gave the notification provided for 
in Sec. 181.73 of this part.
    (c) Failure to provide written consent or to cooperate or to 
maintain records. Except as otherwise provided in paragraph (d) of this 
section, where a Canadian or Mexican exporter or producer of a good, or 
a Canadian or Mexican producer of a material, has not given its written 
consent to a proposed verification visit within 30 calendar days of 
receipt of notification pursuant to Sec. 181.73 of this part, Customs 
may deny preferential tariff treatment to that good, or for purposes of 
determining whether a good is an originating good may consider as non-
originating that material, that would have been the subject of the 
visit, provided that, as regards the good, notice of intent to deny 
such treatment is given to that exporter or producer of the good and to 
the U.S. importer thereof prior to taking such action. A failure on the 
part of the Canadian or Mexican exporter or producer of a good, or on 
the part of the Canadian or Mexican producer of a material, to maintain 
records or provide access to such records or otherwise cooperate during 
the verification visit shall mean that the verification visit never 
took place and may be treated by Customs in the same manner as a 
failure to give written consent to a verification visit. However, in 
the case of a Canadian or Mexican producer of a good who is found 
during a verification visit to have not maintained records in 
accordance with the Generally Accepted Accounting Principles applied in 
the producer's country, Customs may deny preferential tariff treatment 
on the good based solely on a failure to so maintain those records only 
if the producer does not conform the records to those Principles within 
60 calendar days after Customs informs the producer in writing of that 
failure.
    (d) Postponement of visit in Canada or Mexico. Following receipt of 
the notification provided for in Sec. 181.73 of this part, the Canadian 
or Mexican customs administration may, within 15 calendar days of 
receipt of the notification, postpone the proposed verification visit 
for a period not exceeding 60 calendar days from the date of such 
receipt by providing written notice of the postponement to the Customs 
officer who issued the notification of the verification visit, unless a 
longer period is requested and agreed to by Customs. Such a 
postponement shall not constitute a failure to provide written consent 
within the meaning of paragraph (c) of this section and shall not 
otherwise by itself constitute a valid basis upon which Customs may:
    (1) Consider a material that is used in the production of a good to 
be a non-originating material; or
    (2) Deny preferential tariff treatment to a good. 

[[Page 46378]]

    (e) Verification visits within the United States--(1) Notification 
and consent procedure. When the Canadian or Mexican customs 
administration intends to conduct a verification visit in the United 
States, notification of such intent will be given, and consent will be 
required, as provided for under Article 506 of the NAFTA. For purposes 
of the required notification to Customs, such notification shall be 
sent to Project North Star Coordination Center, P.O. Box 400, Buffalo, 
New York 14225-0400.
    (2) Postponement of visit. Following receipt of notification from 
the Canadian or Mexican customs administration of its intention to 
conduct a verification visit in the United States, Customs may, within 
15 calendar days of receipt of the notification, postpone the proposed 
verification visit for a period not exceeding 60 calendar days from the 
date of such receipt by providing written notice of the postponement to 
the Canadian or Mexican customs administration.
    (3) Designation of observers. A U.S. exporter or producer, 
including a producer of a material, whose good or material is the 
subject of a verification visit by the Canadian or Mexican customs 
administration shall be allowed to designate two observers to be 
present during the visit, subject to the following conditions:
    (i) The U.S. exporter or producer shall not be required to 
designate observers;
    (ii) There shall be no restriction on the class of persons that may 
be designated as observers by the U.S. exporter or producer;
    (iii) The observers to be present are designated in the written 
consent to the proposed visit or subsequent thereto;
    (iv) The observers do not participate in the verification visit in 
a manner other than as passive observers;
    (v) The presence of observers shall in no way affect the right to 
have legal counsel or other advisors present during the visit;
    (vi) There shall be no obligation on the part of the United States 
government or on the part of the Canadian or Mexican government to 
designate observers from its staff, even when the U.S. exporter or 
producer fails to, or specifically declines to, designate observers; 
and
    (vii) The failure of the U.S. exporter or producer to designate 
observers shall not result in the postponement of the visit.


Sec. 181.75  Issuance of origin determination.

    (a) General. Except in the case of a pattern of conduct within the 
meaning of Sec. 181.76(c) of this part, following receipt and analysis 
of the results of an origin verification initiated under Sec. 181.72(a) 
of this part in regard to a good imported into the United States and 
prior to denying preferential tariff treatment on the import 
transaction which gave rise to the origin verification, Customs shall 
provide the exporter or producer whose good is the subject of the 
verification with a written determination of whether the good qualifies 
as an originating good. Subject to paragraph (b) of this section, the 
written origin determination shall be sent within 60 calendar days 
after conclusion of the origin verification process, unless 
circumstances require additional time, and shall set forth:
    (1) A description of the good that was the subject of the 
verification together with the identifying numbers and dates of the 
export and import documents pertaining to the good;
    (2) Subject to the provisions of Sec. 181.131 of this part and 
except in the case of a negative origin determination where specific 
findings of fact cannot be made because of a failure to respond to a 
follow-up verification letter or questionnaire sent under Sec. 181.72 
of this part, a statement setting forth the findings of fact made in 
connection with the verification and upon which the determination is 
based; and
    (3) With specific reference to the rules applicable to originating 
goods as set forth in General Note 12, HTSUS, and in the appendix to 
this part, the legal basis for the determination.
    (b) Negative origin determinations. If Customs determines, as a 
result of an origin verification initiated under Sec. 181.72(a) of this 
part, that the good which is the subject of the verification does not 
qualify as an originating good, the written determination required 
under paragraph (a) of this section:
    (1) Shall be sent by certified or registered mail, or by any other 
method that produces a confirmation of receipt by the exporter or 
producer, if so requested by the customs administration of Canada or 
Mexico from which the good was exported; and
    (2) Shall, in addition to the information specified in paragraph 
(a) of this section, set forth the following:
    (i) A notice of intent to deny preferential tariff treatment on the 
good which is the subject of the determination;
    (ii) The specific date after which preferential tariff treatment 
will be denied, as established in accordance with Sec. 181.76(a)(1) of 
this part;
    (iii) The period, established in accordance with Sec. 181.76(a)(1) 
of this part, during which the exporter or producer of the good may 
provide written comments or additional information regarding the 
determination; and
    (iv) A statement advising the exporter or producer of the right to 
file a protest under 19 U.S.C. 1514 and part 174 of this chapter:
    (A) Within 90 days after notice of liquidation is provided pursuant 
to part 159 of this chapter; or
    (B) In cases where the negative origin determination does not 
result in a liquidation, within 90 days after the date of issuance of 
the written determination.
Sec. 181.76  Application of origin determinations.

    (a) General. Except as otherwise provided in this section, an 
origin determination may be applied upon issuance of the determination 
under Sec. 181.75 of this part.
    (b) Negative origin determinations. In the case of a negative 
origin determination issued under Sec. 181.75(b) of this part:
    (1) The date on which preferential tariff treatment may be denied 
shall be no earlier than 30 calendar days from the date on which:
    (i) Receipt of the written determination by the exporter or 
producer is confirmed, if a request under Sec. 181.75(b)(1) of this 
part has been made; or
    (ii) The written determination is sent by Customs, if no request 
under Sec. 181.75(b)(1) of this part has been made; and
    (2) Before denying preferential tariff treatment, Customs shall 
take into account any comments or additional information provided by 
the exporter or producer during the period established in accordance 
with paragraph (b)(1) of this section.
    (c) Cases involving a pattern of conduct. Where multiple origin 
verifications initiated under Sec. 181.72(a) of this part indicate a 
pattern of conduct by an exporter or producer involving false or 
unsupported representations on Certificates of Origin that a good 
imported into the United States qualifies as an originating good, 
Customs may deny subsequent claims for preferential tariff treatment on 
identical goods exported or produced by such person until that person 
establishes compliance with the rules applicable to originating goods 
as set forth in General Note 12, HTSUS, and in this part, provided that 
advance written notice of the intent to deny such claims is given to 
the importer. For purposes of this paragraph, a ``pattern of conduct'' 
means repeated instances of 

[[Page 46379]]
false or unsupported representations by an exporter or producer as 
established by Customs on the basis of not fewer than two origin 
verifications of two or more importations of the good that result in 
the issuance of not fewer than two written determinations issued to 
that exporter or producer pursuant to Sec. 181.75 of this part which 
conclude, as a finding of fact, that Certificates of Origin completed 
and signed by that exporter or producer with respect to identical goods 
contain false or unsupported representations.
    (d) Differing determinations. Where Customs determines, either as a 
result of an origin verification initiated under Sec. 181.72(a) of this 
part or under any other circumstance, that a certain good imported into 
the United States does not qualify as an originating good based on a 
tariff classification or a value applied in the United States to one or 
more materials used in the production of the good, including a material 
used in the production of another material that is used in the 
production of the good, which differs from the tariff classification or 
value applied to the materials by the country from which the good was 
exported, the Customs determination shall not become effective until 
Customs provides written notification thereof both to the U.S. importer 
of the good and to the person who completed and signed the Certificate 
of Origin upon which the claim for preferential tariff treatment for 
the good was based.
    (e) Applicability of a determination to prior importations. Customs 
shall not apply a determination made under paragraph (c) of this 
section to an importation made before the effective date of the 
determination if, prior to notification of the determination, the 
customs administration of the country from which the good was exported 
either issued an advance ruling under Article 509 of the NAFTA or any 
other ruling on the tariff classification or on the value of such 
materials, or gave consistent treatment to the entry of the materials 
under the tariff classification or value at issue, on which a person is 
entitled to rely and on which that person did in fact rely. For 
purposes of this paragraph, the person who received notification of the 
determination shall demonstrate to the satisfaction of Customs, in 
writing within 30 calendar days of receipt of the notification, that 
the conditions set forth herein have been met. For purposes of this 
paragraph:
    (1) A ``ruling'' on which a person is entitled to rely in the case 
of Canada must be issued pursuant to section 43.1(1) of the Customs Act 
(Advance Rulings) or in accordance with Departmental Memorandum 11-11-1 
(National Customs Rulings) and in the case of Mexico must be issued 
pursuant to Article 34 of the Codigo Fiscal de la Federacion and 
pursuant to Article 30 of the Ley Aduanera or the applicable provision 
of Mexican law related to advance rulings under Article 509 of the 
NAFTA; and
    (2) ``Consistent treatment'' means the established application by 
the Canadian or Mexican customs administration that can be 
substantiated by the continued acceptance by the customs administration 
of the tariff classification or value of identical materials on 
importations of the materials into Canada or Mexico by the same 
importer over a period of not less than two years immediately prior to 
the date of signature of the Certificate of Origin for the good that is 
the subject of the determination referred to in paragraph (d) of this 
section, provided that with regard to those importations:
    (i) The tariff classification or value of the materials was not the 
subject of a verification, review or appeal by that customs 
administration on the date of the determination under paragraph (d) of 
this section; and
    (ii) The materials had not been accorded a different tariff 
classification or value by one or more district, regional or local 
offices of that customs administration on the date of the determination 
under paragraph (d) of this section.
    (f) Detrimental reliance. If Customs proposes to deny preferential 
tariff treatment to a good pursuant to a determination made under 
paragraph (d) of this section, Customs shall postpone the application 
of the determination for a period not exceeding 90 calendar days from 
the date of issuance of the determination where the U.S. importer of 
the good, or the person who completed and signed the Certificate of 
Origin upon which the claim for preferential tariff treatment for the 
good was based, demonstrates to the satisfaction of Customs that it has 
relied in good faith to its detriment on the tariff classification or 
value applied to such materials by the customs administration of the 
country from which the good was exported.

Subpart H--Penalties


Sec. 181.81  Applicability to NAFTA transactions.

    Except as otherwise provided in Sec. 181.82 of this part, all 
criminal, civil or administrative penalties which may be imposed on 
U.S. importers, exporters and producers for violations of the Customs 
and related laws and regulations shall also apply to U.S. importers, 
exporters and producers for violations of the laws and regulations 
relating to the NAFTA.


Sec. 181.82  Exceptions to application of penalties.

    (a) General. A U.S. importer who makes a corrected declaration 
under Sec. 181.21(b) of this part shall not be subject to civil or 
administrative penalties for having made an incorrect declaration, 
provided that the corrected declaration was voluntarily made. In 
addition, civil or administrative penalties provided for under the U.S. 
Customs laws and regulations shall not be imposed on an exporter or 
producer in the United States who voluntarily provides written 
notification pursuant to Sec. 181.11(d) of this part with respect to 
the making of an incorrect certification.
    (b) ``Voluntarily'' defined--(1) General. For purposes of paragraph 
(a) of this section, the making of a corrected declaration or the 
providing of written notification of an incorrect certification will be 
deemed to have been done voluntarily if:
    (i) Done before the commencement of a formal investigation;
    (ii) Done before any of the events specified in Sec. 162.74(g) of 
this chapter have occurred;
    (iii) Done within 30 calendar days after either the U.S. importer 
with respect to a declaration that an imported good qualified as an 
originating good, or the U.S. exporter or producer with respect to a 
certification pertaining to a good exported to Canada or Mexico, had 
reason to believe that the declaration or certification was not 
correct;
    (iv) Accompanied by a written statement setting forth the 
information specified in paragraph (b)(3) of this section; and
    (v) In the case of a corrected declaration, accompanied or followed 
by a tender of any actual loss of duties in accordance with paragraph 
(b)(5) of this section.
    (2) Cases involving fraud. Notwithstanding paragraph (b)(1) of this 
section, a person who acted by means of fraud in making an incorrect 
declaration or certification may not make a voluntary correction 
thereof. For purposes of this paragraph (b)(2), the term ``fraud'' 
shall have the meaning set forth in paragraph (B)(3) of appendix B to 
part 171 of this chapter.
    (3) Written statement. For purposes of paragraph (a) of this 
section, each corrected declaration or notification of an incorrect 
certification shall be 

[[Page 46380]]
accompanied by a written statement which:
    (i) Identifies the class or kind of good to which the incorrect 
declaration or certification relates;
    (ii) Identifies each import or export transaction affected by the 
incorrect declaration or certification with reference to each port of 
importation or exportation and the approximate date of each importation 
or exportation. A U.S. producer who provides written notification that 
certain information in a Certificate of Origin is incorrect and who is 
unable to identify the specific export transactions under this 
paragraph shall provide as much information concerning those 
transactions as the producer, by the exercise of good faith and due 
diligence, is able to obtain;
    (iii) Specifies the nature of the incorrect statements or omissions 
regarding the declaration or certification; and
    (iv) Sets forth, to the best of the person's knowledge, the true 
and accurate information or data which should have been covered by or 
provided in the declaration or certification, and states that the 
person will provide any additional information or data which is unknown 
at the time of making the corrected declaration or certification within 
30 calendar days or within any extension of that 30-day period as 
Customs may permit in order for the person to obtain the information or 
data.
    (4) Substantial compliance. For purposes of this section, a person 
shall be deemed to have voluntarily corrected a declaration or 
certification even though that person provides corrected information in 
a manner which does not conform to the requirements of the written 
statement specified in paragraph (b)(3) of this section, provided that:
    (i) Customs is satisfied that the information was provided before 
the commencement of a formal investigation; and
    (ii) The information provided includes, orally or in writing, 
substantially the same information as that specified in paragraph 
(b)(3) of this section.
    (5) Tender of actual loss of duties. A U.S. importer who makes a 
corrected declaration shall tender any actual loss of duties at the 
time of making the corrected declaration, or within 30 calendar days 
thereafter, or within any extension of that 30-day period as Customs 
may allow in order for the importer to obtain the information or data 
necessary to calculate the duties owed.
    (6) Applicability of prior disclosure provisions. Where a person 
fails to meet the requirements of this section because the correction 
of the declaration or the written notification of an incorrect 
certification is not considered to be done voluntarily as provided in 
this section, that person may nevertheless qualify for prior disclosure 
treatment under 19 U.S.C. 1592(c)(4) and the regulations issued 
thereunder.

Subpart I--Advance Ruling Procedures


Sec. 181.91  Applicability.

    This subpart sets forth the rules which govern the issuance and 
application of advance rulings under Article 509 of the NAFTA and the 
procedures which apply for purposes of review of advance rulings under 
Article 510 of the NAFTA. Importers in the United States and exporters 
and producers located in Canada or Mexico may request and obtain an 
advance ruling on a NAFTA transaction only in accordance with the 
provisions of this subpart whenever the requested ruling involves a 
subject matter specified in Sec. 181.92(b)(6) of this part. 
Accordingly, the provisions of this subpart shall apply in lieu of the 
administrative ruling provisions contained in subpart A of part 177 of 
this chapter except where the request for a ruling involves a subject 
matter not specified in Sec. 181.92(b)(6).


Sec. 181.92  Definitions and general NAFTA advance ruling practice.

    (a) Definitions. For purposes of this subpart:
    (1) An advance ruling is a written statement issued by the 
Headquarters Office or the National Commodity Specialist Division or by 
such other office as designated by the Commissioner of Customs that 
interprets and applies the provisions of NAFTA to a specific set of 
facts involving any subject matter specified in Sec. 181.92(b)(6) of 
this part. An ``advance ruling letter'' is an advance ruling issued in 
response to a written request and set forth in a letter addressed to 
the person making the request or his designee. A ``published advance 
ruling'' is an advance ruling which has been published in full text in 
the Customs Bulletin.
    (2) An authorized agent is a person expressly authorized by a 
principal to act on his or her behalf. An advance ruling requested by 
an attorney or other person acting as an agent must include a statement 
describing the authority under which the request is made. With the 
exception of attorneys whose authority to represent is known, any 
person appearing before Customs as an agent in connection with an 
advance ruling request may be required to present evidence of his or 
her authority to represent the principal. The foregoing requirements 
will not apply to an individual representing his or her full-time 
employer or to a bona-fide officer, director or other qualified 
representative of a corporation, association, or organized group.
    (3) The term Headquarters Office, means the Office of Regulations 
and Rulings at Headquarters, United States Customs Service, Washington, 
DC.
    (4) An information letter is a written statement issued by the 
Headquarters Office or the National Commodity Specialist Division or by 
such other office as designated by the Commissioner of Customs that 
does no more than call attention to a well-established interpretation 
of principles under the NAFTA, without applying it to a specific set of 
facts. If Customs believes that general information may be of some 
benefit to the person making the request, an information letter may be 
issued in response to a request for an advance ruling when:
    (i) The request suggests that general information, rather than an 
advance ruling, is actually being sought;
    (ii) The request is incomplete or otherwise fails to meet the 
requirements set forth in this subpart; or
    (iii) The requested advance ruling cannot be issued for any other 
reason.
    (5) A NAFTA transaction is an act or activity to which the NAFTA 
provisions apply. A ``prospective'' NAFTA transaction is one that is 
merely contemplated or is currently being undertaken but has not 
resulted in any arrival or in the filing of any entry or entry summary 
or other document or in any other act so as to bring the transaction, 
or any part of it, under the jurisdiction of any Customs office. A 
``current'' NAFTA transaction is one which is presently under 
consideration by a field office of Customs. A ``completed'' NAFTA 
transaction is one which has been acted upon by a Customs field office 
and with respect to which that office has issued a determination which 
is final in nature, but is (or was) subject to appeal, petition, 
protest or other review as provided in the applicable Customs laws and 
regulations. An ``ongoing'' NAFTA transaction is a series of identical, 
recurring transactions, consisting of current and completed 
transactions where future transactions are contemplated.
    (6) The term National Commodity Specialist Division means the 
National Commodity Specialist Division, United States Customs Service, 
New York, New York. 

[[Page 46381]]

    (b) General advance ruling practice. An advance ruling may be 
requested under the provisions of this subpart with respect to 
prospective NAFTA transactions. An advance ruling will be based on the 
facts and circumstances presented by the requester.
    (1) Prospective NAFTA transactions. It is in the interest of the 
sound administration of the NAFTA that persons engaging in any 
transaction affected by NAFTA fully understand the consequences of that 
transaction prior to its consummation. For this reason, Customs will 
give full and careful consideration to written requests from importers 
in the United States and exporters or producers in Canada or Mexico for 
advance rulings or information setting forth, with respect to a 
specifically described transaction, a definitive interpretation of 
applicable law or other appropriate information.
    (2) Current or ongoing NAFTA transactions. A question arising in 
connection with a NAFTA transaction already before a Customs field 
office by reason of arrival, entry or otherwise will be resolved by 
that office in accordance with the principles and precedents previously 
announced by the Headquarters Office. If such a question cannot be 
resolved on the basis of clearly established rules set forth in the 
NAFTA or the regulations thereunder, or in applicable Treasury 
Decisions, rulings, opinions, or court decisions published in the 
Customs Bulletin, that field office may, if it believes it appropriate, 
forward the question to the Headquarters Office for consideration.
    (3) Completed NAFTA transactions. A question arising in connection 
with an entry of merchandise which has been liquidated, or in 
connection with any other completed NAFTA transaction, may not be the 
subject of an advance ruling request under this subpart.
    (4) Oral advice. Customs will not issue an advance ruling in 
response to an oral request. Oral opinions or advice of Customs 
personnel are not binding on Customs. However, oral inquiries may be 
made to Customs offices regarding existing advance rulings, the scope 
of such advance rulings, the types of transactions with respect to 
which Customs will issue advance rulings, the scope of the advance 
rulings which may be issued, or the procedures to be followed in 
submitting advance ruling requests, as prescribed in this subpart.
    (5) Who may request an advance ruling. An advance ruling may be 
requested by any of the following persons (individuals, corporations, 
partnerships, associations, or other entities or groups) having a 
direct and demonstrable interest in the question or questions presented 
in the advance ruling request, or by the authorized agent of any such 
person:
    (i) An importer in the United States;
    (ii) An exporter or a producer of a good in Canada or Mexico; or
    (iii) A Canadian or Mexican producer of a material that is used in 
the production of a good imported into the United States, but only with 
regard to that material and only in regard to a matter described in 
paragraphs (b)(6)(i) through (v) and (vii) of this section.
    (6) Subject matter of advance rulings. Customs shall issue advance 
rulings under this subpart concerning the following:
    (i) Whether materials imported from a country other than the United 
States, Canada or Mexico and used in the production of a good undergo 
an applicable change in tariff classification set forth in General Note 
12, HTSUS, as a result of production occurring entirely in the United 
States, Canada and/or Mexico;
    (ii) Whether a good satisfies a regional value-content requirement 
under the transaction value method or under the net cost method as 
provided for in General Note 12, HTSUS, and in this part;
     (iii) For purposes of determining whether a good satisfies a 
regional value-content requirement under General Note 12, HTSUS, and 
under this part, the appropriate basis or method for value to be 
applied by an exporter or a producer in Canada or Mexico, in accordance 
with the principles set forth in the appendix to this part, for 
calculating the transaction value of the good or of the materials used 
in the production of the good;
     (iv) For purposes of determining whether a good satisfies a 
regional value-content requirement under General Note 12, HTSUS, and 
under this part, the appropriate basis or method for reasonably 
allocating costs, in accordance with the allocation methods set forth 
in the appendix to this part, for calculating the net cost of the good 
or the value of an intermediate material;
     (v) Whether a good qualifies as an originating good under General 
Note 12, HTSUS, and under the appendix to this part;
     (vi) Whether a good that re-enters the United States after having 
been exported from the United States to Canada or Mexico for repair or 
alteration qualifies for duty-free treatment in accordance with 
Sec. 181.64 of this part;
     (vii) Whether the proposed or actual marking of a good satisfies 
country of origin marking requirements under part 134 of this chapter 
and under the Marking Rules set forth in part 102 of this chapter;
     (viii) Whether an originating good qualifies as a good of Canada 
or Mexico under Annex 300-B, Annex 302.2 and Chapter Seven of the 
NAFTA; and
     (ix) Whether a good is a qualifying good under Chapter Seven of 
the NAFTA.


Sec. 181.93  Submission of advance ruling requests.

     (a) Form. A request for an advance ruling should be written in the 
English language and in the form of a letter. For any subject matter 
specified in Sec. 181.92(b)(6) (i), (v), (vi), (vii), (viii) or (ix) of 
this part, the request may be directed either to the Commissioner of 
Customs, Attention: Office of Regulations and Rulings, Washington, DC 
20229, or to the National Commodity Specialist Division, United States 
Customs Service, 6 World Trade Center, New York, NY 10048. For any 
subject matter specified in Sec. 181.92(b)(6)(ii), (iii) or (iv) of 
this part, the request must be directed to the Commissioner of Customs, 
Attention: Office of Regulations and Rulings, Washington, DC 20229.
     (b) Content--(1) General. Each request for an advance ruling must 
identify the specific subject matter under Sec. 181.92(b)(6) of this 
part to which the request relates, must contain a complete statement of 
all relevant facts relating to the NAFTA transaction and must state 
that the information presented is accurate and complete. The following 
facts must be included: the names, addresses, and other identifying 
information of all interested parties (if known); the name of the port 
or place at which any good involved in the transaction will be imported 
or which will otherwise have jurisdiction with respect to the act or 
activity described in the transaction; and a description of the 
transaction itself, appropriate in detail to the subject matter of the 
requested advance ruling. Where the request for an advance ruling is 
submitted by or on behalf of the importer of the good involved in the 
transaction, the request must include the name and address of the 
exporter and, if known, producer of the good. Where the request for an 
advance ruling is submitted by or on behalf of the exporter of the good 
involved in the transaction, the request must include the name and 
address of the producer and importer of the good, if known. Where the 
request for an advance ruling is submitted by or on behalf of the 
producer of the good involved in the transaction, the request must 
include the name and address of the exporter 

[[Page 46382]]
and importer of the good, if known. In addition, where relevant to the 
issue that is the subject of the request for an advance ruling, and 
regardless of the specific nature of the advance ruling requested, the 
request must include:
     (i) A copy of any advance ruling or other ruling with respect to 
the tariff classification of the good that has been issued by Customs 
to the person submitting the request; or
     (ii) Sufficient information to enable Customs to classify the good 
where no advance ruling or other ruling with respect to the tariff 
classification of the good has been issued by Customs to the person 
submitting the request. Such information includes a full description of 
the good, including, where relevant, the composition of the good, a 
description of the process by which the good is manufactured, a 
description of the packaging in which the good is contained, the 
anticipated use of the good and its commercial, common or technical 
designation, and product literature, drawings, photographs or 
schematics.
     (2) Description of transaction--(i) General. The prospective 
Customs transaction to which the advance ruling request relates must be 
described in sufficient detail to permit proper application of the 
relevant NAFTA provisions.
     (ii) Tariff change rulings--(A) General. If the transaction 
involves the importation of a good or material for which a ruling is 
requested as to whether a change in tariff classification has occurred, 
the request should set forth: The principal or chief use of the good or 
material in the United States and the commercial, common, or technical 
designation of the good or material; if the good or material is 
composed of two or more substances, the relative quantity (by both 
weight and by volume) and value of each substance; any applicable 
special invoicing requirements set forth in part 141 of this chapter 
(if known); and any other information which may assist in determining 
the appropriate tariff classification of the good or material. The 
advance ruling request should also note, whenever germane, the purchase 
price of the good or material, and its approximate selling price in the 
United States. Each individual request for an advance ruling must be 
limited to five merchandise items, all of which must be of the same 
class or kind. Only NAFTA tariff change rulings will be issued under 
this subpart. Tariff classification rulings which do not involve the 
application of the NAFTA shall be issued under part 177 of this 
chapter.
     (B) Issues involving a change in tariff classification of a 
material. Where the request for the advance ruling involves the 
application of a rule of origin that requires an assessment of whether 
materials used in the production of an imported good undergo an 
applicable change in tariff classification, the request must list each 
material used in the production of the good and must:
     (1) Identify each material which is claimed to be an originating 
material and provide a complete description of each such material, 
including the basis for the claim as to originating status;
     (2) Identify each material which is a non-originating material, or 
for which the origin is unknown, and provide a complete description of 
each such material, including its tariff classification if known; and
     (3) Describe all processing operations employed in the production 
of the good, the location of each operation and the sequence in which 
the operations occur.
     (iii) NAFTA rulings on regional value content. NAFTA advance 
ruling requests, if involving the issue of whether a good satisfies a 
regional value content requirement under the transaction value method 
or under the net cost method, or under both methods, as provided for in 
General Note 12, HTSUS, and in the appendix to this part, must specify 
each method under which eligibility is sought. Where the transaction 
value method is specified, the advance ruling request must include: 
information sufficient to calculate the transaction value of the good 
in accordance with schedule II of the appendix to this part with 
respect to the transaction of the producer of the good, adjusted to an 
F.O.B. basis; information sufficient to calculate the value of each 
non-originating material, or material the origin of which is unknown, 
that is used by the producer in the production of the good in 
accordance with the provisions of section 7 and, where applicable, 
section 6(10) of the appendix to this part; a complete description of 
each material that is claimed to be an originating material and that is 
used in the production of the good, including the basis for the claim 
as to originating status; information sufficient to permit an 
examination of the factors enumerated in schedule III or VIII of the 
appendix to this part where the advance ruling request involves an 
issue of whether, with respect to the good or material under the 
applicable schedule, the transaction value is acceptable; and 
information sufficient for any other circumstance to make any 
determination relevant to the application of the regional value content 
requirement to the good. Where the net cost method is specified, the 
advance ruling request must include: a list of all product, period and 
other costs relevant to determining the total cost of the good as 
defined in the appendix to this part; a list of all excluded costs to 
be subtracted from the total cost of the good as provided in the 
appendix to this part; information sufficient to calculate the value of 
each non-originating material, or material the origin of which is 
unknown, that is used in the production of the good, in accordance with 
section 7 of the appendix to this part; the basis for any allocation of 
costs in accordance with schedule VII of the appendix to this part; the 
period over which the net cost calculation is to be made; and any other 
information relevant to determining the appropriate value of any cost 
under this part. Where the advance ruling request concerns only the 
calculation of an element of a regional value content formula, and with 
regard to the information specified in paragraphs (b)(1) through (b)(5) 
of this section, the request need only contain the following: the 
information in paragraph (b)(1), other than the information specified 
in paragraph (b)(1)(i) or (b)(1)(ii); the information in paragraph 
(b)(5); and any information in this paragraph (b)(2)(iii) which is 
relevant to the issue that is the subject of the request.
    (iv) NAFTA rulings on producer materials. Where the advance ruling 
request involves an issue with respect to an intermediate material 
under Article 402(10) of the NAFTA (see section 7(4) of the appendix to 
this part), the request must contain sufficient information to 
determine the origin and value of the material in accordance with 
Article 402(11) of the NAFTA (see section 7(6) of the appendix to this 
part). Where the advance ruling request is submitted by a Canadian or 
Mexican producer of a material under Sec. 181.92(b)(5)(iii) of this 
part and concerns only the origin of such material, and with regard to 
the information specified in paragraphs (b)(1) through (b)(5) of this 
section, the request need only include the following: the information 
in paragraph (b)(1), including any information specified in paragraph 
(b)(1)(i) or (b)(1)(ii) which is relevant to the issue that is the 
subject of the request; any information in paragraph (b)(2)(ii)(B) 
which is relevant to the issue that is the subject of the request; a 
sample as provided for in paragraph (b)(3) if relevant to the issue 
that is the subject of the request; and the information in paragraph 
(b)(5).
    (3) Samples. Each request for an advance ruling should be 
accompanied by photographs, drawings, or other 

[[Page 46383]]
pictorial representations of the good and, whenever possible, by a 
sample of the good unless a precise description of the good is not 
essential to the advance ruling requested. Any good consisting of 
materials in chemical or physical combination for which a laboratory 
analysis has been prepared by or for the manufacturer should include a 
copy of that analysis, flow charts, CAS number, and related 
information. A sample submitted in connection with a request for an 
advance ruling becomes a part of the Customs file in the matter and 
will be retained until the advance ruling is issued or the advance 
ruling request is otherwise disposed of. A sample should only be 
submitted with the understanding that all or a part of it may be 
damaged or consumed in the course of examination, testing, analysis, or 
other actions undertaken in connection with the advance ruling request.
    (4) Related documents. If the question or questions presented in 
the advance ruling request directly relate to matters set forth in any 
invoice, contract, agreement, or other document, a copy of the document 
must be submitted with the request. (Original documents should not be 
submitted inasmuch as any documents or exhibits furnished with the 
advance ruling request become a part of the Customs file in the matter 
and cannot be returned.) The relevant facts reflected in any documents 
submitted, and an explanation of their bearing on the question or 
questions presented, must be expressly set forth in the advance ruling 
request.
    (5) Prior or current transactions.--(i) General. Each request for 
an advance ruling must state:
    (A) Whether, to the knowledge of the person submitting the request, 
the same transaction or issue, or one identical to it, has ever been 
considered, or is currently being considered by any Customs office;
    (B) Whether, to the knowledge of the person submitting the request, 
the issue involved has ever been, or is currently, the subject of:
    (1) Review by the United States Court of International Trade, the 
United States Court of Appeals for the Federal Circuit, or any court of 
appeal therefrom, or review by a judicial or quasi-judicial body in 
Canada or Mexico;
    (2) A verification of origin performed in the United States, Canada 
or Mexico;
    (3) An administrative appeal in the United States, Canada or 
Mexico; or
    (4) A request for an advance ruling under this subpart, or a 
request for an advance ruling in Canada or Mexico under an appropriate 
authority referred to in Sec. 181.76(d)(1) of this part;
    (C) The status or disposition of any matter on which an affirmative 
statement is made under paragraph (b)(5)(i)(B) of this section; and
    (D) Whether the transaction described in the advance ruling request 
is but one of a series of similar and related transactions.
    (ii) Change in status of transaction. If a prospective transaction 
which is the subject of an advance ruling request becomes a current 
transaction, the person who submitted the request shall so notify the 
office processing the request.
    (6) Statement of position. If the request for an advance ruling 
asks that a particular determination or conclusion be reached in the 
advance ruling letter, a statement must be included in the request 
setting forth the basis for that determination or conclusion, together 
with a citation of all relevant supporting authority.
    (7) Privileged or confidential information. Information which is 
claimed to constitute trade secrets or privileged or confidential 
commercial or financial information regarding the business transactions 
of private parties the disclosure of which would cause substantial harm 
to the competitive position of the person making the request (or of 
another interested party) must be identified clearly, and the reasons 
such information should not be disclosed, including, where applicable, 
the reasons the disclosure of the information would prejudice the 
competitive position of the person making the request (or of another 
interested party), must be set forth. An advance ruling will not be 
issued until all trade secret, privilege or confidentiality issues are 
resolved (see Sec. 181.99(a)(3) of this part).
    (c) Signing; instruction as to reply. The request for an advance 
ruling must be signed by a person authorized to make the request, as 
described in Sec. 181.92(b)(5) of this part. An advance ruling 
requested by a principal or authorized agent may direct that the 
advance ruling letter be addressed to the other.
    (d) Requests for immediate consideration. Customs will normally 
process requests for advance rulings in the order they are received and 
as expeditiously as possible, as specified in Sec. 181.99 of this part. 
However, a request that a particular matter be given consideration 
ahead of its regular order, if made in writing at the time the request 
is submitted, or subsequent thereto, and showing a clear need for such 
treatment, will be given consideration as the particular circumstances 
warrant and permit. Requests for special consideration made by telegram 
or electronic transmission will be treated in the same manner as 
requests made by letter, but advance rulings will not be issued by 
telegram or electronic transmission. A telegram or electronic 
transmission must be followed up with a signed original within 14 
calendar days of the submission of the telegram or electronic 
transmission. In no event can any assurance be given that a particular 
request for an advance ruling will be acted upon by the time requested.


Sec. 181.94  Nonconforming requests for advance rulings.

    A person submitting a request for an advance ruling that does not 
comply with all of the provisions of this subpart will be so notified 
in writing, and the requirements that have not been met will be pointed 
out. Such person will be given a period of 30 calendar days from the 
date of the notice (or such longer period as the notice may provide) to 
supply any additional information that is requested or otherwise 
conform the advance ruling request to the requirements referred to in 
the notice. The Customs file with respect to advance ruling requests 
which are not brought into compliance with the provisions of this 
subpart within the period of time allowed will be administratively 
closed and the request removed from active consideration. A request for 
an advance ruling that is removed from active consideration by reason 
of failure to comply with the provisions of this subpart may be treated 
as withdrawn. A failure to comply with the provisions of this subpart 
will result in the rejection of the advance ruling request with the 
notice specifying the deficiencies.


Sec. 181.95  Oral discussion of issues.

    (a) General. A person submitting a request for an advance ruling 
and desiring an opportunity to orally discuss the issue or issues 
involved should indicate that desire in writing at the time the advance 
ruling request is filed. Such a discussion will only be scheduled when, 
in the opinion of the Customs personnel by whom the advance ruling 
request is under consideration, a conference will be helpful in 
deciding the issue or issues involved or when a determination or 
conclusion contrary to that advocated in the advance ruling request is 
contemplated. Conferences are scheduled for the purpose of affording 
the parties an opportunity to freely and openly discuss the matters set 
forth in the advance ruling request. Accordingly, the parties will not 
be bound by any 

[[Page 46384]]
argument or position advocated or agreed to, expressly or by 
implication, during the conference unless either party subsequently 
agrees to be so bound in writing. The conference will not conclude with 
the issuance of an advance ruling letter.
    (b) Time, place and number of conferences. If a request for a 
conference is granted, the person making the request will be notified 
of the time and place of the conference. No more than one conference 
with respect to the matters set forth in an advance ruling request will 
be scheduled, unless, in the opinion of the Customs personnel by whom 
the advance ruling request is under consideration, additional 
conferences are necessary.
    (c) Representation. A person whose request for a conference has 
been granted may be accompanied at that conference by counsel or other 
representatives, or may designate such persons to attend the conference 
in his or her place.
    (d) Additional information presented at conferences. It will be the 
responsibility of the person submitting the request for an advance 
ruling to provide for inclusion in the Customs file in the matter a 
written record setting forth any and all additional information, 
documents, and exhibits introduced during the conference to the extent 
that person considers such material relevant to the consideration of 
the advance ruling request. Such information, documents and exhibits 
shall be given consideration only if received by Customs within 30 
calendar days following the conference.


Sec. 181.96   Change in status of transaction.

    Each person submitting a request for an advance ruling in 
connection with a NAFTA transaction must immediately advise Customs in 
writing of any change in the status of that transaction upon becoming 
aware of the change. In particular, Customs must be advised when any 
transaction described in the advance ruling request as prospective 
becomes current and under the jurisdiction of a Customs field office. 
In addition, any person engaged in a NAFTA transaction coming under the 
jurisdiction of a Customs field office who has previously requested a 
NAFTA advance ruling with respect to that transaction must advise the 
field office of that fact.


Sec. 181.97  Withdrawal of NAFTA advance ruling requests.

    Any request for an advance ruling may be withdrawn by the person 
submitting it at any time before the issuance of an advance ruling 
letter or any other final disposition of the request. All 
correspondence, documents, and exhibits submitted in connection with 
the request will be retained in the Customs file and will not be 
returned. In addition, the Headquarters Office may forward, to Customs 
field offices which have or may have jurisdiction over the transaction 
to which the advance ruling request relates, its views in regard to the 
transaction or the issues involved therein, as well as appropriate 
information derived from materials in the Customs file.
Sec. 181.98  Situations in which no NAFTA advance ruling may be issued.

    (a) General. No advance ruling letter will be issued in response to 
a request therefor which fails to comply with the provisions of this 
subpart. No advance ruling letter will be issued in regard to a 
completed transaction.
    (b) Pending matters. Where a request for an advance ruling involves 
an issue that is under review in connection with an origin verification 
under subpart G of this part or that is the subject of an 
administrative review procedure provided for in subpart J of this part 
or in part 174 of this chapter, Customs may decline to issue the 
requested advance ruling. In addition, no NAFTA advance ruling letter 
will be issued with respect to any issue which is pending before the 
United States Court of International Trade, the United States Court of 
Appeals for the Federal Circuit, or any court of appeal therefrom. 
Litigation before any other court will not preclude the issuance of an 
advance ruling letter, provided neither Customs nor any of its officers 
or agents is named as a party to the action.


Sec. 181.99  Issuance of NAFTA advance rulings or other advice.

    (a) NAFTA advance ruling letters--(1) General. Except as otherwise 
provided in paragraph (a)(2) of this section, Customs will, within 120 
calendar days of receipt of a request, including any required 
information supplemental thereto, issue an advance ruling letter in the 
English language setting forth the position of Customs and the reasons 
therefor with respect to a specifically described Customs transaction 
whenever a request for such an advance ruling is submitted in 
accordance with the provisions of this subpart and it is in the sound 
administration of the NAFTA provisions to do so. Otherwise, a request 
for an advance ruling will be answered by an information letter or, in 
those situations in which general information is likely to be of little 
or no value, by a letter stating that no advance ruling can be issued. 
In the course of evaluating the advance ruling request Customs may 
solicit supplemental information from the person requesting the advance 
ruling. The submission of supplemental information will extend the time 
for response. The time for response will also be extended if it is 
necessary to obtain information from other government agencies or in 
the form of a laboratory analysis.
    (2) Submission of NAFTA advance ruling letters to field offices. 
Any importer engaging in a NAFTA transaction with respect to which an 
advance ruling letter has been issued under this subpart either must 
ensure that a copy of the advance ruling letter is attached to the 
documents filed with the appropriate Customs office in connection with 
that transaction or must otherwise indicate with the information filed 
for that transaction that an advance ruling has been received. Any 
person receiving an advance ruling stating Customs determination must 
set forth such determination in the documents or information filed in 
connection with any subsequent entry of that merchandise; failure to do 
so may result in a rejection of the entry and the imposition of such 
penalties as may be appropriate. An advance ruling received after the 
filing of such documents or information must immediately be brought to 
the attention of the appropriate Customs field office.
    (3) Disclosure of NAFTA advance ruling letters. No part of the 
advance ruling letter, including names, addresses, or information 
relating to the business transactions of private parties, shall be 
deemed to constitute privileged or confidential commercial or financial 
information or trade secrets exempt from disclosure pursuant to the 
Freedom of Information Act, as amended (5 U.S.C. 552), and part 103 of 
this chapter, or shall be deemed to be subject to the confidentiality 
principle set forth in Sec. 181.121 of this part, unless, as provided 
in Sec. 181.93(b)(7) of this part, the information claimed to be exempt 
from disclosure is clearly identified and a valid basis for 
nondisclosure is set forth. Before the issuance of the advance ruling 
letter, the person submitting the advance ruling request will be 
notified of any decision adverse to his request for nondisclosure and 
will, upon written request to Customs within 10 working days of the 
date of notification, be permitted to withdraw the advance ruling 
request. If in the opinion of Customs an impasse exists on the issue of 
confidentiality and the person who submitted the advance ruling request 
does not withdraw the request, Customs 

[[Page 46385]]
will decline to issue the advance ruling. All advance ruling letters 
issued by Customs will be available, upon written request, for 
inspection and copying by any person (with any portions determined to 
be exempt from disclosure deleted).
    (4) Penalties for misrepresented or omitted material facts or for 
noncompliance. If Customs determines that an issued advance ruling was 
based on incorrect information, the person to whom the advance ruling 
was issued may be subject to appropriate penalties unless that person 
demonstrates that he used reasonable care and acted in good faith in 
presenting the facts and circumstances on which the advance ruling was 
based. In addition, Customs may apply such measures as the 
circumstances may warrant in a case where a person to whom an advance 
ruling was issued has failed to act in accordance with the terms and 
conditions of the advance ruling.
    (b) Other NAFTA advice and guidance. The Headquarters Office may on 
its own initiative from time to time issue other external advice and 
guidance with respect to issues or transactions arising under the NAFTA 
which come to its attention. Such NAFTA advice and guidance, which 
represent the official position of Customs and which are likely to be 
of widespread interest and application, are published in the Customs 
Bulletin, as described in Sec. 181.101 of this part. Nothing in this 
subpart shall preclude Customs from issuing advice and guidance to its 
field offices concerning the application of the NAFTA.
Sec. 181.100  Effect of NAFTA advance ruling letters; modification and 
revocation.

    (a) Effect of NAFTA advance ruling letters--(1) General. An advance 
ruling letter issued by Customs under the provisions of this subpart 
represents the official position of Customs with respect to the 
particular transaction or issue described therein and is binding on all 
Customs personnel in accordance with the provisions of this subpart 
until modified or revoked. In the absence of a change of practice or 
other modification or revocation which affects the principle of the 
advance ruling set forth in the advance ruling letter, that principle 
may be cited as authority in the disposition of transactions involving 
the same circumstances. An advance ruling letter is generally effective 
on the date it is issued or such later date as may be specified in the 
advance ruling and, commencing on its effective date, may be applied to 
entries for consumption and warehouse withdrawals for consumption which 
are unliquidated, or to other transactions with respect to which 
Customs has not taken final action on that date. See, however, 
paragraph (b) of this section (ruling letters which modify previous 
advance ruling letters) and Sec. 181.101 of this part (advance ruling 
letters published in the Customs Bulletin).
    (2) Application of NAFTA rulings to transactions--(i) General. Each 
NAFTA ruling letter is issued on the assumption that all of the 
information furnished in connection with the ruling request and 
incorporated in the ruling letter, either directly, by reference, or by 
implication, is accurate and complete in every material respect. The 
application of an advance ruling letter by a Customs field office to 
the transaction to which it is purported to relate is subject to the 
verification of the facts incorporated in the advance ruling letter, a 
comparison of the transaction described therein to the actual 
transaction, and the satisfaction of any conditions on which the 
advance ruling was based, and if the facts are materially different or 
a condition has not been satisfied, the treatment specified in the 
advance ruling will not be applied to the actual transaction. If, in 
the opinion of any Customs field office by whom the transaction is 
under consideration or review, the advance ruling letter should be 
modified or revoked, the findings and recommendations of that office 
will be forwarded to the Headquarters Office for consideration, prior 
to any final disposition with respect to the transaction by that 
office. If the transaction described in the NAFTA advance ruling letter 
and the actual transaction are the same, and any and all conditions set 
forth in the advance ruling letter have been satisfied, the advance 
ruling will be applied to the transaction.
    (ii) Tariff change rulings. Each advance ruling letter concerning 
whether a change in tariff classification has occurred will be applied 
only with respect to transactions involving either articles which are 
identical to the sample submitted with the advance ruling request and 
reflect the same processing or articles which conform to the 
description set forth in the advance ruling letter.
    (iii) Regional value content rulings. Each advance ruling letter 
concerning the application of a regional value content requirement will 
be applied only with respect to transactions involving the same 
merchandise and identical facts.
    (3) Reliance on NAFTA advance rulings by others. An advance ruling 
letter is subject to modification or revocation without notice to any 
person other than the person to whom the letter was addressed. 
Accordingly, no other person may rely on the advance ruling letter or 
assume that the principles of that advance ruling will be applied in 
connection with any transaction other than the one described in the 
letter. However, any person eligible to request an advance ruling under 
Sec. 181.92(b)(5) of this part may request information as to whether a 
previously-issued advance ruling letter has been modified or revoked by 
writing the Commissioner of Customs, Attention: Office of Regulations 
and Rulings, Washington, DC 20229, and either enclosing a copy of the 
advance ruling letter or furnishing other information sufficient to 
permit the advance ruling letter in question to be identified.
    (b) Modification or revocation of NAFTA advance ruling letters--(1) 
General. Any NAFTA advance ruling letter may be modified or revoked by 
Customs Headquarters in any of the following circumstances or for any 
of the following purposes, provided that written notice of the 
modification or revocation is given to the person to whom the advance 
ruling letter was addressed:
    (i) If the ruling letter reflects or is based on an error:
    (A) Of fact;
    (B) In the tariff classification of a good or material that is the 
subject of the ruling;
    (C) In the application of a regional value-content requirement 
under General Note 12, HTSUS, and under this part;
    (D) In the application of the rules for determining whether a good 
qualifies as a good of Canada or Mexico under Annex 300-B, Annex 302.2 
or Chapter Seven of the NAFTA;
    (E) In the application of the rules for determining whether a good 
is a qualifying good under Chapter Seven of the NAFTA; or
    (F) In the application of the rules for determining whether a good 
qualifies for duty-free treatment under Sec. 181.64 of this part when 
the good re-enters the United States after having been exported to 
Canada or Mexico for repair or alteration;
    (ii) If the ruling letter is not in accordance with an 
interpretation agreed on by the United States, Canada and Mexico 
regarding Chapter Three or Chapter Four of the NAFTA;
    (iii) If there is a change in the material facts or circumstances 
on which the ruling is based;
    (iv) To conform to a modification of Chapter Three, Four, Five or 
Seven of the NAFTA, or of the Marking Rules, or 

[[Page 46386]]
of the regulations set forth in this part; or
    (v) To conform to a judicial decision or change in domestic law.
    (2) Application of modification or revocation of NAFTA advance 
ruling letters. The modification or revocation of a NAFTA advance 
ruling letter will not be applied to entries or warehouse withdrawals 
for consumption which were made prior to the effective date of such 
modification or revocation, except where the person to whom the advance 
ruling was issued has not acted in accordance with its terms and 
conditions.
    (3) Effective dates. Generally, a NAFTA letter modifying or 
revoking an earlier advance ruling will be effective on the date it is 
issued. However, Customs may, upon request or on its own initiative, 
delay the effective date of such a modification or revocation for a 
period of up to 90 calendar days from the date of issuance. Such a 
delay may be granted at the request of the party to whom the ruling 
letter was issued, provided such party can demonstrate to the 
satisfaction of Customs that it relied on the earlier advance ruling in 
good faith and to its detriment. The evidence of such reliance must 
cover the period from the date of the letter modifying or revoking the 
advance ruling back to the date of that advance ruling and must list 
all transactions claimed to be covered by the modified or revoked 
advance ruling by entry number (or other Customs assigned number), the 
quantity and value of merchandise covered by each such transaction 
(where applicable), the ports of entry, and the dates of final action 
by Customs. Such evidence must also include contracts, purchase orders, 
or other materials tending to establish that future transactions were 
arranged based on the earlier advance ruling. The request for delay 
must specifically identify the prior ruling on which reliance is 
claimed. All persons requesting a delay will be issued a separate 
letter setting forth the period, if any, of the delay to be provided. 
In appropriate circumstances, Customs may decide to make its decision, 
with respect to a delay, applicable to all persons, irrespective of 
demonstrated reliance; in this event, a notice announcing the delay 
will be published in the Customs Bulletin and individual ruling letters 
will not be issued.


Sec. 181.101  Publication of decisions.

    Within 90 days after issuing any precedential decision relating to 
any NAFTA transaction, Customs shall publish the decision in the 
Customs Bulletin or otherwise make it available for public inspection. 
Disclosure is governed by 31 CFR part 1, part 103 of this chapter, and 
Sec. 181.99(a)(3) of this part.


Sec. 181.102  Administrative and judicial review of advance rulings.

    (a) Administrative review--(1) Submission of request for review. 
Any person who received an advance ruling issued under this subpart, or 
an authorized agent of such person, may request administrative review, 
at Customs Headquarters, of that advance ruling, including any 
modification or revocation thereof, by letter addressed to the 
Assistant Commissioner, Office of Regulations and Rulings, U.S. Customs 
Service, Washington, DC 20229. Such request shall be filed within 30 
calendar days after issuance of the advance ruling and shall set forth 
the following information:
    (i) The name and address of the person seeking review and the name 
and address of his authorized agent if the request is signed by such an 
agent;
    (ii) The Customs identification number or employer identification 
number in the case of a U.S. importer and authorized agent thereof, the 
employer number or importer/exporter number assigned by Revenue Canada 
in the case of a Canadian exporter or producer and authorized agent 
thereof, and the federal taxpayer registry number (RFC) in the case of 
a Mexican exporter or producer and authorized agent thereof;
    (iii) The number and date of the advance ruling at issue;
    (iv) The numbers and dates of any involved entries for consumption 
or warehouse withdrawals for consumption;
    (v) The nature of, and justification for, the objection to the 
advance ruling set forth distinctly and specifically with respect to 
each aspect of the advance ruling for which administrative review is 
sought; and
    (vi) Whether an oral discussion of the issues, as provided in 
Sec. 181.95 of this part, is desired.
    (2) Issuance of review decision. Customs will normally issue a 
written decision within 120 days of receipt of the request for 
administrative review submitted under this section. However, Customs 
will, upon a reasonable showing of business necessity, issue a written 
decision within 60 days of receipt of the request for administrative 
review. For purposes of this paragraph, the date of receipt of the 
request for administrative review shall be the date on which all 
information necessary to process the request, including any information 
provided after submission of the request in connection with a 
conference, is filed with Customs.
    (b) Judicial review. Any person whose claims with regard to a 
request for administrative review of an advance ruling have been denied 
in whole or in part under this section may seek judicial review by 
filing a civil action in the United States Court of International Trade 
in accordance with 28 U.S.C. 2632 within 180 days after the date of 
mailing of notice of the denial.
Subpart J--Review and Appeal of Adverse Marking Decisions


Sec. 181.111  Applicability.

    This subpart sets forth the circumstances and procedures under 
which exporters and producers of merchandise imported into the United 
States may obtain information about, and administrative and judicial 
review of, an adverse marking decision, as provided for in Article 510 
of the NAFTA. This subpart does not apply to the review of advance 
rulings issued under Article 509 of the NAFTA (see subpart I of this 
part) or to the review of determinations that a good is not an 
originating good under General Note 12, HTSUS, and the appendix to this 
part (see part 174 of this chapter).


Sec. 181.112  Definitions.

     For purposes of this subpart, the following words and phrases have 
the meanings indicated:
    (a) Adverse marking decision means a decision made by the port 
director which an exporter or producer of merchandise believes to be 
contrary to the provisions of Annex 311 of the NAFTA and which may be 
protested by the importer pursuant to Sec. 514, Tariff Act of 1930, as 
amended (19 U.S.C. 1514), and part 174 of this chapter. Notification of 
an adverse marking decision is given to an importer in the form of a 
Customs Form 4647 (Notice to Mark and/or Notice to Redeliver) and/or by 
assessing marking duties on improperly marked merchandise. Examples of 
adverse marking decisions include determinations by the port director: 
that an imported article is not a good of a NAFTA country, as 
determined under the Marking Rules, and that it therefore cannot be 
marked ``Canada'' or ``Mexico''; that a good of a NAFTA country is not 
marked in a manner which is sufficiently permanent; and that a good of 
a NAFTA country does not qualify for an exception from marking 
specified in Annex 311 of the NAFTA. Adverse marking decisions do not 
include: decisions issued in response to requests for advance rulings 
under subpart I of 

[[Page 46387]]
this part or for internal advice under part 177 of this chapter; 
decisions on protests under part 174 of this chapter; and 
determinations that an article does not qualify as an originating good 
under General Note 12, HTSUS, and the appendix to this part.
    (b) An exporter of merchandise is an exporter located in Canada or 
Mexico who must maintain records in that country relating to the 
transaction to which the adverse marking decision relates. The records 
must be sufficient to enable Customs to evaluate the merits of the 
exporter's claim(s) regarding the adverse marking decision.
    (c) A producer of merchandise is a person who grows, mines, 
harvests, fishes, traps, hunts, manufactures, processes or assembles 
such merchandise in Canada or Mexico.


Sec. 181.113  Request for basis of adverse marking decision.

    (a) Request; form and filing. The exporter or producer of the 
merchandise which is the subject of an adverse marking decision may 
request a statement concerning the basis for the decision by filing a 
typewritten request, in English, with the port director who issued the 
decision. The request should be on letterhead paper in the form of a 
letter and clearly designated as a ``Request for Basis of Adverse 
Marking Decision'' and shall be signed by the exporter, producer or his 
authorized agent. The provisions of Sec. 174.3 of this chapter shall 
apply for purposes of signature by a person other than the principal.
    (b) Content. The Request for Basis of Adverse Marking Decision 
letter shall set forth the following information:
    (1) The name and address of the exporter or producer of the 
merchandise and the name and address of any authorized agent filing the 
request on behalf of such principal;
    (2) A statement that the inquirer is the exporter or producer of 
the merchandise that was the subject of the adverse marking decision;
    (3) In the case of a Canadian exporter or producer, the employer 
number assigned by Revenue Canada, Customs and Excise; in the case of a 
Mexican exporter or producer, the Federal taxpayer registry number 
(RFC); and the Customs identification number of an authorized agent 
filing the request on behalf of such principal;
    (4) The number and date of each entry involved in the request;
    (5) A specific description of the merchandise which is the subject 
of the adverse marking decision; and
    (6) A complete statement of all relevant facts relating to the 
adverse marking decision and the transaction to which it relates, 
including the date of the decision.


Sec. 181.114  Customs response to request.

    (a) Time for response. The port director will issue a written 
response to the requestor within 30 days of receipt of a request 
containing the information specified in Sec. 181.113 of this part. If 
the request is incomplete, such that the transaction in question cannot 
be identified, the port director will notify the requestor in writing 
within 30 days of receipt of the request regarding what information is 
needed.
    (b) Content. The response by the port director shall include the 
following:
    (1) A statement concerning the basis for the adverse marking 
decision;
    (2) A copy of the relevant Customs Form 4647 (Notice to Mark and/or 
Notice to Redeliver), if one was issued to the importer and is 
available. If the basis for the adverse marking decision is indicated 
on the Customs Form 4647, no statement under paragraph (b)(1) of this 
section is required;
    (3) A statement as to whether the importer has filed a protest 
regarding the adverse marking decision and, if so, where the protest 
was filed and the protest number; and
    (4) A statement concerning the exporter's or producer's right to 
either intervene in the importer's protest as provided in Sec. 181.115 
of this part or file a petition as provided in Sec. 181.116 of this 
part.


Sec. 181.115  Intervention in importer's protest.

    (a) Conditional right to intervene. An exporter or producer of 
merchandise does not have an independent right to protest an adverse 
marking decision. However, if an importer protests the adverse marking 
decision in accordance with section 514, Tariff Act of 1930, as amended 
(19 U.S.C. 1514), and part 174 of this chapter, the exporter or 
producer of the merchandise which is the subject of the adverse marking 
decision may intervene in the importer's protest. Such intervention 
shall not affect any time limits applicable to the protest or delay 
action on the protest.
    (b) Form and filing of intervention. In order to intervene in an 
importer's protest, as provided for in paragraph (a) of this section, 
the exporter or producer of the merchandise shall file, in triplicate, 
a typewritten statement of intervention, in English, with the port 
director with whom the protest was filed. The statement should be on 
letterhead paper in the form of a letter and should be clearly 
designated ``NAFTA Exporter or Producer Intervention in Protest''. The 
statement shall be signed by the exporter, producer or his authorized 
agent. The provisions of Sec. 174.3 of this chapter shall apply for 
purposes of signature by a person other than the principal.
    (c) Content. The NAFTA Exporter or Producer Intervention in Protest 
letter shall include the following:
    (1) The name and address of the exporter or producer of the 
merchandise and the name and address of any authorized agent filing the 
request on behalf of such principal;
    (2) In the case of a Canadian exporter or producer, the employer 
number assigned by Revenue Canada, Customs and Excise; in the case of a 
Mexican exporter or producer, the Federal taxpayer registry number 
(RFC); and the Customs identification number of an authorized agent 
filing the request on behalf of such principal;
    (3) The number and date of each entry involved in the adverse 
marking decision;
    (4) A specific description of the merchandise which is the subject 
of the adverse marking decision;
    (5) A complete statement of all relevant facts relating to the 
adverse marking decision and the transaction to which it relates, 
including the date of the decision;
    (6) A detailed statement of position regarding why the exporter or 
producer believes the adverse marking decision is contrary to the 
provision of Annex 311 of the NAFTA;
    (7) A statement as to whether a Request for Basis of Adverse 
Marking Decision was filed under Sec. 181.113 of this part, and if so, 
the date of such Request and of any Customs response thereto issued 
under Sec. 181.114 of this part. Copies of the Request and the Customs 
response shall be submitted, if available;
    (8) The number assigned to the importer's protest;
    (9) A statement that the intervenor is the exporter or producer of 
the merchandise that was the subject of the adverse marking decision 
being protested by the importer and, if the intervenor is the exporter, 
a statement that it maintains sufficient records to enable Customs to 
evaluate the merits of its claim(s) regarding the adverse marking 
decision; and
    (10) If the intervenor prefers that the principle of 
confidentiality set forth in Sec. 181.121 of this part be applied to 
the information submitted under this section, a statement to that 
effect. If no such statement is included in the letter, the 
intervention and information submitted in connection therewith shall be 
subject to the same treatment as that 

[[Page 46388]]
provided in the case of requests by all interested parties for 
consolidation of protests as set forth in Sec. 174.15(b)(1) of this 
chapter.
    (d) Effect of Intervention. The rights of the intervenor under this 
section are subordinate to the importer's protest rights. Accordingly, 
intervention by an exporter or producer of merchandise will not affect 
the procedures under part 174 of this chapter, and the importer's 
elections concerning accelerated disposition and application for 
further review of the protest will govern how the protest is handled 
and how the intervention is considered. If the importer withdraws or 
settles the protest, the exporter or producer has no right to continue 
the intervention action.
    (e) Action by port director. If final administrative action has 
already been taken with respect to the importer's protest at the time 
the intervention is filed, the port director shall so advise the 
exporter or producer and, if the importer has filed a civil action in 
the Court of International Trade as a result of a denial of the 
protest, the port director shall advise the exporter or producer of 
that filing and of the exporter's or producer's right to seek to 
intervene in such judicial proceeding. If final administrative action 
has not been taken on the protest, the port director shall forward the 
intervention letter to the Customs office which has the importer's 
protest under review for consideration in connection with the protest.
    (f) Final disposition. The intervenor shall be notified in writing 
of the final disposition of the protest. If the protest is denied in 
whole or in part, the intervenor shall be furnished a copy of the 
notice given to the importer under Sec. 174.29.


Sec. 181.116  Petition regarding adverse marking decision.

    (a) Right to petition. If the importer does not protest an adverse 
marking decision in accordance with section 514, Tariff Act of 1930, as 
amended (19 U.S.C. 1514), and part 174 of this chapter, the exporter or 
producer of the merchandise which was the subject of the adverse 
marking decision may file a petition with Customs requesting 
reconsideration of the decision. The petition may not be filed until 
after the importer's time to protest the adverse marking decision has 
expired (see Sec. 174.12(e) of this chapter for the time limits for 
filing protests). If the importer filed a protest upon which final 
administrative action has been taken, the exporter or producer may file 
a petition under this section, provided that the exporter or producer 
was not given notice of the pending protest pursuant to Sec. 181.114 of 
this part. If the importer filed a protest on which final 
administrative action has not been taken and notice of the pending 
protest was not provided to the exporter or producer under Sec. 181.114 
of this part, a petition filed under this section shall be treated by 
the port director as an intervention under Sec. 181.115 of this part.
    (b) Form and filing of petition. A petition under this section 
shall be typewritten, in English, and shall be filed, in triplicate, 
with the port director who issued the adverse marking decision. The 
petition under this subpart should be on letterhead paper in the form 
of a letter, clearly designated as a ``Petition for NAFTA Review of 
Adverse Marking Decision'' and shall be signed by the exporter, 
producer or his authorized agent. The provisions of Sec. 174.3 of this 
chapter shall apply for purposes of signature by a person other than 
the principal.
    (c) Content. The Petition for NAFTA Review of Adverse Marking 
Decision letter shall contain all the information specified 
Sec. 181.115 of this part, except for the protest number. It shall also 
include a statement that petitioner was not notified by Customs in 
writing of a pending protest.
    (d) Review of petition--(1) Review by port director. Within 60 days 
of the date of receipt of the petition, the port director shall 
determine if the petition is to be granted or denied, in whole or in 
part. If, after reviewing the petition, the port director agrees with 
all of the petitioner's claims and determines that the initial adverse 
marking decision was not correct, a written notice granting the 
petition shall be issued to the petitioner. A description of the 
merchandise, a brief summary of the issue(s) and the port director's 
findings shall be forwarded to the Director, Tariff Classification 
Appeals Division, Customs Headquarters, for publication in the Customs 
Bulletin. If, after reviewing the petition, the port director 
determines that the initial adverse marking decision was correct in its 
entirety, a written notice shall be issued to the petitioner advising 
that the matter has been forwarded to the Director, Tariff 
Classification Appeals Division, Customs Headquarters, for further 
review and decision. All relevant background information, including 
available samples, a description of the adverse marking decision and 
the reasons for the decision, and the port director's recommendation 
shall be furnished to Headquarters.
    (2) Review by Headquarters. Within 120 days of the date the 
petition and background information are received at Customs 
Headquarters, the Director, Tariff Classification Appeals Division, 
shall determine if the petition is to be granted or denied, in whole or 
in part, and the petitioner shall be notified in writing of the 
determination. If the petition is granted in whole or in part, a 
description of the merchandise, a brief summary of the issue(s) and the 
director's findings will be published in the Customs Bulletin.
    (3) Effect of granting the petition. The decision on the petition, 
if contrary to the initial adverse marking decision, will be 
implemented with respect to merchandise entered or withdrawn from 
warehouse for consumption after 30 days from the date on which the 
notice of determination is published in the Customs Bulletin.
    (e) Pending litigation. No decision on a petition will be issued 
under this section with respect to any issue which is pending before 
the United States Court of International Trade, the United States Court 
of Appeals for the Federal Circuit, or any court of appeal therefrom. 
Litigation before any other court will not preclude the issuance of a 
decision on a petition under this section, provided neither Customs nor 
any of its officers or agents is named as a party to the action.
    (f) Judicial review of denial of petition.
    Any person whose petition under this section has been denied, in 
whole or in part, may contest the denial by filing a civil action in 
the United States Court of International Trade within 30 days after the 
date of mailing of the notice of denial.
Subpart K--Confidentiality of Business Information


Sec. 181.121  Maintenance of confidentiality.

    The port director or other Customs officer who has possession of 
confidential business information collected pursuant to this part 
shall, in accordance with part 103 of this chapter, maintain its 
confidentiality and protect it from any disclosure that could prejudice 
the competitive position of the persons providing the information.


Sec. 181.122  Disclosure to government authorities.

    Nothing in Sec. 181.121 of this part shall preclude the disclosure 
of confidential business information to governmental authorities in the 
United States responsible for the administration and enforcement of 
determinations of origin and of customs and revenue matters. 

[[Page 46389]]


Subpart L--Rules of Origin


Sec. 181.131  Rules of origin.

    (a) The regulations effective October 1, 1995, implementing the 
rules of origin provisions of General Note 12, HTSUS, and Chapter Four 
of the NAFTA are contained in the appendix to this part.
    (b) If the fiscal year of a producer of goods begins before October 
1, 1995, the producer may choose to have the regulations implementing 
the rules of origin provisions of General Note 12, HTSUS, and Chapter 
Four of the NAFTA that were in effect prior to October 1, 1995 (see 19 
CFR chapter I, 1994 edition, appendix to part 181) continue to apply in 
regard to all goods produced by that producer for the remainder of that 
fiscal year.
    (c) If a motor vehicle producer's fiscal year that has been chosen 
by a producer of goods pursuant to section 12(5) of the regulations 
referred to in paragraph (b) of this section begins before October 1, 
1995, the producer of the goods may choose to have those regulations 
continue to apply in regard to the goods produced by that producer for 
the remainder of that fiscal year, provided that:
    (1) The producer of the goods has made an election under section 
12(1) of those regulations or has provided a statement referred to in 
section 9(6) or 10(8) of those regulations that states the value of 
non-originating materials determined in accordance with section 12(3) 
of those regulations; and
    (2) The period chosen under section 12(5) of those regulations is 
the fiscal year of the motor vehicle producer to whom those goods are 
sold.

            Appendix to Part 181--Rules of Origin Regulations           
                                                                        
                           SECTION 1. CITATION                          
                                                                        
  This Appendix may be cited as the NAFTA Rules of Origin Regulations.  
                                                                        
                                 PART I                                 
                SECTION 2. DEFINITIONS AND INTERPRETATION               
                               Definitions                              
                                                                        
(1) For purposes of this Appendix,                                      
``accessories, spare parts or tools that are delivered with a good and  
 form part of the good's standard accessories, spare parts or tools''   
 means goods that are delivered with a good, whether or not they are    
 physically affixed to that good, and that are used for the transport,  
 protection, maintenance or cleaning of the good, for instruction in the
 assembly, repair or use of that good, or as replacements for consumable
 or interchangeable parts of that good;                                 
``adjusted to an F.O.B. basis'' means, with respect to a good, adjusted 
 by                                                                     
  (a) deducting                                                         
    (i) the costs of transporting the good after it is shipped from the 
     point of direct shipment,                                          
    (ii) the costs of unloading, loading, handling and insurance that   
     are associated with that transportation, and                       
    (iii) the cost of packing materials and containers,                 
  where those costs are included in the transaction value of the good,  
   and                                                                  
  (b) adding                                                            
    (i) the costs of transporting the good from the place of production 
     to the point of direct shipment,                                   
    (ii) the costs of loading, unloading, handling and insurance that   
     are associated with that transportation, and                       
    (iii) the costs of loading the good for shipment at the point of    
     direct shipment,                                                   
  where those costs are not included in the transaction value of the    
   good;                                                                
``Agreement'' means the North American Free Trade Agreement;            
``applicable change in tariff classification'' means, with respect to a 
 non-originating material used in the production of a good, a change in 
 tariff classification specified in a rule set out in Schedule I for the
 tariff provision under which the good is classified;                   
``automotive component'' means a good that is referred to in column I of
 an item of Schedule V;                                                 
``automotive component assembly'' means a good, other than a heavy-duty 
 vehicle, that incorporates an automotive component;                    
``costs incurred in packing'' means, with respect to a good or material,
 the value of the packing materials and containers in which the good or 
 material is packed for shipment and the labor costs incurred in packing
 it for shipment, but does not include the costs of preparing and       
 packaging it for retail sale;                                          
``customs value'' means                                                 
  (a) in the case of Canada, value for duty as defined in the Customs   
   Act, except that for purposes of determining that value the reference
   in section 55 of that Act to ``in accordance with the regulations    
   made under the Currency Act'' shall be read as a reference to ``in   
   accordance with subsection 3(1) of these Regulations'',              
  (b) in the case of Mexico, the valor en aduana as determined in       
   accordance with the Ley Aduanera, converted, in the event such value 
   is not expressed in Mexican currency, to Mexican currency at the rate
   of exchange determined in accordance with subsection 3(1) of these   
   Regulations, and                                                     
  (c) in the case of the United States, the value of imported           
   merchandise as determined by the Customs Service in accordance with  
   section 402 of the Tariff Act of 1930, as amended, converted, in the 
   event such value is not expressed in United States currency, to      
   United States currency at the rate of exchange determined in         
   accordance with subsection 3(1) of these Regulations.                
``days'' means calendar days, and includes weekends and holidays;       
``direct labor costs'' means costs, including fringe benefits, that are 
 associated with employees who are directly involved in the production  
 of a good;                                                             
``direct material costs'' means the value of materials, other than      
 indirect materials and packing materials and containers, that are used 
 in the production of a good;                                           
``direct overhead'' means costs, other than direct material costs and   
 direct labor costs, that are directly associated with the production of
 a good;                                                                

[[Page 46390]]
                                                                        
``enterprise'' means any entity constituted or organized under          
 applicable laws, whether or not for profit and whether privately owned 
 or governmentally owned, including any corporation, trust, partnership,
 sole proprietorship, joint venture or other association;               
``excluded costs'' means sales promotion, marketing and after-sales     
 service costs, royalties, shipping and packing costs and non-allowable 
 interest costs;                                                        
``fungible goods'' means goods that are interchangeable for commercial  
 purposes and the properties of which are essentially identical;        
``fungible materials'' means materials that are interchangeable for     
 commercial purposes and the properties of which are essentially        
 identical;                                                             
``Harmonized System'' means the Harmonized Commodity Description and    
 Coding System, including its General Rules of Interpretation, Section  
 Notes and Chapter Notes, as set out in                                 
  (a) in the case of Canada, the Customs Tariff,                        
  (b) in the case of Mexico, the Tarifa de la Ley del Impuesto General  
   de Importacion, and                                                  
  (c) in the case of the United States, the Harmonized Tariff Schedule  
   of the United States;                                                
``heavy-duty vehicle'' means a motor vehicle provided for in any of     
 heading 8701, tariff items 8702.10.30 and 8702.90.30 (vehicles for the 
 transport of 16 or more persons), subheadings 8704.10, 8704.22,        
 8704.23, 8704.32 and 8704.90 and heading 8705 and 8706;                
``identical goods'' means, with respect to a good, goods that           
  (a) are the same in all respects as that good, including physical     
   characteristics, quality and reputation but excluding minor          
   differences in appearance,                                           
  (b) were produced in the same country as that good, and               
  (c) were produced                                                     
    (i) by the producer of that good, or                                
    (ii) by another producer, where no goods that satisfy the           
     requirements of paragraphs (a) and (b) were produced by the        
     producer of that good;                                             
``identical materials'' means, with respect to a material, materials    
 that                                                                   
  (a) are the same as that material in all respects, including physical 
   characteristics, quality and reputation but excluding minor          
   differences in appearance,                                           
  (b) were produced in the same country as that material, and           
  (c) were produced                                                     
    (i) by the producer of that material, or                            
    (ii) by another producer, where no materials that satisfy the       
     requirements of paragraphs (a) and (b) were produced by the        
     producer of that material;                                         
``incorporated'' means, with respect to the production of a good, a     
 material that is physically incorporated into that good, and includes a
 material that is physically incorporated into another material before  
 that material or any subsequently produced material is used in the     
 production of the good;                                                
``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, and includes       
  (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
   other goods,                                                         
  (g) catalysts and solvents, and                                       
  (h) any other goods that are not incorporated into the good but the   
   use of which in the production of the good can reasonably be         
   demonstrated to be part of that production;                          
``interest costs'' means all costs paid or payable by a person to whom  
 credit is, or is to be advanced, for the advancement of credit or the  
 obligation to advance credit;                                          
``intermediate material'' means a self-produced material that is used in
 the production of a good and is designated as an intermediate material 
 under section 7(4) ;                                                   
``light-duty automotive good'' means a light-duty vehicle or a good of a
 tariff provision listed in Schedule IV that is subject to a regional   
 value-content requirement and is for use as original equipment in the  
 production of a light-duty vehicle;                                    
``light-duty vehicle'' means a motor vehicle provided for in any of     
 tariff items 8702.10.60 and 8702.90.60 (vehicles for the transport of  
 15 or fewer persons) and subheadings 8703.21 through 8703.90, 8704.21  
 and 8704.31;                                                           
``listed material'' means a good that is referred to in column II of an 
 item of Schedule V;                                                    
``location of the producer'' means,                                     
  (a) where the warehouse or other receiving station at which a producer
   receives materials for use by the producer in the production of a    
   good is located within a radius of 75 km (46.60 miles) from the place
   at which the producer produces the good, the location of that        
   warehouse or other receiving station, and                            
  (b) in any other case, the place at which the producer produces the   
   good in which a material is to be used;                              
``material'' means a good that is used in the production of another     
 good, and includes a part or ingredient;                               
``motor vehicle assembler'' means a producer of motor vehicles and any  
 related person with whom, or joint venture in which, the producer      
 participates with respect to the production of motor vehicles;         
``month'' means a calendar month;                                       
``NAFTA country'' means a Party to the Agreement;                       
``national'' means a natural person who is a citizen or permanent       
 resident of a NAFTA country, and includes                              

[[Page 46391]]
                                                                        
  (a) with respect to Mexico, a national or citizen according to        
   Articles 30 and 34, respectively, of the Mexican Constitution, and   
  (b) with respect to the United States, a ``national of the United     
   States'' as defined in the Immigration and Nationality Act on the    
   date of entry into force of the Agreement;                           
``net cost method'' means the method of calculating the regional value  
 content of a good that is set out in section 6(3);                     
``non-allowable interest costs'' means interest costs incurred by a     
 producer on the producer's debt obligations that are more than 700     
 basis points above the yield on debt obligations of comparable         
 maturities issued by the federal government of the country in which the
 producer is located;                                                   
``non-originating good'' means a good that does not qualify as          
 originating under this Appendix;                                       
``non-originating material'' means a material that does not qualify as  
 originating under this Appendix;                                       
``original equipment'' means a 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 a motor vehicle assembler, and    
 that is                                                                
  (a) a good of a tariff provision listed in Schedule IV, or            
  (b) an automotive component assembly, automotive component, sub-      
   component or listed material;                                        
``originating good'' means a good that qualifies as originating under   
 this Appendix;                                                         
``originating material'' means a material that qualifies as originating 
 under this Appendix;                                                   
``other costs,'' with respect to total cost, means all costs that are   
 not product costs or period costs;                                     
``packaging materials and containers'' means materials and containers in
 which a good is packaged for retail sale;                              
``packing materials and containers'' means materials and containers that
 are used to protect a good during transportation, but does not include 
 packaging materials and containers;                                    
``payments'' means, with respect to royalties and sales promotion,      
 marketing and after-sales service costs, the costs expensed on the     
 books of a producer, whether or not an actual payment is made;         
``period costs'' means costs, other than product costs, that are        
 expensed in the period in which they are incurred;                     
``person'' means a natural person or an enterprise;                     
``person of a NAFTA country'' means a national, or an enterprise        
 constituted or organized under the laws of a NAFTA country;            
``point of direct shipment'' means the location from which a producer of
 a good normally ships that good to the buyer of the good;              
``producer'' means a person who grows, mines, harvests, fishes, traps,  
 hunts, manufactures, processes or assembles a good;                    
``product costs'' means costs that are associated with the production of
 a good, and includes the value of materials, direct labor costs and    
 direct overhead;                                                       
``production'' means growing, mining, harvesting, fishing, trapping,    
 hunting, manufacturing, processing or assembling a good;               
``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 adopted children, brothers, sisters, parents,         
   grandparents, or spouses);                                           
``reusable scrap or by-product'' means waste and spoilage that is       
 generated by the producer of a good and that is used in the production 
 of a good or sold by that producer;                                    
``right to use,'' for purposes of the definition of royalties, includes 
 the right to sell or distribute a good;                                
``royalties'' means payments of any kind, including payments under      
 technical assistance agreements or similar agreements, made as         
 consideration for the use of, 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 agreements 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;                        
``sales promotion, marketing and after-sales service costs'' means the  
 following costs related to sales promotion, marketing and after-sales  
 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), traveling and living expenses,
   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;                                      

[[Page 46392]]
                                                                        
  (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 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 after-sales 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 the costs of preparing and packaging  
 the good for retail sale;                                              
``similar goods'' means, with respect to a good, goods that             
  (a) although not alike in all respects to that good, have similar     
   characteristics and component materials that enable the goods to     
   perform the same functions and to be commercially interchangeable    
   with that good,                                                      
  (b) were produced in the same country as that good, and               
  (c) were produced                                                     
    (i) by the producer of that good, or                                
    (ii) by another producer, where no goods that satisfy the           
     requirements of paragraphs (a) and (b) were produced by the        
     producer of that good;                                             
``similar materials'' means, with respect to a material, materials that 
  (a) although not alike in all respects to that material, have similar 
   characteristics and component materials that enable the materials to 
   perform the same functions and to be commercially interchangeable    
   with that material,                                                  
  (b) were produced in the same country as that material, and (c) were  
   produced                                                             
    (i) by the producer of that material, or                            
    (ii) by another producer, where no materials that satisfy the       
     requirements of paragraphs (a) and (b) were produced by the        
     producer of that material;                                         
``subject to a regional value-content requirement'' means, with respect 
 to a good, that the provisions of this Appendix that are applied to    
 determine whether the good is an originating good include a regional   
 value-content requirement;                                             
``sub-component'' means a good that comprises a listed material and one 
 or more other materials or listed materials;                           
``tariff provision'' means a heading, subheading or tariff item;        
``territory'' means, with respect to                                    
  (a) Canada, the territory to which its customs laws apply, including  
   any areas beyond the territorial seas of Canada within which, in     
   accordance with international law and its domestic law, Canada may   
   exercise rights with respect to the seabed and subsoil and their     
   natural resources,                                                   
  (b) Mexico,                                                           
    (i) the states of the Federation and the Federal District,          
    (ii) the islands, including the reefs and keys, in adjacent seas,   
    (iii) the islands of Guadalupe and Revillagigedo situated in the    
     Pacific Ocean,                                                     
    (iv) the continental shelf and the submarine shelf of such islands, 
     keys and reefs,                                                    
    (v) the waters of the territorial seas, in accordance with          
     international law, and its interior maritime waters,               
    (vi) the space located above the national territory, in accordance  
     with international law, and                                        
    (vii) any areas beyond the territorial seas of Mexico within which, 
     in accordance with international law, including the United Nations 
     Convention on the Law of the Sea, and its domestic law, Mexico may 
     exercise rights with respect to the seabed and subsoil and their   
     natural resources, and                                             
  (c) the United States,                                                
    (i) the customs territory of the United States, which includes the  
     50 states, the District of Columbia and Puerto Rico,               
    (ii) the foreign trade zones located in the United States and Puerto
     Rico, and                                                          
    (iii) any areas beyond the territorial seas of the United States    
     within which, in accordance with international law and its domestic
     law, the United States may exercise rights with respect to the     
     seabed and subsoil and their natural resources;                    
``total cost'' means the total of all product costs, period costs and   
 other costs incurred in the territory of one or more of the NAFTA      
 countries;                                                             
``transaction value method'' means the method of calculating the        
 regional value content of a good that is set out in subsection 6(2);   
``used'' means used or consumed in the production of a good;            
``verification of origin'' means a verification of origin of goods under
  (a) in the case of Canada, paragraph 42.1(1)(a) or subsection 42.2(2) 
   of the Customs Act,                                                  
  (b) in the case of Mexico, Article 506 of the Agreement, and          
  (c) in the case of the United States, section 509 of the Tariff Act of
   1930, as amended.                                                    
                                                                        
                       Interpretation: ``similar''                      
                                                                        
(2) For purposes of the definitions of ``similar goods'' and ``similar  
 materials,'' the quality of the goods or materials, their reputation   
 and the existence of a trademark are among the factors to be considered
 for purposes of determining whether goods or materials are similar.    
                                                                        

[[Page 46393]]
                                                                        
   Interpretation: terms used to refer to HTSUS; use of term ``books''  
                                                                        
(3) For purposes of this Appendix,                                      
  (a) ``chapter,'' unless otherwise indicated, refers to a chapter of   
   the Harmonized System;                                               
  (b) ``heading'' refers to any four-digit number, or the first four    
   digits of any number, set out in the column ``Heading/Subheading'' in
   the Harmonized System;                                               
  (c) ``subheading'' refers to any six-digit number, or the first six   
   digits of any number, set out in the column ``Heading/Subheading'' in
   the Harmonized System;                                               
  (d) ``tariff item'' refers to any eight-digit number set out in the   
   column ``Heading/Subheading'' in the Harmonized System;              
  (e) any reference to a tariff item in Chapter Four of the Agreement or
   this Appendix that includes letters shall be reflected as the        
   appropriate eight-digit number in the Harmonized System as           
   implemented in each NAFTA country; and                               
  (f) ``books'' refers to,                                              
    (i) with respect to the books of a person who is located in a NAFTA 
     country,                                                           
      (A) books and other documents that support the recording of       
       revenues, expenses, costs, assets and liabilities and that are   
       maintained in accordance with Generally Accepted Accounting      
       Principles set out in the publications listed in Schedule XII    
       with respect to the territory of the NAFTA country in which the  
       person is located, and                                           
      (B) financial statements, including note disclosures, that are    
       prepared in accordance with Generally Accepted Accounting        
       Principles set out in the publications listed in Schedule XII    
       with respect to the territory of the NAFTA country in which the  
       person is located, and                                           
    (ii) with respect to the books of a person who is located outside   
     the territories of the NAFTA countries,                            
      (A) books and other documents that support the recording of       
       revenues, expenses, costs, assets and liabilities and that are   
       maintained in accordance with generally accepted accounting      
       principles applied in that location or, where there are no such  
       principles, in accordance with the International Accounting      
       Standards, and                                                   
      (B) financial statements, including note disclosures, that are    
       prepared in accordance with generally accepted accounting        
       principles applied in that location or, where there are no such  
       principles, in accordance with the International Accounting      
       Standards.                                                       
                                                                        
      Use of Examples to illustrate the application of a provision      
                                                                        
(4) Where an example, referred to as an ``Example,'' is set out in this 
 Appendix, the example is for purposes of illustrating the application  
 of a provision, and where there is any inconsistency between the       
 example and the provision, the provision prevails to the extent of the 
 inconsistency.                                                         
                                                                        
                       References to domestic laws                      
                                                                        
(5) Except as otherwise provided, references in this Appendix to        
 domestic laws of the NAFTA countries apply to those laws as they may be
 amended or superseded.                                                 
                                                                        
                        Calculation of total cost                       
                                                                        
(6) For purposes of sections 5(9), 6(11) and 7(6) and sections 10(1)(a) 
 (i) and (ii),                                                          
  (a) total cost consists of all product costs, period costs and other  
   costs that are recorded, except as otherwise provided in paragraphs  
   (b) (i) and (ii), on the books of the producer without regard to the 
   location of the persons to whom payments with respect to those costs 
   are made;                                                            
  (b) in calculating total cost,                                        
    (i) the value of materials, other than intermediate materials,      
     indirect materials and packing materials and containers, shall be  
     the value determined in accordance with section 7(1),              
    (ii) the value of intermediate materials used in the production of  
     the good or material with respect to which total cost is being     
     calculated shall be calculated in accordance with section 7(6),    
    (iii) the value of indirect materials and the value of packing      
     materials and containers shall be the costs that are recorded on   
     the books of the producer for those materials, and                 
    (iv) product costs, period costs and other costs, other than costs  
     referred to in subparagraphs (i) and (ii), shall be the costs      
     thereof that are recorded on the books of the producer for those   
     costs;                                                             
  (c) total cost does not include profits that are earned by the        
   producer, regardless of whether they are retained by the producer or 
   paid out to other persons as dividends, or taxes paid on those       
   profits, including capital gains taxes;                              
  (d) gains related to currency conversion that are related to the      
   production of the good shall be deducted from total cost, and losses 
   related to currency conversion that are related to the production of 
   the good shall be included in total cost; and                        
  (e) the value of materials with respect to which production is        
   accumulated under section 14 shall be determined in accordance with  
   that section.                                                        
(7) For purposes of calculating total cost under sections 5(9) and 7(6) 
 and sections 10(1)(a) (i) and (ii),                                    
  (a) where the regional value content of the good is calculated on the 
   basis of the net cost method and the producer has chosen under       
   section 6(15), 11 (1), (3) or (6), 12(5) or 13(4) to calculate the   
   regional value content over a period, the total cost shall be        
   calculated over that period; and                                     
  (b) in any other case, the producer may choose that the total cost be 
   calculated over                                                      
    (i) a month,                                                        
    (ii) any consecutive three month or six month period that falls     
     within and is evenly divisible into the number of months of the    
     producer's fiscal year remaining at the beginning of that period,  
     or                                                                 
    (iii) the producer's fiscal year.                                   
(8) A choice made under subsection (7) may not be rescinded or modified 
 with respect to the good or material, or the period, with respect to   
 which the choice is made.                                              

[[Page 46394]]
                                                                        
(9) Where a producer chooses a one, three or six month period under     
 subsection (7) with respect to a good or material, the producer shall  
 be considered to have chosen under that subsection a period or periods 
 of the same duration for the remainder of the producer's fiscal year   
 with respect to that good or material.                                 
(10) With respect to a good exported to a NAFTA country, a choice to    
 average is considered to have been made                                
  (a) in the case of a choice referred to in section 11 (1), (3) or (6) 
   or 13(4), if the choice is received by the customs administration of 
   that NAFTA country; and                                              
  (b) in the case of a choice referred to in section 2(7), 6(15) or     
   12(1), if the customs administration of that NAFTA country is        
   informed in writing during the course of a verification of the origin
   of the good that the choice has been made.                           
                                                                        
                     SECTION 3. CURRENCY CONVERSION                     
                                                                        
(1) Where the value of a good or a material is expressed in a currency  
 other than the currency of the country in which the producer of the    
 good is located, that value shall be converted to the currency of the  
 country in which that producer is located on the basis of              
  (a) in the case of the sale of that good or the purchase of that      
   material, the rate of exchange used by the producer for purposes of  
   recording that sale or purchase, as the case may be; and             
  (b) in the case of a material that is acquired by the producer other  
   than by a purchase,                                                  
    (i) where the producer used a rate of exchange for purposes of      
     recording another transaction in that other currency that occurred 
     within 30 days of the date on which the producer acquired the      
     material, that rate, and                                           
    (ii) in any other case,                                             
      (A) with respect to a producer located in Canada, the rate of     
       exchange referred to in section 5 of the Currency Exchange for   
       Customs Valuation Regulations for the date on which the material 
       was shipped directly to the producer,                            
      (B) with respect to a producer located in Mexico, the rate of     
       exchange published by the Banco de Mexico in the Diario Oficial  
       de la Federacion, under the title ``TIPO de cambio para solventar
       obligaciones denominadas en moneda extranjera pagaderas en la    
       Republica Mexicana'', for the date on which the material was     
       shipped directly to the producer, and                            
      (C) with respect to a producer located in the United States, the  
       rate of exchange referred to in 31 U.S.C. 5151 for the date on   
       which the material was shipped directly to the producer.         
(2) Where a producer of a good has a statement referred to in section 9,
 10 or 14 that includes information in a currency other than the        
 currency of the country in which that producer is located, the currency
 shall be converted to the currency of the country in which the producer
 is located on the basis of                                             
  (a) if the material was purchased by the producer in the same currency
   as the currency in which the information in the statement is         
   provided, the rate of exchange used by the producer for purposes of  
   recording the purchase;                                              
  (b) if the material was purchased by the producer in a currency other 
   than the currency in which the information in the statement is       
   provided,                                                            
    (i) where the producer used a rate of exchange for purposes of      
     recording a transaction in that other currency that occurred within
     30 days of the date on which the producer acquired the material,   
     that rate, and                                                     
    (ii) in any other case,                                             
      (A) with respect to a producer located in Canada, the rate of     
       exchange referred to in section 5 of the Currency Exchange for   
       Customs Valuation Regulations for the date on which the material 
       was shipped directly to the producer,                            
      (B) with respect to a producer located in Mexico, the rate of     
       exchange published by the Banco de Mexico in the Diario Oficial  
       de la Federacion, under the title ``TIPO de cambio para solventar
       obligaciones denominadas en moneda extranjera pagaderas en la    
       Republica Mexicana'', for the date on which the material was     
       shipped directly to the producer, and                            
      (C) with respect to a producer located in the United States, the  
       rate of exchange referred to in 31 U.S.C. 5151 for the date on   
       which the material was shipped directly to the producer; and     
  (c) if the material was acquired by the producer other than by a      
   purchase,                                                            
    (i) where the producer used a rate of exchange for purposes of      
     recording a transaction in that other currency that occurred within
     30 days of the date on which the producer acquired the material,   
     that rate, and                                                     
    (ii) in any other case,                                             
      (A) with respect to a producer located in Canada, the rate of     
       exchange referred to in section 5 of the Currency Exchange for   
       Customs Valuation Regulations for the date on which the material 
       was shipped directly to the producer,                            
      (B) with respect to a producer located in Mexico, the rate of     
       exchange published by the Banco de Mexico in the Diario Oficial  
       de la Federacion, under the title ``TIPO de cambio para solventar
       obligaciones denominadas en moneda extranjera pagaderas en la    
       Republica Mexicana'', for the date on which the material was     
       shipped directly to the producer, and                            
      (C) with respect to a producer located in the United States, the  
       rate of exchange referred to in 31 U.S.C. 5151 for the date on   
       which the material was shipped directly to the producer.         
                                                                        
                                 PART II                                
                      SECTION 4. ORIGINATING GOODS                      
    Identification of goods which are ``wholly obtained or produced''   
                                                                        
(1) A good originates in the territory of a NAFTA country where the good
 is                                                                     
  (a) a mineral good extracted in the territory of one or more of the   
   NAFTA countries;                                                     
  (b) a vegetable or other good harvested in the territory of one or    
   more of the NAFTA countries;                                         
  (c) a live animal born and raised in the territory of one or more of  
   the NAFTA countries;                                                 

[[Page 46395]]
                                                                        
  (d) a good obtained from hunting, trapping or fishing in the territory
   of one or more of the NAFTA countries;                               
  (e) fish, shellfish or other marine life taken from the sea by a      
   vessel registered or recorded with a NAFTA country and flying its    
   flag;                                                                
  (f) a good produced on board a factory ship from a good referred to in
   paragraph (e), where the factory ship is registered or recorded with 
   the same NAFTA country as the vessel that took that good and flies   
   that country's flag;                                                 
  (g) a good taken by a NAFTA country or a person of a NAFTA country    
   from or beneath the seabed outside the territorial waters of that    
   country, where a NAFTA country has the right to exploit that seabed; 
  (h) a good taken from outer space, where the good is obtained by a    
   NAFTA country or a person of a NAFTA country and is not processed    
   outside the territories of the NAFTA countries;                      
  (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, where those goods are fit only for the recovery of
     raw materials; or                                                  
  (j) a good produced in the territory of one or more of the NAFTA      
   countries exclusively from a good referred to in any of paragraphs   
   (a) through (i), or from the derivatives of such a good, at any stage
   of production.                                                       
                                                                        
       Goods made from non-originating materials: change in tariff      
     classification requirement; regional value-content requirement     
                                                                        
(2) A good originates in the territory of a NAFTA country where         
  (a) each of the non-originating materials used in the production of   
   the good undergoes the applicable change in tariff classification as 
   a result of production that occurs entirely in the territory of one  
   or more of the NAFTA countries, where the applicable rule in Schedule
   I for the tariff provision under which the good is classified        
   specifies only a change in tariff classification, and the good       
   satisfies all other applicable requirements of this Appendix;        
  (b) each of the non-originating materials used in the production of   
   the good undergoes the applicable change in tariff classification as 
   a result of production that occurs entirely in the territory of one  
   or more of the NAFTA countries and the good satisfies the applicable 
   regional value-content requirement, where the applicable rule in     
   Schedule I for the tariff provision under which the good is          
   classified specifies both a change in tariff classification and a    
   regional value-content requirement, and the good satisfies all other 
   applicable requirements of this Appendix; or                         
  (c) the good satisfies the applicable regional value-content          
   requirement, where the applicable rule in Schedule I for the tariff  
   provision under which the good is classified specifies only a        
   regional value-content requirement, and the good satisfies all other 
   applicable requirements of this Appendix.                            
                                                                        
            Goods made exclusively from originating materials           
                                                                        
(3) A good originates in the territory of a NAFTA country where the good
 is produced entirely in the territory of one or more of the NAFTA      
 countries exclusively from originating materials.                      
                                                                        
      Exceptions to the change in tariff classification requirement     
                                                                        
(4) A good originates in the territory of a NAFTA country where         
  (a) except in the case of a good provided for in any of Chapters 61   
   through 63,                                                          
    (i) the good is produced entirely in the territory of one or more of
     the NAFTA countries,                                               
    (ii) one or more of the non-originating materials used in the       
     production of the good do not undergo an applicable change in      
     tariff classification because the materials were imported together,
     whether or not with originating materials, into the territory of a 
     NAFTA country as an unassembled or disassembled good, and were     
     classified as an assembled good pursuant to Rule 2(a) of the       
     General Rules for the Interpretation of the Harmonized System,     
    (iii) the regional value content of the good, calculated in         
     accordance with section 6, is not less than 60 percent where the   
     transaction value method is used, or is not less than 50 percent   
     where the net cost method is used, and                             
    (iv) the good satisfies all other applicable requirements of this   
     Appendix, including any applicable, higher regional value-content  
     requirement provided for in section 13 or Schedule I; or           
  (b) except in the case of a good provided for in any of Chapters 61   
   through 63,                                                          
    (i) the good is produced entirely in the territory of one or more of
     the NAFTA countries,                                               
    (ii) one or more of the non-originating materials used in the       
     production of the good do not undergo an applicable change in      
     tariff classification because                                      
      (A) those materials are provided for under the Harmonized System  
       as parts of the good, and                                        
      (B) the heading for the good provides for both the good and its   
       parts and is not further subdivided into subheadings, or the     
       subheading for the good provides for both the good and its parts,
    (iii) the non-originating materials that do not undergo a change in 
     tariff classification in the circumstances described in            
     subparagraph (ii) and the good are not both classified as parts of 
     goods under the heading or subheading referred to in subparagraph  
     (ii)(B),                                                           
    (iv) each of the non-originating materials that is used in the      
     production of the good and is not referred to in subparagraph (iii)
     undergoes an applicable change in tariff classification or         
     satisfies any other applicable requirement set out in Schedule I,  
    (v) the regional value content of the good, calculated in accordance
     with section 6, is not less than 60 percent where the transaction  
     value method is used, or is not less than 50 percent where the net 
     cost method is used, and                                           
    (vi) the good satisfies all other applicable requirements of this   
     Appendix, including any applicable, higher regional value-content  
     requirement provided for in section 13 or Schedule I.              
                                                                        
Interpretation: heading or subheading which provides for both a good and
                            parts of the good                           
                                                                        
(5) For purposes of subsection (4)(b),                                  

[[Page 46396]]
                                                                        
  (a) the determination of whether a heading or subheading provides for 
   a good and its parts shall be made on the basis of the nomenclature  
   of the heading or subheading and the relevant Section or Chapter     
   Notes, in accordance with the General Rules for the Interpretation of
   the Harmonized System; and                                           
  (b) where, in accordance with the Harmonized System, a heading        
   includes parts of goods by application of a Section Note or Chapter  
   Note of the Harmonized System and the subheadings under that heading 
   do not include a subheading designated ``Parts'', a subheading       
   designated ``Other'' under that heading shall be considered to cover 
   only the goods and parts of the goods that are themselves classified 
   under that subheading.                                               
(6) For purposes of subsection (2), where Schedule I sets out two or    
 more alternative rules for the tariff provision under which a good is  
 classified, if the good satisfies the requirements of one of those     
 rules, it need not satisfy the requirements of another of the rules in 
 order to qualify as an originating good.                               
                                                                        
                     Special rule for certain goods                     
                                                                        
(7) A good originates in the territory of a NAFTA country if the good is
 referred to in Table 308.1.1 of Section B of Annex 308.1 to Chapter    
 Three of the Agreement and is imported from the territory of a NAFTA   
 country at a time when the NAFTA countries' most-favored-nation rate of
 duty for that good is in accordance with paragraph 1 of Section A of   
 that Annex.                                                            
                                                                        
 Self-produced material may be a material for determining applicability 
                           of rules of origin                           
                                                                        
(8) For purposes of determining whether non-originating materials       
 undergo an applicable change in tariff classification, a self-produced 
 material may, at the choice of the producer of a good into which the   
 self-produced material is incorporated, be considered as an originating
 material or non-originating material, as the case may be, used in the  
 production of that good.                                               
(9) The following example is an ``Example'' as referred to in section   
 2(4).                                                                  
                                                                        
                                                                        



Example: section 4(8), Self-produced Materials as Materials for Purposes
 of Determining Whether Non-originating Materials Undergo an Applicable 
 Change in Tariff Classification                                        
    Producer A, located in a NAFTA country, produces Good A. In the     
 production process, Producer A uses originating Material X and non-    
 originating Material Y to produce Material Z. Material Z is a self-    
 produced material that will be used to produce Good A.                 
    The rule set out in Schedule I for the heading under which Good A is
 classified specifies a change in tariff classification from any other  
 heading. In this case, both Good A and the non-originating Material Y  
 are of the same heading. However, the self-produced Material Z is of a 
 heading different than that of Good A.                                 
    For purposes of determining whether the non-originating materials   
 that are used in the production of Good A undergo the applicable change
 in tariff classification, Producer A has the option to consider the    
 self-produced Material Z as the material that must undergo a change in 
 tariff classification. As Material Z is of a heading different than    
 that of Good A, Material Z satisfies the applicable change in tariff   
 classification and Good A would qualify as an originating good.        
                                                                        



                          SECTION 5. DE MINIMIS                         
    De minimis rule for non-originating materials that do not undergo   
           subject to authorization, a required tariff change           
                                                                        
(1) Except as otherwise provided in subsection (4), a good shall be     
 considered to originate in the territory of a NAFTA country where the  
 value of all non-originating materials that are used in the production 
 of the good and that do not undergo an applicable change in tariff     
 classification as a result of production occurring entirely in the     
 territory of one or more of the NAFTA countries is not more than seven 
 percent                                                                
  (a) of the transaction value of the good determined in accordance with
   Schedule II with respect to the transaction in which the producer of 
   the good sold the good, adjusted to an F.O.B. basis, or              
  (b) of the total cost of the good, where there is no transaction value
   for the good under section 2(1) of Schedule III or the transaction   
   value of the good is unacceptable under section 2(2) of that         
   Schedule,                                                            
provided that,                                                          
  (c) if, under the rule in which the applicable change in tariff       
   classification is specified, the good is also subject to a regional  
   value-content requirement, the value of those non-originating        
   materials shall be taken into account in calculating the regional    
   value content of the good in accordance with the method set out for  
   that good, and                                                       
  (d) the good satisfies all other applicable requirements of this      
   Appendix.                                                            
(2) For purposes of subsection (1), where                               
  (a) Schedule I sets out two or more alternative rules for the tariff  
   provision under which the good is classified, and                    
  (b) the good, in accordance with subsection (1), is considered to     
   originate under one of those rules,                                  
the good is not required to satisfy the requirements specified in any   
 alternative rule referred to in paragraph (a).                         
(3) For purposes of subsection (1), in the case of a good that is       
 provided for in heading 2402, the percentage shall be nine percent     
 instead of seven percent.                                              
                                                                        
                               Exceptions                               
                                                                        
(4) Subsections (1) and (2) do not apply to                             
  (a) a non-originating material provided for in Chapter 4 or tariff    
   items 1901.90.31, 1901.90.41 and 1901.90.81 (dairy preparations      
   containing over 10 percent by weight of milk solids) that is used in 
   the production of a good provided for in Chapter 4;                  
  (b) a non-originating material provided for in Chapter 4 or tariff    
   items 1901.90.31, 1901.90.41 and 1901.90.81 (dairy preparations      
   containing over 10 percent by weight of milk solids) that is used in 
   the production of a good provided for in any of tariff items         
   1901.10.10 (infant preparations containing over 10 percent by weight 
   of milk solids), 1901.20.10 (mixes and doughs, containing over 25    
   percent by weight of butterfat, not put up for retail sale),         
   1901.90.31, 1901.90.41 and 1901.90.81 (dairy preparations containing 
   over 10 percent by weight of milk solids), heading 2105 and tariff   
   items 2106.90.05, 2106.90.13, 2106.90.41, 2106.90.51 and 2106.90.61  
   (preparations containing over 10 percent by weight of milk solids),  
   2202.90.10 and 2202.90.20 (beverages containing milk) and 2309.90.31 
   (animal feeds containing over 10 percent by weight of milk solids);  

[[Page 46397]]
                                                                        
  (c) a non-originating material provided for in any of heading 0805 and
   subheadings 2009.11 through 2009.30 that is used in the production of
   a good provided for in any of subheadings 2009.11 through 2009.30 and
   tariff items 2106.90.16 and 2106.90.17 (concentrated fruit or        
   vegetable juice of any single fruit or vegetable, fortified with     
   minerals or vitamins) and 2202.90.30, 2202.90.35 and 2202.90.36      
   (fruit or vegetable juice of any single fruit or vegetable, fortified
   with minerals or vitamins);                                          
  (d) a non-originating material provided for in Chapter 9 that is used 
   in the production of a good provided for in tariff item 2101.10.21   
   (instant coffee, not flavored);                                      
  (e) a non-originating material provided for in Chapter 15 that is used
   in the production of a good provided for in any of headings 1501     
   through 1508, 1512, 1514 and 1515;                                   
  (f) a non-originating material provided for in heading 1701 that is   
   used in the production of a good provided for in any of headings 1701
   through 1703;                                                        
  (g) a non-originating material provided for in Chapter 17 or heading  
   1805 that is used in the production of a good provided for in        
   subheading 1806.10; (h) a non-originating material provided for in   
   any of headings 2203 through 2208 that is used in the production of a
   good provided for in any of headings 2207 through 2208;              
  (i) a non-originating material that is used in the production of a    
   good provided for in any of tariff item 7321.11.30 (gas stove or     
   range), subheadings 8415.10, 8415.81 through 8415.83, 8418.10 through
   8418.21, 8418.29 through 8418.40, 8421.12, 8422.11, 8450.11 through  
   8450.20 and 8451.21 through 8451.29, Mexican tariff item 8479.82.03  
   (trash compactors) or Canadian or U.S. tariff item 8479.89.55 (trash 
   compactors), and tariff item 8516.60.40 (electric stove or range);   
  (j) a printed circuit assembly that is a non-originating material used
   in the production of a good, where the applicable change in tariff   
   classification for the good places restrictions on the use of that   
   non-originating material, such as by prohibiting, or limiting the    
   quantity of, that non-originating material;                          
  (k) a non-originating material that is a single juice ingredient      
   provided for in heading 2009 that is used in the production of a good
   provided for in any of subheading 2009.90 and tariff items 2106.90.18
   (concentrated mixtures of fruit or vegetable juice, fortified with   
   minerals or vitamins) and 2202.90.37 (mixtures of fruit or vegetable 
   juices, fortified with minerals or vitamins);                        
  (l) a non-originating material that is used in the production of a    
   good provided for in any of Chapters 1 through 27, unless the non-   
   originating material is of a different subheading than the good for  
   which origin is being determined under this section; or              
  (m) a non-originating material that is used in the production of a    
   good provided for in any of Chapters 50 through 63.                  
                                                                        
         De minimis rule for regional value-content requirement         
                                                                        
(5) A good that is subject to a regional value-content requirement shall
 be considered to originate in the territory of a NAFTA country and     
 shall not be required to satisfy that requirement where                
  (a) the value of all non-originating materials used in the production 
   of the good is not more than seven percent                           
    (i) of the transaction value of the good determined in accordance   
     with Schedule II with respect to the transaction in which the      
     producer of the good sold the good, adjusted to an F.O.B. basis, or
    (ii) of the total cost of the good, where there is no transaction   
     value for the good under section 2(1) of Schedule III or the       
     transaction value of the good is unacceptable under section 2(2) of
     that Schedule; and                                                 
  (b) the good satisfies all other applicable requirements of this      
   Appendix.                                                            
                                                                        
                    De minimis rule for textile goods                   
                                                                        
(6) A good provided for in any of Chapters 50 through 63, that does not 
 originate in the territory of a NAFTA country because certain fibers or
 yarns that are 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 as a result of production   
 occurring entirely in the territory of one or more of the NAFTA        
 countries, shall be considered to originate in the territory of a NAFTA
 country if                                                             
  (a) the total weight of all those fibers or yarns is not more than    
   seven percent of the total weight of that component; and             
  (b) the good satisfies all other applicable requirements of this      
   Appendix.                                                            
(7) For purposes of subsection (6),                                     
  (a) the component of a good that determines the tariff classification 
   of that good shall be identified in accordance with the first of the 
   following General Rules for the Interpretation of the Harmonized     
   System under which the identification can be determined, namely, Rule
   3(b), Rule 3(c) and Rule 4; and                                      
  (b) where the component of the good that determines the tariff        
   classification of the good is a blend of two or more yarns or fibers,
   all yarns and fibers used in the production of the component shall be
   taken into account in determining the weight of fibers and yarns in  
   that component.                                                      
(8) For purposes of subsections (1) and (5), the value of non-          
 originating materials shall be determined in accordance with sections  
 7(1) through (4).                                                      
                                                                        
  Calculation of ``total cost'' for de minimis rules: choice of methods 
                                                                        
(9) For purposes of subsection (1)(b) and subsection (5)(a)(ii), the    
 total cost of a good shall be, at the choice of the producer of the    
 good,                                                                  
  (a) the total cost incurred with respect to all goods produced by the 
   producer that can be reasonably allocated to that good in accordance 
   with Schedule VII; or                                                
  (b) the aggregate of each cost that forms part of the total cost      
   incurred with respect to that good that can be reasonably allocated  
   to that good in accordance with Schedule VII.                        
                                                                        
 
[[Page 46398]]
                                                                        
    Calculation of total cost; application of Schedules IX and X for    
             determining value of non-originating materials             
                                                                        
(10) Total cost under subsection (9) consists of the costs referred to  
 in section 2(6), and is calculated in accordance with that subsection  
 and section 2(7).                                                      
(11) For purposes of determining the value under subsection (1) of non- 
 originating materials that do not undergo an applicable change in      
 tariff classification, where Schedule X is not being used to determine 
 the value of those non-originating materials,                          
  (a) if the value of those non-originating materials is being          
   determined as a percentage of the transaction value of the good and  
   the producer chooses under section 6(10) that one of the methods set 
   out in Schedule IX be used to determine the value of those non-      
   originating materials for purposes of calculating the regional value 
   content of the good, the value of those non-originating materials    
   shall be determined in accordance with that method;                  
  (b) if                                                                
    (i) the value of those non-originating materials is being determined
     as a percentage of the total cost of the good,                     
    (ii) under the rule in which the applicable change in tariff        
     classification is specified, the good is also subject to a regional
     value-content requirement and subsection (5)(a) does not apply with
     respect to that good,                                              
    (iii) the regional value content of the good is calculated on the   
     basis of the net cost method, and                                  
    (iv) the producer chooses under section 6(15), 11(1), (3) or (6),   
     12(1) or 13(4) that the regional value content of the good be      
     calculated over a period,                                          
  the value of those non-originating materials shall be the sum of the  
   values of non-originating materials determined in accordance with    
   that choice, divided by the number of units of the goods with respect
   to which the choice is made;                                         
  (c) if                                                                
    (i) the value of those non-originating materials is being determined
     as a percentage of the total cost of the good,                     
    (ii) under the rule in which the applicable change in tariff        
     classification is specified, the good is not also subject to a     
     regional value-content requirement or subsection (5)(a) applies    
     with respect to that good, and                                     
    (iii) the producer chooses under section 2(7)(b) that, for purposes 
     of section 5(9), the total cost of the good be calculated over a   
     period,                                                            
  the value of those non-originating materials shall be the sum of the  
   values of non-originating materials divided by the number of units   
   produced during that period; and                                     
  (d) in any other case, the value of those non-originating materials   
   may, at the choice of the producer, be determined in accordance with 
   one of the methods set out in Schedule IX.                           
(12) For purposes of subsection (5), the value of the non-originating   
 materials used in the production of the good may, at the choice of the 
 producer, be determined in accordance with one of the methods set out  
 in Schedule IX.                                                        
                                                                        
                 Examples illustrating de minimis rules                 
                                                                        
(13) Each of the following examples is an ``Example'' as referred to in 
 section 2(4).                                                          
                                                                        
                                                                        



Example 1: section 5(1)                                                 
    Producer A, located in a NAFTA country, uses originating materials  
 and non-originating materials in the production of copper anodes       
 provided for in heading 7402. The rule set out in Schedule I for       
 heading 7402 specifies a change in tariff classification from any other
 chapter. There is no applicable regional value-content requirement for 
 this heading. Therefore, in order for the copper anode to qualify as an
 originating good under the rule set out in Schedule I, Producer A may  
 not use in the production of the copper anode any non-originating      
 material provided for in Chapter 74.                                   
    All of the materials used in the production of the copper anode are 
 originating materials, with the exception of a small amount of copper  
 scrap provided for in heading 7404, that is in the same chapter as the 
 copper anode. Under section 5(1), if the value of the non-originating  
 copper scrap does not exceed seven percent of the transaction value of 
 the copper anode or the total cost of the copper anode, whichever is   
 applicable, the copper anode would be considered an originating good.  
Example 2: section 5(2)                                                 
    Producer A, located in a NAFTA country, uses originating materials  
 and non-originating materials in the production of ceiling fans        
 provided for in subheading 8414.51. There are two alternative rules set
 out in Schedule I for subheading 8414.51, one of which specifies a     
 change in tariff classification from any other heading. The other rule 
 specifies both a change in tariff classification from the subheading   
 under which parts of the ceiling fans are classified and a regional    
 value-content requirement. Therefore, in order for the ceiling fan to  
 qualify as an originating good under the first of the alternative      
 rules, all of the materials that are classified under the subheading   
 for parts of ceiling fans and used in the production of the completed  
 ceiling fan must be originating materials.                             
    In this case, all of the non-originating materials used in the      
 production of the ceiling fan satisfy the change in tariff             
 classification set out in the rule that specifies a change in tariff   
 classification from any other heading, with the exception of one non-  
 originating material that is classified under the subheading for parts 
 of ceiling fans. Under section 5(1), if the value of the non-          
 originating material that does not satisfy the change in tariff        
 classification specified in the first rule does not exceed seven       
 percent of the transaction value of the ceiling fan or the total cost  
 of the ceiling fan, whichever is applicable, the ceiling fan would be  
 considered an originating good. Therefore, under section 5(2), the     
 ceiling fan would not be required to satisfy the alternative rule that 
 specifies both a change in tariff classification and a regional value- 
 content requirement.                                                   
Example 3: section 5(2)                                                 

[[Page 46399]]
                                                                        
    Producer A, located in a NAFTA country, uses originating materials  
 and non-originating materials in the production of plastic bags        
 provided for in subheading 3923.29. The rule set out in Schedule I for 
 subheading 3923.29 specifies both a change in tariff classification    
 from any other heading, except from subheadings 3920.20 or 3920.71,    
 under which certain plastic materials are classified, and a regional   
 value-content requirement. Therefore, with respect to that part of the 
 rule that specifies a change in tariff classification, in order for the
 plastic bag to qualify as an originating good, any plastic materials   
 that are classified under subheading 3920.20 or 3920.71 and that are   
 used in the production of the plastic bag must be originating          
 materials.                                                             
    In this case, all of the non-originating materials used in the      
 production of the plastic bag satisfy the specified change in tariff   
 classification, with the exception of a small amount of plastic        
 materials classified under subheading 3920.71. Section 5(1) provides   
 that the plastic bag can be considered an originating good if the value
 of the non-originating plastic materials that do not satisfy the       
 specified change in tariff classification does not exceed seven percent
 of the transaction value of the plastic bag or the total cost of the   
 plastic bag, whichever is applicable. In this case, the value of those 
 non-originating materials that do not satisfy the specified change in  
 tariff classification does not exceed the seven percent limit.         
    However, the rule set out in Schedule I for subheading 3923.29      
 specifies both a change in tariff classification and a regional value- 
 content requirement. Therefore, under section 5(1)(c), in order to be  
 considered an originating good, the plastic bag must also, except as   
 otherwise provided in section 5(5), satisfy the regional value-content 
 requirement specified in that rule. As provided in section 5(1)(c), the
 value of the non-originating materials that do not satisfy the         
 specified change in tariff classification, together with the value of  
 all other non-originating materials used in the production of the      
 plastic bag, will be taken into account in calculating the regional    
 value content of the plastic bag.                                      
Example 4: section 5(5)                                                 
    Producer A, located in a NAFTA country, primarily uses originating  
 materials in the production of shoes provided for in heading 6405. The 
 rule set out in Schedule I for heading 6405 specifies both a change in 
 tariff classification from any subheading other than subheadings       
 6401.10 through 6406.10 and a regional value-content requirement.      
    With the exception of a small amount of materials provided for in   
 Chapter 39, all of the materials used in the production of the shoes   
 are originating materials.                                             
    Under section 5(5), if the value of all of the non-originating      
 materials used in the production of the shoes does not exceed seven    
 percent of the transaction value of the shoes or the total cost of the 
 shoes, whichever is applicable, the shoes are not required to satisfy  
 the regional value-content requirement specified in the rule set out in
 Schedule I in order to be considered originating goods.                
Example 5: section 5(5)                                                 
    Producer A, located in a NAFTA country, produces barbers' chairs    
 provided for in subheading 9402.10. The rule set out in Schedule I for 
 goods provided for in heading 9402 specifies a change in tariff        
 classification from any other chapter. All of the materials used in the
 production of these chairs are originating materials, with the         
 exception of a small quantity of non-originating materials that are    
 classified as parts of barbers' chairs. These parts undergo no change  
 in tariff classification because subheading 9402.10 provides for both  
 barbers' chairs and their parts.                                       
    Although Producer A's barbers' chairs do not qualify as originating 
 goods under the rule set out in Schedule I, section 4(4)(b) provides,  
 among other things, that, where there is no change in tariff           
 classification from the non-originating materials to the goods because 
 the subheading under which the goods are classified provides for both  
 the goods and their parts, the goods shall qualify as originating goods
 if they satisfy a specified regional value-content requirement.        
    However, under section 5(5), if the value of the non-originating    
 materials does not exceed seven percent of the transaction value of the
 barbers' chairs or the total cost of the barbers' chairs, whichever is 
 applicable, the barbers' chairs will be considered originating goods   
 and are not required to satisfy the regional value-content requirement 
 set out in section 4(4)(b)(v).                                         
Example 6: sections 5 (6) and (7)                                       
    Producer A, located in a NAFTA country, produces women's dresses    
 provided for in subheading 6204.41 from fine wool fabric of heading    
 5112. This fine wool fabric, also produced by Producer A, is the       
 component of the dress that determines its tariff classification under 
 subheading 6204.41.                                                    
    The rule set out in Schedule I for subheading 6204.41, under which  
 the dress is classified, specifies both a change in tariff             
 classification from any other chapter, except from those headings and  
 chapters under which certain yarns and fabrics, including combed wool  
 yarn and wool fabric, are classified, and a requirement that the good  
 be cut and sewn or otherwise assembled in the territory of one or more 
 of the NAFTA countries.                                                
    Therefore, with respect to that part of the rule that specifies a   
 change in tariff classification, in order for the dress to qualify as  
 an originating good, the combed wool yarn and the fine wool fabric made
 therefrom that are used by Producer A in the production of the dress   
 must be originating materials.                                         
    At one point Producer A uses a small quantity of non-originating    
 combed wool yarn in the production of the fine wool fabric. Under      
 section 5(6), if the total weight of the non-originating combed wool   
 yarn does not exceed seven percent of the total weight of all the yarn 
 used in the production of the component of the dress that determines   
 its tariff classification, that is, the wool fabric, the dress would be
 considered an originating good.                                        
                                                                        
                                                                        



                                PART III                                
                    SECTION 6. REGIONAL VALUE CONTENT                   
                                                                        
(1) Except as otherwise provided in subsection (6), the regional value  
 content of a good shall be calculated, at the choice of the exporter or
 producer of the good, on the basis of either the transaction value     
 method or the net cost method.                                         
                                                                        
                        Transaction Value Method                        
                                                                        
(2) The transaction value method for calculating the regional value     
 content of a good is as follows:                                       
                                                                        
                                                                        


where                                                                   
  RVC is the regional value content of the good, expressed as a         
   percentage;                                                          
  TV is the transaction value of the good, determined in accordance with
   Schedule II with respect to the transaction in which the producer of 
   the good sold the good, adjusted to an F.O.B. basis; and             
  VNM is the value of non-originating materials used by the producer in 
   the production of the good, determined in accordance with section 7. 
                                                                        
RAPHIC>TR06SE95.000
[[Page 46400]]
                                                                        
                             Net Cost Method                            
                                                                        
(3) The net cost method for calculating the regional value content of a 
 good is as follows:                                                    
                                                                        
                                                                        



where                                                                   
  RVC is the regional value content of the good, expressed as a         
   percentage;                                                          
  NC is the net cost of the good, calculated in accordance with         
   subsection (11); and                                                 
  VNM is the value of non-originating materials used by the producer in 
   the production of the good, determined, except as otherwise provided 
   in sections 9 and 10, in accordance with section 7.                  
                                                                        
     VNM does not include value of non-originating materials used in    
                          originating material                          
                                                                        
(4) Except as otherwise provided in section 9 and section 10(1)(d), for 
 purposes of calculating the regional value content of a good under     
 subsection (2) or (3), the value of non-originating materials used by a
 producer in the production of the good shall not include               
  (a) the value of any non-originating materials used by another        
   producer in the production of originating materials that are         
   subsequently acquired and used by the producer of the good in the    
   production of that good; or                                          
  (b) the value of any non-originating materials used by the producer in
   the production of a self-produced material that is an originating    
   material and is designated as an intermediate material.              
(5) For purposes of subsection (4),                                     
  (a) in the case of any self-produced material that is not designated  
   as an intermediate material, only the value of any non-originating   
   materials used in the production of the self-produced material shall 
   be included in the value of non-originating materials used in the    
   production of the good; and                                          
  (b) where a self-produced material that is designated as an           
   intermediate material and is an originating material is used by the  
   producer of the good with non-originating materials (whether or not  
   those non-originating materials are produced by that producer) in the
   production of the good, the value of those non-originating materials 
   shall be included in the value of non-originating materials.         
                                                                        
            Net Cost Method required in certain circumstances           
                                                                        
(6) The regional value content of a good shall be calculated only on the
 basis of the net cost method where                                     
  (a) there is no transaction value for the good under section 2(1) of  
   Schedule III;                                                        
  (b) the transaction value of the good is unacceptable under section   
   2(2) of Schedule III;                                                
  (c) the good is sold by the producer to a related person and the      
   volume, by units of quantity, of sales by that producer of identical 
   goods or similar goods, or any combination thereof, to related       
   persons during the six month period immediately preceding the month  
   in which the goods are sold exceeds 85 percent of the producer's     
   total sales to all persons, whether or not related and regardless of 
   location, after ``the producer's total sales''of identical goods or  
   similar goods, or any combination thereof, during that period;       
  (d) the good is                                                       
    (i) a motor vehicle provided for in any of headings 8701 and 8702,  
     subheadings 8703.21 through 8703.90 and headings 8704, 8705 and    
     8706,                                                              
    (ii) a good provided for in a tariff provision listed in Schedule IV
     or an automotive component assembly, automotive component, sub-    
     component or listed material, and is for use in a motor vehicle    
     referred to in subparagraph (i), either as original equipment or as
     an after-market part,                                              
    (iii) a good provided for in any of subheadings 6401.10 through     
     6406.10, or                                                        
    (iv) a good provided for in tariff item 8469.10.40 (word processing 
     machines);                                                         
  (e) the exporter or producer chooses to accumulate with respect to the
   good in accordance with section 14; or                               
  (f) the good is an intermediate material and is subject to a regional 
   value-content requirement.                                           
                                                                        
   Option to change from TVM to NCM for calculation of regional value   
                                 content                                
                                                                        
(7) If the exporter or producer of a good calculates the regional value 
 content of the good on the basis of the transaction value method and   
 the customs administration of a NAFTA country subsequently notifies    
 that exporter or producer in writing, during the course of a           
 verification of origin, that                                           
  (a) the transaction value of the good, as determined by the exporter  
   or producer, is required to be adjusted under section 4 of Schedule  
   II or is unacceptable under section 2(2) of Schedule III, there is no
   transaction value for the good under section 2(1) of Schedule III or 
   the transaction value method may not be used because of the          
   application of subsection (6)(c), or                                 
  (b) the value of any material used in the production of the good, as  
   determined by the exporter or producer, is required to be adjusted   
   under section 5 of Schedule VIII or is unacceptable under section    
   2(3) of Schedule VIII, or there is no transaction value for the      
   material under section 2(2) of Schedule VIII or the transaction value
   method may not be used to calculate the regional value content of the
   material because of the application of subsection (6)(c),            
the exporter or producer may choose that the regional value content of  
 the good be calculated on the basis of the net cost method, in which   
 case the calculation must be made within 60 days after the producer    
 receives the notification, or such longer period as that customs       
 administration specifies.                                              
                                                                        
RAPHIC>TR06SE95.001
[[Page 46401]]
                                                                        
                  Change from NCM to TVM not permitted                  
                                                                        
(8) If the exporter or producer of a good chooses that the regional     
 value content of the good be calculated on the basis of the net cost   
 method and the customs administration of a NAFTA country subsequently  
 notifies that exporter or producer in writing, during the course of a  
 verification of origin, that the good does not satisfy the applicable  
 regional value-content requirement, the exporter or producer of the    
 good may not recalculate the regional value content on the basis of the
 transaction value method.                                              
(9) Nothing in subsection (7) shall be construed as preventing any      
 review and appeal under Article 510 of the Agreement, as implemented in
 each NAFTA country, of an adjustment to or a rejection of              
  (a) the transaction value of the good; or                             
  (b) the value of any material used in the production of the good.     
                                                                        
 Application of Schedule IX for determining value of ``identical'' non- 
                     originating materials under TVM                    
                                                                        
(10) For purposes of the transaction value method, where non-originating
 materials that are the same as one another in all respects, including  
 physical characteristics, quality and reputation but excluding minor   
 differences in appearance, are used in the production of a good, the   
 value of those non-originating materials may, at the choice of the     
 producer of the good, be determined in accordance with one of the      
 methods set out in Schedule IX.                                        
                                                                        
             Options for calculating the net cost of a good             
                                                                        
(11) For purposes of subsection (3), the net cost of a good may be      
 calculated, at the choice of the producer of the good, by              
  (a) calculating the total cost incurred with respect to all goods     
   produced by that producer, subtracting any excluded costs that are   
   included in that total cost, and reasonably allocating, in accordance
   with Schedule VII, the remainder to the good;                        
  (b) calculating the total cost incurred with respect to all goods     
   produced by that producer, reasonably allocating, in accordance with 
   Schedule VII, that total cost to the good, and subtracting any       
   excluded costs that are included in the amount allocated to that     
   good; or                                                             
  (c) reasonably allocating, in accordance with Schedule VII, each cost 
   that forms part of the total cost incurred with respect to the good  
   so that the aggregate of those costs does not include any excluded   
   costs.                                                               
                                                                        
                        Calculation of total cost                       
                                                                        
(12) Total cost under subsection (11) consists of the costs referred to 
 in section 2(6), and is calculated in accordance with that subsection. 
                                                                        
                 Calculation of net cost; excluded costs                
                                                                        
(13) For purposes of calculating net cost under subsection (11),        
  (a) excluded costs shall be the excluded costs that are recorded on   
   the books of the producer of the good;                               
  (b) excluded costs that are included in the value of a material that  
   is used in the production of the good shall not be subtracted from or
   otherwise excluded from the total cost; and                          
  (c) excluded costs do not include any amount paid for research and    
   development services performed in the territory of a NAFTA country.  
                                                                        
         Non-allowable interest; determination under Schedule XI        
                                                                        
(14) For purposes of calculating non-allowable interest costs, the      
 determination of whether interest costs incurred by a producer are more
 than 700 basis points above the yield on debt obligations of comparable
 maturities issued by the federal government of the country in which the
 producer is located shall be made in accordance with Schedule XI.      
                                                                        
  Use of ``averaging'' over a period to calculate RVC under NCM; period 
                            cannot be changed                           
                                                                        
(15) For purposes of the net cost method, the regional value content of 
 the good, other than a good with respect to which a choice to average  
 may be made under section 11(1), (3) or (6), 12(1) or 13(4), may be    
 calculated, where the producer chooses to do so, by                    
  (a) calculating the sum of the net costs incurred and the sum of the  
   values of non-originating materials used by the producer of the good 
   with respect to the good and identical goods or similar goods, or any
   combination thereof, produced in a single plant by the producer over 
    (i) a month,                                                        
    (ii) any consecutive three month or six month period that falls     
     within and is evenly divisible into the number of months of the    
     producer's fiscal year remaining at the beginning of that period,  
     or                                                                 
    (iii) the producer's fiscal year; and                               
  (b) using the sums referred to in paragraph (a) as the net cost and   
   the value of non-originating materials, respectively.                
(16) The calculation made under subsection (15) shall apply with respect
 to all units of the good produced during the period chosen by the      
 producer under subsection (15)(a).                                     
(17) A choice made under subsection (15) may not be rescinded or        
 modified with respect to the goods or the period with respect to which 
 the choice is made.                                                    
                                                                        
  Choice of averaging period cannot be changed for remainder of fiscal  
                                  year                                  
                                                                        
(18) Where a producer chooses a one, three or six month period under    
 subsection (15) with respect to goods, the producer shall be considered
 to have chosen under that subsection a period or periods of the same   
 duration for the remainder of the producer's fiscal year with respect  
 to those goods.                                                        
                                                                        
 Choice of net cost method cannot be changed for remainder of the fiscal
                                  year                                  
                                                                        
(19) Where the net cost method is required to be used or has been chosen
 and a choice has been made under subsection (15), the regional value   
 content of the good shall be calculated on the basis of the net cost   
 method over the period chosen under that subsection and for the        
 remainder of the producer's fiscal year.                               
                                                                        
 
[[Page 46402]]
                                                                        
  Obligation to perform self-analysis and give notification of changed  
       circumstance if RVC calculated on basis of estimated costs       
                                                                        
(20) Except as otherwise provided in sections 11(10), 12(11) and 13(10),
 where the producer of a good has calculated the regional value content 
 of the good under the net cost method on the basis of estimated costs, 
 including standard costs, budgeted forecasts or other similar          
 estimating procedures, before or during the period chosen in subsection
 (15)(a), the producer shall conduct an analysis at the end of the      
 producer's fiscal year of the actual costs incurred over the period    
 with respect to the production of the good and, if the good does not   
 satisfy the regional value-content requirement on the basis of the     
 actual costs during that period, immediately inform any person to whom 
 the producer has provided a Certificate of Origin for the good, or a   
 written statement that the good is an originating good, that the good  
 is a non-originating good.                                             
                                                                        
             Option to treat any material as non-originating            
                                                                        
(21) For purposes of calculating the regional value content of a good,  
 the producer of that good may choose to treat any material used in the 
 production of that good as a non-originating material.                 
                                                                        
            Examples of Calculation of RVC under TVM and NCM            
                                                                        
(22) Each of the following examples is an ``Example'' as referred to in 
 section 2(4).                                                          
                                                                        




Example 1: example of point of direct shipment (with respect to adjusted
 to an F.O.B. basis)                                                    
    A producer has only one factory, at which the producer manufactures 
 finished office chairs. Because the factory is located close to        
 transportation facilities, all units of the finished good are stored in
 a factory warehouse 200 meters from the end of the production line.    
 Goods are shipped worldwide from this warehouse. The point of direct   
 shipment is the warehouse.                                             
Example 2: examples of point of direct shipment (with respect to        
 adjusted to an F.O.B. basis)                                           
    A producer has six factories, all located within the territory of   
 one of the NAFTA countries, at which the producer produces garden tools
 of various types. These tools are shipped worldwide, and orders usually
 consist of bulk orders of various types of tools. Because different    
 tools are manufactured at different factories, the producer decided to 
 consolidate storage and shipping facilities and ships all finished     
 products to a large warehouse located near the seaport, from which all 
 orders are shipped. The distance from the factories to the warehouse   
 varies from 3 km to 130 km. The point of direct shipment for each of   
 the goods is the warehouse.                                            
Example 3: examples of point of direct shipment (with respect to        
 adjusted to an F.O.B. basis)                                           
    A producer has only one factory, located near the center of one of  
 the NAFTA countries, at which the producer manufactures finished office
 chairs. The office chairs are shipped from that factory to three       
 warehouses leased by the producer, one on the west coast, one near the 
 factory and one on the east coast. The office chairs are shipped to    
 buyers from these warehouses, the shipping location depending on the   
 shipping distance from the buyer. Buyers closest to the west coast     
 warehouse are normally supplied by the west coast warehouse, buyers    
 closest to the east coast are normally supplied by the warehouse       
 located on the east coast and buyers closest to the warehouse near the 
 factory are normally supplied by that warehouse. In this case, the     
 point of direct shipment is the location of the warehouse from which   
 the office chairs are normally shipped to customers in the location in 
 which the buyer is located.                                            
Example 4: section 6(3), net cost method                                
    A producer located in NAFTA country A sells Good A that is subject  
 to a regional value-content requirement to a buyer located in NAFTA    
 country B. The producer of Good A chooses that the regional value      
 content of that good be calculated using the net cost method. All      
 applicable requirements of this Appendix, other than the regional value-
 content requirement, have been met. The applicable regional value-     
 content requirement is 50 percent.                                     
    In order to calculate the regional value-content of Good A, the     
 producer first calculates the net cost of Good A. Under section        
 6(11)(a), the net cost is the total cost of Good A (the aggregate of   
 the product costs, period costs and other costs) per unit, minus the   
 excluded costs (the aggregate of the sales promotion, marketing and    
 after-sales service costs, royalties, shipping and packing costs and   
 non-allowable interest costs) per unit. The producer uses the following
 figures to calculate the net cost:                                     
                                                                        


                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................       $30.00
    Value of non-originating materials.....................        40.00
    Other product costs....................................        20.00
Period costs...............................................        10.00
Other costs................................................         0.00
                                                            ------------
Total cost of Good A, per unit.............................      $100.00
Excluded costs:                                                         
    Sales promotion, marketing and after-sales service cost        $5.00
    Royalties..............................................         2.50
    Shipping and packing costs.............................         3.00
    Non-allowable interest costs...........................         1.50
                                                            ------------
Total excluded costs.......................................       $12.00


    The net cost is the total cost of Good A, per unit, minus the       
 excluded costs.                                                        
                                                                        


                                                                        
                                                                        
Total cost of Good A, per unit:............................      $100.00
Excluded costs.............................................       -12.00
                                                            ------------
Net cost of Good A, per unit...............................       $88.00



    The value for net cost ($88) and the value of non-originating       
 materials ($40) are needed in order to calculate the regional value    
 content. The producer calculates the regional value content of Good A  
 under the net cost method in the following manner:                     
                                                                        
                                                                        


[[Page 46403]]
[GRAPHIC][TIFF OMITTED]TR06SE95.002



    Therefore, under the net cost method, Good A qualifies as an        
 originating good, with a regional value-content of 54.5 percent.       
Example 5: section 6(6)(c), net cost method required for certain sales  
 to related persons                                                     
    On January 15, 1994, a producer located in NAFTA country A sells    
 1,000 units of Good A to a related person, located in NAFTA country B. 
 During the six month period beginning on July 1, 1993 and ending on    
 December 31, 1993, the producer sold 90,000 units of identical goods   
 and similar goods to related persons from various countries, including 
 that buyer. The producer's total sales of those identical goods and    
 similar goods to all persons from all countries during that six month  
 period were 100,000 units.                                             
    The total quantity of identical goods and similar goods sold by the 
 producer to related persons during that six month period was 90 percent
 of the producer's total sales of those identical goods and similar     
 goods to all persons. Under section 6(6)(c), the producer must use the 
 net cost method to calculate the regional value content of Good A sold 
 in January 1994, because the 85 percent limit was exceeded.            
Example 6: section 6(11)(a)                                             
    A producer in a NAFTA country produces Good A and Good B during the 
 producer's fiscal year.                                                
    The producer uses the following figures, which are recorded on the  
 producer's books and represent all of the costs incurred with respect  
 to both Good A and Good B, to calculate the net cost of those goods:   
                                                                        


                                                                        

[[Page 46404]]
                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................       $2,000
    Value of non-originating materials.....................        1,000
    Other product costs....................................        2,400
Period costs: (including $1,200 in excluded costs).........        3,200
 Other costs...............................................          400
                                                            ------------
Total cost of Good A and Good B............................       $9,000
The net cost is the total cost of Good A and Good B, minus              
 the excluded costs incurred with respect to those goods.               
Total cost of Good A and Good B............................       $9,000
 Excluded costs............................................       -1,200
                                                            ------------
Net cost of Good A and Good B..............................       $7,800




    The net cost must then be reasonably allocated, in accordance with  
 Schedule VII, to Good A and Good B.                                    
Example 7: section 6(11)(b)                                             
    A producer located in a NAFTA country produces Good A and Good B    
 during the producer's fiscal year. In order to calculate the regional  
 value content of Good A and Good B, the producer uses the following    
 figures that are recorded on the producer's books and incurred with    
 respect to those goods:                                                
                                                                        


                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................       $2,000
    Value of non-originating materials.....................        1,000
    Other product costs....................................        2,400
Period costs: (including $1,200 in excluded costs).........        3,200
Other costs................................................          400
                                                            ------------
Total cost of Good A and Good B............................       $9,000



    Under section 6(11)(b), the total cost of Good A and Good B is then 
 reasonably allocated, in accordance with Schedule VII, to those goods. 
 The costs are allocated in the following manner:                       
                                                                        


------------------------------------------------------------------------
                                      Allocated toGood  Allocated toGood
                                              A                 B       
------------------------------------------------------------------------
Total cost ($9,000 for both Good A                                      
 and Good B)........................            $5,220            $3,780
------------------------------------------------------------------------



    The excluded costs ($1,200) that are included in total cost         
 allocated to Good A and Good B, in accordance with Schedule VII, are   
 subtracted from that amount.                                           
                                                                        


------------------------------------------------------------------------
                                                  Excluded     Excluded 
                                                    Cost         Cost   
                                                 Allocated    Allocated 
                                                 to Good A    to Good B 
------------------------------------------------------------------------
Total excluded costs:                                                   
    Sales promotion, marketing                                          
     and after-sale service costs          500          290          210
    Royalties....................          200          116           84
    Shipping and packing costs...          500          290          210
                                  --------------------------------------
Net cost (total cost minus                                              
 excluded costs).................  ...........       $4,524       $3,276
------------------------------------------------------------------------




    The net cost of Good A is thus $4,524, and the net cost of Good B is
 $3,276.                                                                
Example 8: section 6(11)(c)                                             
    A Producer located in a NAFTA country produces Good C and Good D.   
 The following costs are recorded on the producer's books for the months
 of January, February and March, and each cost that forms part of the   
 total cost are reasonably allocated, in accordance with Schedule VII,  
 to Good C and Good D.                                                  
                                                                        


                                                                        

[[Page 46405]]
------------------------------------------------------------------------
                                   Total cost:   Allocated    Allocated 
                                    Good C and   to Good C    to Good D 
                                    Good D (in      (in          (in    
                                    thousands    thousands    thousands 
                                   of dollars)  of dollars)  of dollars)
------------------------------------------------------------------------
Product costs:                                                          
    Value of originating                                                
     materials...................          100            0          100
    Value of non-originating                                            
     materials...................          900          800          100
    Other product costs..........          500          300          200
Period costs (including $420 in                                         
 excluded costs).................        5,679        3,036        2,643
Minus Excluded Costs.............          420          300          120
Other costs......................            0            0            0
                                  --------------------------------------
Total cost (aggregate of product                                        
 costs, period costs and other                                          
 costs)..........................        6,759        3,836        2,923
------------------------------------------------------------------------





Example 9: section 6(12)                                                
    Producer A, located in a NAFTA country, produces Good A that is     
 subject to a regional value-content requirement. The producer chooses  
 that the regional value content of that good be calculated using the   
 net cost method. Producer A buys Material X from Producer B, located in
 a NAFTA country. Material X is a non-originating material and is used  
 in the production of Good A. Producer A provides Producer B, at no     
 charge, with tools to be used in the production of Material X. The cost
 of the tools that is recorded on the books of Producer A has been      
 expensed in the current year. Pursuant to section 5(1)(b)(ii) of       
 Schedule VIII, the value of the tools is included in the value of      
 Material X. Therefore, the cost of the tools that is recorded on the   
 books of Producer A and that has been expensed in the current year     
 cannot be included as a separate cost in the net cost of Good A because
 it has already been included in the value of Material X.               
Example 10: section 6(12)                                               
    Producer A, located in a NAFTA country, produces Good A that is     
 subject to a regional value-content requirement. The producer chooses  
 that the regional value content of that good be calculated using the   
 net cost method and averages the calculation over the producer's fiscal
 year under section 6(15). Producer A determines that during that fiscal
 year Producer A incurred a gain on foreign currency conversion of      
 $10,000 and a loss on foreign currency conversion of $8,000, resulting 
 in a net gain of $2,000. Producer A also determines that $7,000 of the 
 gain on foreign currency conversion and $6,000 of the loss on foreign  
 currency conversion is related to the purchase of non-originating      
 materials used in the production of Good A, and $3,000 of the gain on  
 foreign currency conversion and $2,000 of the loss on foreign currency 
 conversion is not related to the production of Good A. The producer    
 determines that the total cost of Good A is $45,000 before deducting   
 the $1,000 net gain on foreign currency conversion related to the      
 production of Good A. The total cost of Good A is therefore $44,000.   
 That $1,000 net gain is not included in the value of non-originating   
 materials under section 7(1).                                          
Example 11: section 6(12)                                               
    Given the same facts as in example 10, except that Producer A       
 determines that $6,000 of the gain on foreign currency conversion and  
 $7,000 of the loss on foreign currency conversion is related to the    
 purchase of non-originating materials used in the production of Good A.
 The total cost of Good A is $45,000, which includes the $1,000 net loss
 on foreign currency conversion related to the production of Good A.    
 That $1,000 net loss is not included in the value of non-originating   
 materials under section 7(1).                                          
                                                                        
                                                                        


                                 PART IV                                
                          SECTION 7. MATERIALS                          
   Valuation of materials used in the production of a good other than   
                        certain automotive goods                        
                                                                        
(1) Except as otherwise provided for non-originating materials used in  
 the production of a good referred to in section 9(1) or 10(1), and     
 except in the case of indirect materials, intermediate materials and   
 packing materials and containers, for purposes of calculating the      
 regional value content of a good and for purposes of sections 5(1) and 
 (5), the value of a material that is used in the production of the good
 shall be                                                               
  (a) except as otherwise provided in subsection (2), where the material
   is imported by the producer of the good into the territory of the    
   NAFTA country in which the good is produced, the customs value of the
   material with respect to that importation, or                        
  (b) where the material is acquired by the producer of the good from   
   another person located in the territory of the NAFTA country in which
   the good is produced                                                 
    (i) the transaction value, determined in accordance with section    
     2(1) of Schedule VIII, with respect to the transaction in which the
     producer acquired the material, or                                 
    (ii) the value determined in accordance with sections 6 through 11  
     of Schedule VIII, where, with respect to the transaction in which  
     the producer acquired the material, there is no transaction value  
     under section 2(2) of that Schedule or the transaction value is    
     unacceptable under section 2(3) of that Schedule,                  
and shall include the following costs if they are not included under    
 paragraph (a) or (b):                                                  
  (c) the costs of freight, insurance and packing and all other costs   
   incurred in transporting the material to the location of the         
   producer,                                                            
  (d) duties and taxes paid or payable with respect to the material in  
   the territory of one or more of the NAFTA countries, other than      
   duties and taxes that are waived, refunded, refundable or otherwise  
   recoverable, including credit against duty or tax paid or payable,   
  (e) customs brokerage fees, including the cost of in-house customs    
   brokerage services, incurred with respect to the material in the     
   territory of one or more of the NAFTA countries, and                 
  (f) the cost of waste and spoilage resulting from the use of the      
   material in the production of the good, minus the value of any       
   reusable scrap or by-product.                                        
                                                                        
    Valuation of material if customs value is not in accordance with    
                              Schedule VIII                             
                                                                        
(2) For purposes of subsection (1)(a), where the customs value of the   
 material referred to in that paragraph was not determined in a manner  
 consistent with Schedule VIII, the value of the material shall be      
 determined in accordance with Schedule VIII with respect to the        
 importation of that material and, where the costs referred to in       
 subsections (1)(c) through (f) are not included in that value, those   
 costs be added to that value.                                          
                                                                        
                                                                        

[[Page 46406]]
                                                                        
                         Costs recorded on books                        
                                                                        
(3) For purposes of subsection (1), the costs referred to in subsections
 (1)(c) through (f) shall be the costs referred to in those paragraphs  
 that are recorded on the books of the producer of the good.            
                                                                        
                                                                        
   Designation of self-produced material as an intermediate material;   
           limitation on designations; designation is optional          
                                                                        
(4) Except for purposes of determining the value of non-originating     
 materials used in the production of a light-duty automotive good and   
 except in the case of an automotive component assembly, automotive     
 component or sub-component for use as original equipment in the        
 production of a heavy-duty vehicle, for purposes of calculating the    
 regional value content of a good the producer of the good may designate
 as an intermediate material any self-produced material that is used in 
 the production of the good, provided that where an 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 incorporated into that intermediate material is also
 designated by the producer as an intermediate material.                
(5) For purposes of subsection (4),                                     
  (a) in order to qualify as an originating material, a self-produced   
   material that is designated as an intermediate material must qualify 
   as an originating material under these Regulations;                  
  (b) the designation of a self-produced material as an intermediate    
   material shall be made solely at the choice of the producer of that  
   self-produced material; and                                          
  (c) except as otherwise provided in section 14(4), the proviso set out
   in subsection (4) does not apply with respect to an intermediate     
   material used by another producer in the production of a material    
   that is subsequently acquired and used in the production of a good by
   the producer referred to in subsection (4).                          
                                                                        
                                                                        
                  Valuation of an intermediate material                 
                                                                        
(6) The value of an intermediate material shall be, at the choice of the
 producer of the good,                                                  
  (a) the total cost incurred with respect to all goods produced by the 
   producer that can be reasonably allocated to that intermediate       
   material in accordance with Schedule VII; or                         
  (b) the aggregate of each cost that forms part of the total cost      
   incurred with respect to that intermediate material that can be      
   reasonably allocated to that intermediate material in accordance with
   Schedule VII.                                                        
                                                                        
                                                                        
                        Calculation of total cost                       
                                                                        
(7) Total cost under subsection (6) consists of the costs referred to in
 section 2(6), and is calculated in accordance with that section and    
 section 2(7).                                                          
                                                                        
                                                                        
  Rescission of a designation during course of verification; option to  
                 designate another intermediate material                
                                                                        
(8) Where a producer of a good designates a self-produced material as an
 intermediate material under subsection (4) and the customs             
 administration of a NAFTA country into which the good is imported      
 determines during a verification of origin of the good that the        
 intermediate material is a non-originating material and notifies the   
 producer of this in writing before the written determination of whether
 the good qualifies as an originating good, the producer may rescind the
 designation, and the regional value content of the good shall be       
 calculated as though the self-produced material were not so designated.
(9) A producer of a good who rescinds a designation under subsection (8)
  (a) shall retain any rights of review and appeal under Article 510 of 
   the Agreement, as implemented in each NAFTA country, with respect to 
   the determination of the origin of the intermediate material as      
   though the producer did not rescind the designation; and             
  (b) may, not later than 30 days after the customs administration      
   referred to in subsection (8) notifies the producer in writing that  
   the self-produced material referred to in paragraph (a) is a non-    
   originating material, designate as an intermediate material another  
   self-produced material that is incorporated into the good, subject to
   the proviso set out in subsection (4).                               
(10) Where a producer of a good designates another self-produced        
 material as an intermediate material under subsection (9)(b) and the   
 customs administration referred to in subsection (8) determines during 
 the verification of origin of the good that that self-produced material
 is a non-originating material,                                         
  (a) the producer may rescind the designation, and the regional value  
   content of the good shall be calculated as though the self-produced  
   material were not so designated;                                     
  (b) the producer shall retain any rights of review and appeal under   
   Article 510 of the Agreement, as implemented in each NAFTA country,  
   with respect to the determination of the origin of the intermediate  
   material as though the producer did not rescind the designation; and 
  (c) the producer may not designate another self-produced material that
   is incorporated into the good as an intermediate material.           
                                                                        
  Indirect Materials; deemed originating; value as recorded on books of 
                                producer                                
                                                                        
(11) For purposes of determining whether a good is an originating good, 
 an indirect material that is used in the production of the good        
  (a) shall be considered to be an originating material, regardless of  
   where that indirect material is produced; and                        
  (b) if the good is subject to a regional value-content requirement,   
   for purposes of calculating the net cost under the net cost method,  
   the value of the indirect material shall be the costs of that        
   material that are recorded on the books of the producer of the good. 
                                                                        
Packaging Materials and Containers; origin disregarded for tariff change
                                  rules                                 
                                                                        
(12) Packaging materials and containers, if classified under the        
 Harmonized System with the good that is packaged therein, shall be     
 disregarded for purposes of                                            
  (a) determining whether all of the non-originating materials used in  
   the production of the good undergo an applicable change in tariff    
   classification; and                                                  

[[Page 46407]]
                                                                        
  (b) determining under section 5(1) the value of non-originating       
   materials that do not undergo an applicable change in tariff         
   classification.                                                      
                                                                        
 Actual originating status considered for RVC requirement; valuation of 
                                packaging                               
                                                                        
(13) Where packaging materials and containers are classified under the  
 Harmonized System with the good that is packaged therein and that good 
 is subject to a regional value-content requirement, the value of those 
 packaging materials and containers shall be taken into account as      
 originating materials or non-originating materials, as the case may be,
 for purposes of calculating the regional value content of the good.    
(14) For purposes of subsection (13), where packaging materials and     
 containers are self-produced materials, the producer may choose to     
 designate those materials as intermediate materials under subsection   
 (4).                                                                   
                                                                        
Packing materials and containers; disregarded for tariff change rule and
             for RVC requirement; value as recorded on books            
                                                                        
(15) For purposes of determining whether a good is an originating good, 
 packing materials and containers in which the good is packed           
  (a) shall be disregarded for purposes of determining whether          
    (i) the non-originating materials used in the production of the good
     undergo an applicable change in tariff classification, and         
    (ii) the good satisfies a regional value-content requirement; and   
  (b) if the good is subject to a regional value-content requirement,   
   the value of the packing materials and containers shall be the costs 
   thereof that are recorded on the books of the producer of the good.  
                                                                        
   Fungible materials; fungible commingled goods; inventory management  
               methods for determining whether originating              
                                                                        
(16) For purposes of determining whether a good is an originating good, 
  (a) where originating materials and non-originating materials that are
   fungible materials are used in the production of the good, the       
   determination of whether the materials are originating materials may,
   at the choice of the producer of the good or the person from whom the
   producer acquired the materials, be made on the basis of any of the  
   applicable inventory management methods set out in Schedule X; and   
  (b) where originating goods and non-originating goods that are        
   fungible goods are physically combined or mixed in inventory and     
   prior to exportation do not undergo production or any other operation
   in the territory of the NAFTA country in which they were physically  
   combined or mixed in inventory, other than unloading, reloading or   
   any other operation necessary to preserve the goods in good condition
   or to transport the goods for exportation to the territory of another
   NAFTA country, the determination of whether the good is an           
   originating good may, at the choice of the exporter of the good or   
   the person from whom the exporter acquired the good, be made on the  
   basis of any of the applicable inventory management methods set out  
   in Schedule X.                                                       
                                                                        
Accessories, spare parts and tools; deemed originating for tariff change
           rule; actual origin applicable for RVC requirement           
                                                                        
(17) Accessories, spare parts or tools that are delivered with a good   
 and form part of the good's standard accessories, spare parts or tools 
 are originating materials if the good is an originating good, and shall
 be disregarded for purposes of determining whether all the non-        
 originating materials used in the production of the good undergo an    
 applicable change in tariff classification or determining under section
 5(1) the value of non-originating materials that do not undergo an     
 applicable change in tariff classification, provided that              
  (a) the accessories, spare parts or tools are not invoiced separately 
   from the good; and                                                   
  (b) the quantities and value of the accessories, spare parts or tools 
   are customary for the good, within the industry that produces the    
   good.                                                                
(18) Where a good is subject to a regional value-content requirement,   
 the value of accessories, spare parts and tools that are delivered with
 that good and form part of the good's standard accessories, spare parts
 or tools shall be taken into account as originating or non-originating 
 materials, as the case may be, in calculating the regional value       
 content of the good.                                                   
(19) For purposes of subsection (18), where accessories, spare parts and
 tools are self-produced materials, the producer may choose to designate
 those materials as intermediate materials under subsection (4).        
                                                                        
            Examples illustrating the provisions on materials           
                                                                        
(20) Each of the following examples is an ``Example'' as referred to in 
 section 2(4).                                                          
                                                                        




Example 1: section 7(2), Customs Value not Determined in a Manner       
 Consistent with Schedule VIII                                          
    Producer A, located in NAFTA country A, imports material A into     
 NAFTA country A. Producer A purchased material A from a middleman      
 located in country B. The middleman purchased the material from a      
 manufacturer located in country B. Under the laws in NAFTA country A   
 that implement the Agreement on Implementation of Article VII of the   
 General Agreement on Tariffs and Trade, the customs value of material A
 was based on the price actually paid or payable by the middleman to the
 manufacturer. Producer A uses material A to produce Good C, and exports
 Good C to NAFTA country D. Good C is subject to a regional value-      
 content requirement.                                                   
    Under section 4(1) of Schedule VIII, the price actually paid or     
 payable is the total payment made or to be made by the producer to or  
 for the benefit of the seller of the material. Section 1 of that       
 Schedule defines producer and seller for purposes of the Schedule. A   
 producer is the person who uses the material in the production of a    
 good that is subject to a regional value-content requirement. A seller 
 is the person who sells the material being valued to the producer.     
    The customs value of material A was not determined in a manner      
 consistent with Schedule VIII because it was based on the price        
 actually paid or payable by the middleman to the manufacturer, rather  
 than on the price actually paid or payable by Producer A to the        
 middleman. Thus, section 7(2) applies and material A is valued in      
 accordance with Schedule VIII.                                         
Example 2: section 7(5), Value of Intermediate Materials                
    A producer located in a NAFTA country produces Good B, which is     
 subject to a regional value-content requirement under section 4(2)(b). 
 The producer also produces Material A, which is used in the production 
 of Good B. Both originating materials and non-originating materials are
 used in the production of Material A. Material A is subject to a change
 in tariff classification requirement under section 4(2)(a). The costs  
 to produce Material A are the following:                               
                                                                        


                                                                        

[[Page 46408]]
                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................        $1.00
    Value of non-originating materials.....................         7.50
    Other product costs....................................         1.50
Period costs (including $0.30 in royalties)................         0.50
Other costs................................................         0.10
                                                            ------------
Total cost of Material A...................................       $10.60
                                                                        




    The producer designates Material A as an intermediate material and  
 determines that, because all of the non-originating materials that are 
 used in the production of Material A undergo an applicable change in   
 tariff classification set out in Schedule I, Material A would, under   
 paragraph 4(2)(a) qualify as an originating material. The cost of the  
 non-originating materials used in the production of Material A is      
 therefore not included in the value of non-originating materials that  
 are used in the production of Good B for the purpose of determining the
 regional value content of Good B. Because Material A has been          
 designated as an intermediate material, the total cost of Material A,  
 which is $10.60, is treated as the cost of originating materials for   
 the purpose of calculating the regional value content of Good B. The   
 total cost of Good B is determined in accordance with the following    
 figures:                                                               
                                                                        


                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials                                      
        --intermediate materials...........................       $10.60
        --other materials..................................         3.00
    Value of non-originating materials.....................         5.50
    Other product costs....................................         6.50
Period costs...............................................         2.50
Other costs................................................         0.10
                                                            ------------
Total cost of Good B.......................................       $28.20



Example 3: section 7(5), Effects of the Designation of Self-produced    
 Materials on Net Cost                                                  
    The ability to designate intermediate materials helps to put the    
 vertically integrated producer who is self-producing materials that are
 used in the production of a good on par with a producer who is         
 purchasing materials and valuing those materials in accordance with    
 subsection 7(1). The following situations demonstrate how this is      
 achieved:                                                              

[[Page 46409]]
                                                                        
    Situation 1                                                         
    A producer located in a NAFTA country produces Good B, which is     
 subject to a regional value-content requirement of 50 percent under the
 net cost method. Good B satisfies all other applicable requirements of 
 these Regulations. The producer purchases Material A, which is used in 
 the production of Good B, from a supplier located in a NAFTA country.  
 The value of Material A determined in accordance with subsection 7(1)  
 is $11.00. Material A is an originating material. All other materials  
 used in the production of Good B are non-originating materials. The net
 cost of Good B is determined as follows:                               
                                                                        



                                                                        
                                                                        
 Product costs:                                                         
    Value of originating materials (Material A)............       $11.00
    Value of non-originating materials.....................         5.50
    Other product costs....................................         6.50
Period costs: (including $0.20 in excluded costs)..........         0.50
Other costs................................................         0.10
                                                            ------------
Total cost of Good B.......................................       $23.60
                                                            ============
Excluded costs: (included in period costs).................        -0.20
                                                            ------------
Net cost of Good B.........................................       $23.40


    The regional value content of Good B is calculated as follows:      
                                                                        
                                                                        


    The regional value content of Good B is 76.5 percent, and Good B,   
 therefore, qualifies as an originating good.                           
    Situation 2                                                         
    A producer located in a NAFTA country produces Good B, which is     
 subject to a regional value-content requirement of 50 percent under the
 net cost method. Good B satisfies all other applicable requirements of 
 these Regulations. The producer self-produces Material A which is used 
 in the production of Good B. The costs to produce Material A are the   
 following:                                                             
                                                                        


                                                                        
RAPHIC>TR06SE95.003
[[Page 46410]]
                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................        $1.00
    Value of non-originating materials.....................         7.50
    Other product costs....................................         1.50
Period costs: (including $0.20 in excluded costs)..........         0.50
Other costs................................................         0.10
                                                            ------------
Total cost of Material A...................................       $10.60



    Additional costs to produce Good B are the following:               
                                                                        


                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................        $0.00
    Value of non-originating materials.....................         5.50
    Other product costs....................................         6.50
Period costs: (including $0.20 in excluded costs)..........         0.50
Other costs................................................         0.10
                                                            ------------
Total additional costs.....................................       $12.60



    The producer does not designate Material A as an intermediate       
 material under subsection 7(4). The net cost of Good B is calculated as
 follows:                                                               
                                                                        



------------------------------------------------------------------------
                       Costs of Material                                
                       A (not designated                                
                             as an         Additional Costs     Total   
                          intermediate    to Produce Good B             
                           material)                                    
------------------------------------------------------------------------
Product costs:                                                          
    Value of                                                            
     originating                                                        
     materials.......              $1.00              $0.00        $1.00
    Value of non-                                                       
     originating                                                        
     materials.......               7.50               5.50        13.00
    Other product                                                       
     costs...........               1.50               6.50         8.00
Period costs                                                            
 (including $0.20 in                                                    
 excluded costs).....               0.50               0.50         1.00
Other costs..........               0.10               0.10         0.20
                      --------------------------------------------------
Total cost of Good B.             $10.60             $12.60       $23.20
                      ==================================================
Excluded costs (in                                                      
 period costs).......               0.20               0.20        -0.40
                      --------------------------------------------------
Net cost of Good B                                                      
 (total cost minus                                                      
 excluded costs).....  .................  .................       $22.80
------------------------------------------------------------------------


                                                                        

[[Page 46411]]
    The regional value content of Good B is calculated as follows:      
                                                                        
                                                                        



    The regional value content of Good B is 42.9 percent, and Good B,   
 therefore, does not qualify as an originating good.                    
    Situation 3                                                         
    A producer located in a NAFTA country produces Good B, which is     
 subject to a regional value-content requirement of 50 percent under the
 net cost method. Good B satisfies all other applicable requirements of 
 these Regulations. The producer self-produces Material A, which is used
 in the production of Good B. The costs to produce Material A are the   
 following:                                                             
                                                                        


                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................        $1.00
    Value of non-originating materials.....................         7.50
    Other product costs....................................         1.50
Period costs: (including $0.20 in excluded costs)..........         0.50
Other costs................................................         0.10
                                                            ------------
Total cost of Material A...................................       $10.60


    Additional costs to produce Good B are the following:               
                                                                        



                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................        $0.00
    Value of non-originating materials.....................         5.50
    Other product costs....................................         6.50
Period costs: (including $0.20 in excluded costs)..........         0.50
Other costs................................................         0.10
                                                            ------------
Total additional costs.....................................       $12.60


    The producer designates Material A as an intermediate material under
 subsection 7(4). Material A qualifies as an originating material under 
 paragraph 4(2)(a). Therefore, the value of non-originating materials   
 used in the production of Material A is not included in the value of   
 non-originating materials for the purposes of calculating the regional 
 value content of Good B. The net cost of Good B is calculated as       
 follows:                                                               
                                                                        


                                                                        
RAPHIC>TR06SE95.004
[[Page 46412]]
----------------------------------------------------------------------------------------------------------------
                                                                            Costs of                            
                                                                           Material A    Additional             
                                                                           (designated    Costs to              
                                                                              as an       Produce       Total   
                                                                          intermediate     Good B               
                                                                            material)                           
----------------------------------------------------------------------------------------------------------------
Product costs:                                                                                                  
    Value of originating materials......................................        $10.60        $0.00       $10.60
    Value of non-originating materials..................................  ............         5.50         5.50
    Other product costs.................................................  ............         6.50         6.50
Period costs (including $0.20 in excluded costs)........................  ............         0.50         0.50
Other costs.............................................................  ............         0.10         0.10
                                                                         ---------------------------------------
Total cost of Good B....................................................        $10.60       $12.60       $23.20
                                                                         =======================================
Excluded costs (in period costs)........................................  ............          .20        -0.20
                                                                                                    ------------
Net cost of Good B (total cost minus excluded costs)....................  ............  ...........       $23.00
----------------------------------------------------------------------------------------------------------------



    The regional value content of Good B is calculated as follows:      
                                                                        
                                                                        


    The regional value content of Good B is 76.1 percent, and Good B,   
 therefore, qualifies as an originating good.                           
Example 4: Originating Materials Acquired from a Producer Who Produced  
 Them Using Intermediate Materials                                      
    Producer A, located in NAFTA country A, produces switches. In order 
 for the switches to qualify as originating goods, Producer A designates
 subassemblies of the switches as intermediate materials. The           
 subassemblies are subject to a regional value-content requirement. They
 satisfy that requirement, and qualify as originating materials. The    
 switches are also subject to a regional value-content requirement, and,
 with the subassemblies designated as intermediate materials, are       
 determined to have a regional value content of 65 percent.             
    Producer A sells the switches to Producer B, located in NAFTA       
 country B, who uses them to produce switch assemblies that are used in 
 the production of Good B. The switch assemblies are subject to a       
 regional value-content requirement. Producers A and B are not          
 accumulating their production within the meaning of section 14.        
 Producer B is therefore able, under section 7(4), to designate the     
 switch assemblies as intermediate materials.                           
    If Producers A and B were accumulating their production within the  
 meaning of section 14, Producer B would be unable to designate the     
 switch assemblies as intermediate materials, because the production of 
 both producers would be considered to be the production of one         
 producer.                                                              
Example 5: Single Producer and Successive Designations of Materials     
 Subject to a Regional Value-Content Requirement as Intermediate        
 Materials                                                              
    Producer A, located in NAFTA country, produces Material X and uses  
 Material X in the production of Good B. Material X qualifies as an     
 originating material because it satisfies the applicable regional value-
 content requirement. Producer A designates Material A as an            
 intermediate material.                                                 
    Producer A uses Material X in the production of Material Y, which is
 also used in the production of Good B. Material Y is also subject to a 
 regional value-content requirement. Under the proviso set out in       
 section 7(4), Producer A cannot designate Material Y as an intermediate
 material, even if Material Y satisfies the applicable regional value-  
 content requirement, because Material X was already designated by      
 Producer A as an intermediate material.                                
Example 6: Single Producer and Multiple Designations of Materials as    
 Intermediate Materials                                                 
    Producer X, who is located in NAFTA country X, uses non-originating 
 materials in the production of self-produced materials A, B, and C.    
 None of the self-produced materials are used in the production of any  
 of the other self-produced materials.                                  
    Producer X uses the self-produced materials in the production of    
 Good O, which is exported to NAFTA country Y. Materials A, B and C     
 qualify as originating materials because they satisfy the applicable   
 regional value-content requirements.                                   
    Because none of the self-produced materials are used in the         
 production of any of the other self-produced materials, then even      
 though each self-produced material is subject to a regional value-     
 content requirement, Producer X may, under section 7(4), designate all 
 of the self-produced materials as intermediate materials. The proviso  
 set out in section 7(4) only applies where self-produced materials are 
 used in the production of other self-produced materials and both are   
 subject to a regional value-content requirement.                       
Example 7: section 7(17)                                                
    The following are examples of accessories, spare parts or tools that
 are delivered with a good and form part of the good's standard         
 accessories, spare parts or tools:                                     
  (a) consumables that must be replaced at regular intervals, such as   
   dust collectors for an air-conditioning system,                      
  (b) a carrying case for equipment,                                    
  (c) a dust cover for a machine,                                       
  (d) an operational manual for a vehicle,                              
  (e) brackets to attach equipment to a wall,                           
  (f) a bicycle tool kit or a car jack,                                 
  (g) a set of wrenches to change the bit on a chuck,                   
  (h) a brush or other tool to clean out a machine, and                 
  (i) electrical cords and power bars for use with electronic goods.    
Example 8: Value of Indirect Materials that are Assists                 
RAPHIC>TR06SE95.005
[[Page 46413]]
                                                                        
    Producer A, located in a NAFTA country, produces Good A that is     
 subject to a regional value-content requirement. The producer chooses  
 that the regional value content of that good be calculated using the   
 net cost method. Producer A buys Material X from Producer B, located in
 a NAFTA country, and uses it in the production of Good A. Producer A   
 provides to Producer B, at no charge, tools to be used in the          
 production of Material X. The tools have a value of $100 which is      
 expensed in the current year by Producer A.                            
    Material X is subject to a regional value-content requirement which 
 Producer B chooses to calculate using the net cost method. For purposes
 of determining the value of non-originating materials in order to      
 calculate the regional value content of Material X, the tools are      
 considered to be an originating material because they are an indirect  
 material. However, pursuant to section 7(11) they have a value of nil  
 because the cost of the tools with respect to Material X is not        
 recorded on the books of Producer B.                                   
    It is determined that Material X is a non-originating material. The 
 cost of the tools that is recorded on the books of producer A is       
 expensed in the current year. Pursuant to section 5 of Schedule VIII,  
 the value of the tools (see section 5(1)(b)(ii) of Schedule VIII) must 
 be included in the value of Material X by Producer A when calculating  
 the regional value content of Good A. The cost of the tools, although  
 recorded on the books of producer A, cannot be included as a separate  
 cost in the net cost of Good A because it is already included in the   
 value of Material X. The entire cost of Material X, which includes the 
 cost of the tools, is included in the value of non-originating         
 materials for purposes of the regional value content of Good A.        
                                                                        




                                 PART V                                 
                            AUTOMOTIVE GOODS                            
                SECTION 8. DEFINITIONS AND INTERPRETATION               
                                                                        
    For purposes of this Part,                                          
``after-market parts'' means goods that are not for use as original     
 equipment in the production of light-duty vehicles or heavy-duty       
 vehicles and that are                                                  
  (a) goods provided for in a tariff provision listed in Schedule IV, or
  (b) automotive component assemblies, automotive components, sub-      
   components or listed materials;                                      
``class of motor vehicles'' means any one of the following categories of
 motor vehicles:                                                        
  (a) motor vehicles provided for in any of subheading 8701.20, tariff  
   items 8702.10.30 and 8702.90.30 (vehicles for the transport of 16 or 
   more persons), subheadings 8704.10, 8704.22, 8704.23, 8704.32 and    
   8704.90 and headings 8705 and 8706,                                  
  (b) motor vehicles provided for in any of subheadings 8701.10 and     
   8701.30 through 8701.90,                                             
  (c) motor vehicles provided for in any of tariff items 8702.10.60 and 
   8702.90.60 (vehicles for the transport of 15 or fewer persons) and   
   subheadings 8704.21 and 8704.31, and                                 
  (d) motor vehicles provided for in any of subheadings 8703.21 through 
   8703.90;                                                             
``complete motor vehicle assembly process'' means the production of a   
 motor vehicle from separate constituent parts, which parts include the 
 following:                                                             
  (a) a structural frame or unibody,                                    
  (b) body panels,                                                      
  (c) an engine, a transmission and a drive train,                      
  (d) brake components,                                                 
  (e) steering and suspension components,                               
  (f) seating and internal trim,                                        
  (g) bumpers and external trim,                                        
  (h) wheels, and                                                       
  (i) electrical and lighting components;                               
``first prototype'' means the first motor vehicle that                  
  (a) is produced using tooling and processes intended for the          
   production of motor vehicles to be offered for sale, and             
  (b) follows the complete motor vehicle assembly process in a manner   
   not specifically designed for testing purposes;                      
``floor pan of a motor vehicle'' means a component, comprising a single 
 part or two or more parts joined together, with or without additional  
 stiffening members, that forms the base of a motor vehicle, beginning  
 at the firewall or bulkhead of the motor vehicle and ending            
  (a) where there is a luggage floor panel in the motor vehicle, at the 
   place where that luggage floor panel begins, and                     
  (b) where there is no luggage floor panel in the motor vehicle, at the
   place where the passenger compartment of the motor vehicle ends;     
``heavy-duty automotive good'' means a heavy-duty vehicle or a heavy-   
 duty component;                                                        
``heavy-duty component'' means an automotive component or automotive    
 component assembly that is for use as original equipment in the        
 production of a heavy-duty vehicle;                                    
``marque'' means a trade name used by a marketing division of a motor   
 vehicle assembler that is separate from any other marketing division of
 that motor vehicle assembler;                                          
``model line'' means a group of motor vehicles having the same platform 
 or model name;                                                         
``model name'' means the word, group of words, letter, number or similar
 designation assigned to a motor vehicle by a marketing division of a   
 motor vehicle assembler                                                
  (a) to differentiate the motor vehicle from other motor vehicles that 
   use the same platform design,                                        
  (b) to associate the motor vehicle with other motor vehicles that use 
   different platform designs, or                                       
  (c) to denote a platform design;                                      
``new building'' means a new construction to house a complete motor     
 vehicle assembly process, where that construction includes the pouring 
 or construction of a new foundation and floor, the erection of a new   
 frame and roof, and the installation of new plumbing and electrical and
 other utilities;                                                       
``plant'' means a building, or buildings in close proximity but not     
 necessarily contiguous, machinery, apparatus and fixtures that are     
 under the control of a producer and are used in the production of any  
 of the following:                                                      
  (a) light-duty vehicles and heavy-duty vehicles,                      
  (b) goods of a tariff provision listed in Schedule IV, and            
  (c) automotive component assemblies, automotive components, sub-      
   components and listed materials;                                     

[[Page 46414]]
                                                                        
``platform'' means the primary load-bearing structural assembly of a    
 motor vehicle that determines the basic size of the motor vehicle, and 
 is the structural base that supports the driveline and links the       
 suspension components of the motor vehicle for various types of frames,
 such as the body-on-frame or space-frame, and monocoques;              
``received in the territory of a NAFTA country'' means, with respect to 
 section 9(2), the location at which a traced material arrives in the   
 territory of a NAFTA country and is documented for any customs purpose,
 which, in the case of a traced material imported into                  
  (a) Canada,                                                           
    (i) where the traced material is imported on a vessel, as defined in
     section 2 of the Reporting of Imported Goods Regulations, is the   
     location at which the traced material is last unloaded from the    
     vessel and reported, under section 12 of the Customs Act, to a     
     customs office, including reported for transportation under bond by
     a conveyance other than that vessel, and                           
    (ii) in any other case, is the location at which the traced material
     is reported, under section 12 of the Customs Act, to a customs     
     office, including reported for transportation under bond,          
  (b) Mexico,                                                           
    (i) where the traced material is imported on a vessel, the location 
     at which the traced material is last unloaded from the vessel and  
     reported for any customs purpose, and                              
    (ii) in any other case, the location at which the traced material is
     reported for any customs purpose, and                              
  (c) the United States, is the location at which the traced material is
   entered for any customs purpose, including entered for consumption,  
   entered for warehouse or entered for transportation under bond, or   
   admitted into a foreign trade zone;                                  
``refit'' means a closure of a plant for a period of at least three     
 consecutive months that is for purposes of plant conversion or         
 retooling;                                                             
``size category'', with respect to a light-duty vehicle, means that the 
 total of the interior volume for passengers and the interior volume for
 luggage is                                                             
  (a) 85 cubic feet (2.38 m3) or less,                                  
  (b) more than 85 cubic feet (2.38 m3) but less than 100 cubic feet    
   (2.80 m3),                                                           
  (c) 100 cubic feet (2.80 m3) or more but not more than 110 cubic feet 
   (3.08 m3),                                                           
  (d) more than 110 cubic feet (3.08 m3) but less than 120 cubic feet   
   (3.36 m3), or                                                        
  (e) 120 cubic feet (3.36 m3) or more;                                 
``traced material'' means a material, produced outside the territories  
 of the NAFTA countries, that is imported from outside the territories  
 of the NAFTA countries and is, when imported, of a tariff provision    
 listed in Schedule IV;                                                 
``underbody'' means the floor pan of a motor vehicle.                   
                                                                        
                 SECTION 9. LIGHT-DUTY AUTOMOTIVE GOODS                 
     VNM determined by tracing of certain non-originating materials     
                                                                        
(1) For purposes of calculating the regional value content of a light-  
 duty automotive good under the net cost method, the value of 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   
 that are traced materials and are incorporated into the good.          
                                                                        
            Valuation of traced materials for VNM in the RVC            
                                                                        
(2) Except as otherwise provided in subsections (3) and (6) through (8),
 the value of each of the traced materials that is incorporated into a  
 good shall be                                                          
  (a) where the producer imports the traced material from outside the   
   territories of the NAFTA countries and has or takes title to it at   
   the time of importation, the sum of                                  
    (i) the customs value of the traced material,                       
    (ii) where not included in that customs value, any freight,         
     insurance, packing and other costs that were incurred in           
     transporting the traced material to the first place at which it was
     received in the territory of a NAFTA country, and                  
    (iii) where not included in that customs value, the costs referred  
     to in subsection (4);                                              
  (b) where the producer imports the traced material from outside the   
   territories of the NAFTA countries and does not have or take title to
   it at the time of importation, the sum of                            
    (i) the customs value of the traced material,                       
    (ii) where not included in that customs value, any freight,         
     insurance, packing and other costs that were incurred in           
     transporting the traced material to the place at which it was when 
     the producer takes title in the territory of a NAFTA country, and  
    (iii) where not included in that customs value, the costs referred  
     to in subsection (4);                                              
  (c) where a person other than the producer imports the traced material
   from outside the territories of the NAFTA countries and that person  
   has or takes title to the material at the time of importation, if the
   producer has a statement that                                        
    (i) is signed by the person from whom the producer acquired the     
     traced material, whether in the form in which it was imported into 
     the territory of a NAFTA country or incorporated into another      
     material, and                                                      
    (ii) states                                                         
      (A) the customs value of the traced material,                     
      (B) where not included in that customs value, any freight,        
       insurance, packing and other costs that were incurred in         
       transporting the traced material to the first place at which it  
       was received in the territory of a NAFTA country, and            
      (C) where not included in that customs value, the costs referred  
       to in subsection (4),                                            
  the sum of the customs value of the traced material, the freight,     
   insurance, packing and other costs referred to in subparagraph       
   (ii)(B) and the costs referred to in subparagraph (ii)(C);           

[[Page 46415]]
                                                                        
  (d) where a person other than the producer imports the traced material
   from outside the territories of the NAFTA countries and that person  
   does not have or take title to the material at the time of           
   importation, if the producer has a statement that                    
    (i) is signed by the person from whom the producer acquired the     
     traced material, whether in the form in which it was imported into 
     the territory of a NAFTA country or incorporated into another      
     material, and                                                      
    (ii) states                                                         
      (A) the customs value of the traced material,                     
      (B) where not included in that customs value, any freight,        
       insurance, packing and other costs that were incurred in         
       transporting the traced material to the place at which it was    
       located when the first person in the territory of a NAFTA country
       takes title, and                                                 
      (C) where not included in that customs value, the costs referred  
       to in subsection (4),                                            
  the sum of the customs value of the traced material, the freight,     
   insurance, packing and other costs referred to in subparagraph       
   (ii)(B) and the costs referred to in subparagraph (ii)(C);           
  (e) where a person other than the producer imports the traced material
   from outside the territories of the NAFTA countries and the producer 
   acquires the traced material or a material that incorporates the     
   traced material from a person in the territory of a NAFTA country who
   has title to it, if the producer has a statement that                
    (i) is signed by the person from whom the producer acquired the     
     traced material or the material that incorporates it, and          
    (ii) states the value of the traced material or a material that     
     incorporates the traced material, determined in accordance with    
     subsection (5), with respect to a transaction that occurs after the
     customs value of the traced material was determined,               
  the value of the traced material or the material that incorporates the
   traced material, determined in accordance with subsection (5), with  
   respect to the transaction referred to in that statement;            
  (f) where a person other than the producer imports the traced material
   from outside the territories of the NAFTA countries, and the producer
   acquires a material that incorporates that traced material and the   
   acquired material was produced in the territory of a NAFTA country   
   and is subject to a regional value-content requirement, if the       
   producer has a statement that                                        
    (i) is signed by the person from whom the producer acquired that    
     material, and                                                      
    (ii) states that the acquired material is an originating material   
     and states the regional value content of the material,             
  an amount equal to VM  x  (1 - RVC)                                   
  where                                                                 
      VM is the value of the acquired material, determined in accordance
       with subsection (5), with respect to the transaction in which the
       producer acquired that material, and                             
      RVC is the regional value content of the acquired material,       
       expressed as a decimal;                                          
  (g) where a person other than the producer imports the traced material
   from outside the territories of the NAFTA countries, and the producer
   acquires a material that incorporates that traced material and the   
   acquired material was produced in the territory of a NAFTA country   
   and is subject to a regional value-content requirement, if the       
   producer has a statement that                                        
    (i) is signed by the person from whom the producer acquired that    
     material, and                                                      
    (ii) states that the acquired material is an originating material   
     but does not state any value with respect to the traced material,  
  an amount equal to VM  x  (1 - RVCR)                                  
  where                                                                 
      VM is the value of the acquired material, determined in accordance
       with subsection (5), with respect to the transaction in which the
       producer acquired that material, and                             
      RVCR is the regional value-content requirement for the acquired   
       material, expressed as a decimal;                                
  (h) where a person other than the producer imports the traced material
   from outside the territories of the NAFTA countries and the producer 
   acquires a material that                                             
    (i) incorporates that traced material,                              
    (ii) was produced in the territory of a NAFTA country, and          
    (iii) with respect to which an amount was determined in accordance  
     with paragraph (f) or (g),                                         
  if the producer of the good has a statement signed by the person from 
   whom the producer acquired that material that states that amount, the
   amount as determined in accordance with paragraph (f) or (g), as the 
   case may be; and                                                     
  (i) where a person other than the producer imports the traced material
   from outside the territories of the NAFTA countries and the producer 
   does not have a statement described in any of paragraphs (c) through 
   (h), the value of the traced material or any material that           
   incorporates it, determined in accordance with subsection (5) with   
   respect to the transaction in which the producer acquires the traced 
   material or any material that incorporates it.                       
                                                                        
   Value of traced material if customs value is not in accordance with  
                              Schedule VIII                             
                                                                        
(3) For purposes of subsections (2) (a) through (d), where the customs  
 value of the traced material referred to in those paragraphs was not   
 determined in a manner consistent with Schedule VIII, the value of the 
 material shall be the sum of                                           
  (a) the value of the material determined in accordance with Schedule  
   VIII with respect to the transaction in which the person who imported
   the material from outside the territories of the NAFTA countries     
   acquired it; and                                                     
  (b) where not included in that value, the costs referred to in        
   subsections (2)(a) (ii) and (iii), subsections (2)(b) (ii) and (iii),
   subsections (2)(c)(ii) (B) and (C) or subsections (2)(d)(ii) (B) and 
   (C), as the case may be.                                             
                                                                        
  Additional costs included in traced value if not already included in  
                              customs value                             
                                                                        
(4) The costs referred to in subsections (2) (a) through (d) and        
 subsection (3) are the following:                                      

[[Page 46416]]
                                                                        
  (a) duties and taxes paid or payable with respect to the material in  
   the territory of one or more of the NAFTA countries, other than      
   duties and taxes that are waived, refunded, refundable or otherwise  
   recoverable, including credit against duty or tax paid or payable;   
   and                                                                  
  (b) customs brokerage fees, including the cost of in-house customs    
   brokerage services, incurred with respect to the material in the     
   territory of one or more of the NAFTA countries.                     
                                                                        
 Value of traced material determined under Schedule VIII if value is not
                              customs value                             
                                                                        
(5) For purposes of subsections (2) (e) through (g) and (i) and         
 subsections (6) and (7), the value of a material                       
  (a) shall be the transaction value of the material, determined in     
   accordance with section 2(1) of Schedule VIII with respect to the    
   transaction referred to in that paragraph or subsection, or          
  (b) shall be determined in accordance with sections 6 through 11 of   
   Schedule VIII, where, with respect to the transaction referred to in 
   that paragraph or subsection, there is no transaction value for the  
   material under section 2(2) of that Schedule, or the transaction     
   value of the material is unacceptable under section 2(3) of that     
   Schedule,                                                            
and, where not included under paragraph (a) or (b), shall include taxes,
 other than duties paid on an importation of a material from a NAFTA    
 country, paid or payable with respect to the material in the territory 
 of one or more of the NAFTA countries, other than taxes that are       
 waived, refunded, refundable or otherwise recoverable, including credit
 against tax paid or payable.                                           
(6) Where it is determined, during the course of a verification of      
 origin of a light-duty automotive good with respect to which the       
 producer of that good has a statement referred to in subsection (2) (f)
 or (g), that the acquired material referred to in that statement is not
 an originating material, the value of the acquired material shall, for 
 purposes of subsection (2), be determined in accordance with subsection
 (5) with respect to the transaction in which that producer acquired it.
                                                                        
  Effect on value of traced material if value on a statement cannot be  
                                verified                                
                                                                        
(7) Where any person who has information with respect to a statement    
 referred to in any of subsections (2)(c) through (h) does not allow a  
 customs administration to verify that information during a verification
 of origin, the value of the material with respect to which that person 
 did not allow the customs administration to verify the information may 
 be determined by that customs administration in accordance with        
 subsection (5) with respect to the transaction in which that person    
 sells, or otherwise transfers to another person, that material or a    
 material that incorporates that material.                              
                                                                        
    Use of value of VNM as determined under section 12(3) for traced    
               material incorporated into another material              
                                                                        
(8) Where a traced material is incorporated into a material produced in 
 the territory of a NAFTA country and that material is incorporated into
 a light-duty automotive good, the statement referred to in subsection  
 (2)(c), (d) or (e) may state the value of non-originating materials,   
 determined in accordance with section 12(3), with respect to the       
 material that incorporates the traced material.                        
                                                                        
 Interpretations and clarifications for provisions applicable to tracing
                  rules for light-duty automotive goods                 
                                                                        
(9) For purposes of this section,                                       
  (a) where a producer, in accordance with section 7(4), designates as  
   an intermediate material any self-produced material used in the      
   production of a light-duty automotive good,                          
    (i) the designation applies solely to the calculation of the net    
     cost of that good, and                                             
    (ii) the value of a traced material that is incorporated into that  
     good shall be determined as though the designation had not been    
     made;                                                              
  (b) the value of a material not listed in Schedule IV, when imported  
   from outside the territories of the NAFTA countries,                 
    (i) shall not be included in the value of non-originating materials 
     that are used in the production of a light-duty automotive good,   
     and                                                                
    (ii) shall be included in calculating the net cost of a light-duty  
     automotive good that incorporates that material;                   
  (c) except as otherwise provided in section 12(10), this section does 
   not apply with respect to after-market parts;                        
  (d) the costs referred to in subsections (2)(a)(ii) and (b)(ii),      
   subsections (2)(c)(ii)(B) and (d)(ii)(B) and subsections (4) and (5) 
   shall be the costs referred to in those paragraphs that are recorded 
   on the books of the producer of the light-duty automotive good;      
  (e) for purposes of calculating the regional value content of a light-
   duty automotive good, the producer of that good may choose to treat  
   any material used in the production of that good as a non-originating
   material, and the value of that material shall be determined in      
   accordance with subsection (5) with respect to the transaction in    
   which the producer acquired it; and                                  
  (f) any information set out in a statement referred to in subsection  
   (2) that concerns the value of materials or costs shall be in the    
   same currency as the currency of the country in which the person who 
   provided the statement is located.                                   
                                                                        
   Examples of application of tracing for light-duty automotive goods   
                                                                        
(10) Each of the following examples is an ``Example'' as referred to in 
 section 2(4).                                                          
                                                                        



Example 1:                                                              
    Nuts and bolts provided for in heading 7318 are imported from       
 outside the territories of the NAFTA countries and are used in the     
 territory of a NAFTA country in the production of a light-duty         
 automotive good referred to in section 9(1). Heading 7318 is not listed
 in Schedule IV so the nuts and bolts are not traced materials.         
    Because the nuts and bolts are not traced materials the value, under
 section 9(1), of the nuts and bolts is not included in the value of non-
 originating materials used in the light-duty automotive good even      
 though the nuts and bolts are imported from outside the territories of 
 the NAFTA countries.                                                   
    The value, under section 9(9)(b), of the nuts and bolts is included 
 in the net cost of the light-duty automotive good for the purposes of  
 calculating, under section 9(1), regional value content of the motor   
 vehicle.                                                               
Example 2:                                                              

[[Page 46417]]
                                                                        
    A rear view mirror provided for in subheading 7009.10 is imported   
 from outside the territories of the NAFTA countries and is used in the 
 territory of a NAFTA country as original equipment in the production of
 a light-duty vehicle.                                                  
    Subheading 7009.10 is listed in Schedule IV. The rear view mirror is
 a traced material. For purposes of calculating, under section 9(1),    
 regional value content of the light-duty vehicle, the value of the     
 mirror is included in the value of non-originating materials in        
 accordance with sections 9(2) through (9).                             
Example 3:                                                              
    Glass provided for in heading 7005 is imported from outside the     
 territories of the NAFTA countries and is used in the territory of     
 NAFTA country A in the production of a rear view mirror. The rear view 
 mirror is a non-originating good because it fails to satisfy the       
 applicable change in tariff classification.                            
    That rear view mirror is exported to NAFTA country B where it is    
 used as original equipment in the production of a light-duty vehicle.  
 Even though the rear view mirror is a non-originating material and is  
 provided for in a tariff item listed in Schedule IV, it is not a traced
 material because it was not imported from outside the territories of   
 the NAFTA countries.                                                   
    For purposes of calculating, under section 9(1), the regional value 
 content of a light-duty vehicle in which the rear view mirror is       
 incorporated, the value of the rear view mirror, under section 9(1), is
 not included in the value of non-originating materials used in the     
 production of the light-duty vehicle.                                  
    Even though the glass provided for in heading 7005 that was used in 
 the production of the rear view mirror and incorporated into the light-
 duty vehicle was imported from outside the territories of the NAFTA    
 countries, the glass is not a traced material because heading 7005 is  
 not listed in Schedule IV. For purposes of calculating, under section  
 9(1), the regional value content of the light-duty vehicle that        
 incorporates the glass, the value of the glass is not included in the  
 value of non-originating materials used in the production of the light-
 duty vehicle. The value of the rear view mirror would be included in   
 the net cost of the light-duty vehicle, but the value of the imported  
 glass would not be separately included in the value of non-originating 
 materials of the light-duty vehicle.                                   
Example 4:                                                              
    An electric motor provided for in subheading 8501.10 is imported    
 from outside the territories of the NAFTA countries and is used in the 
 territory of a NAFTA country in the production of a seat frame provided
 for in subheading 9401.90. The seat frame, with the electric motor     
 attached, is sold to a producer of seats provided for in subheading    
 9401.20. The seat producer sells the seat to a producer of light-duty  
 vehicles. The seat is to be used as original equipment in the          
 production of that light-duty vehicle.                                 
    Subheadings 8501.10 and 9401.20 are listed in Schedule IV;          
 subheading 9401.90 is not. The electric motor is a traced material; the
 seat is not a traced material because it was not imported from outside 
 the territories of the NAFTA countries.                                
    The seat is a light-duty automotive good referred to in section     
 9(1). For purposes of calculating, under section 9(1), the regional    
 value content of the seat, the value of traced materials incorporated  
 into it is included in the value of non-originating materials used in  
 the production of the seat. The value of the electric motor is included
 in that value. (However, the value of the motor would not be included  
 separately in the net cost of the seat because the value of the motor  
 is included as part of the cost of the seat frame.)                    
    For purposes of calculating, under section 9(1), the regional value 
 content of the light-duty vehicle, the value of the electric motor is  
 included in the value of non-originating materials used in the         
 production of the light-duty vehicle, even if the seat is an           
 originating material.                                                  
Example 5:                                                              
    Cast blocks, cast heads and connecting rod assemblies provided for  
 in heading 8409 are imported from outside the territories of the NAFTA 
 countries by an engine producer, who has title to them at the time of  
 importation, and are used by the producer in the territory of NAFTA    
 country A in the production of an engine provided for in heading 8407. 
 After the regional value content of the engine is calculated, the      
 engine is an originating good. It is not a traced material because it  
 was not imported from outside the territories of the NAFTA countries.  
 The engine is exported to NAFTA country B, to be used as original      
 equipment by a producer of light-duty vehicles.                        
    For purposes of calculating, under section 9(1), the regional value 
 content of the light-duty vehicle that incorporates the engine, because
 heading 8409 is listed in Schedule IV and because the cast blocks, cast
 heads and connecting rod assemblies were imported into the territory of
 a NAFTA country and are incorporated into the light-duty vehicle, the  
 value of those materials, which are traced materials, is included in   
 the value of non-originating materials used in the production of the   
 light-duty vehicle, even though the engine is an originating material. 
    The producer of the light-duty vehicle did not import the traced    
 materials. However, because that producer has a statement referred to  
 in section 9(2)(c) and that statement states the value of non-         
 originating materials of the traced materials in accordance with       
 section 12(2), the producer of the light-duty vehicle may, in          
 accordance with section 9(8), use that value as the value of non-      
 originating materials of the light-duty vehicle with respect to that   
 engine.                                                                
Example 6:                                                              
    Aluminum ingots provided for in subheading 7601.10 and piston       
 assemblies provided for in heading 8409 are imported from outside the  
 territories of the NAFTA countries by an engine producer and are used  
 by that producer in the territory of NAFTA country A in the production 
 of an engine provided for in heading 8407. The aluminum ingots are used
 by the producer to produce an engine block; the piston assembly is then
 incorporated into the engine block and the producer designates, in     
 accordance with section 7(4), a short block provided for in heading    
 8409 as an intermediate material. The intermediate material qualifies  
 as an originating material. The engine that incorporates the short     
 block is exported to NAFTA country B and used as original equipment in 
 the production of a light-duty vehicle. The piston assemblies provided 
 for in heading 8409 are traced materials; neither the engine nor the   
 short block are traced materials because they were not imported from   
 outside the territories of the NAFTA countries.                        
    For purposes of calculating, under section 9(1), the regional value 
 content of the engine, the value of the piston assemblies is included, 
 under section 9(9)(a)(ii), in the value of non-originating materials,  
 even if the intermediate material is an originating material. However, 
 the value of the aluminum ingots is not included in the value of non-  
 originating materials because subheading 7601.10 is not listed in      
 Schedule IV. The value of the aluminum ingots does not need to be      
 included separately in the net cost of the engine because that value is
 included in the value of the intermediate material, and the total cost 
 of the intermediate material is included in the net cost of the engine.
    For purposes of calculating, under section 9(1), the regional value 
 content of the light-duty vehicle that incorporates the engine (and the
 piston assemblies), the value of the piston assemblies incorporated    
 into that light-duty vehicle is included in the value of non-          
 originating materials of the light-duty vehicle.                       
Example 7:                                                              

[[Page 46418]]
                                                                        
    An engine provided for in heading 8407 is imported from outside the 
 territories of the NAFTA countries. The producer of the engine, located
 in the country from which the engine is imported, used in the          
 production of the engine a piston assembly provided for in heading 8409
 that was produced in a NAFTA country and is an originating good. The   
 engine is used in the territory of a NAFTA country as original         
 equipment in the production of a light-duty vehicle. The engine is a   
 traced material.                                                       
    For purposes of calculating, under section 9(1), the regional value 
 content of a light-duty vehicle that incorporates that engine, the     
 value of the engine is included in the value of non-originating        
 materials of that light-duty vehicle. The value of the piston assembly,
 which was, before its exportation to outside the territories of the    
 NAFTA countries, an originating good, shall not be deducted from the   
 value of non-originating materials used in the production of the light-
 duty vehicle. Under section 18 (transshipment), the piston assembly is 
 no longer considered to be an originating good because it was used in  
 the production of a good outside the territories of the NAFTA          
 countries.                                                             
Example 8:                                                              
    A wholesaler, located in City A in the territory of a NAFTA country,
 imports from outside the territories of the NAFTA countries rubber     
 hoses provided for in heading 4009, which is listed in Schedule IV. The
 wholesaler takes title to the goods at the wholesaler's place of       
 business in City A. The customs value of the imported goods is $500.   
 All freight, taxes and duties associated with the good to the          
 wholesaler's place of business total $100; the cost of the freight,    
 included in that $100, from the place where it was received in the     
 territory of a NAFTA country to the location of the wholesaler's place 
 of business in City A is $25. The wholesaler sells the rubber hoses for
 $650 to a producer of light-duty vehicles who uses the goods in the    
 territory of a NAFTA country as original equipment in the production of
 a light-duty vehicle. The light-duty vehicle producer pays $50 to have 
 the goods shipped from the location of the wholesaler's place of       
 business in City A to the location at which the light-duty vehicle is  
 produced.                                                              
    The rubber hoses are traced materials and they are incorporated into
 a light-duty automotive good. For purposes of calculating, under       
 section 9(1), the regional value content of the light-duty vehicle,    
  (1) if the wholesaler takes title to the goods before the first place 
   at which they were received in the territory of a NAFTA country, then
   the value of non-originating materials, where the light-duty vehicle 
   producer has a statement referred to in section 9(2)(c), would not   
   include the cost of freight from the place where they were received  
   in the territory of a NAFTA country to the location of the           
   wholesaler's place of business: in this situation, the value of non- 
   originating materials would be $575;                                 
  (2) if the producer has a statement referred to in section 9(2)(d)    
   that states the customs value of the traced material and, where not  
   included in that price, the cost of taxes, duties, fees and          
   transporting the goods to the place where title is taken, the light- 
   duty vehicle producer may use those values as the value of non-      
   originating materials with respect to the goods: in this situation,  
   the value of non-originating materials would be $600; or             
  (3) if the wholesaler is unwilling to provide the light-duty vehicle  
   producer with such a statement, the value of non-originating         
   materials with respect to the traced materials will be the value of  
   the materials with respect to the transaction in which the producer  
   acquired them, as provided for in section 9(2)(i), in this instance  
   $650; the costs of transporting the goods from the location of the   
   wholesaler's place of business to the location of the producer will  
   be included in the net cost of the goods, but not in the value of non-
   originating materials.                                               
Example 9:                                                              
    A wholesaler, located in City A in the territory of a NAFTA country,
 imports from outside the territories of the NAFTA countries rubber hose
 provided for in heading 4009, which is listed in Schedule IV. The      
 wholesaler sells the good to a producer located in the territory of the
 NAFTA country who uses the hose to produce a power steering hose       
 assembly, also provided for in heading 4009. The power steering hose   
 assembly is then sold to a producer of light-duty vehicles who uses    
 that good in the production of a light-duty vehicle. The rubber hose is
 a traced material; the power steering hose assembly is not a traced    
 material because it was not imported from outside the territories of   
 the NAFTA countries.                                                   
    The wholesaler who imported the rubber hose from outside the        
 territories of the NAFTA countries has title to it at the time of      
 importation. The customs value of the good is $3, including freight and
 insurance and all other costs incurred in transporting the good to the 
 first place at which it was received in the territory of the NAFTA     
 country. Duties and fees and all other costs referred to in section    
 9(4), paid by the wholesaler with respect to the good, total an        
 additional $1. The wholesaler sells the good to the producer of the    
 power steering hose assemblies for $5, not including freight to the    
 location of that producer. The power steering hose producer pays $2 to 
 have the good delivered to the location of production. The value of the
 power steering hose assembly sold to the light-duty vehicle producer is
 $10, including freight for delivery of the goods to the location of the
 light-duty vehicle producer.                                           
    For purposes of calculating, under section 9(1), the regional value 
 content of the light-duty vehicle:                                     
  (1) if the motor vehicle producer has a statement referred to in      
   section 9(2)(c) from the producer of the power steering hose assembly
   that states the customs value of the imported rubber hose            
   incorporated in the power steering hose assembly, and the value of   
   the duties, fees and other costs referred to in section 9(4), the    
   producer may use those values as the value of non-originating        
   materials with respect to that traced good: in this situation, that  
   value would be the customs value of $3 and the cost of duties and    
   fees of $1, provided that the wholesaler has provided the producer of
   the power steering hose assembly with the information regarding the  
   customs value of the imported good and the other costs;              
  (2) if the light-duty vehicle producer has a statement from the       
   producer of the power steering hose assembly that states the value of
   the imported hose, with respect to the transaction in which the power
   steering hose assembly producer acquires the imported hose from the  
   wholesaler, the light-duty vehicle producer may include that value as
   the value of non-originating materials, in accordance with section   
   9(2)(e): in this situation, that value is $5; and the $2 cost of     
   transporting the good from the location of the wholesaler to the     
   location of the producer, because that cost is separately identified,
   would not be included in the value of non-originating materials of   
   the light-duty vehicle;                                              
  (3) if the light-duty vehicle producer has a statement referred to in 
   section 9(2)(f) signed by the producer of the power steering hose    
   assembly, the light-duty vehicle producer may use the formula set out
   in section 9(2)(f) to calculate the value of non-originating         
   materials with respect to that acquired material: in this situation, 
   assuming the regional value content is 55 per cent, the value of non-
   originating materials would be $4.50; and because the cost of        
   transportation from the location of the producer of the power        
   steering hose assembly to the location of the light-duty vehicle     
   producer is included in the purchase price and not separately        
   identified, it may not be deducted from the purchase price, because  
   the formula referred to in section 9(2)(f) does not allow for the    
   deduction of transportation costs that would otherwise not be non-   
   originating;                                                         
  (4) if the light-duty vehicle producer has a statement referred to in 
   section 9(2)(g) signed by the producer of the power steering hose    
   assembly, the light-duty vehicle producer may use the formula set out
   in section 9(2)(g) to calculate the value of non-originating         
   materials with respect to that acquired material: in this situation, 
   assuming the regional value-content requirement is 50 per cent, the  
   value of non-originating materials would be $5; and because the cost 
   of transportation from the location of the producer of the power     
   steering hose assembly to the location of the light-duty vehicle     
   producer is included in the purchase price and not separately        
   identified, it may not be deducted from the purchase price, because  
   the formula referred to in section 9(2)(g) does not allow for the    
   deduction of transportation costs that would otherwise not be non-   
   originating; or                                                      

[[Page 46419]]
                                                                        
  (5) if the light-duty vehicle producer does not have a statement      
   referred to in any of sections 9(2)(c) through (h) from the producer 
   of the power steering hose assembly, the light-duty vehicle producer 
   includes in the value of non-originating materials of the vehicles   
   the value, determined in accordance with section 9(2)(i), of the     
   power steering hose assembly: in this situation, that amount would be
   $10, the cost to the producer of acquiring that material.            
Example 10:                                                             
    A producer of light-duty vehicles located in City C in the territory
 of a NAFTA country imports from outside the territories of the NAFTA   
 countries rubber hose provided for in heading 4009, which is listed in 
 Schedule IV, and uses that good as original equipment in the production
 of a light-duty vehicle.                                               
    The rubber hose arrives at City A in the NAFTA country, but the     
 producer of the light-duty vehicle does not have title to the good; it 
 is transported under bond to City B, and on its arrival in City B, the 
 producer of the light-duty vehicle takes title to it and the good is   
 received in the territory of a NAFTA country. The good is then         
 transported to the location of the light-duty vehicle producer in City 
 C.                                                                     
    The customs value of the imported good is $4, the transportation and
 other costs referred to in subparagraph 9(2)(b)(ii) to City A are $3   
 and to City B are $2, and the cost of duties, taxes and other fees     
 referred to in section 9(4) is $1. The cost of transporting the good   
 from City B to the location of the producer in City C is $1. The rubber
 hose is traced material.                                               
    For purposes of calculating, under section 9(1), the regional value 
 content of the light-duty vehicle, the value, under section 9(2)(b), of
 non-originating materials of that vehicle is the customs value of the  
 traced material and, where not included in that value, the cost of     
 taxes, duties, fees and the cost of transporting the traced material to
 the place where title is taken. In this situation, the value of non-   
 originating materials would be the customs value of the traced         
 material, $4, the cost of duties taxes and other fees, $1, the cost of 
 transporting the material to City A, $3, and the cost of transporting  
 that material from City A to City B, $2, for a total of $10. The $1    
 cost of transporting the good from City B to the location of the       
 producer in City C would not be included in the value of non-          
 originating materials of the light-duty vehicle because a person of a  
 NAFTA country has taken title to the traced material.                  
Example 11:                                                             
    A radiator provided for in subheading 8708.91 is imported from      
 outside the territories of the NAFTA countries by a producer of light- 
 duty vehicles and is used in the territory of a NAFTA country as       
 original equipment in the production of a light-duty vehicle.          
    The radiator is transported by ship from outside the territories of 
 the NAFTA countries and arrives in the territory of the NAFTA country  
 at City A. The radiator is not, however, unloaded at City A and        
 although the radiator is physically present in the territory of the    
 NAFTA country, it has not been received in the territory of a NAFTA    
 country.                                                               
    The ship sails in territorial waters from City A to City B and the  
 radiator is unloaded there. The light-duty vehicle producer files, from
 City C in the same country, the entry for the radiator; the radiator   
 enters the territory of the NAFTA country at City B.                   
    Subheading 8708.91 is listed in Schedule IV. The radiator is a      
 traced material.                                                       
    For purposes of calculating, under section 9(1), the regional value 
 content of the light-duty vehicle, the value of the radiator is        
 included in the value of non-originating materials of the light-duty   
 vehicle. The costs of any freight, insurance, packing and other costs  
 incurred in transporting the radiator to City B are included in the    
 value of non-originating materials of the light-duty vehicle, including
 the cost of transporting the radiator from City A to City B. The costs 
 of any freight, insurance, packing and other costs that were incurred  
 in transporting the radiator from City B to the location of the        
 producer are not included in the value of non-originating materials of 
 the light-duty vehicle.                                                
Example 12:                                                             
    Producer X, located in NAFTA country A, produces a car seat of      
 subheading No. 9401.20 that is used in the production of a light-duty  
 vehicle. The only non-originating material used in the production of   
 the car seat is an electric motor of subheading No. 8501.20 that was   
 imported by Producer X from outside the territories of the NAFTA       
 countries. The electric motor is a material of a tariff provision      
 listed in Schedule IV and thus is a traced material.                   
    Producer X sells the car seat as original equipment to Producer Y, a
 light-duty vehicle producer, located in NAFTA country B. The car seat  
 is an originating good because the non-originating material in the car 
 seat (the electric motor) undergoes the applicable change in tariff    
 classification set out in a rule that specifies only a change in tariff
 classification. Consequently, Producer X does not choose to calculate  
 the regional value content of the car seat in accordance with section  
 12(1).                                                                 
    For purposes of determining, under section 9(1), the value of non-  
 originating materials used in the production of the light-duty vehicle 
 that incorporates the car seat, the value of the electric motor is     
 included even though the car seat qualifies as an originating material.
    Producer X provides Producer Y with a statement described in section
 9(2)(c), with the value of non-originating material used in the        
 production of the car seat determined in accordance with section 12(3),
 as is permitted by section 9(8). Producer Y uses that value as the     
 value of non-originating materials used in the production of the light-
 duty vehicle with respect to the car seat.                             
Example 13:                                                             
    This example has the same facts as in Example 12, except that the   
 car seat does not qualify as an originating good under the rule that   
 specifies only a change in tariff classification. Instead, it qualifies
 as an originating good under a rule that specifies a regional value-   
 content requirement and a change in tariff classification. For purposes
 of that rule, Producer X chose to calculate the regional value content 
 of the car seat in accordance with section 12(1) over a period set out 
 in section 12(5)(a) and using a category set out in section 12(4)(a).  
    For purposes of the statement described in section 9(2)(c), Producer
 X determined, as is permitted under section 9(8), the value of non-    
 originating material used in the production of the car seat in         
 accordance with section 12(3) over a period set out in section 12(5)(a)
 and using a category set out in section 12(4)(e).                      
                                                                        




                 SECTION 10. HEAVY-DUTY AUTOMOTIVE GOODS                
Determining VNM for the calculation of the RVC for heavy-duty automotive
                                  goods                                 
                                                                        
(1) Except as otherwise provided in subsections (3) through (8) and     
 section 12(10)(a), for purposes of calculating the regional value      
 content of a heavy-duty automotive good under the net cost method, the 
 value of non-originating materials used by the producer of the good in 
 the production of the good shall be the sum of                         
  (a) for each listed material that is a non-originating material, is a 
   self-produced material and is used by the producer in the production 
   of the good, at the choice of the producer, either                   
    (i) the total cost incurred with respect to all goods produced by   
     the producer that can be reasonably allocated to that listed       
     material in accordance with Schedule VII,                          
    (ii) the aggregate of each cost that forms part of the total cost   
     incurred with respect to that listed material that can be          
     reasonably allocated to that listed material in accordance with    
     Schedule VII, or                                                   
    (iii) the sum of                                                    
      (A) the customs value of each non-originating material imported by
       the producer and used in the production of the listed material,  
       and, where not included in that customs value, the costs referred
       to in subsections (2)(c) through (f), and                        

[[Page 46420]]
                                                                        
      (B) the value of each non-originating material that is not        
       imported by the producer of the listed material and is used in   
       the production of the listed material, determined in accordance  
       with subsection (2) with respect to the transaction in which the 
       producer of the listed material acquired it;                     
  (b) for each listed material that is a non-originating material, is   
   produced in the territory of a NAFTA country and is acquired and used
   by the producer in the production of the good, at the choice of the  
   producer, either                                                     
    (i) the value of that non-originating listed material, determined in
     accordance with subsection (2), with respect to the transaction in 
     which the producer acquired the listed material, or                
    (ii) where the producer of the good has a statement described in    
     clause (A) or (B) with respect to each material that is a non-     
     originating material used in the production of that listed         
     material, the sum of                                               
      (A) the customs value of each non-originating material imported by
       the producer of the listed material and used in the production of
       that listed material, and, where not included in that customs    
       value, the costs referred to in subsections (2)(c) through (f),  
       if the producer of the good has a statement signed by the        
       producer of the listed material that states the customs value of 
       that non-originating material and the costs referred to in       
       subsections (2)(c) through (f) that the producer of the listed   
       material incurred with respect to the non-originating material,  
       and                                                              
      (B) the value of each non-originating material that is not        
       imported by the producer of the listed material, and is acquired 
       and used in the production of the listed material, determined in 
       accordance with subsection (2) with respect to the transaction in
       which the producer of the listed material acquired that non-     
       originating material, if the producer of the good has a statement
       signed by the producer of the listed material that states the    
       value of the acquired material, determined in accordance with    
       subsection (2) with respect to the transaction in which the      
       producer of the listed material acquired the non-originating     
       material;                                                        
  (c) for each listed material, automotive component assembly,          
   automotive component or sub-component that is imported from outside  
   the territories of the NAFTA countries, and is used by the producer  
   in the production of the good,                                       
    (i) where it is imported by the producer, the customs value of that 
     non-originating listed material, automotive component assembly,    
     automotive component or sub-component, and, where not included in  
     that customs value, the costs referred to in subsections (2)(c)    
     through (f), and                                                   
    (ii) where it is not imported by the producer, the value of that non-
     originating listed material, automotive component assembly,        
     automotive component or sub-component, determined in accordance    
     with subsection (2) with respect to the transaction in which the   
     producer acquired it;                                              
  (d) for each automotive component assembly, automotive component or   
   sub-component that is an originating material and is acquired and    
   used by the producer in the production of the good, at the choice of 
   the producer,                                                        
    (i) the sum of                                                      
      (A) the value of each non-originating listed material used in the 
       production of the originating material, determined under         
       paragraphs (a) and (b),                                          
      (B) the value of each non-originating material incorporated into  
       the originating material, determined under paragraph (c),        
      (C) the value of each non-originating listed material used in the 
       production of a material referred to in paragraph (e) that is    
       used in the production of the originating material, determined   
       under paragraphs (a) and (b), and                                
      (D) where the value of a non-originating listed material referred 
       to in clause (C), and used in the production of a non-originating
       automotive component assembly, automotive component or sub-      
       component that is used in the production of the originating      
       material, is not included under clause (C), the value of that    
       automotive component assembly, automotive component or sub-      
       component, determined under paragraph (e)(ii),                   
    if the producer has a statement, signed by the person from whom the 
     originating material was acquired, that states the sum of the      
     values, as determined by the producer of the originating material  
     under paragraphs (a), (b), (c) and (e) of each non-originating     
     material referred to in any of clauses (A) through (D) that is     
     incorporated into that originating material;                       
    (ii) an amount equal to the number resulting from applying the      
     following formula:                                                 
                                                                        
                            VM  x  (1 - RVC)                            
                                                                        
    where                                                               
        VM is the value of the acquired material, determined in         
         accordance with subsection (2), with respect to the transaction
         in which the producer of the good acquired that material, and  
        RVC is the regional value content of the acquired material,     
         expressed as a decimal,                                        
    if the material is subject to a regional value-content requirement  
     and the producer has a statement, signed by the person from whom   
     the producer acquired that material, that states that the acquired 
     material is an originating material and states the regional value  
     content of the material,                                           
    (iii) an amount equal to the number resulting from applying the     
     following formula:                                                 
                                                                        
                            VM  x  (1 - RVCR)                           
                                                                        
    where                                                               
        VM is the value of the acquired material, determined in         
         accordance with subsection (2), with respect to the transaction
         in which the producer of the good acquired that material, and  
        RVCR is the regional value-content requirement for the acquired 
         material, expressed as a decimal,                              
    if the material is subject to a regional value-content requirement  
     and the producer has a statement, signed by the person from whom   
     the producer acquired that material, that states that the acquired 
     material is an originating material but does not state the value of
     non-originating materials with respect to that acquired material;  
     or                                                                 
    (iv) the value of that automotive component assembly, automotive    
     component or sub-component determined in accordance with subsection
     (2) with respect to the transaction in which the producer acquired 
     the material;                                                      

[[Page 46421]]
                                                                        
  (e) for each automotive component assembly, automotive component or   
   sub-component that is a non-originating material produced in the     
   territory of a NAFTA country and that is acquired by the producer and
   used by the producer in the production of the good, at the choice of 
   the producer, either                                                 
    (i) the sum of the values of the non-originating materials          
     incorporated into that non-originating material that is acquired by
     the producer, determined under paragraphs (a), (b), (c), (d) and   
     (f), if the producer has a statement, signed by the person from    
     whom the non-originating material was acquired, that states the sum
     of the values of the non-originating materials incorporated into   
     that non-originating material, determined by the producer of the   
     non-originating material in accordance with paragraphs (a), (b),   
     (c), (d) and (f), or                                               
    (ii) the value of that non-originating automotive component         
     assembly, automotive component or sub-component, determined in     
     accordance with subsection (2) with respect to the transaction in  
     which the producer acquired the material; and                      
  (f) for each non-originating material that is not referred to in      
   paragraph (a), (b), (c) or (e) and that is used by the producer in   
   the production of the good,                                          
    (i) where it is imported by the producer, the customs value of that 
     non-originating material, and, where not included in that customs  
     value, the costs referred to in subsections (2)(c) through (f), and
    (ii) where it is not imported by the producer, the value of that non-
     originating material, determined in accordance with subsection (2) 
     with respect to the transaction in which the producer acquired the 
     material.                                                          
                                                                        
  Application of Schedule VIII to determine VNM; additional costs to be 
                                included                                
                                                                        
(2) For purposes of subsection (1)(a)(ii)(B), subsection (1)(b)(i),     
 subsection (1)(b)(ii)(B), subsections (1)(c)(ii), (1)(d)(ii) through   
 (iv), (1)(e)(ii) and subsection (1)(f)(ii), the value of a material    
  (a) shall be the transaction value of the material, determined in     
   accordance with section 2(1) of Schedule VIII with respect to the    
   transaction referred to in that clause, subparagraph or paragraph, or
  (b) where, with respect to the transaction referred to in that clause,
   subparagraph, or paragraph, there is no transaction value for the    
   material under section 2(2) of Schedule VIII or the transaction value
   of the material is unacceptable under section 2(3) of that Schedule, 
   shall be determined in accordance with sections 6 through 11 of that 
   Schedule,                                                            
and shall include the following costs where they are not included under 
 paragraph (a) or (b):                                                  
  (c) the costs of freight, insurance and packing, and all other costs  
   incurred in transporting the material to the location of the         
   producer,                                                            
  (d) duties and taxes paid or payable with respect to the material in  
   the territory of one or more of the NAFTA countries, other than      
   duties and taxes that are waived, refunded, refundable or otherwise  
   recoverable, including credit against duty or tax paid or payable,   
  (e) customs brokerage fees, including the cost of in-house customs    
   brokerage and customs clearance services, incurred with respect to   
   the material in the territory of one or more of the NAFTA countries, 
   and                                                                  
  (f) the cost of waste and spoilage resulting from the use of the      
   material in the production of the good, minus the value of any       
   reusable scrap or by-product.                                        
                                                                        
  Value of imported material if customs value is not in accordance with 
                              Schedule VIII                             
                                                                        
(3) For purposes of subsections (1)(a)(ii)(A) and (b)(ii)(A) and        
 subsections (1)(c)(i) and (f)(i), where the customs value of an        
 imported material referred to in those clauses or paragraphs was not   
 determined in a manner consistent with Schedule VIII, the value of the 
 material shall be determined in accordance with Schedule VIII with     
 respect to the importation for which that customs value was determined 
 and, where the costs referred to in sections (2)(c) through (f) are not
 included in that value, those costs shall be added to the value of the 
 material.                                                              
     Option to use section 9 tracing rules in certain circumstances     
                                                                        
(4) For purposes of calculating the regional value content of a heavy-  
 duty component, where                                                  
  (a) a heavy-duty component is produced in the same plant as an        
   automotive component assembly or automotive component that is of the 
   same heading or subheading as that heavy-duty component and is for   
   use as original equipment in a light-duty vehicle, and               
  (b) it is not reasonable for the producer to know which of the        
   production will constitute a heavy-duty component for use in a heavy-
   duty vehicle,                                                        
the value of the non-originating materials used in the production of the
 heavy-duty component in that plant may, at the choice of the producer, 
 be determined in the manner set out in section 9.                      
(5) For purposes of calculating the regional value content of a heavy-  
 duty vehicle, where a producer of such a vehicle acquires, for use by  
 that producer in the production of the vehicle, a heavy-duty component 
 with respect to which the value of non-originating materials has been  
 determined in accordance with subsection (4), the value of the non-    
 originating materials used by the producer with respect to that heavy- 
 duty component is the value of non-originating materials determined    
 under that subsection.                                                 
                                                                        
         VNM may be redetermined for certain acquired materials         
                                                                        
(6) Where it is determined, during the course of a verification of      
 origin of a heavy-duty automotive good with respect to which the       
 producer of that good has a statement referred to in subsection        
 (1)(d)(ii) or (iii) that the acquired material referred to in that     
 statement is not an originating material, the value of the acquired    
 material shall, for purposes of subsection (1), be determined in       
 accordance with subsection (2) with respect to the transaction in which
 that producer acquired it.                                             
                                                                        

[[Page 46422]]
                                                                        
  Effect on value of traced material if value on a statement cannot be  
                                verified                                
                                                                        
(7) Where any person who has information with respect to a statement    
 referred to in subsection (1)(b)(ii), (d)(i) or (e)(i) does not allow a
 customs administration to verify that information during a verification
 of origin, the value of any material with respect to which that person 
 did not allow the customs administration to verify the information may 
 be determined by that customs administration in accordance with        
 subsection (2) with respect to the transaction in which that person    
 sells, or otherwise transfers to another person, that material or a    
 material that incorporates that material.                              
                                                                        
    Use of value of VNM as determined under section 12(3) for traced    
               material incorporated into another material              
                                                                        
(8) Where a heavy-duty component, sub-component or listed material is   
 incorporated into a material produced in the territory of a NAFTA      
 country and that material is incorporated into a heavy-duty automotive 
 good, the statement referred to in subsection (1)(b)(ii), (d)(i) or    
 (e)(i) may state the value of non-originating materials, determined in 
 accordance with section 12(3), with respect to the material that       
 incorporates the heavy-duty component, sub-component or listed         
 material.                                                              
                                                                        
                                                                        
  Interpretations and clarifications for provisions applicable to rules 
           for determining VNM for heavy-duty automotive goods          
                                                                        
(9) For purposes of this section,                                       
  (a) for purposes of calculating the regional value content of a heavy-
   duty automotive good, sub-component or listed material, a producer of
   such a good may, in accordance with section 7(4), designate as an    
   intermediate material any self-produced material, other than a heavy-
   duty component or sub-component, that is used in the production of   
   that good;                                                           
  (b) except as otherwise provided in section 12(10), this section does 
   not apply with respect to after-market parts;                        
  (c) this section does not apply to a sub-component for purposes of    
   calculating its regional value content before it is incorporated into
   a heavy-duty automotive good;                                        
  (d) for purposes of calculating the regional value content of a heavy-
   duty automotive good, the producer of that good may choose to treat  
   any material used in the production of that good as a non-originating
   material, and the value of that material shall be determined in      
   accordance with subsection (2) with respect to the transaction in    
   which the producer acquired it;                                      
  (e) any information set out in a statement referred to in subsections 
   (1)(b)(ii), (d)(i) through (iii) or (e)(i) that concerns the value of
   materials or costs shall be in the same currency as the currency of  
   the country in which the person who provided the statement is        
   located; and                                                         
  (f) total cost under subsections (1)(a)(i) and (ii) consists of the   
   costs referred to section 2(6), and is calculated in accordance with 
   that section and section 2(7).                                       
                                                                        
   Examples of application of rules for determining VNM for heavy-duty  
                            automotive goods                            
                                                                        
(10) Each of the following examples is an ``Example'' as referred to in 
 section 2(4).                                                          
                                                                        




Example 1: A listed material is imported from outside the territories of
 the NAFTA countries                                                    
    A cast head, produced outside the territories of the NAFTA          
 countries, is imported into the territory of a NAFTA country and used  
 in that country in the production of an engine that will be used as    
 original equipment in the production of a heavy-duty vehicle. No other 
 non-originating materials are used in the production of the engine. The
 cast head is a listed material; the engine is an automotive component. 
    Situation 1: Use of the listed material in an automotive component  
    For purposes of calculating the regional value content of the       
 engine, the value of listed materials imported from outside the        
 territories of the NAFTA countries is included in the value of non-    
 originating materials used in the production of the engine. Because the
 cast head was produced outside the territories of the NAFTA countries, 
 its value, under section 10(1)(c), is included in the value of non-    
 originating materials used in the production of the engine.            
    Situation 2: Use of an originating automotive component             
 incorporating the listed material                                      
    The engine is an originating material acquired by the producer of   
 the heavy-duty vehicle. For purposes of calculating the regional value 
 content of the heavy-duty vehicle that incorporates that engine (and   
 incorporates the cast head), the value of non-originating materials    
 used in the production of the heavy-duty vehicle is determined under   
 section 10(1)(d) with respect to that engine. The producer may choose  
 to include in the value of non-originating materials of the heavy-duty 
 vehicle                                                                
  (a) the value, determined under section 10(1)(d)(i), of the non-      
   originating materials that are incorporated into the engine, which is
   the value, determined under sections 10(1) (a) through (c) and       
   paragraph (e)(ii), of the non-originating materials;                 
  (b) the value, determined under section 10(1)(d)(ii), which is an     
   amount equal to the amount determined under section 10(1)(d)(iv)     
   multiplied by the remainder of one minus the regional value content, 
   expressed as a decimal, of the engine;                               
  (c) the value, determined under section 10(1)(d)(iii), which is an    
   amount equal to the amount determined under section 10(1)(d)(iv)     
   multiplied by the remainder of one minus the regional value-content  
   requirement, expressed as a decimal, for the engine; or              
  (d) the value, determined under section 10(1)(d)(iv), of the engine.  
    The heavy-duty vehicle producer may only choose the first option if 
 that producer has a statement, referred to in section 10(1)(d)(i), from
 the person from whom the engine was acquired. In this situation, the   
 value, determined under section 10(1)(c), of the cast head, is included
 in the value of non-originating materials of the heavy-duty vehicle,   
 with respect to the engine that is used in the production of the heavy-
 duty vehicle.                                                          
    The heavy-duty vehicle producer may only choose the second option if
 that producer has a statement, referred to in section 10(1)(d)(ii),    
 from the person from whom the engine was acquired. In this situation,  
 because of the application of the equation, the value of the cast head 
 will be included in the amount determined under section 10(1)(d)(ii)   
 and is, consequently, included in the value of non-originating         
 materials used in the production of the heavy-duty vehicle.            
    The heavy-duty vehicle producer may only choose the third option if 
 that producer has a statement, referred to in section 10(1)(d)(iii),   
 from the person from whom the engine was acquired. In this situation,  
 because of the application of the equation, the value of the cast head 
 will be included in the amount determined under section 10(1)(d)(iii)  
 and is, consequently, included in the value of non-originating         
 materials used in the production of the heavy-duty vehicle.            
    Situation 3: Use of a non-originating automotive component          
 incorporating the listed material                                      

[[Page 46423]]
                                                                        
    The engine is a non-originating material acquired by the producer of
 the heavy-duty vehicle. For purposes of calculating the regional value 
 content of the heavy-duty vehicle that incorporates that engine (and   
 incorporates the cast head), the value of non-originating materials    
 used in the production of the heavy-duty vehicle is determined under   
 section 10(1)(e) with respect to that engine. The producer of the heavy-
 duty vehicle may choose to include in the value of non-originating     
 materials either                                                       
  (a) the value, as determined under section 10(1)(e)(i), of the non-   
   originating materials that are incorporated into the engine, which is
   the value of the non-originating materials as determined under       
   sections 10(1)(a) through (d) and (f), or                            
  (b) the value of the engine, determined under section 10(1)(e)(ii).   
    The heavy-duty vehicle producer may only choose the first option if 
 that producer has a statement, referred to in section 10(1)(e)(i), from
 the person from whom the engine was acquired. In this situation, the   
 value of the cast head, as determined under section 10(1)(c), is       
 included in the value of non-originating materials used in the         
 production of the heavy-duty vehicle, with respect to the engine that  
 is used in the production of the heavy-duty vehicle.                   
Example 2: A material is imported from outside the territories of the   
 NAFTA countries                                                        
    A rocker arm assembly, produced outside the territories of the NAFTA
 countries, is imported into the territory of a NAFTA country and used  
 in that country in the production of an engine that will be used as    
 original equipment in the production of a heavy-duty vehicle. No other 
 non-originating materials are used in the production of the engine. The
 rocker arm assembly is neither a listed material nor a sub-component;  
 the engine is an automotive component.                                 
    Situation 1: Use of the material in an automotive component         
    For purposes of calculating the regional value content of the       
 engine, the value of non-originating materials that are not listed     
 materials is included in the value of non-originating materials used in
 the production of the engine. Because the rocker arm assembly was      
 produced outside the territories of the NAFTA countries, it is a non-  
 originating material and its value, under section 10(1)(f), is included
 in the value of non-originating materials used in the production of the
 engine.                                                                
    Situation 2: Use of an originating automotive component             
 incorporating the material                                             
    The engine is an originating material acquired by the producer of   
 the heavy-duty vehicle. For purposes of calculating the regional value 
 content of the heavy-duty vehicle that incorporates that engine (and   
 incorporates the rocker arm assembly), the value of non-originating    
 materials used in the production of the heavy-duty vehicle is          
 determined under section 10(1)(d) with respect to that engine. The     
 producer may choose to include in the value of non-originating         
 materials of the heavy-duty vehicle                                    
  (a) the value, determined under section 10(1)(d)(i), of the non-      
   originating materials that are incorporated into the engine, which is
   the value, determined under sections 10(1) (a) through (c) and       
   paragraph (e)(ii), of the non-originating materials;                 
  (b) the value, determined under section 10(1)(d)(ii), which is an     
   amount equal to the amount determined under section 10(1)(d)(iv)     
   multiplied by the remainder of one minus the regional value content, 
   expressed as a decimal, of the engine;                               
  (c) the value, determined under section 10(1)(d)(iii), which is an    
   amount equal to the amount determined under section 10(1)(d)(iv)     
   multiplied by the remainder of one minus the regional value-content  
   requirement, expressed as a decimal, for the engine; or              
  (d) the value, determined under section 10(1)(d)(iv), of the engine.  
    The heavy-duty vehicle producer may only choose the first option if 
 that producer has a statement, referred to in section 10(1)(d)(i), from
 the person from whom the engine was acquired. In this situation, the   
 value of the rocker arm assembly, as determined under section 10(1)(f),
 is not included in the value of non-originating materials of the heavy-
 duty vehicle, with respect to the engine that is used in the production
 of the heavy-duty vehicle.                                             
    The heavy-duty vehicle producer may only choose the second option if
 that producer has a statement, referred to in section 10(1)(d)(ii),    
 from the person from whom the engine was acquired. In this situation,  
 because of the application of the equation, the value of the rocker arm
 assembly will be included in the amount determined under section       
 10(1)(d)(ii) and will, consequently, be included in the value of non-  
 originating materials used in the production of the heavy-duty vehicle.
    The heavy-duty vehicle producer may only choose the third option if 
 that producer has a statement, referred to in section 10(1)(d)(iii),   
 from the person from whom the engine was acquired. In this situation,  
 because of the application of the equation, the value of the rocker arm
 assembly will be included in the amount determined under section       
 10(1)(d)(iii) and will, consequently, be included in the value of non- 
 originating materials used in the production of the heavy-duty vehicle.
    Situation 3: Use of a non-originating automotive component          
 incorporating the material                                             
    The engine is a non-originating material acquired by the producer of
 the heavy-duty vehicle. For purposes of calculating the regional value 
 content of the heavy-duty vehicle that incorporates that engine (and   
 incorporates the rocker arm assembly), the value of non-originating    
 materials used in the production of the heavy-duty vehicle is          
 determined under section 10(1)(e) with respect to that engine. The     
 producer of the heavy-duty vehicle may choose to include in the value  
 of non-originating materials either                                    
  (a) the value, as determined under section 10(1)(e)(i), of the non-   
   originating materials that are incorporated into the engine, which is
   the value of the non-originating materials as determined under       
   sections 10(1) (a) through (d) and (f), or                           
  (b) the value of the engine, determined under section 10(1)(e)(ii).   
    The heavy-duty vehicle producer may only choose the first option if 
 that producer has a statement, referred to in section 10(1)(e)(i), from
 the person from whom the engine was acquired. In this situation, the   
 value of the rocker arm assembly, as determined under section 10(1)(f),
 is included in the value of non-originating materials used in the      
 production of the heavy-duty vehicle, with respect to the engine that  
 is used in the production of the heavy-duty vehicle.                   
    Situation 4: Use of the material in a self-produced automotive      
 component                                                              
    If the engine is a self-produced material rather than an acquired   
 material, the heavy-duty vehicle producer is using the rocker arm      
 assembly in the production of the heavy-duty vehicle rather than in the
 production of the engine, because, under section 7(4), the engine      
 cannot be designated as an intermediate material. For purposes of      
 calculating the regional value content of the heavy-duty vehicle, the  
 value, under section 10(1)(f), of the rocker arm assembly is included  
 in the value of non-originating materials used in the production of the
 heavy-duty vehicle.                                                    
Example 3: An automotive component is imported from outside the         
 territories of the NAFTA countries                                     
    A transmission, produced outside the territories of the NAFTA       
 countries, is imported into the territory of a NAFTA country and used  
 in that country as original equipment in the production of a heavy-duty
 vehicle. The transmission is an automotive component.                  
    Situation: Use of the automotive component                          
    For purposes of calculating the regional value content of the heavy-
 duty vehicle in which the transmission is used, the value of the       
 transmission is included in the value of the non-originating materials 
 under section 10(1)(c), regardless of whether the producer imported the
 transmission or acquired it from someone else in the territory of a    
 NAFTA country.                                                         
Example 4: An automotive component is imported from outside the         
 territories of the NAFTA countries                                     

[[Page 46424]]
                                                                        
    A transmission, produced outside the territories of the NAFTA       
 countries, is imported into the territory of a NAFTA country and       
 combined with an engine to produce an engine-transmission assembly that
 will be used as original equipment in the production of a heavy-duty   
 vehicle. The transmission is an automotive component; the engine-      
 transmission assembly is an automotive component assembly.             
    Situation: Use of the automotive component assembly                 
    The automotive component assembly is acquired by a producer who uses
 it in the production of a heavy-duty vehicle. If the automotive        
 component assembly that incorporates the imported transmission is an   
 originating material, the value of non-originating materials used in   
 the production of the automotive component assembly is determined, at  
 the choice of the producer, under any of section 10(1)(d) (i), (ii),   
 (iii) and (iv). (See example 1 for more detailed explanations of these 
 provisions.) If the automotive component assembly that incorporates the
 imported transmission is a non-originating material, the value of non- 
 originating materials used in the production of the automotive         
 component assembly is determined, at the choice of the producer, under 
 section 10(1)(e) (i) or (ii). (See example 1 for more detailed         
 explanations of these provisions.)                                     
    Regardless of whether the automotive component assembly is an       
 originating material or a non-originating material, the value of the   
 automotive component that was imported from outside the territories of 
 the NAFTA countries is included in the value of non-originating        
 materials used in the production of the heavy-duty vehicle. The        
 transmission is a non-originating material, and, for purposes of       
 calculating the regional value content of an automotive component      
 assembly or heavy-duty vehicle that incorporates that transmission, the
 value of the transmission is included in the value of non-originating  
 materials used in the production of the automotive component assembly  
 or heavy-duty vehicle that incorporates it.                            
Example 5: A material is imported from outside the territories of the   
 NAFTA countries                                                        
    An aluminum ingot, produced outside the territories of the NAFTA    
 countries, is imported into the territory of a NAFTA country and used  
 in that country in the production of cast block that will be used in an
 engine that will be used as original equipment in the production of a  
 heavy-duty vehicle. The aluminum ingot is not a listed material; the   
 cast block is a listed material; the engine is an automotive component.
    Situation 1: Use of the material in an intermediate material that is
 a listed material                                                      
    The engine producer designates the cast block as an intermediate    
 material under section 7(4). For purposes of determining the origin of 
 that cast block, because the aluminum ingot is classified under a      
 different heading than the cast block, the cast block satisfies the    
 applicable change in tariff classification and is an originating       
 material.                                                              
    Situation 2: Use of the listed material incorporating the material  
    For purposes of calculating the regional value content of the engine
 that incorporates that cast block (and thus incorporates the aluminum  
 ingot), the value of non-originating materials is determined under     
 section 10(1). Because none of sections 10(1) (a) through (f) require  
 that a listed material that is an originating material be included in  
 the value of non-originating materials used in the production of a     
 good, the value of the cast block is not included in the value of non- 
 originating materials used in the production of the engine or in the   
 value of non-originating materials used in the production of an        
 automotive component assembly or heavy-duty vehicle that incorporates  
 the engine.                                                            
    Because section 10(1)(d) does not refer to a listed material that is
 an originating material, the value of the non-originating aluminum     
 ingot used in the production of the originating cast block is not      
 included in the value of non-originating materials used in the         
 production of any good or material that incorporates the originating   
 cast block.                                                            
Example 6: A non-originating listed material is used to produce a sub-  
 component that is used to produce another sub-component                
    A crankshaft, produced in the territory of NAFTA country A from a   
 forging imported from outside the territories of the NAFTA countries,  
 is a non-originating material. The crankshaft is sold to another       
 producer, located in the same country, who uses it to produce an       
 originating block assembly. That block assembly is sold to another     
 producer, also located in the same country, who uses it to produce a   
 finished block. The finished block is sold to a producer of engines,   
 who is located in NAFTA country B, for use in the production of a heavy-
 duty vehicle. The crankshaft is a listed material; the block assembly  
 is a sub-component, as is the finished block.                          
    Situation 1: Calculating the regional value content of the finished 
 block                                                                  
    A sub-component is not a heavy-duty automotive good. As referred to 
 in section 10(9)(c), for purposes of calculating the regional value    
 content of the sub-component before it is incorporated into a heavy-   
 duty automotive good, such as when the sub-component is exported from  
 the territory of one NAFTA country to the territory of another NAFTA   
 country, the value of non-originating materials of the sub-component   
 includes only the value of non-originating materials used in the       
 production of that sub-component. Because the block assembly is an     
 originating material, its value is not included in the value of non-   
 originating materials of the finished block, nor is the value of the   
 non-originating crankshaft included in the value of non-originating    
 materials used in the production of the finished block because the     
 crankshaft was used in the production of the block assembly and was not
 used in the production of the finished block.                          
    Situation 2: Calculating the regional value content of the component
 that incorporates the finished block                                   
    For purposes of calculating the regional value content of the heavy-
 duty vehicle that incorporates a sub-component, the value of non-      
 originating materials used in the production of the sub-component is   
 determined under section 10(1) (d) or (e) with respect to that sub-    
 component. In this situation, the value, under section 10(1)(b), of the
 non-originating crankshaft is included in the value of non-originating 
 materials used in the production of the engine. (See examples 1 and 2  
 for more detailed explanations of sections 10(1) (d) and (e).)         
Example 7: A non-listed material is imported from outside the           
 territories of the NAFTA countries and is used in the production of    
 another non-listed material                                            
    A bumper part, produced outside the territories of the NAFTA        
 countries, is imported into the territory of a NAFTA country and is    
 used in the production of a bumper. The bumper is used in the territory
 of a NAFTA country as original equipment in the production of a heavy- 
 duty vehicle. Neither a bumper part nor a bumper is a listed material, 
 sub-component, automotive component or automotive component assembly.  
    Situation 1: The non-listed material is an originating material     
    The bumper is an originating material. For purposes of calculating  
 the regional value content of the heavy-duty vehicle, neither the value
 of the imported bumper part nor the value of the bumper is included in 
 the value of the non-originating materials.                            
    Situation 2: The non-listed material is a non-originating material  
    The bumper is a non-originating material. For purposes of           
 calculating the regional value content of the heavy-duty vehicle, the  
 value of non-originating materials used in the production of the heavy-
 duty vehicle is determined under section 10(1)(f) with respect to the  
 bumper. In this situation, the value of the bumper is included in the  
 value of non-originating materials of the heavy-duty vehicle. Because a
 bumper is not a listed material, the producer of the heavy-duty vehicle
 does not have the option, under section 10(1)(b)(ii), to include only  
 the value of the imported bumper part in the value of non-originating  
 materials used in the production of the heavy-duty vehicle.            
Example 8:                                                              

[[Page 46425]]
                                                                        
    Situation: Transhipment of a listed material                        
    A producer, located in the territory of a NAFTA country, produces,  
 in that country, a cast head that is an originating good. The producer 
 exports the cast head to outside the territories of the NAFTA          
 territories, where valves, springs, valve lifters, a camshaft and gears
 are added to it to create a cast head assembly. An engine producer,    
 located in the territory of a NAFTA country, imports the cast head     
 assembly into that country and uses it in the production of an engine  
 that will be used as original equipment in the production of a heavy-  
 duty vehicle. A cast head is a listed material; a cast head assembly is
 a sub-component.                                                       
    For purposes of calculating the regional value content of the       
 engine, the value of the imported cast head assembly is included in the
 value of non-originating materials under section 10(1)(c). The value of
 the cast head cannot be deducted from the value determined under       
 section 10(1)(c). Although the cast head was once an originating good, 
 under section 18 when further production was performed with respect to 
 the cast head outside the territories of the NAFTA countries, it was no
 longer an originating good.                                            
Example 9: A material is imported from outside the territories of the   
 NAFTA countries and a heavy-duty vehicle producer self-produces a non- 
 originating listed material                                            
    A material, produced outside the territories of the NAFTA countries,
 is imported into the territory of a NAFTA country and used in that     
 country in the production of a water pump that will be used as original
 equipment by the same producer in the production of a heavy-duty       
 vehicle. Although the producer, under section 7(4), designates the     
 water pump as an intermediate material it is a non-originating material
 because it fails to satisfy the regional value-content requirement. A  
 water pump is a listed material.                                       
    For purposes of calculating the regional value content of the heavy-
 duty vehicle, the value of non-originating materials includes, at the  
 choice of the producer, either the total cost, determined under section
 10(1)(a)(i), of the water pump or the value, determined under section  
 10(1)(a)(iii)(A), of the material imported from outside the territories
 of the NAFTA countries.                                                
Example 10: A material is acquired and used to produce a non-originating
 listed material                                                        
    A material, produced outside the territories of the NAFTA countries,
 is acquired in the territory of a NAFTA country and is used in that    
 country in the production of a water pump that will be used as original
 equipment in the production of a heavy-duty vehicle. The producer of   
 the water pump and the producer of the heavy-duty vehicle are separate,
 unrelated producers, located in the same country. A water pump is a    
 listed material. The producer of the water pump chose to calculate the 
 regional value content of the water pump in accordance with section    
 12(1) over a period set out in section 12(5)(a) and using a category   
 set out in section 12(4)(b). The water pump is a non-originating       
 material because it fails to satisfy the regional value-content        
 requirement.                                                           
    For purposes of calculating the regional value content of the heavy-
 duty vehicle, the value of non-originating materials includes, at the  
 choice of the producer, either the value, determined under section     
 10(1)(b)(i), of the water pump or, if the producer has a statement     
 referred to in section 10(1)(b)(ii)(B), the value, determined under    
 that section, of the material imported from outside the territories of 
 the NAFTA countries.                                                   
    The producer has a statement referred to in section 10(1)(b)(ii)(B) 
 and chooses to use the value of non-originating material determined    
 under that section. The statement states, as is permitted under section
 10(8), the value of non-originating material used in the production of 
 the water pump in accordance with section 12(3) over a period set out  
 in section 12(5)(a) and using a category set out in section 12(4)(e).  
                                                                        




                   SECTION 11. MOTOR VEHICLE AVERAGING                  
  NC and VNM for motor vehicles may be averaged over producer's fiscal  
                                  year                                  
                                                                        
(1) For purposes of calculating the regional value content of light-duty
 vehicles or heavy-duty vehicles, the producer of those motor vehicles  
 may choose that                                                        
  (a) the sum of the net costs incurred and the sum of the values of non-
   originating materials used by the producer be calculated over the    
   producer's fiscal year with respect to the motor vehicles that are in
   any one of the categories set out in subsection (5) that is chosen by
   the producer; and                                                    
  (b) the sums referred to in paragraph (a) be used in the calculation  
   referred to in section 6(3) as the net cost and the value of non-    
   originating materials, respectively.                                 
                                                                        
Information required when producer chooses to average for motor vehicles
                                                                        
(2) A choice made under subsection (1) shall                            
  (a) state the category chosen by the producer, and                    
    (i) where the category referred to in subsection (5)(a) is chosen,  
     state the model line, model name, class of motor vehicle and tariff
     classification of the motor vehicles in that category, and the     
     location of the plant at which the motor vehicles are produced,    
    (ii) where the category referred to in subsection (5)(b) is chosen, 
     state the model name, class of motor vehicle and tariff            
     classification of the motor vehicles in that category, and the     
     location of the plant at which the motor vehicles are produced, and
    (iii) where the category referred to in subsection (5)(c) is chosen,
     state the model line, model name, class of motor vehicle and tariff
     classification of the motor vehicles in that category, and the     
     locations of the plants at which the motor vehicles are produced;  
  (b) state the basis of the calculation described in subsection (9);   
  (c) state the producer's name and address;                            
  (d) state the period with respect to which the choice is made,        
   including the starting and ending dates;                             
  (e) state the estimated regional value content of motor vehicles in   
   the category on the basis stated under paragraph (b);                
  (f) be dated and signed by an authorized officer of the producer; and 
  (g) be filed with the customs administration of each NAFTA country to 
   which vehicles in that category are to be exported during the period 
   covered by the choice, at least 10 days before the first day of the  
   producer's fiscal year, or such shorter period as that customs       
   administration may accept.                                           
                                                                        

[[Page 46426]]
                                                                        
                            Averaging period                            
                                                                        
(3) Where the fiscal year of a producer begins after the date of the    
 entry into force of the Agreement but before one year after that date, 
 the producer may choose that the calculation of regional value content 
 referred to in subsection (1) or (6) be made under that subsection over
 the period beginning on the date of the entry into force of the        
 Agreement and ending at the end of that fiscal year, in which case the 
 choice shall be filed with the customs administration of each NAFTA    
 country to which vehicles are to be exported during the period covered 
 by the choice not later than 10 days after the entry into force of the 
 Agreement, or such longer period as that customs administration may    
 accept.                                                                
(4) Where the fiscal year of a producer begins on the date of the entry 
 into force of the Agreement, the producer may make the choice referred 
 to in subsection (1) not later than 10 days after the entry into force 
 of the Agreement, or such longer period as the customs administration  
 referred to in subsection (2)(g) may accept.                           
                                                                        
               Categories of motor vehicles for averaging               
                                                                        
(5) The categories referred to in subsection (1) are the following:     
  (a) the same model line of motor vehicles in the same class of motor  
   vehicles produced in the same plant in the territory of a NAFTA      
   country;                                                             
  (b) the same class of motor vehicles produced in the same plant in the
   territory of a NAFTA country; and                                    
  (c) the same model line of motor vehicles produced in the territory of
   a NAFTA country.                                                     
(6) Where applicable, a producer may choose that the calculation of the 
 regional value content of motor vehicles referred to in Schedule VI be 
 made in accordance with that schedule.                                 
                                                                        
                   Timely filing of choice to average                   
                                                                        
(7) Subject to section 5(4) of Schedule VI, the choice referred to in   
 subsection (6) shall be filed with the customs administration of the   
 NAFTA country to which vehicles referred to in that schedule are to be 
 exported, at least 10 days before the first day of the producer's      
 fiscal year with respect to which that choice is to apply or such      
 shorter period as the customs administration may accept.               
                                                                        
                  Choice to average cannot be rescinded                 
                                                                        
(8) A choice filed for the period referred to in subsection (1) or (3)  
 may not be                                                             
  (a) rescinded; or                                                     
  (b) modified with respect to the category or basis of calculation.    
                                                                        
Averaged net cost and VNM included in calculation of RVC on the basis of
  producer's option to include all vehicles of category or only certain 
                      exported vehicles of category                     
                                                                        
(9) For purposes of this section, where a producer files a choice under 
 subsection (1), (3) or (4), including a choice referred to in section  
 13(9), the net cost incurred and the values of non-originating         
 materials used by the producer, with respect to                        
  (a) all motor vehicles that fall within the category chosen by the    
   producer and that are produced during the fiscal year or, in the case
   of a choice filed under subsection (3), during the period with       
   respect to which the choice is made, or                              
  (b) those motor vehicles to be exported to the territory of one or    
   more of the NAFTA countries that fall within the category chosen by  
   the producer and that are produced during the fiscal year or, in the 
   case of a choice filed under subsection (3), during the period with  
   respect to which the choice is made,                                 
shall be included in the calculation of the regional value content under
 any of the categories set out in subsection (5).                       
                                                                        
    Year-end analysis required if averaging based on estimated costs;   
                obligation to notify of change in status                
                                                                        
(10) Where the producer of a motor vehicle has calculated the regional  
 value content of the motor vehicle on the basis of estimated costs,    
 including standard costs, budgeted forecasts or other similar          
 estimating procedures, before or during the producer's fiscal year, the
 producer shall conduct an analysis at the end of the producer's fiscal 
 year of the actual costs incurred over the period with respect to the  
 production of the motor vehicle, and, if the motor vehicle does not    
 satisfy the regional value content requirement on the basis of the     
 actual costs, immediately inform any person to whom the producer has   
 provided a Certificate of Origin for the motor vehicle, or a written   
 statement that the motor vehicle is an originating good, that the motor
 vehicle is a non-originating good.                                     
(11) The following example is an ``Example'' as referred to in section  
 2(4).                                                                  
                                                                        





Example:                                                                
    A motor vehicle producer located in NAFTA country A produces        
 vehicles that fall within a category set out in section 11(5) that is  
 chosen by the producer. The motor vehicles are to be sold in NAFTA     
 countries A, B and C, as well as in country D, which is not a NAFTA    
 country. Under section 11(1), the motor vehicle producer may choose    
 that the sum of the net costs incurred and the sum of the values of non-
 originating materials used by the producer be calculated over the      
 producer's fiscal year. The producer may state in the choice the basis 
 of the calculation as described in section 11(9)(a), in which case the 
 calculation would be on the basis of all the motor vehicles produced   
 regardless of where they are destined. Alternatively, the producer may 
 state in the choice the basis of the calculation as described in       
 section 11(9)(b). In this case, the producer would also need to state  
 that the calculation is on the basis of                                
  (a) the motor vehicles produced that are for export to NAFTA countries
   B and C;                                                             
  (b) the motor vehicles produced that are for export to only NAFTA     
   country B; or                                                        
  (c) the motor vehicles produced that are for export to only NAFTA     
   country C.                                                           
    The calculation would be on the basis as described in the choice.   
                                                                        


                                                                        
                 SECTION 12. AUTOMOTIVE PARTS AVERAGING                 
   NC and VNM for automotive parts may be averaged to determine RVC of  
                                  parts                                 
                                                                        
(1) The regional value content of any or all goods that are of the same 
 tariff provision listed in Schedule IV, or an automotive component     
 assembly, an automotive component, a sub-component or a listed         
 material, produced in the same plant, may, where the producer of those 
 goods chooses to do so, be calculated by                               

[[Page 46427]]
                                                                        
  (a) calculating the sum of the net costs incurred and the sum of the  
   values of non-originating materials used by the producer of the goods
   over the period set out in subsection (5) that is chosen by the      
   producer with respect to any or all of those goods in any one of the 
   categories set out in subsection (4) that is chosen by the producer; 
   and                                                                  
  (b) using the sums referred to in paragraph (a) in the calculation    
   referred to in section 6(3) as the net cost and the value of non-    
   originating materials, respectively.                                 
(2) The calculation of the regional value content made under subsection 
 (1) shall apply with respect to each unit of the goods in the category 
 set out in subsection (4) that is chosen by the producer and produced  
 during the period chosen by the producer under subsection (5).         
                                                                        
    VNM for each unit in a category of goods for which averaging used   
                                                                        
(3) The value of non-originating materials of each unit of the goods    
  (a) in the category set out in subsection (4) chosen by the producer, 
   and                                                                  
  (b) produced during the period chosen by the producer under subsection
   (5),                                                                 
shall be the sum of the values of non-originating materials referred to 
 in subsection (1)(a) divided by the number of units of the goods in    
 that category and produced during that period.                         
                                                                        
              Categories of automotive parts for averaging              
                                                                        
(4) The categories referred to in subsection (1)(a) are the following:  
  (a) original equipment for use in the production of light- duty       
   vehicles;                                                            
  (b) original equipment for use in the production of heavy-duty        
   vehicles;                                                            
  (c) after-market parts;                                               
  (d) any combination of goods referred to in paragraphs (a) through    
   (c);                                                                 
  (e) goods that are in a category set out in any of paragraphs (a)     
   through (d) and are sold to one or more motor vehicle producers; and 
  (f) goods that are in a category set out in any of paragraphs (a)     
   through (e) and are exported to the territory of one or more of the  
   NAFTA countries.                                                     
                                                                        
             Periods for averaging RVC for automotive parts             
                                                                        
(5) The period referred to in subsection (1)(a) is,                     
  (a) with respect to goods referred to in subsection (4) (a), (b) or   
   (d), or subsection (4) (e) or (f) where the goods in that category   
   are in a category referred to in subsection (4) (a) or (b), any      
   month, any consecutive three month period that is evenly divisible   
   into the number of months of the producer's fiscal year remaining at 
   the beginning of that period or the fiscal year of the motor vehicle 
   producer to whom those goods are sold; and                           
  (b) with respect to goods referred to in subsection (4)(c), or        
   subsection (4) (e) or (f) where the goods in that category are in a  
   category referred to in subsection (4)(c), any month, any consecutive
   three month period that is evenly divisible into the number of months
   of the producer's fiscal year remaining at the beginning of that     
   period, the fiscal year of that producer or the fiscal year of the   
   motor vehicle producer to whom those goods are sold.                 
                                                                        
                 Choice to average may not be rescinded                 
                                                                        
(6) A choice made under subsection (1) may not be rescinded or modified 
 with respect to the goods or the period with respect to which the      
 choice is made.                                                        
(7) Where a producer of goods chooses a one or three month period under 
 subsection (5) with respect to the goods referred to in subsection     
 (5)(a), that producer shall be considered to have chosen under that    
 subsection a period or periods of the same duration for                
  (a) the remainder of the fiscal year of the motor vehicle producer to 
   whom those goods are sold, where the producer chooses under          
   subsection (9)(a) the fiscal year of that motor vehicle producer; and
  (b) the remainder of the fiscal year of the producer of those goods,  
   where the producer does not choose under subsection (9)(a) the fiscal
   year of the motor vehicle producer to whom the goods are sold.       
(8) Where a producer of goods chooses a one or three month period under 
 subsection (5) with respect to the goods referred to in subsection     
 (5)(b), that producer shall be considered to have chosen under that    
 subsection a period or periods of the same duration for the remainder  
 of, at the choice of the producer, the producer's fiscal year or the   
 fiscal year of the motor vehicle producer to whom those goods are sold.
(9) Where a producer of goods chooses a one or three month period under 
 subsection (5) with respect to the goods, the producer may,            
  (a) with respect to goods referred to in subsection (5)(a), at the end
   of the fiscal year of the motor vehicle producer to whom those goods 
   are sold, choose the fiscal year of that motor vehicle producer; and 
  (b) with respect to goods referred to in subsection (5)(b), at the end
   of the producer's fiscal year or the fiscal year of the motor vehicle
   producer to whom those goods are sold, as the case may be, choose the
   producer's fiscal year or the fiscal year of that motor vehicle      
   producer.                                                            
                                                                        
     Applicable method for averaging VNM under different categories     
                                                                        
(10) Where a producer chooses that the regional value content of goods  
 be calculated in accordance with subsection (1) and the goods are in   
 any of the categories set out in subsections (4) (d) through (f), the  
 value of non-originating materials                                     
  (a) shall be determined in the manner set out in section 9, where any 
   of those goods are light-duty automotive goods;                      
  (b) shall be determined in the manner set out in section 10, where any
   of those goods are heavy-duty automotive goods but none of the goods 
   are light-duty automotive goods; and                                 
  (c) shall be determined in the manner set out in section 7, where none
   of those goods are light-duty automotive goods or heavy-duty         
   automotive goods.                                                    
                                                                        
 
[[Page 46428]]
                                                                        
    Year-end analysis required if averaging based on estimated costs;   
                obligation to notify of change in status                
                                                                        
(11) Where the producer of a good has calculated the regional value     
 content of the good on the basis of estimated costs, including standard
 costs, budgeted forecasts or other similar estimating procedures,      
 before or during the period chosen under subsection (1), the producer  
 shall conduct an analysis, at the end of the producer's fiscal year    
 following the end of that period, of the actual costs incurred over the
 period with respect to the production of the good and, if the good does
 not satisfy the regional value content requirement on the basis of the 
 actual costs during that period, immediately inform any person to whom 
 the producer has provided a Certificate of Origin for the good, or a   
 written statement that the good is an originating good, that the good  
 is a non-originating good.                                             
                                                                        
         SECTION 13. SPECIAL REGIONAL VALUE-CONTENT REQUIREMENTS        
      Changes in regional value content level for automotive goods      
                                                                        
(1) Notwithstanding the regional value-content requirement set out in   
 Schedule I, and except as otherwise provided in subsection (2), the    
 regional value-content requirement for a good referred to in paragraph 
 (a) or (b) is as follows:                                              
  (a) for the fiscal year of a producer that begins on the day closest  
   to January 1, 1998 and for the three following fiscal years of that  
   producer, not less than 56 percent, and for the fiscal year of a     
   producer that begins on the day closest to January 1, 2002 and       
   thereafter, not less than 62.5 percent, in the case of               
    (i) a light-duty vehicle, and                                       
    (ii) a good provided for in any of headings 8407 and 8408 and       
     subheading 8708.40, that is for use in a light-duty vehicle; and   
  (b) for the fiscal year of a producer that begins on the day closest  
   to January 1, 1998 and for the three following fiscal years of that  
   producer, not less than 55 percent, and for the fiscal year of a     
   producer that begins on the day closest to January 1, 2002 and       
   thereafter, not less than 60 percent, in the case of                 
    (i) a heavy-duty vehicle,                                           
    (ii) a good provided for in any of headings 8407 and 8408 and       
     subheading 8708.40 that is for use in a heavy-duty vehicle, and    
    (iii) except in the case of a good referred to in paragraph (a)(ii) 
     or provided for in any of subheadings 8482.10 through 8482.80,     
     8483.20 and 8483.30, a good of a tariff provision listed in        
     Schedule IV that is subject to a regional value-content requirement
     and is for use in a light-duty vehicle or a heavy-duty vehicle.    
                                                                        
 Regional value content level for motor vehicles produced in a new plant
                           or in a refit plant                          
                                                                        
(2) Notwithstanding the regional value-content requirement set out in   
 Schedule I, the regional value-content requirement for a light-duty    
 vehicle or a heavy-duty vehicle that is produced in a plant is as      
 follows:                                                               
  (a) not less than 50 percent for five years after the date on which   
   the first prototype of the motor vehicle is produced in the plant by 
   a motor vehicle assembler, if                                        
    (i) the motor vehicle is of a class, marque or, except in the case  
     of a heavy-duty vehicle, size category and type of underbody, that 
     was not previously produced by the motor vehicle assembler in the  
     territory of any of the NAFTA countries,                           
    (ii) the plant consists of, or includes, a new building in which the
     motor vehicle is assembled, and                                    
    (iii) the value of machinery that was never previously used for     
     production, and that is used in the new building or buildings for  
     the purposes of the complete motor vehicle assembly process with   
     respect to that motor vehicle, is at least 90 percent of the value 
     of all machinery used for purposes of that process; and            
  (b) not less than 50 percent for two years after the date on which the
   first prototype of the motor vehicle is produced in the plant by a   
   motor vehicle assembler following a refit of that plant, if the motor
   vehicle is of a class, marque or, except in the case of a heavy-duty 
   vehicle, size category and type of underbody, that was not assembled 
   by the motor vehicle assembler in the plant before the refit.        
                                                                        
                    Value of machinery in a new plant                   
                                                                        
(3) For purposes of subsection (2)(a)(iii), the value of machinery shall
 be                                                                     
  (a) where the machinery was acquired by the producer of the motor     
   vehicle from another person, the cost of that machinery that is      
   recorded on the books of the producer;                               
  (b) where the machinery was used previously by the producer of the    
   motor vehicle in the production of another good, the cost of the     
   machinery that is recorded on the books of the producer minus        
   accumulated depreciation of that machinery that is recorded on those 
   books; and                                                           
  (c) where the machinery was produced by the producer of the good, the 
   total cost incurred with respect to that machinery, calculated on the
   basis of the costs that are recorded on the books of the producer.   
                                                                        
  Averaging period for calculation of RVC for vehicles of new plant or  
                               refit plant                              
                                                                        
(4) For purposes of calculating the regional value content of a motor   
 vehicle referred to in subsection (2) that is in any one of the        
 categories set out in subsection (7) that is chosen by the producer,   
 the producer may file with the customs administration of the NAFTA     
 country into the territory of which vehicles in that category are to be
 imported a choice to calculate the regional value content of such      
 vehicles by                                                            
  (a) calculating the sum of the net costs incurred and the sum of the  
   values of non-originating materials used by the producer with respect
   to all of such motor vehicles in the category chosen over            
    (i) the period beginning on the day on which the first prototype of 
     the motor vehicle is produced and ending on the last day of the    
     producer's first fiscal year that begins on or after the beginning 
     of the period,                                                     
    (ii) a fiscal year of the producer that starts after the period     
     referred to in subparagraph (i) and ends on or before the end of   
     the period referred to in subsection (2)(a) or (b), or             
    (iii) the period beginning on the first day of the producer's fiscal
     year that begins before the end of the period referred to in       
     subsection (2)(a) or (b) and ending at the end of that period; and 

[[Page 46429]]
                                                                        
  (b) using the sums referred to in paragraph (a) in the calculation    
   referred to in section 6(3) as the net cost and the value of non-    
   originating materials, respectively.                                 
                                                                        
 Information required on document filed when choosing to average; timely
                                 filing;                                
                                                                        
(5) A choice made under subsection (4) shall                            
  (a) state the category chosen by the producer and                     
    (i) where the category referred to in subsection (7)(a) is chosen,  
     the model name, model line, class of motor vehicle and tariff      
     classification of the motor vehicles in that category, and the     
     location of the plant at which the motor vehicles are produced, and
    (ii) where the category referred to in subsection (7)(b) is chosen, 
     state the model name, class of motor vehicle and tariff            
     classification of the motor vehicles in that category, and the     
     plant location at which the motor vehicles are produced;           
  (b) state the basis of the calculation described in subsection (8);   
  (c) state the producer's name and address;                            
  (d) state the period with respect to which the choice is made,        
   including the starting and ending dates;                             
  (e) state the estimated regional value content of motor vehicles in   
   the category on the basis stated under paragraph (b);                
  (f) state whether the choice is with respect to a motor vehicle       
   referred to in subsection (2)(a) or (b);                             
  (g) be dated and signed by an authorized officer of the producer; and 
  (h) be filed with the customs administration of each NAFTA country to 
   which vehicles in that category are to be exported during the period 
   covered by the choice, at least 10 days before the first day of the  
   producer's fiscal year, or such shorter period as that customs       
   administration may accept.                                           
                                                                        
                 No rescission or modification permitted                
                                                                        
(6) A choice filed for the period referred to in subsection (4) may not 
 be                                                                     
  (a) rescinded; or                                                     
  (b) modified with respect to the category or basis of calculation.    
                                                                        
               Categories of motor vehicles for averaging               
                                                                        
(7) The categories referred to in subsection (4) are the following:     
  (a) the same model line of motor vehicles in the same class of motor  
   vehicles produced in the same plant in the territory of a NAFTA      
   country; and                                                         
  (b) the same class of motor vehicles produced in the same plant in the
   territory of a NAFTA country.                                        
(8) For purposes of subsection (4), the net cost incurred and the values
 of non-originating materials used by the producer, with respect to     
  (a) all motor vehicles that fall within the category chosen by the    
   producer and that are produced during the period with respect to     
   which the choice is made, or                                         
  (b) those motor vehicles to be exported to the territory of one or    
   more of the NAFTA countries that fall within the category chosen by  
   the producer and that are produced during the period with respect to 
   which the choice is made,                                            
shall be included in the calculation of the regional value content under
 any of the categories set out in subsection (7).                       
                                                                        
    Period for averaging RVC of motor vehicles of new or refit plant    
                                                                        
(9) Where the period referred to in subsection (4) ends on a day other  
 than the last day of the producer's fiscal year, the producer may, for 
 purposes of section 11, make the choice referred to in that section    
 with respect to                                                        
  (a) the period beginning on the day following the end of that period  
   and ending on the last day of that fiscal year; or                   
  (b) the period beginning on the day following the end of that period  
   and ending on the last day of the following full fiscal year.        
                                                                        
    Year-end analysis required if averaging based on estimated costs;   
                obligation to notify of change in status                
                                                                        
(10) Where the producer of a motor vehicle has calculated the regional  
 value content of the motor vehicle on the basis of estimated costs,    
 including standard costs, budgeted forecasts or other similar          
 estimating procedures, before or during the producer's fiscal year, the
 producer shall conduct an analysis at the end of the producer's fiscal 
 year of the actual costs incurred over the period with respect to the  
 production of the motor vehicle, and, if the motor vehicle does not    
 satisfy the regional value-content requirement on the basis of the     
 actual costs, immediately inform any person to whom the producer has   
 provided a Certificate of Origin for the motor vehicle, or a written   
 statement that the motor vehicle is an originating good, that the motor
 vehicle is a non-originating good.                                     
                                                                        
                                 PART VI                                
                           GENERAL PROVISIONS                           
                        SECTION 14. ACCUMULATION                        
 Option to determine origin of good by accumulating the production of a 
   material with production of the good in which the material is used   
                                                                        
(1) Subject to subsections (2) and (4), for purposes of determining     
 whether a good is an originating good, an exporter or producer of a    
 good may choose to accumulate the production, by one or more producers 
 in the territory of one or more of the NAFTA countries, of materials   
 that are incorporated into that good so that the production of the     
 materials shall be considered to have been performed by that exporter  
 or producer.                                                           
                                                                        
    Statement required; information as to net cost and value of non-    
  originating materials from production of material if accumulating for 
                   regional value content requirement                   
                                                                        
(2) Where a good is subject to a regional value-content requirement and 
 an exporter or producer of the good has a statement signed by a        
 producer of a material that is used in the production of the good that 

[[Page 46430]]
                                                                        
  (a) states the net cost incurred and the value of non-originating     
   materials used by the producer of the material in the production of  
   that material,                                                       
    (i) the net cost incurred by the producer of the good with respect  
     to the material shall be the net cost incurred by the producer of  
     the material plus, where not included in the net cost incurred by  
     the producer of the material, the costs referred to in sections    
     7(1)(c) through (e), and                                           
    (ii) the value of non-originating materials used by the producer of 
     the good with respect to the material shall be the value of non-   
     originating materials used by the producer of the material; or     
  (b) states any amount, other than an amount that includes any of the  
   value of non-originating materials, that is part of the net cost     
   incurred by the producer of the material in the production of that   
   material,                                                            
    (i) the net cost incurred by the producer of the good with respect  
     to the material shall be the value of the material, determined in  
     accordance with section 7(1), and                                  
    (ii) the value of non-originating materials used by the producer of 
     the good with respect to the material shall be the value of the    
     material, determined in accordance with section 7(1), minus the    
     amount stated in the statement.                                    
                                                                        
             Averaging of costs from accumulated production             
                                                                        
(3) Where a good is subject to a regional value-content requirement and 
 an exporter or producer of the good does not have a statement described
 in subsection (2) but has a statement signed by a producer of a        
 material that is used in the production of the good that               
  (a) states the sum of the net costs incurred and the sum of the values
   of non-originating materials used by the producer of the material in 
   the production of that material and identical materials or similar   
   materials, or any combination thereof, produced in a single plant by 
   the producer of the material over a month or any consecutive three,  
   six or twelve month period that falls within the fiscal year of the  
   producer of the good, divided by the number of units of materials    
   with respect to which the statement is made,                         
    (i) the net cost incurred by the producer of the good with respect  
     to the material shall be the sum of the net costs incurred by the  
     producer of the material with respect to that material and the     
     identical materials or similar materials, divided by the number of 
     units of materials with respect to which the statement is made,    
     plus, where not included in the net costs incurred by the producer 
     of the material, the costs referred to in sections 7(1) (c) through
     (e), and                                                           
    (ii) the value of non-originating materials used by the producer of 
     the good with respect to the material shall be the sum of the      
     values of non-originating materials used by the producer of the    
     material with respect to that material and the identical materials 
     or similar materials divided by the number of units of materials   
     with respect to which the statement is made; or                    
  (b) states any amount, other than an amount that includes any of the  
   values of non-originating materials, that is part of the sum of the  
   net costs incurred by the producer of the material in the production 
   of that material and identical materials or similar materials, or any
   combination thereof, produced in a single plant by the producer of   
   the material over a month or any consecutive three, six or twelve    
   month period that falls within the fiscal year of the producer of the
   good, divided by the number of units of materials with respect to    
   which the statement is made,                                         
    (i) the net cost incurred by the producer of the good with respect  
     to the material shall be the value of the material, determined in  
     accordance with section 7(1), and                                  
    (ii) the value of non-originating materials used by the producer of 
     the good with respect to the material shall be the value of the    
     material, determined in accordance with section 7(1), minus the    
     amount stated in the statement.                                    
                                                                        
 Accumulated production considered to be production of a single producer
                                                                        
(4) For purposes of section 7(4), where a producer of the good chooses  
 to accumulate the production of materials under subsection (1), that   
 production shall be considered to be the production of the producer of 
 the good.                                                              
(5) For purposes of this section,                                       
  (a) in order to accumulate the production of a material,              
    (i) where the good is subject to a regional value-content           
     requirement, the producer of the good must have a statement        
     described in subsection (2) or (3) that is signed by the producer  
     of the material, and                                               
    (ii) where an applicable change in tariff classification is applied 
     to determine whether the good is an originating good, the producer 
     of the good must have a statement signed by the producer of the    
     material that states the tariff classification of all non-         
     originating materials used by that producer in the production of   
     that material and that the production of the material took place   
     entirely in the territory of one or more of the NAFTA countries;   
  (b) a producer of a good who chooses to accumulate is not required to 
   accumulate the production of all materials that are incorporated into
   the good; and                                                        
  (c) any information set out in a statement referred to in subsection  
   (2) or (3) that concerns the value of materials or costs shall be in 
   the same currency as the currency of the country in which the person 
   who provided the statement is located.                               
                                                                        
                 Examples of accumulation of production                 
                                                                        
(6) Each of the following examples is an ``Example'' as referred to in  
 section 2(4).                                                          
                                                                        
                                                                        



Example 1: section 14(1)                                                
    Producer A, located in NAFTA country A, imports unfinished bearing  
 rings provided for in subheading 8482.99 into NAFTA country A from a   
 non-NAFTA territory. Producer A further processes the unfinished       
 bearing rings into finished bearing rings, which are of the same       
 subheading. The finished bearing rings of Producer A do not satisfy an 
 applicable change in tariff classification and therefore do not qualify
 as originating goods. The net cost of the finished bearing rings (per  
 unit) is calculated as follows:                                        
                                                                        


                                                                        

[[Page 46431]]
                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................        $0.15
    Value of non-originating materials.....................         0.75
    Other product costs....................................         0.35
Period costs: (including $0.05 in excluded costs)..........         0.15
Other costs................................................         0.05
                                                            ------------
Total cost of the finished bearing rings, per unit.........        $1.45
Excluded costs: (included in period costs).................         0.05
                                                            ------------
Net cost of the finished bearing rings, per unit...........        $1.40




    Producer A sells the finished bearing rings to Producer B who is    
 located in NAFTA country A for $1.50 each. Producer B further processes
 them into bearings, and intends to export the bearings to NAFTA country
 B. Although the bearings satisfy the applicable change in tariff       
 classification, the bearings are subject to a regional value-content   
 requirement.                                                           
    Situation A:                                                        
    Producer B does not choose to accumulate costs incurred by Producer 
 A with respect to the bearing rings used in the production of the      
 bearings. The net cost of the bearings (per unit) is calculated as     
 follows:                                                               
                                                                        



                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................        $0.45
    Value of non-originating materials (value, per unit, of             
     the bearing rings purchased from Producer A)..........         1.50
     Other product costs...................................         0.75
Period costs: (including $0.05 in excluded costs)                   0.15
Other costs................................................         0.05
                                                            ------------
Total cost of the bearings, per unit.......................        $2.90
Excluded costs: (included in period costs).................         0.05
                                                            ------------
Net cost of the bearings, per unit.........................        $2.85



    Under the net cost method, the regional value content of the        
 bearings is                                                            
                                                                        
                                                                        


    Therefore, the bearings are non-originating goods.                  
    Situation B:                                                        
    Producer B chooses to accumulate costs incurred by Producer A with  
 respect to the bearing rings used in the production of the bearings.   
 Producer A provides a statement described in section 14(2)(a) to       
 Producer B. The net cost of the bearings (per unit) is calculated as   
 follows:                                                               
                                                                        


                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials ($0.45+$0.15)...........        $0.60
    Value of non-originating materials (value, per unit, of             
     the unfinished bearing rings imported by Producer A)..         0.75
    Other product costs ($0.75+$0.35)......................         1.10
Period costs: (($0.15+$0.15), including $0.10 in excluded               
 costs)....................................................         0.30
Other costs: ($0.05+$0.05).................................         0.10
                                                            ------------
Total cost of the bearings, per unit.......................        $2.85
Excluded costs: (included in period costs).................         0.10
                                                            ------------
Net cost of the bearings, per unit.........................        $2.75



    Under the net cost method, the regional value content of the        
 bearings is                                                            
                                                                        
                                                                        

RAPHIC>TR06SE95.006
[[Page 46432]]
[GRAPHIC][TIFF OMITTED]TR06SE95.007



    Therefore, the bearings are originating goods.                      
    Situation C:                                                        
    Producer B chooses to accumulate costs incurred by Producer A with  
 respect to the bearing rings used in the production of the bearings.   
 Producer A provides to Producer B a statement described in section     
 14(2)(b) that specifies an amount equal to the net cost minus the value
 of non-originating materials used to produce the finished bearing rings
 ($1.40-$0.75 = $0.65). The net cost of the bearings (per unit) is      
 calculated as follows:                                                 
                                                                        


                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials ($0.45+$0.65)...........        $1.10
    Value of non-originating materials ($1.50-$0.65).......         0.85
    Other product costs....................................         0.75
Period costs: (including $0.05 in excluded costs)..........         0.15
Other costs................................................         0.05
                                                            ------------
Total cost of the bearings, per unit.......................        $2.90
Excluded costs: (included in period costs).................         0.05
                                                            ------------
Net cost of the bearings, per unit.........................        $2.85


    Under the net cost method, the regional value content of the        
 bearings is                                                            
                                                                        
                                                                        


    Therefore, the bearings are originating goods.                      
    Situation D:                                                        
    Producer B chooses to accumulate costs incurred by Producer A with  
 respect to the bearing rings used in the production of the bearings.   
 Producer A provides to Producer B a statement described in section     
 14(2)(b) that specifies an amount equal to the value of other product  
 costs used in the production of the finished bearing rings ($0.35). The
 net cost of the bearings (per unit) is calculated as follows:          
                                                                        
                                                                        


                                                                        
                                                                        
Product costs:                                                          
    Value of originating materials.........................        $0.45
    Value of non-originating materials ($1.50-$0.35).......         1.15
    Other product costs ($0.75 + $0.35)....................         1.10
Period costs: (including $0.05 in excluded costs)..........         0.15
Other costs................................................         0.05
                                                            ------------
Total cost of the bearings, per unit.......................        $2.90
Excluded costs: (included in period costs).................         0.05
                                                            ------------
Net cost of the bearings, per unit.........................        $2.85



    Under the net cost method, the regional value content of the        
 bearings is                                                            
                                                                        
                                                                        

RAPHIC>TR06SE95.008
[[Page 46433]]
[GRAPHIC][TIFF OMITTED]TR06SE95.009



    Therefore, the bearings are originating goods.                      
Example 2: section 14(1)                                                
    Producer A, located in NAFTA country A, imports non-originating     
 cotton, carded or combed, provided for in heading 5203 for use in the  
 production of cotton yarn provided for in heading 5205. Because the    
 change from cotton, carded or combed, to cotton yarn is a change within
 the same chapter, the cotton does not satisfy the applicable change in 
 tariff classification for heading 5205, which is a change from any     
 other chapter, with certain exceptions. Therefore, the cotton yarn that
 Producer A produces from non-originating cotton is a non-originating   
 good.                                                                  
    Producer A then sells the non-originating cotton yarn to Producer B,
 also located in NAFTA country A, who uses the cotton yarn in the       
 production of woven fabric of cotton provided for in heading 5208. The 
 change from non-originating cotton yarn to woven fabric of cotton is   
 insufficient to satisfy the applicable change in tariff classification 
 for heading 5208, which is a change from any heading outside headings  
 5208 through 5212, except from certain headings, under which various   
 yarns, including cotton yarn provided for in heading 5205, are         
 classified. Therefore, the woven fabric of cotton that Producer B      
 produces from non-originating cotton yarn produced by Producer A is a  
 non-originating good.                                                  
    However, under section 14(1), if Producer B chooses to accumulate   
 the production of Producer A, the production of Producer A would be    
 considered to have been performed by Producer B. The rule for heading  
 5208, under which the cotton fabric is classified, does not exclude a  
 change from heading 5203, under which carded or combed cotton is       
 classified. Therefore, under section 15(1), the change from carded or  
 combed cotton provided for in heading 5203 to the woven fabric of      
 cotton provided for in heading 5208 would satisfy the applicable change
 of tariff classification for heading 5208. The woven fabric of cotton  
 would be considered as an originating good.                            
    Producer B, in order to choose to accumulate Producer A's           
 production, must have a statement described in section 14(4)(a)(ii).   
                                                                        


         SECTION 15. INABILITY TO PROVIDE SUFFICIENT INFORMATION        
  Supplier of material unable to provide information; beyond control of 
              supplier; procedure to be followed by Customs             
                                                                        
(1) Where, during a verification of origin of a good, the person from   
 whom a producer of the good acquired a material used in the production 
 of that good is unable to provide the customs administration that is   
 conducting the verification with sufficient information to substantiate
 that the material is an originating material or that the value of the  
 material declared for purpose of calculating the regional value content
 of the good is accurate, and the inability of that person to provide   
 the information is due to reasons beyond the control of that person,   
 the customs administration shall, before making a determination as to  
 the origin or value of the material, consider, where relevant, the     
 following:                                                             
  (a) whether the customs administration of the NAFTA country into the  
   territory of which the good was imported issued an advance ruling    
   under Article 509 of the Agreement, as implemented in each NAFTA     
   country, with respect to that material that concluded that the       
   material is an originating material or that the value of the material
   declared for purposes of calculating the regional value content of   
   the good is accurate;                                                
  (b) whether an independent auditor has confirmed the accuracy of      
    (i) any signed statement referred to in this Appendix with respect  
     to the material,                                                   
    (ii) the information that was used by the person from whom the      
     producer acquired the material to substantiate whether the material
     is an originating material, or                                     
    (iii) the information submitted by the producer of the material with
     an application for an advance ruling where, on the basis of that   
     information, the customs administration concluded that the material
     is an originating material or that the value declared for the      
     purpose of calculating the regional value content of the good is   
     accurate;                                                          
  (c) whether the customs administration has, before the start of the   
   origin verification of the good, conducted a verification of origin  
   of identical materials or similar materials produced by the producer 
   of the material and determined that                                  
    (i) the identical materials or similar materials are originating    
     materials, or                                                      
    (ii) any signed statement referred to in this Appendix with respect 
     to those identical materials or similar materials is accurate;     
  (d) whether the producer of the good has exercised due diligence to   
   ensure that any signed statement that is referred to in this Appendix
   with respect to the material and that was provided by the person from
   whom the producer acquired the material is accurate;                 
  (e) where the customs administration has access only to partial       
   records of the person from whom the producer acquired the material,  
   whether the records provide sufficient evidence to substantiate that 
   the material is an originating material or that the value of the     
   material declared for purposes of calculating the regional value     
   content of the good is accurate;                                     
  (f) whether the customs administration can obtain, subject to Article 
   507 of the Agreement, as implemented in each NAFTA country, by means 
   other than those referred to in paragraphs (a) through (e), relevant 
   information regarding the determination of the origin or value of the
   material from the customs administration of the NAFTA country in the 
   territory of which the person from whom the producer acquired the    
   material was located; and                                            
  (g) whether the producer of the good, the person from whom the        
   producer acquired the material or a representative of that person or 
   producer agrees to bear the expenses incurred in providing the       
   customs administration with the assistance that it may require for   
   determining the origin or value of the material.                     
                                                                        
                 ``Reasons beyond control'' of supplier                 
                                                                        
(2) For purposes of subsection (1), ``reasons beyond the control'' of   
 the person from whom the producer of the good acquired the material    
 includes                                                               

[[Page 46434]]
                                                                        
  (a) the bankruptcy of the person from whom the producer acquired the  
   material or any other financial distress situation or business       
   reorganization that resulted in that person or a related person      
   having lost control of the records containing the information that   
   substantiate that the material is an originating material or the     
   value of the material declared for the purpose of calculating the    
   regional value content of the good;                                  
  (b) any other reason that results in partial or complete loss of      
   records of that producer that the producer could not reasonably have 
   been expected to foresee, including loss of records due to fire,     
   flooding or other natural cause.                                     
                                                                        
   Exporter or producer of good unable to provide information; reasons  
   beyond control of exporter or producer; procedure to be followed by  
                                 Customs                                
                                                                        
(3) Where, during a verification of origin of a good, the exporter or   
 producer of the good is unable to provide the customs administration   
 conducting the verification with sufficient information to substantiate
 that the good is an originating good, and the inability of that person 
 to provide the information is due to reasons beyond the control of that
 person, the customs administration shall, before making a determination
 as to the origin of the good, consider, where relevant, the following: 
  (a) whether the customs administration of the NAFTA country into the  
   territory of which the good was imported issued an advance ruling    
   under Article 509 of the Agreement, as implemented in each NAFTA     
   country, with respect to that good that concluded that the good is an
   originating good;                                                    
  (b) whether an independent auditor has confirmed the accuracy of an   
   origin statement with respect to the good;                           
  (c) whether the customs administration has, before the start of the   
   origin verification of the good, conducted a verification of origin  
   of identical goods or similar goods produced by the producer of the  
   good and determined that the identical goods or similar goods are    
   originating goods;                                                   
  (d) whether the exporter or producer of the good has exercised due    
   diligence to ensure that the information provided to substantiate    
   that the good is an originating good is sufficient; and              
  (e) where the customs administration has access only to partial       
   records of the exporter or producer of the good, whether the records 
   provide sufficient evidence to substantiate that the good is an      
   originating good;                                                    
  (f) whether the customs administration can obtain, subject to Article 
   507 of the Agreement, as implemented in each NAFTA country, by means 
   other than those referred to in paragraphs (a) through (e), relevant 
   information regarding the determination of the origin of the good    
   from the customs administration of the NAFTA country in the territory
   of which the exporter or producer of the good was located; and       
  (g) whether the exporter or producer of the good or a representative  
   of that person agrees to bear the expenses incurred in providing the 
   customs administration with the assistance that it may require for   
   determining the origin or value of the good.                         
                                                                        
                       ``Reasons beyond control''                       
                                                                        
(4) For purposes of subsection (3), ``reasons beyond the control'' of   
 the exporter or producer of the good includes                          
  (a) the bankruptcy of the exporter or producer or any other financial 
   distress situation or business reorganization that resulted in that  
   person or a related person having lost control of the records        
   containing the information that substantiate that the good is an     
   originating good;                                                    
  (b) any other reason that results in partial or complete loss of      
   records of that exporter or producer that that person could not      
   reasonably have been expected to foresee, including loss of records  
   due to fire, flooding or other natural cause.                        
                                                                        
                        SECTION 16. TRANSSHIPMENT                       
    Effect of subsequent processing outside the territory of a NAFTA    
                country; loss of originating good status                
                                                                        
(1) A good is not an originating good by reason of having undergone     
 production that occurs entirely in the territory of one or more of the 
 NAFTA countries that would enable the good to qualify as an originating
 good if subsequent to that production                                  
  (a) the good is withdrawn from customs control outside the territories
   of the NAFTA countries; or                                           
  (b) 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 the good in   
   good condition, such as inspection, removal of dust that accumulates 
   during shipment, ventilation, spreading out or drying, chilling,     
   replacing salt, sulphur dioxide or other aqueous solutions, replacing
   damaged packing materials and containers and removal of units of the 
   good that are spoiled or damaged and present a danger to the         
   remaining units of the good, or to transport the good to the         
   territory of a NAFTA country.                                        
                                                                        
         Transshipped good considered entirely non-originating          
                                                                        
(2) A good that is a non-originating good by application of subsection  
 (1) is considered to be entirely non-originating for purposes of this  
 Appendix.                                                              
                                                                        
                      Exceptions for certain goods                      
                                                                        
(3) Subsection (1) does not apply with respect to a good provided for in
 any of subheadings 8541.10 through 8541.60 and 8542.11 through 8542.80 
 where any further production or other operation that that good         
 undergoes outside the territories of the NAFTA countries does not      
 result in a change in the tariff classification of the good to a       
 subheading outside subheadings 8541.10 through 8542.90.                
                                                                        
                  SECTION 17. NON-QUALIFYING OPERATIONS                 
     Mere dilution; production or pricing practice to circumvent the    
                       provisions of this Appendix                      
                                                                        
17. A good is not 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 with respect to which it may be
   demonstrated, on the basis of a preponderance of evidence, that the  
   object was to circumvent this Appendix.                              
                                                                        

[[Page 46435]]
                                                                        
                               SCHEDULE I                               
                                                                        
Schedule I shall be the text of Annex 401 to the Agreement as           
 implemented in General Note 12 of the HTSUS.                           
                                                                        
                               SCHEDULE II                              
                             VALUE OF GOODS                             
                                                                        
SECTION 1. Definitions.                                                 
    For purposes of this Schedule, unless otherwise stated:             
``buyer'' refers to a person who purchases a good from the producer;    
``buying commissions'' means fees paid by a buyer to that buyer's agent 
 for the agent's services in representing the buyer in the purchase of a
 good;                                                                  
``producer'' refers to the producer of the good being valued.           
SECTION 2.                                                              
    For purposes of Article 402(2) of the Agreement, as implemented by  
 section 6(2) of this Appendix, the transaction value of a good shall be
 the price actually paid or payable for the good, determined in         
 accordance with section 3 and adjusted in accordance with section 4.   
SECTION 3.                                                              
(1) The price actually paid or payable is the total payment made or to  
 be made by the buyer to or for the benefit of the producer. The payment
 need not necessarily take the form of a transfer of money; it may be   
 made by letters of credit or negotiable instruments. The payment may be
 made directly or indirectly to the producer. For an illustration of    
 this, the settlement by the buyer, whether in whole or in part, of a   
 debt owed by the producer is an indirect payment.                      
(2) Activities undertaken by the buyer on the buyer's own account, other
 than those for which an adjustment is provided in section 4, shall not 
 be considered to be an indirect payment, even though the activities    
 might be regarded as being for the benefit of the producer. For an     
 illustration of this, the buyer, by agreement with the producer,       
 undertakes activities relating to the marketing of the good. The costs 
 of such activities shall not be added to the price actually paid or    
 payable.                                                               
(3) The transaction value shall not include the following charges or    
 costs, provided that they are distinguished from the price actually    
 paid or payable:                                                       
  (a) charges for construction, erection, assembly, maintenance or      
   technical assistance related to the good undertaken after the good   
   has been sold to the buyer; or                                       
  (b) duties and taxes paid in the country in which the buyer is located
   with respect to the good.                                            
(4) The flow of dividends or other payments from the buyer to the       
 producer that do not relate to the purchase of the good are not part of
 the transaction value.                                                 
SECTION 4.                                                              
(1) In determining the transaction value of a good, the following shall 
 be added to the price actually paid or payable:                        
  (a) to the extent that they are incurred by the buyer, or by a related
   person on behalf of the buyer, with respect to the good being valued 
   and are not included in the price actually paid or payable           
    (i) commissions and brokerage fees, except buying commissions,      
    (ii) the costs of transporting the good to the producer's point of  
     direct shipment and the costs of loading, unloading, handling and  
     insurance that are associated with that transportation, and        
    (iii) where the packaging materials and containers in which the good
     is packaged for retail sale are classified with the good under the 
     Harmonized System, the value of the packaging materials and        
     containers;                                                        
  (b) the value, reasonably allocated in accordance with subsection     
   (12), of the following elements where they are supplied directly or  
   indirectly to the producer by the buyer, free of charge or at reduced
   cost for use in connection with the production and sale of the good, 
   to the extent that the value is not included in the price actually   
   paid or payable:                                                     
    (i) a material, other than an indirect material, used in the        
     production of the good,                                            
    (ii) tools, dies, molds and similar indirect materials used in the  
     production of the good,                                            
    (iii) an indirect material, other than those referred to in         
     subparagraph (ii) or in paragraphs (c), (e) or (f) of the          
     definition ``indirect material'' set out in Article 415 of the     
     Agreement, as implemented by section 2(1) of this Appendix, used in
     the production of the good, and                                    
    (iv) engineering, development, artwork, design work, and plans and  
     sketches necessary for the production of the good, regardless of   
     where performed;                                                   
  (c) the royalties related to the good, other than charges with respect
   to the right to reproduce the good in the territory of one or more of
   the NAFTA countries, that the buyer must pay directly or indirectly  
   as a condition of sale of the good, to the extent that such royalties
   are not included in the price actually paid or payable; and          
  (d) the value of any part of the proceeds of any subsequent resale,   
   disposal or use of the good that accrues directly or indirectly to   
   the producer.                                                        
(2) The additions referred to in subsection (1) shall be made to the    
 price actually paid or payable under this section only on the basis of 
 objective and quantifiable data.                                       
(3) Where objective and quantifiable data do not exist with regard to   
 the additions required to be made to the price actually paid or payable
 under subsection (1), the transaction value cannot be determined under 
 section 2.                                                             
(4) No additions shall be made to the price actually paid or payable for
 the purpose of determining the transaction value except as provided in 
 this section.                                                          
(5) The amounts to be added under subsections (1)(a) (i) and (ii) shall 
 be                                                                     
  (a) those amounts that are recorded on the books of the buyer, or     
  (b) where those amounts are costs incurred by a related person on     
   behalf of the buyer and are not recorded on the books of the buyer,  
   those amounts that are recorded on the books of that related person. 
(6) The value of the packaging materials and containers referred to in  
 subsection (1)(a)(iii) and the value of the elements referred to in    
 subsection (1)(b)(i) shall be                                          

[[Page 46436]]
                                                                        
  (a) where the packaging materials and containers or the elements are  
   imported from outside the territory of the NAFTA country in which the
   producer is located, the customs value of the packaging materials and
   containers or the elements,                                          
  (b) where the buyer, or a related person on behalf of the buyer,      
   purchases the packaging materials and containers or the elements from
   an unrelated person in the territory of the NAFTA country in which   
   the producer is located, the price actually paid or payable for the  
   packaging materials and containers or the elements,                  
  (c) where the buyer, or a related person on behalf of the buyer,      
   acquires the packaging materials and containers or the elements from 
   an unrelated person in the territory of the NAFTA country in which   
   the producer is located other than through a purchase, the value of  
   the consideration related to the acquisition of the packaging        
   materials and containers or the elements, based on the cost of the   
   consideration that is recorded on the books of the buyer or the      
   related person, or                                                   
  (d) where the packaging materials and containers or the elements are  
   produced by the buyer, or by a related person, in the territory of   
   the NAFTA country in which the producer is located, the total cost of
   the packaging materials and containers or the elements, determined in
   accordance with subsection (7),                                      
and shall include the following costs that are recorded on the books of 
 the buyer or the related person supplying the packaging materials and  
 containers or the elements on behalf of the buyer, to the extent that  
 such costs are not included under paragraphs (a) through (d):          
  (e) the costs of freight, insurance, packing, and all other costs     
   incurred in transporting the packaging materials and containers or   
   the elements to the location of the producer,                        
  (f) duties and taxes paid or payable with respect to the packaging    
   materials and containers or the elements, other than duties and taxes
   that are waived, refunded, refundable or otherwise recoverable,      
   including credit against duty or tax paid or payable,                
  (g) customs brokerage fees, including the cost of in-house customs    
   brokerage services, incurred with respect to the packaging materials 
   and containers or the elements, and                                  
  (h) the cost of waste and spoilage resulting from the use of the      
   packaging materials and containers or the elements in the production 
   of the good, less the value of renewable scrap or by-product.        
(7) For purposes of subsection (6)(d), the total cost of the packaging  
 materials and containers referred to in subsection (1)(a)(iii) or the  
 elements referred to in subsection (1)(b)(i) shall be                  
  (a) where the packaging materials and containers or the elements are  
   produced by the buyer, at the choice of the buyer,                   
    (i) the total cost incurred with respect to all goods produced by   
     the buyer, calculated on the basis of the costs that are recorded  
     on the books of the buyer, that can be reasonably allocated to the 
     packaging materials and containers or the elements in accordance   
     with Schedule VII, or                                              
    (ii) the aggregate of each cost incurred by the buyer that forms    
     part of the total cost incurred with respect to the packaging      
     materials and containers or the elements, calculated on the basis  
     of the costs that are recorded on the books of the buyer, that can 
     be reasonably allocated to the packaging materials and containers  
     or the elements in accordance with Schedule VII; and               
  (b) where the packaging materials and containers or the elements are  
   produced by a person who is related to the buyer, at the choice of   
   the buyer,                                                           
    (i) the total cost incurred with respect to all goods produced by   
     that related person, calculated on the basis of the costs that are 
     recorded on the books of that person, that can be reasonably       
     allocated to the packaging materials and containers or the elements
     in accordance with Schedule VII, or                                
    (ii) the aggregate of each cost incurred by that related person that
     forms part of the total cost incurred with respect to the packaging
     materials and containers or the elements, calculated on the basis  
     of the costs that are recorded on the books of that person, that   
     can be reasonably allocated to the packaging materials and         
     containers or the elements in accordance with Schedule VII.        
(8) Except as provided in subsections (10) and (11), the value of the   
 elements referred to in subsections (1)(b)(ii) through (iv) shall be   
  (a) the cost of those elements that is recorded on the books of the   
   buyer, or                                                            
  (b) where such elements are provided by another person on behalf of   
   the buyer and the cost is not recorded on the books of the buyer, the
   cost of those elements that is recorded on the books of that other   
   person.                                                              
(9) Where the elements referred to in subsections (1)(b)(ii) through    
 (iv) were previously used by or on behalf of the buyer, the value of   
 the elements shall be adjusted downward to reflect that use.           
(10) Where the elements referred to in subsections (1)(b)(ii) and (iii) 
 were leased by the buyer or a person related to the buyer, the value of
 the elements shall be the cost of the lease as recorded on the books of
 the buyer or that related person.                                      
(11) No addition shall be made to the price actually paid or payable for
 the elements referred to in subsection (1)(b)(iv) that are available in
 the public domain, other than the cost of obtaining copies of them.    
(12) The producer shall choose the method of allocating to the good the 
 value of the elements referred to in subsections (1)(b)(ii) through    
 (iv), provided that the value is reasonably allocated to the good in a 
 manner appropriate to the circumstances. The methods the producer may  
 choose to allocate the value include allocating the value over the     
 number of units produced up to the time of the first shipment or       
 allocating the value over the entire anticipated production where      
 contracts or firm commitments exist for that production. For an        
 illustration of this, a buyer provides the producer with a mold to be  
 used in the production of the good and contracts with the producer to  
 buy 10,000 units of that good. By the time the first shipment of 1,000 
 units arrives, the producer has already produced 4,000 units. In these 
 circumstances, the producer may choose to allocate the value of the    
 mold over 4,000 units or 10,000 units but shall not choose to allocate 
 the value of the elements to the first shipment of 1,000 units. The    
 producer may choose to allocate the entire value of the elements to a  
 single shipment of a good only where that single shipment comprises all
 of the units of the good acquired by the buyer under the contract or   
 commitment for that number of units of the good between the producer   
 and the buyer.                                                         

[[Page 46437]]
                                                                        
(13) The addition for the royalties referred to in subsection (1)(c)    
 shall be the payment for the royalties that is recorded on the books of
 the buyer, or where the payment for the royalties is recorded on the   
 books of another person, the payment for the royalties that is recorded
 on the books of that other person.                                     
(14) The value of the proceeds referred to in subsection (1)(d) shall be
 the amount that is recorded for such proceeds on the books of the buyer
 or the producer.                                                       
                                                                        
                              SCHEDULE III                              
                     UNACCEPTABLE TRANSACTION VALUE                     
                                                                        
SECTION 1. Definitions.                                                 
    For purposes of this Schedule, unless otherwise stated              
``buyer'' refers to a person who purchases a good from the producer;    
``customs administration'' refers to the customs administration of the  
 NAFTA country into whose territory the good being valued is imported;  
``producer'' refers to the producer of the good being valued.           
SECTION 2.                                                              
(1) There is no transaction value for a good where the good is not the  
 subject of a sale.                                                     
(2) The transaction value of a good is unacceptable where               
  (a) there are restrictions on the disposition or use of the good by   
   the buyer, other than restrictions that                              
    (i) are imposed or required by law or by the public authorities in  
     the territory of the NAFTA country in which the buyer is located,  
    (ii) limit the geographical area in which the good may be resold, or
    (iii) do not substantially affect the value of the good;            
  (b) the sale or price actually paid or payable is subject to a        
   condition or consideration for which a value cannot be determined    
   with respect to the good;                                            
  (c) part of the proceeds of any subsequent resale, disposal or use of 
   the good by the buyer will accrue directly or indirectly to the      
   producer, and an appropriate addition to the price actually paid or  
   payable cannot be made in accordance with section 4(1)(d) of Schedule
   II; or                                                               
  (d) except as provided in section 3, the producer and the buyer are   
   related persons and the relationship between them influenced the     
   price actually paid or payable for the good.                         
(3) The conditions or considerations referred to in subsection (2)(b)   
 include the following circumstances:                                   
  (a) the producer establishes the price actually paid or payable for   
   the good on condition that the buyer will also buy other goods in    
   specified quantities;                                                
  (b) the price actually paid or payable for the good is dependent on   
   the price or prices at which the buyer sells other goods to the      
   producer of the good; and                                            
  (c) the price actually paid or payable is established on the basis of 
   a form of payment extraneous to the good, such as where the good is a
   semi-finished good that has been provided by the producer to the     
   buyer on condition that the producer will receive a specified        
   quantity of the finished good from the buyer.                        
(4) For purposes of subsection (2)(b), conditions or considerations     
 relating to the production or marketing of the good shall not render   
 the transaction value unacceptable, such as where the buyer undertakes 
 on the buyer's own account, even though by agreement with the producer,
 activities relating to the marketing of the good.                      
(5) Where objective and quantifiable data do not exist with regard to   
 the additions required to be made to the price actually paid or payable
 under section 4(1) of Schedule II, the transaction value cannot be     
 determined under the provisions of section 2 of that Schedule. For an  
 illustration of this, a royalty is paid on the basis of the price      
 actually paid or payable in a sale of a liter of a particular good that
 was purchased by the kilogram and made up into a solution. If the      
 royalty is based partially on the purchased good and partially on other
 factors that have nothing to do with that good, such as when the       
 purchased good is mixed with other ingredients and is no longer        
 separately identifiable, or when the royalty cannot be distinguished   
 from special financial arrangements between the producer and the buyer,
 it would be inappropriate to add the royalty and the transaction value 
 of the good could not be determined. However, if the amount of the     
 royalty is based only on the purchased good and can be readily         
 quantified, an addition to the price actually paid or payable can be   
 made and the transaction value can be determined.                      
SECTION 3.                                                              
(1) In determining whether the transaction value is unacceptable under  
 section 2(2)(d), the fact that the producer and the buyer are related  
 persons shall not in itself be grounds for the customs administration  
 to render the transaction value unacceptable. In such cases, the       
 circumstances surrounding the sale shall be examined and the           
 transaction value shall be accepted provided that the relationship     
 between the producer and the buyer did not influence the price actually
 paid or payable. Where the customs administration has reasonable       
 grounds for considering that the relationship between the producer and 
 the buyer influenced the price, the customs administration shall       
 communicate the grounds to the producer, and that producer shall be    
 given a reasonable opportunity to respond to the grounds communicated  
 by the customs administration. If that producer so requests, the       
 customs administration shall communicate in writing the grounds on     
 which it considers that the relationship between the producer and the  
 buyer influenced the price actually paid or payable.                   

[[Page 46438]]
                                                                        
(2) Subsection (1) provides that, where the producer and the buyer are  
 related persons, the circumstances surrounding the sale shall be       
 examined and the transaction value shall be accepted as the value      
 provided that the relationship between the producer and the buyer did  
 not influence the price actually paid or payable. It is not intended   
 under subsection (1) that there should be an examination of the        
 circumstances in all cases where the producer and the buyer are related
 persons. Such an examination will only be required where the customs   
 administration has doubts that the price actually paid or payable is   
 acceptable because of the relationship between the producer and the    
 buyer. Where the customs administration does not have doubts that the  
 price actually paid or payable is acceptable, it shall accept that     
 price without requesting further information. For an illustration of   
 this, the customs administration may have previously examined the      
 relationship between the producer and the buyer, or it may already have
 detailed information concerning the relationship between the producer  
 and the buyer, and may already be satisfied from that examination or   
 information that the relationship between them did not influence the   
 price actually paid or payable.                                        
(3) In applying subsection (1), where the producer and the buyer are    
 related persons and the customs administration has doubts that the     
 transaction value is acceptable without further inquiry, the customs   
 administration shall give the producer an opportunity to supply such   
 further information as may be necessary to enable it to examine the    
 circumstances surrounding the sale. In such a case, the customs        
 administration shall examine the relevant aspects of the sale,         
 including the way in which the producer and the buyer organize their   
 commercial relations and the way in which the price actually paid or   
 payable for the good being valued was arrived at, in order to determine
 whether the relationship between the producer and the buyer influenced 
 that price actually paid or payable. Where it can be shown that the    
 producer and the buyer buy from and sell to each other as if they were 
 not related persons, the price actually paid or payable shall be       
 considered as not having been influenced by the relationship between   
 them. For an illustration of this, if the price actually paid or       
 payable for the good had been settled in a manner consistent with the  
 normal pricing practices of the industry in question or with the way in
 which the producer settles prices for sales to unrelated buyers, the   
 price actually paid or payable shall be considered as not having been  
 influenced by the relationship between the buyer and the producer. As  
 another illustration, where it is shown that the price actually paid or
 payable for the good is adequate to ensure recovery of the total cost  
 of producing the good plus a profit that is representative of the      
 producer's overall profit realized over a representative period of     
 time, such as on an annual basis, in sales of goods of the same class  
 or kind, the price actually paid or payable shall be considered as not 
 having been influenced by the relationship between the producer and the
 buyer.                                                                 
(4) In a sale between a producer and a buyer who are related persons,   
 the transaction value shall be accepted and determined in accordance   
 with section 2 of Schedule II wherever the producer demonstrates that  
 the transaction value of the good in that sale closely approximates a  
 test value referred to in subsection (5).                              
(5) The value to be used as a test value shall be the transaction value 
 of identical goods or similar goods sold at or about the same time as  
 the good being valued is sold to an unrelated buyer who is located in  
 the territory of the NAFTA country in which the buyer is located.      
(6) In applying a test value referred to in subsection (4), due account 
 shall be taken of demonstrated differences in commercial levels,       
 quantity levels, the value of the elements specified in section 4(1)(b)
 of Schedule II and the costs incurred by the producer in sales to      
 unrelated buyers that are not incurred by the producer in sales to a   
 related person.                                                        
(7) The application of the test value referred to in subsection (4)     
 shall be used at the initiative of the producer and shall be used only 
 for comparison purposes to determine whether the transaction value of  
 the good is acceptable. The test value shall not be used as the        
 transaction value of that good.                                        
(8) Subsection (4) provides an opportunity for the producer to          
 demonstrate that the transaction value closely approximates a test     
 value previously accepted by the customs administration, and is        
 therefore acceptable under subsections (1) and (4). Where the          
 application of a test value under subsection (4) demonstrates that the 
 transaction value of the good being valued is acceptable, the customs  
 administration shall not examine the question of influence in regard to
 the relationship between the producer and the buyer under subsection   
 (1). Where the customs administration already has sufficient           
 information available, without further inquiries, that the transaction 
 value closely approximates a test value referred to in subsection (4), 
 the producer is not required to apply a test value to demonstrate that 
 the transaction value is acceptable under that subsection.             
(9) A number of factors must be taken into consideration for the purpose
 of determining whether the transaction value of the identical goods or 
 similar goods closely approximates the transaction value of the good   
 being valued. These factors include the nature of the good, the nature 
 of the industry itself, the season in which the good is sold, and      
 whether the difference in values is commercially significant. Since    
 these factors may vary from case to case, it would be impossible to    
 apply an acceptable standardized difference such as a fixed amount or  
 fixed percentage difference in each case. For an illustration of this, 
 a small difference in value in a case involving one type of good could 
 be unacceptable, while a large difference in a case involving another  
 type of good might be acceptable for the purposes of determining       
 whether the transaction value closely approximates a test value set out
 in subsection (4).                                                     
                                                                        
                               SCHEDULE IV                              
 LIST OF TARIFF PROVISIONS FOR THE PURPOSES OF SECTION 9 OF THE APPENDIX
                                                                        
4009                                                                    
4010.10                                                                 
4011                                                                    
4016.93.10                                                              
4016.99.30 and 4016.99.55                                               
7007.11 and 7007.21                                                     
7009.10                                                                 
8301.20                                                                 
8407.31                                                                 
8407.32                                                                 

[[Page 46439]]
                                                                        
8407.33                                                                 
8407.34.05, 8407.34.15 and 8407.34.25                                   
8407.34.35, 8407.34.45 and 8407.34.55                                   
8408.20                                                                 
8409                                                                    
8413.30                                                                 
8414.59.30                                                              
8414.80.05                                                              
8415.81 through 8415.83                                                 
8421.39.40                                                              
8481.20, 8481.30 and 8481.80                                            
8482.10 through 8482.80                                                 
8483.10 through 8483.40                                                 
8483.50                                                                 
8501.10                                                                 
8501.20                                                                 
8501.31                                                                 
8501.32.45                                                              
8507.20.40, 8507.30.40, 8507.40.40 and 8507.80.40                       
8511.30                                                                 
8511.40                                                                 
8511.50                                                                 
8512.20                                                                 
8512.40                                                                 
8519.91                                                                 
8527.21                                                                 
8527.29                                                                 
8536.50                                                                 
8536.90                                                                 
8537.10.30                                                              
8539.10                                                                 
8539.21                                                                 
8544.30                                                                 
8706                                                                    
8707                                                                    
8708.10.30                                                              
8708.21                                                                 
8708.29.20                                                              
8708.29.10                                                              
8708.29.15                                                              
8708.39                                                                 
8708.40                                                                 
8708.50                                                                 
8708.60                                                                 
8708.70.05, 8708.70.25 and 8708.70.45                                   
8708.80                                                                 
8708.91                                                                 
8708.92                                                                 
8708.93.15 and 8708.93.60                                               
8708.94                                                                 
8708.99.03, 8708.99.27 and 8708.99.55                                   
8708.99.06, 8708.99.31 and 8708.99.58                                   
8708.99.09, 8708.99.34 and 8708.99.61                                   
8708.99.12, 8708.99.37 and 8708.99.64                                   
8708.99.15, 8708.99.40 and 8708.99.67                                   
8708.99.18, 8708.99.43 and 8708.99.70                                   
8708.99.21, 8708.99.46 and 8708.99.73                                   
8708.99.24, 8708.99.49 and 8708.99.80                                   
9031.80                                                                 
9032.89                                                                 
9401.20                                                                 
                                                                        



[[Page 46440]]


SCHEDULE V

LIST OF AUTOMOTIVE COMPONENTS AND MATERIALS FOR THE PURPOSES OF 
SECTION 10 OF THE APPENDIX

----------------------------------------------------------------------------------------------------------------
 Item           Column I automotive components                         Column II listed materials               
----------------------------------------------------------------------------------------------------------------
1.      Engines provided for in heading 8407 or 8408..  Cast blocks, cast heads, fuel nozzles, fuel injector    
                                                         pumps, glow plugs, turbochargers, superchargers,       
                                                         electronic engine controls, intake manifolds, exhaust  
                                                         manifolds, intake valves, exhaust valves, crankshafts, 
                                                         camshafts, alternators, starters, air cleaner          
                                                         assemblies, pistons, connecting rods and assemblies    
                                                         made therefrom, rotor assemblies for rotary engines,   
                                                         flywheels (for manual transmissions), flexplates (for  
                                                         automatic transmissions), oil pans, oil pumps, pressure
                                                         regulators, water pumps, crankshaft gears, camshaft    
                                                         gears, radiator assemblies, charge-air coolers.        
2.      Gear boxes (transmissions) provided for in      (a) For manual transmissions: transmission cases and    
         subheading 8708.40.                             clutch housings; clutches; internal shifting           
                                                         mechanisms; gear sets, synchronizers and shafts; and   
                                                        (b) For torque convertor type transmissions:            
                                                         transmission cases and convertor housings; torque      
                                                         convertor assemblies; gear sets and clutches;          
                                                         electronic transmission controls.                      
----------------------------------------------------------------------------------------------------------------


                               SCHEDULE VI                              
               REGIONAL VALUE-CONTENT CALCULATION FOR CAMI              
                                                                        
SECTION 1. Definitions.                                                 
    In this Schedule,                                                   
``closed'' means, with respect to a plant, a closure                    
  (a) for purposes of re-tooling for a change in model line, or         
  (b) as a result of any event or circumstance (other than the          
   imposition of antidumping duties or countervailing duties, or an     
   interruption of operations resulting from a labor strike, lock-out,  
   labor dispute, picketing or boycott of or by employees of CAMI       
   Automotive, Inc. or General Motors of Canada Limited) that CAMI      
   Automotive, Inc. or General Motors of Canada Limited 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 a delay in
   obtaining raw materials, parts, fuel or utilities;                   
``GM'' means 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;                                                               
``producer'' means CAMI Automotive, Inc.                                
SECTION 2.                                                              
    For purposes of section 11 of this Appendix, for purposes of        
 determining the regional value content, in a fiscal year, of a motor   
 vehicle of a class of motor vehicles or a model line produced by the   
 producer in the territory of Canada and imported into the territory of 
 the United States, the producer may choose to calculate the regional   
 value content by                                                       
    (a) calculating                                                     
                                                                        


                                                                        

[[Page 46441]]
    (i) the sum of                                                      
      (A) the net cost incurred by the producer, during that fiscal     
       year, in the production in the territory of Canada of motor      
       vehicles of a category referred to in section 3 that is chosen by
       the producer, and                                                
      (B) the net cost incurred by General Motors of Canada Limited,    
       during the fiscal year that corresponds most closely to the      
       producer's fiscal year, in the production in the territory of    
       Canada of a corresponding class of motor vehicles or model line, 
       and                                                              
    (ii) the sum of                                                     
      (A) the value, determined in accordance with section 9 of this    
       Appendix for light-duty vehicles and section 10 of this Appendix 
       for heavy-duty vehicles, of the non-originating materials that   
       are used by the producer, during that fiscal year, in the        
       production in the territory of Canada of motor vehicles of a     
       category referred to in section 2.1 that is chosen by the        
       producer, and                                                    
      (B) the value, determined in accordance with section 9 of this    
       Appendix for light-duty vehicles and section 10 of this Appendix 
       for heavy-duty vehicles, of the non-originating materials that   
       are used by General Motors of Canada Limited, during the fiscal  
       year that corresponds most closely to the producer's fiscal year,
       in the production in the territory of Canada of a corresponding  
       class of motor vehicles or model line, and                       
  (b) using the sums referred to in paragraphs (a)(i) and (ii) as the   
   net cost and the value of non-originating materials, respectively, in
   the calculation referred to in section 6(3) of this Appendix,        
provided that                                                           
  (c) at the beginning of the producer's fiscal year, General Motors of 
   Canada Limited owns 50 percent or more of the voting common stock of 
   the producer, and                                                    
  (d) GM acquires 75 percent or more by unit of quantity of the class of
   motor vehicles or model line, as the case may be, that the producer  
   produced in the territory of Canada in the producer's fiscal year for
   sale in the territory of one or more of the NAFTA countries.         
SECTION 3.                                                              
    The categories referred to in clauses 2(a)(i)(A) and (ii)(A) are the
 following:                                                             
  (a) the class of motor vehicles that the producer produced in the     
   territory of Canada in the producer's fiscal year for sale in the    
   territory of one or more of the NAFTA countries; and                 
  (b) the model line that the producer produced in the territory of     
   Canada in the producer's fiscal year for sale in the territory of one
   or more of the NAFTA countries.                                      
SECTION 4.                                                              
    Where GM does not satisfy the requirement set out in section 2(d),  
 the producer may choose that the regional value content be calculated  
 in accordance with section 2 only for those motor vehicles that are    
 acquired by GM for distribution under the GEO marque or another GM     
 marque.                                                                
SECTION 5.                                                              
(1) The producer may choose that the calculation referred to in section 
 2 be made over a period of two fiscal years where                      
  (a) any plant operated by the producer or by General Motors of Canada 
   Limited is closed for more than two consecutive months; and          
  (b) the motor vehicles of a category referred to in section 3, with   
   respect to which the producer chooses that the regional value content
   be calculated in accordance with section 2, are produced in that     
   plant.                                                               
(2) Subject to subsection (3), the period of two fiscal years referred  
 to in subsection (1) corresponds to the fiscal year in which the plant 
 is closed and, at the choice of the producer, the preceding or the     
 subsequent fiscal year.                                                
(3) Where the plant is closed for a period that spans two fiscal years, 
 the calculation referred to in section 2 may be made only over those   
 two fiscal years.                                                      
(4) Where the producer has chosen that the regional value content be    
 calculated over two fiscal years under this section, the choice        
 referred to in section 11(6) of this Appendix shall be filed not later 
 than 10 days after the end of the period during which the plant is     
 closed, or at such later time as the customs administration may accept.
SECTION 6.                                                              
    For purposes of this Schedule, a motor vehicle producer shall be    
 deemed to be GM where, as a result of an amalgamation, reorganization, 
 division or similar transaction, that motor vehicle producer           
  (a) acquires all or substantially all of the assets used by GM, and   
  (b) directly or indirectly controls, or is controlled by, GM, or both 
   that motor vehicle producer and GM are controlled by the same person.
                                                                        
                              SCHEDULE VII                              
                     REASONABLE ALLOCATION OF COSTS                     
                                                                        
SECTION 1. Definitions.                                                 
    For purposes of this Schedule,                                      
``costs'' means any costs that are included in total cost and that need 
 to be allocated pursuant to sections 5(9), 6(11) and 7(6) and sections 
 10(1)(a)(i) and (ii) of these Regulations, section 4(7) of Schedule II 
 and sections 5(7) and 10(2) of Schedule VIII;                          
``discontinued operations'', in the case of a producer located in a     
 NAFTA country, has the meaning set out in that NAFTA country's         
 Generally Accepted Accounting Principles;                              
``indirect overhead'' means period costs and other costs;               
``internal management purpose'' means any purpose relating to tax       
 reporting, financial reporting, financial planning, decision-making,   
 pricing, cost recovery, cost control management or performance         
 measurement; and                                                       
``overhead'' means costs, other than direct material costs and direct   
 labor costs.                                                           
SECTION 2. Interpretation.                                              

[[Page 46442]]
                                                                        
(1) In this Schedule, reference to ``producer'' shall, for purposes of  
 section 4(7) of Schedule II, be read as a reference to ``buyer''.      
(2) In this Schedule, reference to ``good'' shall,                      
  (a) for purposes of section 6(14) of this Appendix, be read as a      
   reference to ``identical goods or similar goods, or any combination  
   thereof'';                                                           
  (b) for purposes of section 7(6) of this Appendix, be read as a       
   reference to ``intermediate material'';                              
  (c) for purposes of section 11 of this Appendix, be read as a         
   reference to ``category of vehicles that is chosen pursuant to       
   section 11(1) of this Appendix'';                                    
  (d) for purposes of section 12 of this Appendix, be read as a         
   reference to ``category of goods chosen pursuant to section 12(1) of 
   this Appendix'';                                                     
  (e) for purposes of section 13(4) of this Appendix, be read as a      
   reference to ``category of vehicles chosen pursuant to section 13(4) 
   of this Appendix'';                                                  
  (f) for purposes of section 4(7) of Schedule II, be read as a         
   reference to ``packaging materials and containers or the elements''; 
   and                                                                  
  (g) for purposes of section 5(7) of Schedule VIII, be read as a       
   reference to ``elements''.                                           
                                                                        
                  Methods to Reasonably Allocate Costs                  
                                                                        
SECTION 3.                                                              
(1) Where a producer of a good is using, for an internal management     
 purpose, a cost allocation method to allocate to the good direct       
 material costs, or part thereof, and that method reasonably reflects   
 the direct material used in the production of the good based on the    
 criterion of benefit, cause or ability to bear, that method shall be   
 used to reasonably allocate the costs to the good.                     
(2) Where a producer of a good is using, for an internal management     
 purpose, a cost allocation method to allocate to the good direct labor 
 costs, or part thereof, and that method reasonably reflects the direct 
 labor used in the production of the good based on the criterion of     
 benefit, cause or ability to bear, that method shall be used to        
 reasonably allocate the costs to the good.                             
(3) Where a producer of a good is using, for an internal management     
 purpose, a cost allocation method to allocate to the good overhead, or 
 part thereof, and that method is based on the criterion of benefit,    
 cause or ability to bear, that method shall be used to reasonably      
 allocate the costs to the good.                                        
SECTION 4.                                                              
    Where costs are not reasonably allocated to a good under section 3, 
 those costs are reasonably allocated to the good if they are allocated,
  (a) with respect to direct material costs, on the basis of any method 
   that reasonably reflects the direct material used in the production  
   of the good based on the criterion of benefit, cause or ability to   
   bear;                                                                
  (b) with respect to direct labor costs, on the basis of any method    
   that reasonably reflects the direct labor used in the production of  
   the good based on the criterion of benefit, cause or ability to bear;
   and                                                                  
  (c) with respect to overhead, on the basis of any of the following    
   methods:                                                             
    (i) the method set out in Addendum A, Addendum B or Addendum C,     
    (ii) a method based on a combination of the methods set out in      
     Addenda A and B or Addenda A and C, and                            
    (iii) a cost allocation method based on the criterion of benefit,   
     cause or ability to bear.                                          
SECTION 5.                                                              
    Any cost allocation method referred to in section 3 or 4 that is    
 used by a producer for the purposes of this Appendix shall be used     
 throughout the producer's fiscal year.                                 
                                                                        
                     Costs Not Reasonably Allocated                     
                                                                        
SECTION 6.                                                              
    The allocation to a good of any of the following is considered not  
 to be reasonably allocated to the good:                                
  (a) costs of a service provided by a producer of a good to another    
   person where the service is not related to the good;                 
  (b) gains or losses resulting from the disposition of a discontinued  
   operation;                                                           
  (c) cumulative effects of accounting changes reported in accordance   
   with a specific requirement of the applicable Generally Accepted     
   Accounting Principles; and''.                                        
  (d) gains or losses resulting from the sale of a capital asset of the 
   producer.                                                            
SECTION 7.                                                              
    Any costs allocated under section 3 on the basis of a cost          
 allocation method that is used for an internal management purpose that 
 is solely for the purpose of qualifying a good as an originating good  
 are considered not to be reasonably allocated.                         
                                                                        
                               ADDENDUM A                               
                            COST RATIO METHOD                           
                                                                        
Calculation of Cost Ratio                                               
                                                                        
    For the overhead to be allocated, the producer may choose one or    
 more allocation bases that reflect a relationship between the overhead 
 and the good based on the criterion of benefit, cause or ability to    
 bear.                                                                  
    With respect to each allocation base that is chosen by the producer 
 for allocating overhead, a cost ratio is calculated for each good      
 produced by the producer in accordance with the following formula:     
                                                                        
                                                                        


[GRAPHIC][TIFF OMITTED]TR06SE95.010

where
    CR is the cost ratio with respect to the good; 

[[Page 46443]]

    AB is the allocation base for the good; and
    TAB is the total allocation base for all the goods produced by the 
producer.


Allocation to a Good of Costs Included in Overhead                      
                                                                        
    The costs with respect to which an allocation base is chosen are    
 allocated to a good in accordance with the following formula:          
                                                                        
                             CAG = CA  x  CR                            
                                                                        
where                                                                   
  CAG is the costs allocated to the good;                               
  CA is the costs to be allocated; and                                  
  CR is the cost ratio with respect to the good.                        
                                                                        
Excluded Costs                                                          
                                                                        
    Under section 6(11)(b) of this Appendix, where excluded costs are   
 included in costs to be allocated to a good, the cost ratio used to    
 allocate that cost to the good is used to determine the amount of      
 excluded costs to be subtracted from the costs allocated to the good.  
                                                                        
Allocation Bases for Costs                                              
                                                                        
    The following is a non-exhaustive list of allocation bases that may 
 be used by the producer to calculate cost ratios:                      
  Direct Labor Hours                                                    
  Direct Labor Costs                                                    
  Units Produced                                                        
  Machine-hours                                                         
  Sales Dollars or Pesos                                                
  Floor Space                                                           
                                                                        
``Examples''                                                            
                                                                        
    The following examples illustrate the application of the cost ratio 
 method to costs included in overhead.                                  
                                                                        


Example 1: Direct Labor Hours                                           
    A producer who produces Good A and Good B may allocate overhead on  
 the basis of direct labor hours spent to produce Good A and Good B. A  
 total of 8,000 direct labor hours have been spent to produce Good A and
 Good B: 5,000 hours with respect to Good A and 3,000 hours with respect
 to Good B. The amount of overhead to be allocated is $6,000,000.       
  Calculation of the Ratios:                                            
  Good A: 5,000 hours/8,000 hours = .625                                
  Good B: 3,000 hours/8,000 hours = .375                                
  Allocation of overhead to Good A and Good B:                          
  Good A: $6,000,000  x  .625 = $3,750,000                              
  Good B: $6,000,000  x  .375 = $2,250,000                              
Example 2: Direct Labor Costs                                           
    A producer who produces Good A and Good B may allocate overhead on  
 the basis of direct labor costs incurred in the production of Good A   
 and Good B. The total direct labor costs incurred in the production of 
 Good A and Good B is $60,000: $50,000 with respect to Good A and       
 $10,000 with respect to Good B. The amount of overhead to be allocated 
 is $6,000,000.                                                         
  Calculation of the Ratios:                                            
  Good A: $50,000/$60,000 = .833                                        
  Good B: $10,000/$60,000 = .167                                        
  Allocation of Overhead to Good A and Good B:                          
  Good A: $6,000,000  x  .833 = $4,998,000                              
  Good B: $6,000,000  x  .167 = $1,002,000                              
Example 3: Units Produced                                               
    A producer of Good A and Good B may allocate overhead on the basis  
 of units produced. The total units of Good A and Good B produced is    
 150,000: 100,000 units of Good A and 50,000 units of Good B. The amount
 of overhead to be allocated is $6,000,000.                             
  Calculation of the Ratios:                                            
  Good A: 100,000 units/150,000 units = .667                            
  Good B: 50,000 units/150,000 units = .333                             
  Allocation of Overhead to Good A and Good B:                          
  Good A: $6,000,000 x .667 = $4,002,000                                
  Good B: $6,000,000 x .333 = $1,998,000                                
Example 4: Machine-hours                                                
    A producer who produces Good A and Good B may allocate machine-     
 related overhead on the basis of machine-hours utilized in the         
 production of Good A and Good B. The total machine-hours utilized for  
 the production of Good A and Good B is 3,000 hours: 1,200 hours with   
 respect to Good A and 1,800 hours with respect to Good B. The amount of
 machine-related overhead to be allocated is $6,000,000.                
  Calculation of the Ratios:                                            
  Good A: 1,200 machine-hours/3,000 machine-hours = .40                 
  Good B: 1,800 machine-hours/3,000 machine-hours = .60                 
  Allocation of Machine-Related Overhead to Good A and Good B:          
  Good A: $6,000,000  x  .40 = $2,400,000                               
  Good B: $6,000,000  x  .60 = $3,600,000                               
Example 5: Sales Dollars or Pesos                                       
    A producer who produces Good A and Good B may allocate overhead on  
 the basis of sales dollars. The producer sold 2,000 units of Good A at 
 $4,000 and 200 units of Good B at $3,000. The amount of overhead to be 
 allocated is $6,000,000.                                               
  Total Sales Dollars for Good A and Good B:                            
  Good A: $4,000  x  2,000 = $8,000,000                                 
  Good B: $3,000  x  200 = $600,000                                     
  Total Sales Dollars: $8,000,000 + $600,000 = $8,600,000               
  Calculation of the Ratios:                                            

[[Page 46444]]
                                                                        
  Good A: $8,000,000/$8,600,000 = .93                                   
  Good B: $600,000/$8,600,000 = .07                                     
  Allocation of Overhead to Good A and Good B:                          
  Good A: $6,000,000  x  .93 = $5,580,000                               
  Good B: $6,000,000  x  .07 = $420,000                                 
Example 6: Floor Space                                                  
    A producer who produces Good A and Good B may allocate overhead     
 relating to utilities (heat, water and electricity) on the basis of    
 floor space used in the production and storage of Good A and Good B.   
 The total floor space used in the production and storage of Good A and 
 Good B is 100,000 square feet: 40,000 square feet with respect to Good 
 A and 60,000 square feet with respect to Good B. The amount of overhead
 to be allocated is $6,000,000.                                         
  Calculation of the Ratios:                                            
  Good A: 40,000 square feet/100,000 square feet = .40                  
  Good B: 60,000 square feet/100,000 square feet = .60                  
  Allocation of Overhead (Utilities) to Good A and Good B:              
  Good A: $6,000,000  x  .40 = $2,400,000                               
  Good B: $6,000,000  x  .60 = $3,600,000                               
                                                                        
                                                                        




                               ADDENDUM B                               
              DIRECT LABOR AND DIRECT MATERIAL RATIO METHOD             
                                                                        
Calculation of Direct Labor and Direct Material Ratio                   
                                                                        
    For each good produced by the producer, a direct labor and direct   
 material ratio is calculated in accordance with the following formula: 
                                                                        
                                                                        

[GRAPHIC][TIFF OMITTED]TR06SE95.011

where
    DLDMR is the direct labor and direct material ratio for the good;
    DLC is the direct labor costs of the good;
    DMC is the direct material costs of the good;
    TDLC is the total direct labor costs of all goods produced by the 
producer; and
    TDMC is the total direct material costs of all goods produced by 
the producer.

Allocation of Overhead to a Good                                        
    Overhead is allocated to a good in accordance with the following    
 formula:                                                               
                                                                        
                            OAG = O  x  DLDMR                           
                                                                        
where                                                                   
  OAG is the overhead allocated to the good;                            
  O is the overhead to be allocated; and                                
  DLDMR is the direct labor and direct material ratio for the good.     
Excluded Costs                                                          
    Under section 6(11)(b) of this Appendix, where excluded costs are   
 included in overhead to be allocated to a good, the direct labor and   
 direct material ratio used to allocate overhead to the good is used to 
 determine the amount of excluded costs to be subtracted from the       
 overhead allocated to the good.                                        
                                                                        



                              ``Examples''                              
                                                                        
Example 1:                                                              
    The following example illustrates the application of the direct     
 labor and direct material ratio method used by a producer of a good to 
 allocate overhead where the producer chooses to calculate the net cost 
 of the good in accordance with section 6(11)(a) of this Appendix.      
    A producer produces Good A and Good B. Overhead (O) minus excluded  
 costs (EC) is $30 and the other relevant costs are set out in the      
 following table:                                                       
                                                                        


------------------------------------------------------------------------
                                      Good A       Good B       Total   
------------------------------------------------------------------------
Direct labor costs (DLC).........           $5           $5          $10
Direct material costs (DMC)......           10            5           15
                                  --------------------------------------
Totals...........................          $15          $10          $25
------------------------------------------------------------------------


Overhead Allocated to Good A
    OAG (Good A) = O ($30)  x  DLDMR ($15/$25)
    OAG (Good A) = $18.00
Overhead Allocated to Good B
    OAG (Good B) = O ($30)  x  DLDMR ($10/$25)
    OAG (Good B) = $12.00
Example 2:

    The following example illustrates the application of the direct     
 labor and direct material ratio method used by a producer of a good to 
 allocate overhead where the producer chooses to calculate the net cost 
 of the good in accordance with section 6(11)(b) of this Appendix and   
 where excluded costs are included in overhead.                         
    A producer produces Good A and Good B. Overhead (O) is $50          
 (including excluded costs (EC) of $20). The other relevant costs are   
 set out in the table of Example 1.                                     
Overhead Allocated to Good A                                            

[[Page 46445]]
                                                                        
  OAG (Good A) = [O ($50)  x  DLDMR ($15/$25)] - [EC ($20)  x  DLDMR    
   ($15/$25)]                                                           
  OAG (Good A) = $18.00                                                 
Overhead Allocated to Good B                                            
  OAG (Good B) = [O ($50)  x  DLDMR ($10/$25)] - [EC ($20)  x  DLDMR    
   ($10/$25)]                                                           
  OAG (Good B) = $12.00                                                 
                                                                        




                               ADDENDUM C                               
                        DIRECT COST RATIO METHOD                        
                                                                        
Direct Overhead                                                         
    Direct overhead is allocated to a good on the basis of a method     
 based on the criterion of benefit, cause or ability to bear.           
Indirect Overhead                                                       
    Indirect overhead is allocated on the basis of a direct cost ratio. 
Calculation of Direct Cost Ratio                                        
    For each good produced by the producer, a direct cost ratio is      
 calculated in accordance with the following formula:                   
                                                                        
                                                                        

[GRAPHIC][TIFF OMITTED]TR06SE95.012

where
    DCR is the direct cost ratio for the good;
    DLC is the direct labor costs of the good;
    DMC is the direct material costs of the good;
    DO is the direct overhead of the good;
    TDLC is the total direct labor costs of all goods produced by the 
producer;
    TDMC is the total direct material costs of all goods produced by 
the producer; and
    TDO is the total direct overhead of all goods produced by the 
producer;

Allocation of Indirect Overhead to a Good                               
    Indirect overhead is allocated to a good in accordance with the     
 following formula:                                                     
                                                                        
  IOAG = IO  x  DCR                                                     
                                                                        
where                                                                   
  IOAG is the indirect overhead allocated to the good;                  
  IO is the indirect overhead of all goods produced by the producer; and
  DCR is the direct cost ratio of the good.                             
Excluded Costs                                                          
    Under section 6(11)(b) of this Appendix, where excluded costs are   
 included in                                                            
  (a) direct overhead to be allocated to a good, those excluded costs   
   are subtracted from the direct overhead allocated to the good; and   
  (b) indirect overhead to be allocated to a good, the direct cost ratio
   used to allocate indirect overhead to the good is used to determine  
   the amount of excluded costs to be subtracted from the indirect      
   overhead allocated to the good.                                      
                                                                        



                              ``Examples''                              
                                                                        
Example 1:                                                              
    The following example illustrates the application of the direct cost
 ratio method used by a producer of a good to allocate indirect overhead
 where the producer chooses to calculate the net cost of the good in    
 accordance with section 6(11)(a) of this Appendix.                     
    A producer produces Good A and Good B. Indirect overhead (IO) minus 
 excluded costs (EC) is $30. The other relevant costs are set out in the
 following table:                                                       
                                                                        




------------------------------------------------------------------------
                                      Good A       Good B       Total   
------------------------------------------------------------------------
Direct labor costs (DLC).........           $5           $5          $10
Direct material costs (DMC)......           10            5           15
Direct overhead (DO).............            8            2           10
                                  --------------------------------------
Totals...........................          $23          $12          $35
------------------------------------------------------------------------


Indirect Overhead Allocated to Good A
    IOAG (Good A) = IO ($30)  x  DCR ($23/$35)
    IOAG (Good A) = $19.71
Indirect Overhead Allocated to Good B
    IOAG (Good B) = IO ($30)  x  DCR ($12/$35)
    IOAG (Good B) = $10.29


Example 2:                                                              
    The following example illustrates the application of the direct cost
 ratio method used by a producer of a good to allocate indirect overhead
 where the producer has chosen to calculate the net cost of the good in 
 accordance with section 6(11)(b) of this Appendix and where excluded   
 costs are included in indirect overhead.                               
    A producer produces Good A and Good B. The indirect overhead (IO) is
 $50 (including excluded costs (EC) of $20). The other relevant costs   
 are set out in the table to Example 1.                                 
Indirect Overhead Allocated to Good A                                   
  IOAG (Good A) = [IO ($50)  x  DCR ($23/$35)] - [EC ($20)  x  DCR ($23/
   $35)]                                                                

[[Page 46446]]
                                                                        
  IOAG (Good A) = $19.72                                                
Indirect Overhead Allocated to Good B                                   
  IOAG (Good B) = [IO ($50)  x  DCR ($12/$35)] - [EC ($20)  x  DCR ($12/
   $35)]                                                                
  IOAG (Good B) = $10.28                                                
                                                                        



                              SCHEDULE VIII                             
                           VALUE OF MATERIALS                           
                                                                        
SECTION 1. Definitions.                                                 
(1) For purposes of this Schedule, unless otherwise stated,             
``buying commissions'' means fees paid by a producer to that producer's 
 agent for the agent's services in representing the producer in the     
 purchase of a material;                                                
``customs administration'' refers to the customs administration of the  
 NAFTA country into whose territory the good, in the production of which
 the material being valued is used, is imported;                        
``materials of the same class or kind'' means, with respect to materials
 being valued, materials that are within a group or range of materials  
 that                                                                   
  (a) is produced by a particular industry or industry sector, and      
  (b) includes identical materials or similar materials;                
``producer'' refers to                                                  
  (a) in the case of section 10(1)(b)(i) of these Regulations, the      
   producer of the listed material, and                                 
  (b) in any other case, the producer who used the material in the      
   production of a good that is subject to a regional value-content     
   requirement;                                                         
``seller'' refers to a person who sells the material being valued to the
 producer.                                                              
                                                                        
                             Interpretation                             
                                                                        
(2) Where it is to be determined under section 9(3) of these Regulations
 whether the customs value of a material was determined in a manner     
 consistent with this Schedule for purposes of section 9(2) (c) or (d)  
 of these Regulations, a reference in this Schedule to ``producer''     
 shall be read as a reference to ``person other than the producer who   
 imports the traced material from outside the territories of the NAFTA  
 countries.                                                             
SECTION 2.                                                              
(1) Except as provided under subsections (2) and (3), the transaction   
 value of a material under Article 402(9)(a) of the Agreement, as       
 implemented by section 7(1)(b) and sections 9(5) and 10(2) of this     
 Appendix, shall be the price actually paid or payable for the material 
 determined in accordance with section 4 and adjusted in accordance with
 section 5.                                                             
(2) There is no transaction value for a material where the material is  
 not the subject of a sale.                                             
(3) The transaction value of a material is unacceptable where           
  (a) there are restrictions on the disposition or use of the material  
   by the producer, other than restrictions that                        
    (i) are imposed or required by law or by the public authorities in  
     the territory of the NAFTA country in which the producer of the    
     good or the seller of the material is located,                     
    (ii) limit the geographical area in which the material may be used, 
     or                                                                 
    (iii) do not substantially affect the value of the material;        
  (b) the sale or price actually paid or payable is subject to a        
   condition or consideration for which a value cannot be determined    
   with respect to the material;                                        
  (c) part of the proceeds of any subsequent disposal or use of the     
   material by the producer will accrue directly or indirectly to the   
   seller, and an appropriate addition to the price actually paid or    
   payable cannot be made in accordance with section 5(1)(d); and       
  (d) except as provided in section 3, the producer and the seller are  
   related persons and the relationship between them influenced the     
   price actually paid or payable for the material.                     
(4) The conditions or considerations referred to in subsection (3)(b)   
 include the following circumstances:                                   
  (a) the seller establishes the price actually paid or payable for the 
   material on condition that the producer will also buy other materials
   or goods in specified quantities;                                    
  (b) the price actually paid or payable for the material is dependent  
   on the price or prices at which the producer sells other materials or
   goods to the seller of the material; and                             
  (c) the price actually paid or payable is established on the basis of 
   a form of payment extraneous to the material, such as where the      
   material is a semi-finished material that has been provided by the   
   seller to the producer on condition that the seller will receive a   
   specified quantity of the finished material from the producer.       
(5) For purposes of subsection (3)(b), conditions or considerations     
 relating to the use of the material shall not render the transaction   
 value unacceptable, such as where the producer undertakes on the       
 producer's own account, even though by agreement with the seller,      
 activities relating to the warranty of the material used in the        
 production of a good.                                                  
(6) Where objective and quantifiable data do not exist with regard to   
 the additions required to be made to the price actually paid or payable
 under section 5(1), the transaction value cannot be determined under   
 the provisions of section 2(1). For an illustration of this, a royalty 
 is paid on the basis of the price actually paid or payable in a sale of
 a liter of a particular good that is produced by using a material that 
 was purchased by the kilogram and made up into a solution. If the      
 royalty is based partially on the purchased material and partially on  
 other factors that have nothing to do with that material, such as when 
 the purchased material is mixed with other ingredients and is no longer
 separately identifiable, or when the royalty cannot be distinguished   
 from special financial arrangements between the seller and the         
 producer, it would be inappropriate to add the royalty and the         
 transaction value of the material could not be determined. However, if 
 the amount of the royalty is based only on the purchased material and  
 can be readily quantified, an addition to the price actually paid or   
 payable can be made and the transaction value can be determined.       
SECTION 3.                                                              

[[Page 46447]]
                                                                        
(1) In determining whether the transaction value is unacceptable under  
 section 2(3)(d), the fact that the seller and the producer are related 
 persons shall not in itself be grounds for the customs administration  
 to render the transaction value unacceptable. In such cases, the       
 circumstances surrounding the sale shall be examined and the           
 transaction value shall be accepted provided that the relationship     
 between the seller and the producer did not influence the price        
 actually paid or payable. Where the customs administration has         
 reasonable grounds for considering that the relationship between the   
 seller and the producer influenced the price, the customs              
 administration shall communicate the grounds to the producer, and that 
 producer shall be given a reasonable opportunity to respond to the     
 grounds communicated by the customs administration. If that producer so
 requests, the customs administration shall communicate in writing the  
 grounds on which it considers that the relationship between the seller 
 and the producer influenced the price actually paid or payable.        
(2) Subsection (1) provides that, where the seller and the producer are 
 related persons, the circumstances surrounding the sale shall be       
 examined and the transaction value shall be accepted as the value      
 provided that the relationship between the seller and the producer did 
 not influence the price actually paid or payable. It is not intended   
 under subsection (1) that there should be an examination of the        
 circumstances in all cases where the seller and the producer are       
 related persons. Such an examination will only be required where the   
 customs administration has doubts that the price actually paid or      
 payable is acceptable because of the relationship between the seller   
 and the producer. Where the customs administration does not have doubts
 that the price actually paid or payable is acceptable, it shall accept 
 that price without requesting further information. For an illustration 
 of this, the customs administration may have previously examined the   
 relationship between the seller and the producer, or it may already    
 have detailed information concerning the relationship between the      
 seller and the producer, and may already be satisfied from that        
 examination or information that the relationship between them did not  
 influence the price actually paid or payable.                          
(3) In applying subsection (1), where the seller and the producer are   
 related persons and the customs administration has doubts that the     
 transaction value is acceptable without further inquiry, the customs   
 administration shall give the producer an opportunity to supply such   
 further information as may be necessary to enable it to examine the    
 circumstances surrounding the sale. In such a case, the customs        
 administration shall examine the relevant aspects of the sale,         
 including the way in which the seller and the producer organize their  
 commercial relations and the way in which the price actually paid or   
 payable by that producer for the material being valued was arrived at, 
 in order to determine whether the relationship between the seller and  
 the producer influenced that price actually paid or payable. Where it  
 can be shown that the seller and the producer buy from and sell to each
 other as if they were not related persons, the price actually paid or  
 payable shall be considered as not having been influenced by the       
 relationship between them. For an illustration of this, if the price   
 actually paid or payable for the material had been settled in a manner 
 consistent with the normal pricing practices of the industry in        
 question or with the way in which the seller settles prices for sales  
 to unrelated buyers, the price actually paid or payable shall be       
 considered as not having been influenced by the relationship between   
 the producer and the seller. For another illustration of this, where it
 is shown that the price actually paid or payable for the material is   
 adequate to ensure recovery of the total cost of producing the material
 plus a profit that is representative of the seller's overall profit    
 realized over a representative period of time, such as on an annual    
 basis, in sales of materials of the same class or kind, the price      
 actually paid or payable shall be considered as not having been        
 influenced by the relationship between the seller and the producer.    
(4) In a sale between a seller and a producer who are related persons,  
 the transaction value shall be accepted and determined in accordance   
 with section 2(1), wherever the seller or the producer demonstrates    
 that the transaction value of the material in that sale closely        
 approximates one of the following test values that occurs at or about  
 the same time as the sale and is chosen by the seller or the producer: 
  (a) the transaction value in sales to unrelated buyers of identical   
   materials or similar materials, as determined in accordance with     
   section 2(1);                                                        
  (b) the value of identical materials or similar materials, as         
   determined in accordance with section 9; or                          
  (c) the value of identical materials or similar materials, as         
   determined in accordance with section 10.                            
(5) In applying a test value referred to in subsection (4), due account 
 shall be taken of demonstrated differences in commercial levels,       
 quantity levels, the value of the elements specified in section 5(1)(b)
 and the costs incurred by the seller in sales to unrelated buyers that 
 are not incurred by the seller in sales by the seller to a related     
 person.                                                                
(6) The application of a test value referred to in subsection (4) shall 
 be used at the initiative of the seller, or at the initiative of the   
 producer with the consent of the seller, and shall be used only for    
 comparison purposes to determine whether the transaction value of the  
 material is acceptable. The test value shall not be used as the        
 transaction value of that material.                                    
(7) Subsection (4) provides an opportunity for the seller or the        
 producer to demonstrate that the transaction value closely approximates
 a test value previously accepted by the customs administration of the  
 NAFTA country in which the producer is located, and is therefore       
 acceptable under subsection (1). Where the application of a test value 
 under subsection (4) demonstrates that the transaction value of the    
 material being valued is acceptable, the customs administration shall  
 not examine the question of influence in regard to the relationship    
 between the seller and the producer under subsection (1). Where the    
 customs administration already has sufficient information available,   
 without further inquiries, that the transaction value closely          
 approximates one of the test values determined under subsection (4),   
 the seller or the producer is not required to apply a test value to    
 demonstrate that the transaction value is acceptable under that        
 subsection.                                                            
(8) A number of factors must be taken into consideration for the purpose
 of determining whether the transaction value of the identical materials
 or similar materials closely approximates the transaction value of the 
 material being valued. These factors include the nature of the         
 material, the nature of the industry itself, the season in which the   
 material is sold, and whether the difference in values is commercially 
 significant. Since these factors may vary from case to case, it would  
 be impossible to apply an acceptable standardized difference such as a 
 fixed amount or fixed percentage difference in each case. For an       
 illustration of this, a small difference in value in a case involving  
 one type of material could be unacceptable, while a large difference in
 a case involving another type of material might be acceptable for the  
 purposes of determining whether the transaction value closely          
 approximates a test value set out in subsection (4).                   

[[Page 46448]]
                                                                        
SECTION 4.                                                              
(1) The price actually paid or payable is the total payment made or to  
 be made by the producer to or for the benefit of the seller of the     
 material. The payment need not necessarily take the form of a transfer 
 of money: it may be made by letters of credit or negotiable            
 instruments. Payment may be made directly or indirectly to the seller. 
 For an illustration of this, the settlement by the producer, whether in
 whole or in part, of a debt owed by the seller, is an indirect payment.
(2) Activities undertaken by the producer on the producer's own account,
 other than those for which an adjustment is provided in section 5,     
 shall not be considered to be an indirect payment, even though the     
 activities might be regarded as being for the benefit of the seller.   
(3) The transaction value shall not include charges for construction,   
 erection, assembly, maintenance or technical assistance related to the 
 use of the material by the producer, provided that they are            
 distinguished from the price actually paid or payable.                 
(4) The flow of dividends or other payments from the producer to the    
 seller that do not relate to the purchase of the material are not part 
 of the transaction value.                                              
SECTION 5.                                                              
(1) In determining the transaction value of the material, the following 
 shall be added to the price actually paid or payable:                  
  (a) to the extent that they are incurred by the producer with respect 
   to the material being valued and are not included in the price       
   actually paid or payable,                                            
    (i) commissions and brokerage fees, except buying commissions, and  
    (ii) the costs of containers which, for customs purposes, are       
     classified with the material under the Harmonized System;          
  (b) the value, reasonably allocated in accordance with subsection     
   (12), of the following elements where they are supplied directly or  
   indirectly to the seller by the producer free of charge or at reduced
   cost for use in connection with the production and sale of the       
   material, to the extent that the value is not included in the price  
   actually paid or payable:                                            
    (i) a material, other than an indirect material, used in the        
     production of the material being valued,                           
    (ii) tools, dies, molds and similar indirect materials used in the  
     production of the material being valued,                           
    (iii) an indirect material, other than those referred to in         
     subparagraph (ii) or in paragraphs (c), (e) or (f) of the          
     definition ``indirect material'' set out in Article 415 of the     
     Agreement, as implemented by section 2(1) of this Appendix, used in
     the production of the material being valued, and                   
    (iv) engineering, development, artwork, design work, and plans and  
     sketches performed outside the territory of the NAFTA country in   
     which the producer is located that are necessary for the production
     of the material being valued;                                      
  (c) the royalties related to the material, other than charges with    
   respect to the right to reproduce the material in the territory of   
   the NAFTA country in which the producer is located that the producer 
   must pay directly or indirectly as a condition of sale of the        
   material, to the extent that such royalties are not included in the  
   price actually paid or payable; and                                  
  (d) the value of any part of the proceeds of any subsequent disposal  
   or use of the material that accrues directly or indirectly to the    
   seller.                                                              
(2) The additions referred to in subsection (1) shall be made to the    
 price actually paid or payable under this section only on the basis of 
 objective and quantifiable data.                                       
(3) Where objective and quantifiable data do not exist with regard to   
 the additions required to be made to the price actually paid or payable
 under subsection (1), the transaction value cannot be determined under 
 section 2(1).                                                          
(4) No additions shall be made to the price actually paid or payable for
 the purpose of determining the transaction value except as provided in 
 this section.                                                          
(5) The amounts to be added under subsection (1)(a) shall be those      
 amounts that are recorded on the books of the producer.                
(6) The value of the elements referred to in subsection (1)(b)(i) shall 
 be                                                                     
  (a) where the elements are imported from outside the territory of the 
   NAFTA country in which the seller is located, the customs value of   
   the elements,                                                        
  (b) where the producer, or a related person on behalf of the producer,
   purchases the elements from an unrelated person in the territory of  
   the NAFTA country in which the seller is located, the price actually 
   paid or payable for the elements,                                    
  (c) where the producer, or a related person on behalf of the producer,
   acquires the elements from an unrelated person in the territory of   
   the NAFTA country in which the seller is located other than through a
   purchase, the value of the consideration related to the acquisition  
   of the elements, based on the cost of the consideration that is      
   recorded on the books of the producer or the related person, or      
  (d) where the elements are produced by the producer, or by a related  
   person, in the territory of the NAFTA country in which the seller is 
   located, the total cost of the elements, determined in accordance    
   with subsection (7),                                                 
and shall include the following costs, that are recorded on the books of
 the producer or the related person supplying the elements on behalf of 
 the producer, to the extent that such costs are not included under     
 paragraph (a) through (d):                                             
  (e) the costs of freight, insurance, packing, and all other costs     
   incurred in transporting the elements to the location of the seller, 
  (f) duties and taxes paid or payable with respect to the elements,    
   other than duties and taxes that are waived, refunded, refundable or 
   otherwise recoverable, including credit against duty or tax paid or  
   payable,                                                             
  (g) customs brokerage fees, including the cost of in-house customs    
   brokerage services, incurred with respect to the elements, and       
  (h) the cost of waste and spoilage resulting from the use of the      
   elements in the production of the material, minus the value of       
   reusable scrap or by-product.                                        

[[Page 46449]]
                                                                        
(7) For the purposes of subsection (6)(d), the total cost of the        
 elements referred to in subsection (1)(b)(i) shall be                  
  (a) where the elements are produced by the producer, at the choice of 
   the producer,                                                        
    (i) the total cost incurred with respect to all goods produced by   
     the producer, calculated on the basis of the costs that are        
     recorded on the books of the producer, that can be reasonably      
     allocated to the elements in accordance with Schedule VII, or      
    (ii) the aggregate of each cost incurred by the producer that forms 
     part of the total cost incurred with respect to the elements,      
     calculated on the basis of the costs that are recorded on the books
     of the producer, that can be reasonably allocated to the elements  
     in accordance with Schedule VII; and                               
  (b) where the elements are produced by a person who is related to the 
   producer, at the choice of the producer,                             
    (i) the total cost incurred with respect to all goods produced by   
     that related person, calculated on the basis of the costs that are 
     recorded on the books of that person, that can be reasonably       
     allocated to the elements in accordance with Schedule VII, or      
    (ii) the aggregate of each cost incurred by that related person that
     forms part of the total cost incurred with respect to the elements,
     calculated on the basis of the costs that are recorded on the books
     of that person, that can be reasonably allocated to the elements in
     accordance with Schedule VII.                                      
(8) Except as provided in subsections (10) and (11), the value of the   
 elements referred to in subsections (1)(b)(ii) through (iv) shall be   
  (a) the cost of those elements that is recorded on the books of the   
   producer; or                                                         
  (b) where such elements are provided by another person on behalf of   
   the producer and the cost is not recorded on the books of the        
   producer, the cost of those elements that is recorded on the books of
   that other person.                                                   
(9) Where the elements referred to in subsections (1)(b)(ii) through    
 (iv) were previously used by or on behalf of the producer, the value of
 the elements shall be adjusted downward to reflect that use.           
(10) Where the elements referred to in subsections (1)(b)(ii) and (iii) 
 were leased by the producer or a person related to the producer, the   
 value of the elements shall be the cost of the lease that is recorded  
 on the books of the producer or that related person.                   
(11) No addition shall be made to the price actually paid or payable for
 the elements referred to in subsection (1)(b)(iv) that are available in
 the public domain, other than the cost of obtaining copies of them.    
(12) The producer shall choose the method of allocating to the material 
 the value of the elements referred to in subsections (1)(b)(ii) through
 (iv), provided that the value is reasonably allocated to the material  
 in a manner appropriate to the circumstances. The methods the producer 
 may choose to allocate the value include allocating the value over the 
 number of units produced up to the time of the first shipment or       
 allocating the value over the entire anticipated production where      
 contracts or firm commitments exist for that production. For an        
 illustration of this, a producer provides the seller with a mold to be 
 used in the production of the material and contracts with the seller to
 buy 10,000 units of that material. By the time the first shipment of   
 1,000 units arrives, the seller has already produced 4,000 units. In   
 these circumstances, the producer may choose to allocate the value of  
 the mold over 4,000 units or 10,000 units but shall not choose to      
 allocate the value of the elements to the first shipment of 1,000      
 units. The producer may choose to allocate the entire value of the     
 elements to a single shipment of material only where that single       
 shipment comprises all of the units of the material acquired by the    
 producer under the contract or commitment for that number of units of  
 the material between the seller and the producer.                      
(13) The addition for the royalties referred to in subsection (1)(c)    
 shall be the payment for the royalties that is recorded on the books of
 the producer, or where the payment for the royalties is recorded on the
 books of another person, the payment for the royalties that is recorded
 on the books of that other person.                                     
(14) The value of the proceeds referred to in subsection (1)(d) shall be
 the amount that is recorded for such proceeds on the books of the      
 producer or the seller.                                                
SECTION 6.                                                              
(1) If there is no transaction value under section 2(2) or the          
 transaction value is unacceptable under section 2(3), the value of the 
 material, referred to in Article 402(9)(b) of the Agreement, as        
 implemented by section 7(1)(b)(ii) of Part IV of this Appendix, shall  
 be the transaction value of identical materials sold, at or about the  
 same time as the material being valued was shipped to the producer, to 
 a buyer located in the same country as the producer.                   
(2) In applying this section, the transaction value of identical        
 materials in a sale at the same commercial level and in substantially  
 the same quantity of materials as the material being valued shall be   
 used to determine the value of the material. Where no such sale is     
 found, the transaction value of identical materials sold at a different
 commercial level or in different quantities, adjusted to take into     
 account the differences attributable to the commercial level or        
 quantity, shall be used, provided that such adjustments can be made on 
 the basis of evidence that clearly establishes that the adjustment is  
 reasonable and accurate, whether the adjustment leads to an increase or
 a decrease in the value.                                               
(3) A condition for adjustment under subsection (2) because of different
 commercial levels or different quantities is that such adjustment be   
 made only on the basis of evidence that clearly establishes that an    
 adjustment is reasonable and accurate. For an illustration of this, a  
 bona fide price list contains prices for different quantities. If the  
 material being valued consists of a shipment of 10 units and the only  
 identical materials for which a transaction value exists involved a    
 sale of 500 units, and it is recognized that the seller grants quantity
 discounts, the required adjustment may be accomplished by resorting to 
 the seller's bona fide price list and using the price applicable to a  
 sale of 10 units. This does not require that sales had to have been    
 made in quantities of 10 as long as the price list has been established
 as being bona fide through sales at other quantities. In the absence of
 such an objective measure, however, the determination of a value under 
 this section is not appropriate.                                       
(4) If more than one transaction value of identical materials is found, 
 the lowest such value shall be used to determine the value of the      
 material under this section.                                           
SECTION 7.                                                              

[[Page 46450]]
                                                                        
(1) If there is no transaction value under section 2(2) or the          
 transaction value is unacceptable under section 2(3), and the value of 
 the material cannot be determined under section 6, the value of the    
 material, referred to in Article 402(9)(b) of the Agreement, as        
 implemented by section 7(1)(b)(ii) of Part IV of this Appendix, shall  
 be the transaction value of similar materials sold, at or about the    
 same time as the material being valued was shipped to the producer, to 
 a buyer located in the same country as the producer.                   
(2) In applying this section, the transaction value of similar materials
 in a sale at the same commercial level and in substantially the same   
 quantity of materials as the material being valued shall be used to    
 determine the value of the material. Where no such sale is found, the  
 transaction value of similar materials sold at a different commercial  
 level or in different quantities, adjusted to take into account the    
 differences attributable to the commercial level or quantity, shall be 
 used, provided that such adjustments can be made on the basis of       
 evidence that clearly establishes that the adjustment is reasonable and
 accurate, whether the adjustment leads to an increase or a decrease in 
 the value.                                                             
(3) A condition for adjustment under subsection (2) because of different
 commercial levels or different quantities is that such adjustment be   
 made only on the basis of evidence that clearly establishes that an    
 adjustment is reasonable and accurate. For an illustration of this, a  
 bona fide price list contains prices for different quantities. If the  
 material being valued consists of a shipment of 10 units and the only  
 similar materials for which a transaction value exists involved a sale 
 of 500 units, and it is recognized that the seller grants quantity     
 discounts, the required adjustment may be accomplished by resorting to 
 the seller's bona fide price list and using the price applicable to a  
 sale of 10 units. This does not require that sales had to have been    
 made in quantities of 10 as long as the price list has been established
 as being bona fide through sales at other quantities. In the absence of
 such an objective measure, however, the determination of a value under 
 this section is not appropriate.                                       
(4) If more than one transaction value of similar materials is found,   
 the lowest such value shall be used to determine the value of the      
 material under this section.                                           
SECTION 8.                                                              
    If there is no transaction value under section 2(2) or the          
 transaction value is unacceptable under section 2(3), and the value of 
 the material cannot be determined under section 6 or 7, the value of   
 the material, referred to in Article 402(9)(b) of the Agreement, as    
 implemented by section 7(1)(b)(ii) of Part IV of this Appendix, shall  
 be determined under section 9 or, when the value cannot be determined  
 under that section, under section 10 except that, at the request of the
 producer, the order of application of sections 9 and 10 shall be       
 reversed.                                                              
SECTION 9.                                                              
(1) Under this section, if identical materials or similar materials are 
 sold in the territory of the NAFTA country in which the producer is    
 located, in the same condition as the material was in when received by 
 the producer, the value of the material, referred to in Article        
 402(9)(b) of the Agreement, as implemented by section 7(1)(b)(ii) of   
 Part IV of this Appendix, shall be based on the unit price at which    
 those identical materials or similar materials are sold, in the        
 greatest aggregate quantity by the producer or, where the producer does
 not sell those identical materials or similar materials, by a person at
 the same trade level as the producer, at or about the same time as the 
 material being valued is received by the producer, to persons located  
 in that territory who are not related to the seller, subject to        
 deductions for the following:                                          
  (a) either the amount of commissions usually earned or the amount     
   generally reflected for profit and general expenses, in connection   
   with sales, in the territory of that NAFTA country, of materials of  
   the same class or kind as the material being valued; and             
  (b) taxes, if included in the unit price, payable in the territory of 
   that NAFTA country, which are either waived, refunded or recoverable 
   by way of credit against taxes actually paid or payable.             
(2) If neither identical materials nor similar materials are sold at or 
 about the same time the material being valued is received by the       
 producer, the value shall, subject to the deductions provided for under
 subsection (1), be based on the unit price at which identical materials
 or similar materials are sold in the territory of the NAFTA country in 
 which the producer is located, in the same condition as the material   
 was in when received by the producer, at the earliest date within 90   
 days after the date the material being valued was received by the      
 producer.                                                              
(3) The expression ``unit price at which those identical materials or   
 similar materials are sold, in the greatest aggregate quantity'' in    
 subsection (1) means the price at which the greatest number of units is
 sold in sales between unrelated persons. For an illustration of this,  
 materials are sold from a price list which grants favorable unit prices
 for purchases made in larger quantities.                               
                                                                        




----------------------------------------------------------------------------------------------------------------
                                                                                                  Total quantity
            Sale quantity              Unit price                 Number of sales                  sold at each 
                                                                                                       price    
----------------------------------------------------------------------------------------------------------------
1-10 units..........................          100  10 sales of 5 units..........................              65
                                      ...........  5 sales of 3 units...........................  ..............
11-25 units.........................           95  5 sales of 11 units..........................              55
                                      ...........  1 sale of 20 units...........................  ..............
Over 25 units.......................           90  1 sale of 30 units...........................              80
                                      ...........  1 sale of 50 units...........................  ..............
----------------------------------------------------------------------------------------------------------------



    The greatest number of units sold at a particular price is 80;      
 therefore, the unit price in the greatest aggregate quantity is 90.    
    As another illustration of this, two sales occur. In the first sale 
 500 units are sold at a price of 95 currency units each. In the second 
 sale 400 units are sold at a price of 90 currency units each. In this  
 illustration, the greatest number of units sold at a particular price  
 is 500; therefore, the unit price in the greatest aggregate quantity is
 95.                                                                    

[[Page 46451]]
                                                                        
(4) Any sale to a person who supplies, directly or indirectly, free of  
 charge or at reduced cost for use in connection with the production of 
 the material, any of the elements specified in section 5(1)(b), shall  
 not be taken into account in establishing the unit price for the       
 purposes of this section.                                              
(5) The amount generally reflected for profit and general expenses      
 referred to in subsection (1)(a) shall be taken as a whole. The figure 
 for the purposes of deducting an amount for profit and general expenses
 shall be determined on the basis of information supplied by or on      
 behalf of the producer unless the figures provided by the producer are 
 inconsistent with those usually reflected in sales, in the country in  
 which the producer is located, of materials of the same class or kind  
 as the material being valued. Where the figures provided by the        
 producer are inconsistent with those figures, the amount for profit and
 general expenses shall be based on relevant information other than that
 supplied by or on behalf of the producer.                              
(6) For the purposes of this section, general expenses are the direct   
 and indirect costs of marketing the material in question.              
(7) In determining either the commissions usually earned or the amount  
 generally reflected for profit and general expenses under this section,
 the question as to whether certain materials are materials of the same 
 class or kind as the material being valued shall be determined on a    
 case-by-case basis with reference to the circumstances involved. Sales 
 in the country in which the producer is located of the narrowest group 
 or range of materials of the same class or kind as the material being  
 valued, for which the necessary information can be provided, shall be  
 examined. For the purposes of this section, ``materials of the same    
 class or kind'' includes materials imported from the same country as   
 the material being valued as well as materials imported from other     
 countries or acquired within the territory of the NAFTA country in     
 which the producer is located.                                         
(8) For the purposes of subsection (2), the earliest date shall be the  
 date by which sales of identical materials or similar materials are    
 made, in sufficient quantity to establish the unit price, to other     
 persons in the territory of the NAFTA country in which the producer is 
 located.                                                               
SECTION 10.                                                             
(1) Under this section, the value of a material, referred to in Article 
 402(9)(b) of the Agreement, as implemented by section 7(1)(b)(ii) of   
 Part IV of this Appendix, shall be the sum of                          
  (a) the cost or value of the materials used in the production of the  
   material being valued, as determined on the basis of the costs that  
   are recorded on the books of the producer of the material,           
  (b) the cost of producing the material being valued, as determined on 
   the basis of the costs that are recorded on the books of the producer
   of the material, and                                                 
  (c) an amount for profit and general expenses equal to that usually   
   reflected in sales                                                   
    (i) where the material being valued is imported by the producer into
     the territory of the NAFTA country in which the producer is        
     located, to persons located in the territory of the NAFTA country  
     in which the producer is located by producers of materials of the  
     same class or kind as the material being valued who are located in 
     the country in which the material is produced, and                 
    (ii) where the material being valued is acquired by the producer    
     from another person located in the territory of the NAFTA country  
     in which the producer is located, to persons located in the        
     territory of the NAFTA country in which the producer is located by 
     producers of materials of the same class or kind as the material   
     being valued who are located in the country in which the producer  
     is located,                                                        
  (d) the value of elements referred to in section 5(1)(b)(i),          
   determined in accordance with section 5(6), and                      
  (e) the value of elements referred to in sections 5(1)(b)(ii) through 
   (iv), determined in accordance with section 5(8) and reasonably      
   allocated to the material in accordance with section 5(12).          
(2) For purposes of subsections (1)(a) and (b), where the costs recorded
 on the books of the producer of the material relate to the production  
 of other goods and materials as well as to the production of the       
 material being valued, the costs referred to in subsections (1)(a) and 
 (b) with respect to the material being valued shall be those costs     
 recorded on the books of the producer of the material that can be      
 reasonably allocated to that material in accordance with Schedule VII. 
(3) The amount for profit and general expenses referred to in subsection
 (1)(c) shall be determined on the basis of information supplied by or  
 on behalf of the producer of the material being valued unless the      
 profit and general expenses figures that are supplied with that        
 information are inconsistent with those usually reflected in sales by  
 producers of materials of the same class or kind as the material being 
 valued who are located in the country in which the material is produced
 or the producer is located, as the case may be. The information        
 supplied shall be prepared in a manner consistent with generally       
 accepted accounting principles of the country in which the material    
 being valued is produced. Where the material is produced in the        
 territory of a NAFTA country, the information shall be prepared in     
 accordance with the Generally Accepted Accounting Principles set out in
 the authorities listed for that NAFTA country in Schedule XII.         
(4) For purposes of subsection (1)(c) and subsection (3), general       
 expenses means the direct and indirect costs of producing and selling  
 the material that are not included under subsections (1)(a) and (b).   
(5) For purposes of subsection (3), the amount for profit and general   
 expenses shall be taken as a whole. Where, in the information supplied 
 by or on behalf of the producer of a material, the profit figure is low
 and the general expenses figure is high, the profit and general expense
 figures taken together may nevertheless be consistent with those       
 usually reflected in sales of materials of the same class or kind as   
 the material being valued. Where the producer of a material can        
 demonstrate that it is taking a nil or low profit on its sales of the  
 material because of particular commercial circumstances, its actual    
 profit and general expense figures shall be taken into account,        
 provided that the producer of the material has valid commercial reasons
 to justify them and its pricing policy reflects usual pricing policies 
 in the branch of industry concerned. For an illustration of this, such 
 a situation might occur where producers have been forced to lower      
 prices temporarily because of an unforeseeable drop in demand, or where
 the producers sell the material to complement a range of materials and 
 goods being produced in the country in which the material is sold and  
 accept a low profit to maintain competitiveness. A further illustration
 is where a material was being launched and the producer accepted a nil 
 or low profit to offset high general expenses associated with the      
 launch.                                                                

[[Page 46452]]
                                                                        
(6) Where the figures for the profit and general expenses supplied by or
 on behalf of the producer of the material are not consistent with those
 usually reflected in sales of materials of the same class or kind as   
 the material being valued that are made by other producers in the      
 country in which that material is sold, the amount for profit and      
 general expenses may be based on relevant information other than that  
 supplied by or on behalf of the producer of the material.              
(7) Where a customs administration uses information other than that     
 supplied by or on behalf of the producer of the material for the       
 purposes of determining the value of a material under this section, the
 customs administration shall communicate to the producer, if that      
 producer so requests, the source of such information, the data used and
 the calculations based upon such data, subject to the provisions on    
 confidentiality under Article 507 of the Agreement, as implemented in  
 each NAFTA country.                                                    
(8) Whether certain materials are of the same class or kind as the      
 material being valued shall be determined on a case-by-case basis with 
 reference to the circumstances involved. For purposes of determining   
 the amount for profit and general expenses usually reflected under the 
 provisions of this section, sales of the narrowest group or range of   
 materials of the same class or kind, which includes the material being 
 valued, for which the necessary information can be provided, shall be  
 examined. For the purposes of this section, the materials of the same  
 class or kind must be from the same country as the material being      
 valued.                                                                
SECTION 11.                                                             
(1) Where there is no transaction value under section 2(2) or the       
 transaction value is unacceptable under section 2(3), and the value of 
 the materials cannot be determined under sections 6 through 10, the    
 value of the material, referred to in Article 402(9)(b) of the         
 Agreement, as implemented by section 7(1)(b)(ii) of Part IV of this    
 Appendix, shall be determined under this section using reasonable means
 consistent with the principles and general provisions of this Schedule 
 and on the basis of data available in the country in which the producer
 is located.                                                            
(2) The value of the material determined under this section shall not be
 determined on the basis of                                             
  (a) a valuation system which provides for the acceptance of the higher
   of two alternative values;                                           
  (b) a cost of production other than the value determined in accordance
   with section 10;                                                     
  (c) minimum values;                                                   
  (d) arbitrary or fictitious values;                                   
  (e) where the material is produced in the territory of the NAFTA      
   country in which the producer is located, the price of the material  
   for export from that territory; or                                   
  (f) where the material is imported, the price of the material for     
   export to a country other than to the territory of the NAFTA country 
   in which the producer is located.                                    
(3) To the greatest extent possible, the value of the material          
 determined under this section shall be based on the methods of         
 valuation set out in sections 2 through 10, but a reasonable           
 flexibility in the application of such methods would be in conformity  
 with the aims and provisions of this section. For an illustration of   
 this, under section 6, the requirement that the identical materials    
 should be sold at or about the same time as the time the material being
 valued is shipped to the producer could be flexibly interpreted.       
 Similarly, identical materials produced in a country other than the    
 country in which the material is produced could be the basis for       
 determining the value of the material, or the value of identical       
 materials already determined under section 9 could be used. For another
 illustration, under section 7, the requirement that the similar        
 materials should be sold at or about the same time as the material     
 being valued are shipped to the producer could be flexibly interpreted.
 Likewise, similar materials produced in a country other than the       
 country in which the material is produced could be the basis for       
 determining the value of the material, or the value of similar         
 materials already determined under the provisions of section 9 could be
 used. For a further illustration, under section 9, the ninety days     
 requirement could be administered flexibly.                            
                                                                        
                               SCHEDULE IX                              
 METHODS FOR DETERMINING THE VALUE OF NON-ORIGINATING MATERIALS THAT ARE
    IDENTICAL MATERIALS AND THAT ARE USED IN THE PRODUCTION OF A GOOD   
                     Definitions and Interpretation                     
                                                                        
SECTION 1. Definitions.                                                 
    For purposes of this Schedule,                                      
``FIFO method'' means the method by which the value of non-originating  
 materials first received in materials inventory, determined in         
 accordance with section 7 of this Appendix, is considered to be the    
 value of non-originating materials used in the production of the good  
 first shipped to the buyer of the good;                                
``identical materials'' means, with respect to a material, materials    
 that are the same as that material in all respects, including physical 
 characteristics, quality and reputation but excluding minor differences
 in appearance;                                                         
``LIFO method'' means the method by which the value of non-originating  
 materials last received in materials inventory, determined in          
 accordance with section 7 of this Appendix, is considered to be the    
 value of non-originating materials used in the production of the good  
 first shipped to the buyer of the good;                                
``materials inventory'' means, with respect to a single plant of the    
 producer of a good, an inventory of non-originating materials that are 
 identical materials and that are used in the production of the good;   
 and                                                                    
``rolling average method'' means the method by which the value of non-  
 originating materials used in the production of a good that is shipped 
 to the buyer of the good is based on the average value, calculated in  
 accordance with section 4, of the non-originating materials in         
 materials inventory.                                                   
                                                                        
                                 General                                
                                                                        
SECTION 2.                                                              
    For purposes of sections 5(11) and (12) and 6(10) of this Appendix, 
 the following are the methods for determining the value of non-        
 originating materials that are identical materials and are used in the 
 production of a good:                                                  
  (a) FIFO method;                                                      
  (b) LIFO method; and                                                  

[[Page 46453]]
                                                                        
  (c) rolling average method.                                           
SECTION 3.                                                              
(1) Where a producer of a good chooses, with respect to non-originating 
 materials that are identical materials, any of the methods referred to 
 in section 2, the producer may not use another of those methods with   
 respect to any other non-originating materials that are identical      
 materials and that are used in the production of that good or in the   
 production of any other good.                                          
(2) Where a producer of a good produces the good in more than one plant,
 the method chosen by the producer shall be used with respect to all    
 plants of the producer in which the good is produced.                  
(3) The method chosen by the producer to determine the value of non-    
 originating materials may be chosen at any time during the producer's  
 fiscal year and may not be changed during that fiscal year.            
                                                                        
                Average Value for Rolling Average Method                
                                                                        
SECTION 4.                                                              
(1) The average value of non-originating materials that are identical   
 materials and that are used in the production of a good that is shipped
 to the buyer of the good is calculated by dividing                     
  (a) the total value of non-originating materials that are identical   
   materials in materials inventory prior to the shipment of the good,  
   determined in accordance with section 7 of this Appendix,            
by                                                                      
  (b) the total units of those non-originating materials in materials   
   inventory prior to the shipment of the good.                         
(2) The average value calculated under subsection (1) is applied to the 
 remaining units of non-originating materials in materials inventory.   
                                                                        
                                ADDENDUM                                
``EXAMPLES'' ILLUSTRATING THE APPLICATION OF THE METHODS FOR DETERMINING
 THE VALUE OF NON-ORIGINATING MATERIALS THAT ARE IDENTICAL MATERIALS AND
                THAT ARE USED IN THE PRODUCTION OF A GOOD               
                                                                        
    The following ``examples'' are based on the figures set out in the  
 table below and on the following assumptions:                          
  (a) Materials A are non-originating materials that are identical      
   materials that are used in the production of Good A;                 
  (b) one unit of Materials A is used to produce one unit of Good A;    
  (c) all other materials used in the production of Good A are          
   originating materials; and                                           
  (d) Good A is produced in a single plant.                             
                                                                        



----------------------------------------------------------------------------------------------------------------
                                                           Materials inventory (Receipts of     Sales (Shipments
                                                                     materials A)                  of good A)   
                      Date (M/D/Y)                      --------------------------------------------------------
                                                          Quantity (units)     Unit cost *      Quantity (units)
----------------------------------------------------------------------------------------------------------------
01/01/94...............................................                200              $1.05  .................
01/03/94...............................................              1,000               1.00  .................
01/05/94...............................................              1,000               1.10  .................
01/08/94...............................................  .................  .................                500
01/09/94...............................................  .................  .................                500
01/10/94...............................................              1,000               1.05  .................
01/14/94...............................................  .................  .................              1,500
01/16/94...............................................              2,000               1.10  .................
01/18/94...............................................  .................  .................             1,500 
----------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 7 of this Appendix.                                        



Example 1: FIFO method                                                  
    By applying the FIFO method:                                        
(1) the 200 units of Materials A received on 01/01/94 and valued at     
 $1.05 per unit and 300 units of the 1,000 units of Material A received 
 on 01/03/94 and valued at $1.00 per unit are considered to have been   
 used in the production of the 500 units of Good A shipped on 01/08/94; 
 therefore, the value of the non-originating materials used in the      
 production of those goods is considered to be $510 [(200 unit  x       
 $1.05) + ($300 units  x  $1.00)];                                      
(2) 500 units of the remaining 700 units of Materials A received on 01/ 
 03/94 and valued at $1.00 per unit are considered to have been used in 
 the production of the 500 units of Good A shipped on 01/09/94;         
 therefore, the value of the non-originating materials used in the      
 production of those goods is considered to be $500 (500 units  x       
 $1.00);                                                                
(3) the remaining 200 units of the 1,000 of Materials A received on 01/ 
 03/94 and valued at $1.00 per unit, the 1,000 units of Materials A     
 received on 01/05/94 and valued at $1.10 per unit, and 300 units of the
 1,000 Materials A received on 01/10/94 and valued at $1.05 per unit are
 considered to have been used in the production of the 1,500 units of   
 Good A shipped on 01/14/94; therefore, the value of non-originating    
 materials used in the production of those goods is considered to be    
 $1,615 [(200 units  x  $1.00) + (1,000 units  x  $1.10) + (300 units  x
  $1.05)]; and                                                          
(4) the remaining 700 units of the 1,000 units of Materials A received  
 on 01/10/94 and valued at $1.05 per unit and 800 units of the 2,000    
 units of Materials A received on 01/16/94 and valued at $1.10 per unit 
 are considered to have been used in the production of the 1,500 units  
 of Good A shipped on 01/18/94; therefore, the value of non-originating 
 materials used in the production of those goods is considered to be    
 $1,615 [(700  x  $1.05) + (800  x  $1.10)].                            
Example 2: LIFO method                                                  
    By applying the LIFO method:                                        
(1) 500 units of the 1,000 units of Materials A received on 01/05/94 and
 valued at $1.10 per unit are considered to have been used in the       
 production of the 500 units of Good A shipped on 01/08/94; therefore,  
 the value of the non-originating materials used in the production of   
 those goods is considered to be $550 (500 units  x  $1.10);            

[[Page 46454]]
                                                                        
(2) the remaining 500 units of the 1,000 units of Materials A received  
 on 01/05/94 and valued at $1.10 per unit are considered to have been   
 used in the production of the 500 units of Good A shipped on 01/09/94; 
 therefore, the value of non-originating materials used in the          
 production of those goods is considered to be $550 (500 units  x       
 $1.10);                                                                
(3) the 1,000 units of Materials A received on 01/10/94 and valued at   
 $1.05 per unit and 500 units of the 1,000 units of Material A received 
 on 01/03/94 and valued at $1.00 per unit are considered to have been   
 used in the production of the 1,500 units of Good A shipped on 01/14/  
 94; therefore, the value of non-originating materials used in the      
 production of those goods is considered to be $1,550 [(1,000 units  x  
 $1.05) + (500 units  x  $1.00)]; and                                   
(4) 1,500 units of the 2,000 units of Materials A received on 01/16/94  
 and valued at $1.10 per unit are considered to have been used in the   
 production of the 1,500 units of Good A shipped on 01/18/94; therefore,
 the value of non-originating materials used in the production of those 
 goods is considered to be $1,650 (1,500 units  x  $1.10).              
Example 3: Rolling average method                                       
    The following table identifies the average value of non-originating 
 Materials A as determined under the rolling average method. For        
 purposes of this example, a new average value of non-originating       
 Materials A is calculated after each receipt.                          
                                                                        




----------------------------------------------------------------------------------------------------------------
                                               Materials inventory                                              
-----------------------------------------------------------------------------------------------------------------
                                         Date (M/D/Y)     Quantity (units)      Unit cost*        Total value   
----------------------------------------------------------------------------------------------------------------
Beginning Inventory.................             1/1/94                200              $1.05               $210
Receipt.............................             1/3/94              1,000               1.00              1,000
AVERAGE VALUE.......................  .................              1,200              1.008              1,210
Receipt.............................             1/5/94              1,000               1.10              1,100
AVERAGE VALUE.......................  .................              2,200               1.05              2,310
Shipment............................             1/8/94                500               1.05                525
AVERAGE VALUE.......................  .................              1,700               1.05              1,785
Shipment............................             1/9/94                500               1.05                525
AVERAGE VALUE.......................  .................              1,200               1.05              1,260
Receipt.............................            1/16/94              2,000               1.10              2,200
AVERAGE VALUE.......................  .................              3,200               1.08             3,460 
----------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 7 of this Appendix.                                        



  By applying the rolling average method:                               
(1) the value of non-originating materials used in the production of the
 500 units of Good A shipped on 01/08/94 is considered to be $525 (500  
 units  x  $1.05); and                                                  
(2) the value of non-originating materials used in the production of the
 500 units of Good A shipped on 01/09/94 is considered to be $525 (500  
 units  x  $1.05).                                                      
                                                                        



                               SCHEDULE X                               
                      INVENTORY MANAGEMENT METHODS                      
                                                                        
                                 PART I                                 
                           FUNGIBLE MATERIALS                           
                                                                        
                     Definitions and Interpretation                     
                                                                        
SECTION 1. Definitions.                                                 
    For purposes of this Part,                                          
``average method'' means the method by which the origin of fungible     
 materials withdrawn from materials inventory is based on the ratio,    
 calculated under section 5, of originating materials and non-          
 originating materials in materials inventory;                          
``FIFO method'' means the method by which the origin of fungible        
 materials first received in materials inventory is considered to be the
 origin of fungible materials first withdrawn from materials inventory; 
``LIFO method'' means the method by which the origin of fungible        
 materials last received in materials inventory is considered to be the 
 origin of fungible materials first withdrawn from materials inventory; 
``materials inventory'' means,                                          
  (a) with respect to a producer of a good, an inventory of fungible    
   materials that are used in the production of the good, and           
  (b) with respect to a person from whom the producer of the good       
   acquired those fungible materials, an inventory from which fungible  
   materials are sold or otherwise transferred to the producer of the   
   good;                                                                
``opening inventory'' means the materials inventory at the time an      
 inventory management method is chosen;                                 
``origin identifier'' means any mark that identifies fungible materials 
 as originating materials or non-originating materials.                 
                                                                        
                                 General                                
                                                                        
SECTION 2.                                                              
    The inventory management methods for determining whether fungible   
 materials referred to in section 7(16)(a) of this Appendix are         
 originating materials are the following:                               
  (a) specific identification method;                                   
  (b) FIFO method;                                                      
  (c) LIFO method; and                                                  
  (d) average method.                                                   
SECTION 3.                                                              

[[Page 46455]]
                                                                        
    Where a producer of a good or a person from whom the producer       
 acquired the materials that are used in the production of the good     
 chooses an inventory management method referred to in section 2, that  
 method, including the averaging period chosen in the case of the       
 average method, shall be used from the time the choice is made until   
 the end of the fiscal year of the producer or person.                  
                                                                        
                     Specific Identification Method                     
                                                                        
SECTION 4.                                                              
(1) Except as otherwise provided under subsection (2), where the        
 producer or person referred to in section 3 chooses the specific       
 identification method, the producer or person shall physically         
 segregate, in materials inventory, originating materials that are      
 fungible materials from non-originating materials that are fungible    
 materials.                                                             
(2) Where originating materials or non-originating materials that are   
 fungible materials are marked with an origin identifier, the producer  
 or person need not physically segregate those materials under          
 subsection (1) if the origin identifier remains visible throughout the 
 production of the good.                                                
                                                                        
                             Average Method                             
                                                                        
SECTION 5.                                                              
    Where the producer or person referred to in section 3 chooses the   
 average method, the origin of fungible materials withdrawn from        
 materials inventory is determined on the basis of the ratio of         
 originating materials and non-originating materials in materials       
 inventory that is calculated under sections 6 through 8.               
SECTION 6.                                                              
(1) Except as otherwise provided in sections 7 and 8, the ratio is      
 calculated with respect to a month or three-month period, at the choice
 of the producer or person, by dividing                                 
  (a) the sum of                                                        
    (i) the total units of originating materials or non-originating     
     materials that are fungible materials and that were in materials   
     inventory at the beginning of the preceding one-month or three-    
     month period, and                                                  
    (ii) the total units of originating materials or non-originating    
     materials that are fungible materials and that were received in    
     materials inventory during that preceding one-month or three-month 
     period,                                                            
by                                                                      
  (b) the sum of                                                        
    (i) the total units of originating materials and non-originating    
     materials that are fungible materials and that were in materials   
     inventory at the beginning of the preceding one-month or three-    
     month period, and                                                  
    (ii) the total units of originating materials and non-originating   
     materials that are fungible materials and that were received in    
     materials inventory during that preceding one-month or three-month 
     period.                                                            
(2) The ratio calculated with respect to a preceding month or three-    
 month period under subsection (1) is applied to the fungible materials 
 remaining in materials inventory at the end of the preceding month or  
 three-month period.                                                    
SECTION 7.                                                              
(1) Where the good is subject to a regional value-content requirement   
 and the regional value content is calculated under the net cost method 
 and the producer or person chooses to average over a period under      
 sections 6(15), 11(1), (3) or (6), 12(1) or 13(4) of this Appendix, the
 ratio is calculated with respect to that period by dividing            
  (a) the sum of                                                        
    (i) the total units of originating materials or non-originating     
     materials that are fungible materials and that were in materials   
     inventory at the beginning of the period, and                      
    (ii) the total units of originating materials or non-originating    
     materials that are fungible materials and that were received in    
     materials inventory during that period,                            
by                                                                      
  (b) the sum of                                                        
    (i) the total units of originating materials and non-originating    
     materials that are fungible materials and that were in materials   
     inventory at the beginning of the period, and                      
    (ii) the total units of originating materials and non-originating   
     materials that are fungible materials and that were received in    
     materials inventory during that period.                            
(2) The ratio calculated with respect to a period under subsection (1)  
 is applied to the fungible materials remaining in materials inventory  
 at the end of the period.                                              
SECTION 8.                                                              
(1) Where the good is subject to a regional value-content requirement   
 and the regional value content of that good is calculated under the    
 transaction value method or the net cost method, the ratio is          
 calculated with respect to each shipment of the good by dividing       
  (a) the total units of originating materials or non-originating       
   materials that are fungible materials and that were in materials     
   inventory prior to the shipment,                                     
by                                                                      
  (b) the total units of originating materials and non-originating      
   materials that are fungible materials and that were in materials     
   inventory prior to the shipment.                                     
(2) The ratio calculated with respect to a shipment of a good under     
 subsection (1) is applied to the fungible materials remaining in       
 materials inventory after the shipment.                                
                                                                        
                Manner of Dealing With Opening Inventory                
                                                                        
SECTION 9.                                                              
(1) Except as otherwise provided under subsections (2) and (3), where   
 the producer or person referred to in section 3 has fungible materials 
 in opening inventory, the origin of those fungible materials is        
 determined by                                                          
  (a) identifying, in the books of the producer or person, the latest   
   receipts of fungible materials that add up to the amount of fungible 
   materials in opening inventory;                                      

[[Page 46456]]
                                                                        
  (b) determining the origin of the fungible materials that make up     
   those receipts; and                                                  
  (c) considering the origin of those fungible materials to be the      
   origin of the fungible materials in opening inventory.               
(2) Where the producer or person chooses the specific identification    
 method and has, in opening inventory, originating materials or non-    
 originating materials that are fungible materials and that are marked  
 with an origin identifier, the origin of those fungible materials is   
 determined on the basis of the origin identifier.                      
(3) The producer or person may consider all fungible materials in       
 opening inventory to be non-originating materials.                     
                                                                        
                                 PART II                                
                             FUNGIBLE GOODS                             
                                                                        
                     Definitions and Interpretation                     
                                                                        
SECTION 10. Definitions.                                                
    For purposes of this Part,                                          
``average method'' means the method by which the origin of fungible     
 goods withdrawn from finished goods inventory is based on the ratio,   
 calculated under section 12, of originating goods and non-originating  
 goods in finished goods inventory;                                     
``FIFO method'' means the method by which the origin of fungible goods  
 first received in finished goods inventory is considered to be the     
 origin of fungible goods first withdrawn from finished goods inventory;
``finished goods inventory'' means an inventory from which fungible     
 goods are sold or otherwise transferred to another person;             
``LIFO method'' means the method by which the origin of fungible goods  
 last received in finished goods inventory is considered to be the      
 origin of fungible goods first withdrawn from finished goods inventory;
``opening inventory'' means the finished goods inventory at the time an 
 inventory management method is chosen; and                             
``origin identifier'' means any mark that identifies fungible goods as  
 originating goods or non-originating goods.                            
                                                                        
                                 General                                
                                                                        
SECTION 11.                                                             
    The inventory management methods for determining whether fungible   
 goods referred to in section 7(16)(b) of this Appendix are originating 
 goods are the following:                                               
  (a) specific identification method;                                   
  (b) FIFO method;                                                      
  (c) LIFO method; and                                                  
  (d) average method.                                                   
SECTION 12.                                                             
    Where an exporter of a good or a person from whom the exporter      
 acquired the good chooses an inventory management method referred to in
 section 11, that method, including the averaging period chosen in the  
 case of the average method, shall be used from the time the choice is  
 made until the end of the fiscal year of the exporter or person.       
                                                                        
                     Specific Identification Method                     
                                                                        
SECTION 13.                                                             
(1) Except as provided under subsection (2), where the exporter or      
 person referred to in section 12 chooses the specific identification   
 method, the exporter or person shall physically segregate, in finished 
 goods inventory, originating goods that are fungible goods from non-   
 originating goods that are fungible goods.                             
(2) Where originating goods or non-originating goods that are fungible  
 goods are marked with an origin identifier, the exporter or person need
 not physically segregate those goods under subsection (1) if the origin
 identifier is visible on the fungible goods.                           
                                                                        
                             Average Method                             
                                                                        
SECTION 14.                                                             
(1) Where the exporter or person referred to in section 12 chooses the  
 average method, the origin of each shipment of fungible goods withdrawn
 from finished goods inventory during a month or three-month period, at 
 the choice of the exporter or person, is determined on the basis of the
 ratio of originating goods and non-originating goods in finished goods 
 inventory for the preceding one-month or three-month period that is    
 calculated by dividing                                                 
  (a) the sum of                                                        
    (i) the total units of originating goods or non-originating goods   
     that are fungible goods and that were in finished goods inventory  
     at the beginning of the preceding one-month or three-month period, 
     and                                                                
    (ii) the total units of originating goods or non-originating goods  
     that are fungible goods and that were received in finished goods   
     inventory during that preceding one-month or three-month period,   
by                                                                      
  (b) the sum of                                                        
    (i) the total units of originating goods and non-originating goods  
     that are fungible goods and that were in finished goods inventory  
     at the beginning of the preceding one-month or three-month period, 
     and                                                                
    (ii) the total units of originating goods and non-originating goods 
     that are fungible goods and that were received in finished goods   
     inventory during that preceding one-month or three-month period.   
(2) The calculation with respect to a preceding month or three-month    
 period under subsection (1) is applied to the fungible goods remaining 
 in finished goods inventory at the end of the preceding month or three-
 month period.                                                          
                                                                        
                Manner of Dealing with Opening Inventory                
                                                                        
SECTION 15.                                                             
(1) Except as otherwise provided under subsections (2) and (3), where   
 the exporter or person referred to in section 12 has fungible goods in 
 opening inventory, the origin of those fungible goods is determined by 

[[Page 46457]]
                                                                        
  (a) identifying, in the books of the exporter or person, the latest   
   receipts of fungible goods that add up to the amount of fungible     
   goods in opening inventory;                                          
  (b) determining the origin of the fungible goods that make up those   
   receipts; and                                                        
  (c) considering the origin of those fungible goods to be the origin of
   the fungible goods in opening inventory.                             
(2) Where the exporter or person chooses the specific identification    
 method and has, in opening inventory, originating goods or non-        
 originating goods that are fungible goods and that are marked with an  
 origin identifier, the origin of those fungible goods is determined on 
 the basis of the origin identifier.                                    
(3) The exporter or person may consider all fungible goods in opening   
 inventory to be non-originating goods.                                 
                                                                        
                               ADDENDUM A                               
  ``EXAMPLES'' ILLUSTRATING THE APPLICATION OF THE INVENTORY MANAGEMENT 
          METHODS TO DETERMINE THE ORIGIN OF FUNGIBLE MATERIALS         
                                                                        
    The following ``examples'' are based on the figures set out in the  
 table below and on the following assumptions:                          
  (a) originating Material A and non-originating Material A that are    
   fungible materials are used in the production of Good A;             
  (b) one unit of Material A is used to produce one unit of Good A;     
  (c) Material A is only used in the production of Good A;              
  (d) all other materials used in the production of Good A are          
   originating materials; and                                           
  (e) the producer of Good A exports all shipments of Good A to the     
   territory of a NAFTA country.                                        
                                                                        




----------------------------------------------------------------------------------------------------------------
                                            Materials inventory(Receipts of material A)         Sales(Shipments 
                                     ---------------------------------------------------------     of good A)   
             Date(M/D/Y)                                                                      ------------------
                                       Quantity(units)      Unit cost *        Total value      Quantity(units) 
----------------------------------------------------------------------------------------------------------------
12/18/93............................        100 (O \1\)              $1.00               $100                   
12/27/93............................        100 (N \2\)               1.10                110                   
01/01/94............................       200 (OI \3\)                                                         
01/01/94............................          1,000 (O)               1.00              1,000                   
01/05/94............................          1,000 (N)               1.10              1,100                   
01/10/94............................  .................  .................  .................                100
01/10/94............................          1,000 (O)               1.05              1,050                   
01/15/94............................  .................  .................  .................                700
01/16/94............................          2,000 (N)               1.10              2,200                   
01/20/94............................  .................  .................  .................              1,000
01/23/94............................  .................  .................  .................               900 
----------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 7 of this Appendix.                                        
\1\ ``O'' denotes originating materials.                                                                        
\2\ ``N'' denotes non-originating materials.                                                                    
\3\ ``OI'' denotes opening inventory.                                                                           


Example 1: FIFO method                                                  
    Good A is subject to a regional value-content requirement. Producer 
 A is using the transaction value method to determine the regional value
 content of Good A.                                                     
    By applying the FIFO method:                                        
(1) the 100 units of originating Material A in opening inventory that   
 were received in materials inventory on 12/18/93 are considered to have
 been used in the production of the 100 units of Good A shipped on 01/10/
 94; therefore, the value of non-originating materials used in the      
 production of those goods is considered to be $0;                      
(2) the 100 units of non-originating Material A in opening inventory    
 that were received in materials inventory on 12/27/93 and 600 units of 
 the 1,000 units of originating Material A that were received in        
 materials inventory on 01/01/94 are considered to have been used in the
 production of the 700 units of Good A shipped on 01/15/94; therefore,  
 the value of non-originating materials used in the production of those 
 goods is considered to be $110 (100 units x $1.10);                    
(3) the remaining 400 units of the 1,000 units of originating Material A
 that were received in materials inventory on 01/01/94 and 600 units of 
 the 1,000 units of non-originating Material A that were received in    
 materials inventory on 01/05/94 are considered to have been used in the
 production of the 1,000 units of Good A shipped on 01/20/94; therefore,
 the value of non-originating materials used in the production of those 
 goods is considered to be $660 (600 units x $1.10); and                
(4) the remaining 400 units of the 1,000 units of non-originating       
 Material A that were received in materials inventory on 01/05/94 and   
 500 units of the 1,000 units of originating Material A that were       
 received in materials inventory on 01/10/94 are considered to have been
 used in the production of the 900 units of Good A shipped on 01/23/94; 
 therefore, the value of non-originating materials used in the          
 production of those goods is considered to be $440 (400 units x $1.10).
Example 2: LIFO method                                                  
    Good A is subject to a change in tariff classification requirement  
 and the non-originating Material A used in the production of Good A    
 does not undergo the applicable change in tariff classification.       
 Therefore, where originating Material A is used in the production of   
 Good A, Good A is an originating good and, where non-originating       
 Material A is used in the production of Good A, Good A is a non-       
 originating good.                                                      
    By applying the LIFO method:                                        
(1) 100 units of the 1,000 units of non-originating Material A that were
 received in materials inventory on 01/05/94 are considered to have been
 used in the production of the 100 units of Good A shipped on 01/10/94; 
(2) 700 units of the 1,000 units of originating Material A that were    
 received in materials inventory on 01/10/94 are considered to have been
 used in the production of the 700 units of Good A shipped on 01/15/94; 
(3) 1,000 units of the 2,000 units of non-originating Material A that   
 were received in materials inventory on 01/16/94 are considered to have
 been used in the production of the 1,000 units of Good A shipped on 01/
 20/94; and                                                             

[[Page 46458]]
                                                                        
(4) 900 units of the remaining 1,000 units of non-originating Material A
 that were received in materials inventory on 01/16/94 are considered to
 have been used in the production of the 900 units of Good A shipped on 
 01/23/94.                                                              
Example 3: Average method                                               
    Good A is subject to an applicable regional value-content           
 requirement. Producer A is using the transaction value method to       
 determine the regional value content of Good A. Producer A determines  
 the average value of non-originating Material A and the ratio of       
 originating Material A to total value of originating Material A and non-
 originating Material A in the following table.                         
                                                                        




--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                    Materials inventory                                  Sales(Shipments
                                                  --------------------------------------------------------------------------------------    of good A)  
                                      Date(M/D/Y)           (Receipts of material A)                  (Non-originating material)        ----------------
                                                  --------------------------------------------------------------------------------------                
                                                   Quantity(units)  Total value  Unit cost *  Quantity(units)  Total value     Ratio     Quantity(units)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Receipt.............................     12/18/93  100 (O \1\)             $100        $1.00                                                            
Receipt.............................     12/27/93  100 (N \2\)              110         1.10            100        $110.00                              
                                                  -------------------------------------------------------------------------                             
NEW AVERAGE INV. VALUE..............  ...........  200 (OI \3\)             210         1.05            100         105.00         0.50                 
Receipt.............................     01/01/94  1,000 (O)              1,000         1.00                                                            
                                                  -------------------------------------------------------------------------                             
NEW AVERAGE INV. VALUE..............  ...........  1,200                  1,210         1.01            100         101.00         0.08                 
Receipt.............................     01/05/94  1,000 (N)              1,100         1.10          1,000       1,100.00                              
                                                  -------------------------------------------------------------------------                             
NEW AVERAGE INV. VALUE..............  ...........  2,200                  2,310         1.05          1,100       1,155.00         0.50                 
Shipment............................     01/10/94  (100)                  (105)         1.05           (50)        (52.50)  ...........            100  
Receipt.............................     01/10/94  1,000 (O)              1,050         1.05                                                            
                                                  -------------------------------------------------------------------------                             
NEW AVERAGE INV. VALUE..............  ...........  3,100                  3,255         1.05          1,050       1,102.50         0.34                 
Shipment............................     01/15/94  (700)                  (735)         1.05          (238)       (249.90)  ...........            700  
Receipt.............................     01/16/94  2,000 (N)              2,200         1.10          2,000       2,000.00                              
                                                  -------------------------------------------------------------------------                             
NEW AVERAGE INV. VALUE..............  ...........  4,400                  4,720         1.07          2,816       3,013.20         0.64                 
Shipment............................     01/20/94  (1,000)              (1,070)         1.07          (640)       (648.80)  ...........          1,000  
Shipment............................     01/23/94  (900)                  (963)         1.07          (576)       (616.32)  ...........            900  
                                                  -------------------------------------------------------------------------                             
NEW AVERAGE INV. VALUE..............  ...........  2,500                  2,687         1.07          1,596       1,707.24        0.64                  
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Unit cost is determined in accordance with section 7 of this Appendix.                                                                                
\1\ ``O'' denotes originating materials.                                                                                                                
\2\ ``N'' denotes non-originating materials.                                                                                                            
\3\ ``OI'' denotes opening inventory.                                                                                                                   


                                                                        
                                                                        
                                                                         
    By applying the average method:                                     
(1) before the shipment of the 100 units of Material A on 01/10/94, the 
 ratio of units of originating Material A to total units of Material A  
 in materials inventory was .50 (1,100 units/2,200 units) and the ratio 
 of units of non-originating Material A to total units of Material A in 
 materials inventory was .50 (1,100 units/2,200 units); based on those  
 ratios, 50 units (100 units  x  .50) of originating Material A and 50  
 units (100 units  x  .50) of non-originating Material A are considered 
 to have been used in the production of the 100 units of Good A shipped 
 on 01/10/94; therefore, the value of non-originating Material A used in
 the production of those goods is considered to be $52.50 [100 units  x 
 $1.05 (average unit value)  x  .50]; the ratios are applied to the     
 units of Material A remaining in materials inventory after the         
 shipment: 1,050 units (2,100 units  x  .50) are considered to be       
 originating materials and 1,050 units (2,100 units  x  .50) are        
 considered to be non-originating materials;                            
(2) before the shipment of the 700 units of Good A on 01/15/94, the     
 ratio of units of originating Material A to total units of Material A  
 in materials inventory was 66% (2,050 units/3,100 units) and the ratio 
 of units of non-originating Material A to total units of Material A in 
 materials inventory was 34% (1,050 units/3,100 units); based on those  
 ratios, 462 units (700 units  x  .66) of originating Material A and 238
 units (700 units  x  .34) of non-originating Material A are considered 
 to have been used in the production of the 700 units of Good A shipped 
 on 01/15/94; therefore, the value of non-originating Material A used in
 the production of those goods is considered to be $249.90 [700 units  x
  $1.05 (average unit value)  x  34%]; the ratios are applied to the    
 units of Material A remaining in materials inventory after the         
 shipment: 1,584 units (2,400 units  x  .66) are considered to be       
 originating materials and 816 units (2,400 units  x  .34) are          
 considered to be non-originating materials;                            
(3) before the shipment of the 1,000 units of Material A on 01/20/94,   
 the ratio of units of originating Material A to total units of Material
 A in materials inventory was 36% (1,584 units/4,400 units) and the     
 ratio of units of non-originating Material A to total units of Material
 A in materials inventory was 64% (2,816 units/4,400 units); based on   
 those ratios, 360 units (1,000 units  x  .36) of originating Material A
 and 640 units (1,000 units  x  .64) of non-originating Material A are  
 considered to have been used in the production of the 1,000 units of   
 Good A shipped on 01/20/94; therefore, the value of non-originating    
 Material A used in the production of those goods is considered to be   
 $684.80 [1,000 units  x  $1.07 (average unit value)  x  64%]; those    
 ratios are applied to the units of Material A remaining in materials   
 inventory after the shipment: 1,224 units (3,400 units  x  .36) are    
 considered to be originating materials and 2,176 units (3,400 units  x 
 .64) are considered to be non-originating materials;                   

[[Page 46459]]
                                                                        
(4) before the shipment of the 900 units of Good A on 01/23/94, the     
 ratio of units of originating Material A to total units of Material A  
 in materials inventory was 36% (1,224 units/3,400 units) and the ratio 
 of units of non-originating Material A to total units of Material A in 
 materials inventory was 64% (2,176 units/3,400 units; based on those   
 ratios, 324 units (900 units  x  .36) of originating Material A and 576
 units (900 units  x  .64) of non-originating Material A are considered 
 to have been used in the production of the 900 units of Good A shipped 
 on 01/23/94; therefore, the value of non-originating Material A used in
 the production of those goods is considered to be $616.32 [900 units  x
  $1.07 (average unit value)  x  64%]; those ratios are applied to the  
 units of Material A remaining in materials inventory after the         
 shipment: 900 units (2,500 units  x  .36) are considered to be         
 originating materials and 1,600 units (2,500 units  x  .64) are        
 considered to be non-originating materials.                            
Example 4: Average method                                               
    Good A is subject to an applicable regional value-content           
 requirement. Producer A is using the net cost method and is averaging  
 over a period of one month under section 6(15)(a) of this Appendix to  
 determine the regional value content of Good A.                        
    By applying the average method:                                     
  the ratio of units of originating Material A to total units of        
   Material A in materials inventory for January 1994 is 40.4% (2,100   
   units/5,200 units);                                                  
  based on that ratio, 1,091 units (2,700 units  x  .404) of originating
   Material A and 1,609 units (2,700 units-1,091 units) of non-         
   originating Material A are considered to have been used in the       
   production of the 2,700 units of Good A shipped in January 1994;     
   therefore, the value of non-originating materials used in the        
   production of those goods is considered to be $0.64 per unit [$5,560 
   (total value of Material A in materials inventory)/ $5,200 (units of 
   Material A in materials inventory) = $1.07 (average unit value)  x   
   (1-.404)] or $1,728 ($0.64  x  2,700 units); and                     
  that ratio is applied to the units of Material A remaining in         
   materials inventory on January 31, 1994: 1,010 units (2,500 units  x 
   .404) are considered to be originating materials and 1,490 units     
   (2,500 units-1,010 units) are considered to be non-originating       
   materials.                                                           
                                                                        
                                                                        



                               ADDENDUM B                               
  ``EXAMPLES'' ILLUSTRATING THE APPLICATION OF THE INVENTORY MANAGEMENT 
                          METHODS TO DETERMINE                          
                      THE ORIGIN OF FUNGIBLE GOODS                      
                                                                        
    The following ``examples'' are based on the figures set out in the  
 table below and on the assumption that Exporter A acquires originating 
 Good A and non-originating Good A that are fungible goods and          
 physically combines or mixes Good A before exporting those goods to the
 buyer of those goods.                                                  
                                                                        



----------------------------------------------------------------------------------------------------------------
                                                                     Finished goods        Sales (shipments of  
                                                                 inventory (receipts of          good A)        
                         Date (M/D/Y)                                   good A)         ------------------------
                                                               -------------------------                        
                                                                    Quantity (units)         Quantity (units)   
----------------------------------------------------------------------------------------------------------------
12/18/93......................................................                100 (O 1)                         
12/27/93......................................................                100 (N 2)                         
01/01/94......................................................               200 (OI 3)                         
01/01/94......................................................                1,000 (O)                         
01/05/94......................................................                1,000 (N)                         
01/10/94......................................................  .......................                      100
01/15/94......................................................                1,000 (O)                         
01/16/94......................................................  .......................                      700
01/20/94......................................................                2,000 (N)                         
01/20/94......................................................  .......................                    1,000
01/23/94......................................................  .......................                     900 
----------------------------------------------------------------------------------------------------------------
1 ``O'' denotes originating goods.                                                                              
2 ``N'' denotes non-originating goods.                                                                          
3 ``OI'' denotes opening inventory.                                                                             


Example 1: FIFO method                                                  
    By applying the FIFO method:                                        
(1) the 100 units of originating Good A in opening inventory that were  
 received in finished goods inventory on 12/18/93 are considered to be  
 the 100 units of Good A shipped on 01/10/94;                           
(2) the 100 units of non-originating Good A in opening inventory that   
 were received in finished goods inventory on 12/27/93 and 600 units of 
 the 1,000 units of originating Good A that were received in finished   
 goods inventory on 01/01/94 are considered to be the 700 units of Good 
 A shipped on 01/15/94;                                                 
(3) the remaining 400 units of the 1,000 units of originating Good A    
 that were received in finished goods inventory on 01/01/94 and 600     
 units of the 1,000 units of non-originating Good A that were received  
 in finished goods inventory on 01/05/94 are considered to be the 1,000 
 units of Good A shipped on 01/20/94; and                               
(4) the remaining 400 units of the 1,000 units of non-originating Good A
 that were received in finished goods inventory on 01/05/94 and 500     
 units of the 1,000 units of originating Good A that were received in   
 finished goods inventory on 01/10/94 are considered to be the 900 units
 of Good A shipped on 01/23/94.                                         
Example 2: LIFO method                                                  
    By applying the LIFO method:                                        
(1) 100 units of the 1,000 units of non-originating Good A that were    
 received in finished goods inventory on 01/05/94 are considered to be  
 the 100 units of Good A shipped on 01/10/94;                           
(2) 700 units of the 1,000 units of originating Good A that were        
 received in finished goods inventory on 01/10/94 are considered to be  
 the 700 units of Good A shipped on 01/15/94;                           
(3) 1,000 units of the 2,000 units of non-originating Good A that were  
 received in finished goods inventory on 01/16/94 are considered to be  
 the 1,000 units of Good A shipped on 01/20/94; and                     
(4) 900 units of the remaining 1,000 units of non-originating Good A    
 that were received in finished goods inventory on 01/16/94 are         
 considered to be the 900 units of Good A shipped on 01/23/94.          
Example 3: Average method                                               

[[Page 46460]]
                                                                        
    Exporter A chooses to determine the origin of Good A on a monthly   
 basis. Exporter A exported 3,000 units of Good A during the month of   
 February 1994. The origin of the units of Good A exported during that  
 month is determined on the basis of the preceding month, that is       
 January 1994.                                                          
    By applying the average method:                                     
  the ratio of originating goods to all goods in finished goods         
   inventory for the month of January 1994 is 40.4% (2,100 units/5,200  
   units);                                                              
  based on that ratio, 1,212 units (3,000 units  x  .404) of Good A     
   shipped in February 1994 are considered to be originating goods and  
   1,788 units (3,000 units - 1,212 units) of Good A are considered to  
   be non-originating goods; and                                        
  that ratio is applied to the units of Good A remaining in finished    
   goods inventory on January 31, 1994: 1,010 units (2,500 units  x     
   .404) are considered to be originating goods and 1,490 units (2,500  
   units - 1,010 units) are considered to be non-originating goods.     
                                                                        



                               SCHEDULE XI                              
           METHOD FOR CALCULATING NON-ALLOWABLE INTEREST COSTS          
                                                                        
                     Definitions and Interpretation                     
SECTION 1. Definitions.                                                 
    For purposes of this Schedule,                                      
``fixed-rate contract'' means a loan contract, installment purchase     
 contract or other financing agreement in which the interest rate       
 remains constant throughout the life of the contract or agreement;     
``linear interpolation'' means, with respect to the yield on federal    
 government debt obligations, the application of the following          
 mathematical formula:                                                  
                                                                        
                        A+[((B-A) x (E-D))/(C-D)]                       
                                                                        
where                                                                   
    A is the yield on federal government debt obligations that are      
     nearest in maturity but of shorter maturity than the weighted      
     average principal maturity of the payment schedule under the fixed-
     rate contract or variable-rate contract to which they are being    
     compared,                                                          
    B is the yield on federal government debt obligations that are      
     nearest in maturity but of greater maturity than the weighted      
     average principal maturity of that payment schedule,               
    C is the maturity of federal government debt obligations that are   
     nearest in maturity but of greater maturity than the weighted      
     average principal maturity of that payment schedule,               
    D is the maturity of federal government debt obligations that are   
     nearest in maturity but of shorter maturity than the weighted      
     average principal maturity of that payment schedule, and           
    E is the weighted average principal maturity of that payment        
     schedule; ``payment schedule'' means the schedule of payments,     
     whether on a weekly, bi-weekly, monthly, yearly or other basis, of 
     principal and interest, or any combination thereof, made by a      
     producer to a lender in accordance with the terms of a fixed-rate  
     contract or variable-rate contract;                                
``variable-rate contract'' means a loan contract, installment purchase  
 contract or other financing agreement in which the interest rate is    
 adjusted at intervals during the life of the contract or agreement in  
 accordance with its terms;                                             
``weighted average principal maturity'' means, with respect to fixed-   
 rate contracts and variable-rate contracts, the number of years, or    
 portion thereof, that is equal to the number obtained by               
  (a) dividing the sum of the weighted principal payments,              
    (i) in the case of a fixed-rate contract, by the original amount of 
     the loan, and                                                      
    (ii) in the case of a variable-rate contract, by the principal      
     balance at the beginning of the interest rate period for which the 
     weighted principal payments were calculated, and                   
  (b) rounding the amount determined under paragraph (a) to the nearest 
   single decimal place and, where that amount is the midpoint between  
   two such numbers, to the greater of those two numbers;               
``weighted principal payment'' means,                                   
  (a) with respect to fixed-rate contracts, the amount determined by    
   multiplying each principal payment under the contract by the number  
   of years, or portion thereof, between the date the producer entered  
   into the contract and the date of that principal payment, and        
  (b) with respect to variable-rate contracts                           
    (i) the amount determined by multiplying each principal payment made
     during the current interest rate period by the number of years, or 
     portion thereof, between the beginning of that interest rate period
     and the date of that payment, and                                  
    (ii) the amount equal to the outstanding principal owing, but not   
     necessarily due, at the end of the current interest rate period,   
     multiplied by the number of years, or portion thereof, between the 
     beginning and the end of that interest rate period;                
``yield on federal government debt obligations'' means                  
  (a) in the case of a producer located in Canada, the yield for federal
   government debt obligations set out in the Bank of Canada's Weekly   
   Financial Statistics                                                 
    (i) where the interest rate is adjusted at intervals of less than   
     one year, under the title ``Treasury Bills'', and                  
    (ii) in any other case, under the title ``Selected Government of    
     Canada benchmark bond yields'',                                    
                                                                        
  for the week that the producer entered into the contract or the week  
   of the most recent interest rate adjustment date, if any, under the  
   contract,                                                            
  (b) in the case of a producer located in Mexico, the yield for federal
   government debt obligations set out in La Seccion de Indicadores     
   Monetarios, Financieros, y de Finanzas Publicas, de los Indicadores  
   Economicos, published by the Banco de Mexico under the title         
   ``Certificados de la Tesoreria de la Federacion'' for the week that  
   the producer entered into the contract or the week of the most recent
   interest rate adjustment date, if any, under the contract, and       
  (c) in the case of a producer located in the United States, the yield 
   for federal government debt obligations set out in the Federal       
   Reserve statistical release (H.15) Selected Interest Rates           

[[Page 46461]]
                                                                        
    (i) where the interest rate is adjusted at intervals of less than   
     one year, under the title ``U.S. government securities, Treasury   
     bills, Secondary market'', and                                     
    (ii) in any other case, under the title ``U.S. Government           
     Securities, Treasury constant maturities'',                        
                                                                        
  for the week that the producer entered into the contract or the week  
   of the most recent interest rate adjustment date, if any, under the  
   contract.                                                            
                                                                        
                                 General                                
                                                                        
SECTION 2.                                                              
    For purposes of calculating non-allowable interest costs            
  (a) with respect to a fixed-rate contract, the interest rate under    
   that contract shall be compared with the yield on federal government 
   debt obligations that have maturities of the same length as the      
   weighted average principal maturity of the payment schedule under the
   contract (that yield determined by linear interpolation, where       
   necessary);                                                          
  (b) with respect to a variable-rate contract                          
    (i) in which the interest rate is adjusted at intervals of less than
     or equal to one year, the interest rate under that contract shall  
     be compared with the yield on federal government debt obligations  
     that have maturities closest in length to the interest rate        
     adjustment period of the contract, and                             
    (ii) in which the interest rate is adjusted at intervals of greater 
     than one year, the interest rate under the contract shall be       
     compared with the yield on federal government debt obligations that
     have maturities of the same length as the weighted average         
     principal maturity of the payment schedule under the contract (that
     yield determined by linear interpolation, where necessary); and    
  (c) with respect to a fixed-rate or variable-rate contract in which   
   the weighted average principal maturity of the payment schedule under
   the contract is greater than the maturities offered on federal       
   government debt obligations, the interest rate under the contract    
   shall be compared to the yield on federal government debt obligations
   that have maturities closest in length to the weighted average       
   principal maturity of the payment schedule under the contract.       
                                                                        
                                ADDENDUM                                
 ``EXAMPLE'' ILLUSTRATING THE APPLICATION OF THE METHOD FOR CALCULATING 
    NON-ALLOWABLE INTEREST COSTS IN THE CASE OF A FIXED-RATE CONTRACT   
                                                                        
    The following example is based on the figures set out in the table  
 below and on the following assumptions:                                
  (a) a producer in a NAFTA country borrows $1,000,000 from a person of 
   the same NAFTA country under a fixed-rate contract;                  
  (b) under the terms of the contract, the loan is payable in 10 years  
   with interest paid at the rate of 6 percent per year on the declining
   principal balance;                                                   
  (c) the payment schedule calculated by the lender based on the terms  
   of the contract requires the producer to make annual payments of     
   principal and interest of $135,867.36 over the life of the contract; 
  (d) there are no federal government debt obligations that have        
   maturities equal to the 6-year weighted average principal maturity of
   the contract; and                                                    
  (e) the federal government debt obligations that are nearest in       
   maturity to the weighted average principal maturity of the contract  
   are of 5- and 7-year maturities, and the yields on them are 4.7      
   percent and 5.0 percent, respectively.                               
                                                                        




--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                            Weighted    
                      Years of loan                        Principal balance   Interest payment  Principal payment   Payment schedule  principal payment
                                                                  \1\                \2\                \3\                                   \4\       
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................................................        $924,132.04          $60,000.00         $75,867.96        $135,867.96         $75,867.96
2.......................................................         843,712.00           55,447.92          80,420.04         135,867.96         160,840.08
3.......................................................         758,466.76           50,622.72          85,245.24         135,867.96         255,735.72
4.......................................................         668,106.81           45,508.01          90,359.95         135,867.96         361,439.82
5.......................................................         572,325.26           40,086.41          95,781.55         135,867.96         478,907.76
6.......................................................         470,796.81           34,339.52         101,528.44         135,867.96         609,170.67
7.......................................................         363,176.66           28,247.81         107,620.15         135,867.96         753,341.06
8.......................................................         249,099.30           21,790.60         114,077.36         135,867.96         912,618.88
9.......................................................         128,177.30           14,945.96         120,922.00         135,867.96       1,088,298.02
10......................................................              (0.00)           7,690.66         128,177.32         135,867.96       1,281,773.22
                                                                                                                                      ------------------
                                                          ..................  .................  .................  .................     $5,977,993.19 
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ The principal balance represents the loan balance at the end of each full year the loan is in effect and is calculated by subtracting the current   
  year's principal payment from the prior year's ending loan balance.                                                                                   
\2\ Interest payments are calculated by multiplying the prior year's ending loan balance by the contract interest rate of 6 percent.                    
\3\ Principal payments are calculated by subtracting the current year's interest payments from the annual payment schedule amount.                      
\4\ The weighted principal payment is determined by, for each year of the loan, multiplying that year's principal payment by the number of years the    
  loan had been in effect at the end of that year.                                                                                                      
\5\ The weighted average principal maturity of the contract is calculated by dividing the sum of the weighted principal payments by the original loan   
  amount and rounding the amount determined to the nearest decimal place.                                                                               


Weighted Average Principal Maturity                                     
    $5,977,993.19/$1,000,000=5.977993 or 6 years \5\                    
By applying the above method:                                           
  (1) the weighted average principal maturity of the payment schedule   
   under the 6 percent contract is 6 years;                             
  (2) the yields on the closest maturities for comparable federal       
   government debt obligations of 5 years and 7 years are 4.7 percent   
   and 5.0 percent, respectively; therefore, using linear interpolation,
   the yield on a federal government debt obligation that has a maturity
   equal to the weighted average principal maturity of the contract is  
   4.85 percent. This number is calculated as follows:                  
                                                                        

[[Page 46462]]
                                                                        
    4.7+[((5.0-4.7) x (6-5))/(7-5)]                                     
    =4.7+0.15                                                           
    =4.85%; and                                                         
                                                                        
  (3) the producer's contract interest rate of 6 percent is within 700  
   basis points of the 4.85 percent yield on the comparable federal     
   government debt obligation; therefore, none of the producer's        
   interest costs are considered to be non-allowable interest costs for 
   purposes of the definition ``non-allowable interest costs.''         
                                                                        
 ``EXAMPLE'' ILLUSTRATING THE APPLICATION OF THE METHOD FOR CALCULATING 
  NON-ALLOWABLE INTEREST COSTS IN THE CASE OF A VARIABLE-RATE CONTRACT  
                                                                        
    The following example is based on the figures set out in the tables 
 below and on the following assumptions:                                
  (a) a producer in a NAFTA country borrows $1,000,000 from a person of 
   the same NAFTA country under a variable-rate contract;               
  (b) under the terms of the contract, the loan is payable in 10 years  
   with interest paid at the rate of 6 percent per year for the first   
   two years and 8 percent per year for the next two years on the       
   principal balance, with rates adjusted each two years after that;    
  (c) the payment schedule calculated by the lender based on the terms  
   of the contract requires the producer to make annual payments of     
   principal and interest of $135,867.96 for the first two years of the 
   loan, and of $146,818.34 for the next two years of the loan;         
  (d) there are no federal government debt obligations that have        
   maturities equal to the 1.9-year weighted average principal maturity 
   of the first two years of the contract;                              
  (e) there are no federal government debt obligations that have        
   maturities equal to the 1.9-year weighted average principal maturity 
   of the third and fourth years of the contract; and                   
  (f) the federal government debt obligations that are nearest in       
   maturity to the weighted average principal maturity of the contract  
   are 1- and 2-year maturities, and the yields on them are 3.0 percent 
   and 3.5 percent respectively.                                        
                                                                        




--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                            Weighted    
           Beginning of year            Principal balance  Interest rate (%)   Interest payment  Principal payment   Payment schedule  principal payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.....................................      $1,000,000.00               6.00         $60,000.00         $75,867.96        $135,867.96         $75,867.96
2.....................................         924,132.04               6.00          55,447.92          80,420.04         135,867.96       1,848,264.08
                                                                                                                                      ------------------
                                        .................  .................  .................  .................  .................      $1,924,132.04
--------------------------------------------------------------------------------------------------------------------------------------------------------



Weighted Average Principal Maturity                                     
    $1,924,132.04/$1,000,000=1.92413204 or 1.9 years                    
By applying the above method:                                           
  (1) the weighted average principal maturity of the payment schedule of
   the first two years of the contract is 1.9 years;                    
  (2) the yield on the closest maturities of federal government debt    
   obligations of 1 year and 2 years are 3.0 and 3.5 percent,           
   respectively; therefore, using linear interpolation, the yield on a  
   federal government debt obligation that has a maturity equal to the  
   weighted average principal maturity of the payment schedule of the   
   first two years of the contract is 3.45 percent. This amount is      
   calculated as follows:                                               
                                                                        
    3.0+[((3.5-3.0) x (1.9-1.0))/(2.0-1.0)]                             
    =3.0+0.45                                                           
    =3.45%; and                                                         
                                                                        
  (3) the producer's contract rate of 6 percent for the first two years 
   of the loan is within 700 basis points of the 3.45 percent yield on  
   federal government debt obligations that have maturities equal to the
   1.9-year weighted average principal maturity of the payment schedule 
   of the first two years of the producer's loan contract; therefore,   
   none of the producer's interest costs are considered to be non-      
   allowable interest costs for purposes of the definition ``non-       
   allowable interest costs''.                                          
                                                                        



--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                            Weighted    
           Beginning of year            Principal balance  Interest rate (%)   Interest payment  Principal payment   Payment schedule  principal payment
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.....................................      $1,000,000.00               6.00         $60,000.00         $75,867.96        $135,867.96                   
2.....................................         924,132.04               6.00          55,447.92          80,420.04         135,867.96                   
3.....................................         843,712.01               8.00          67,496.96          79,321.38         146,818.34         $79,321.38
4.....................................         764,390.62               8.00          61,151.25          85,667.09         146,818.34       1,528,781.24
                                                                                                                                      ------------------
                                                                                                                                           $1,608,102.62
--------------------------------------------------------------------------------------------------------------------------------------------------------


Weighted Average Principal Maturity                                     
    $1,608,102.62/$843,712.01=1.905985 or 1.9 years                     
By applying the above method:                                           
  (1) the weighted average principal maturity of the payment schedule   
   under the first two years of the contract is 1.9 years;              

[[Page 46463]]
                                                                        
  (2) the federal government debt obligations that are nearest in       
   maturities to the weighted average principal maturity of the contract
   are 1- and 2-year maturities, and the yields on them are 3.0 and 3.5 
   percent, respectively; therefore, using linear interpolation, the    
   yield on a federal government debt obligation that has a maturity    
   equal to the weighted average principal maturity of the payment      
   schedule of the first two years of the contract is 3.45 percent. This
   amount is calculated as follows:                                     
                                                                        
    3.0+[((3.5-3.0) x (1.9-1.0))/(2.0-1.0)]                             
    =3.0+0.45                                                           
    =3.45%                                                              
                                                                        
  (3) the producer's contract interest rate, for the third and fourth   
   years of the loan, of 8 percent is within 700 basis points of the    
   3.45 percent yield on federal government debt obligations that have  
   maturities equal to the 1.9-year weighted average principal maturity 
   of the payment schedule under the third and fourth years of the      
   producer's loan contract; therefore, none of the producer's interest 
   costs are considered to be non-allowable interest costs for purposes 
   of the definition ``non-allowable interest costs''.                  
                                                                        
                              SCHEDULE XII                              
                GENERALLY ACCEPTED ACCOUNTING PRINCIPLES                
                                                                        
SECTION 1.                                                              
    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 and procedures.                                              
SECTION 2.                                                              
    For purposes of Generally Accepted Accounting Principles, the       
 recognized consensus or authoritative support are referred to or set   
 out in the following publications:                                     
  (a) with respect to the territory of Canada, The Canadian Institute of
   Chartered Accountants Handbook, as updated from time to time;        
  (b) with respect to the territory of Mexico, Los Principios de        
   Contabilidad Generalmente Aceptados, issued by the Instituto Mexicano
   de Contadores Publicos A.C. (IMCP), including the boletines          
   complementarios, as updated from time to time; and                   
  (c) with respect to the territory of the United States,               
    (i) the following publications of the American Institute of         
     Certified Public Accountants (AICPA), as updated from time to time:
      (A) AICPA Professional Standards,                                 
      (B) Committee on Accounting Procedure Accounting Research         
       Bulletins,                                                       
      (C) Accounting Principles Board Opinions and Statements,          
      (D) APB Accounting and Auditing Guides,                           
      (E) AICPA Statements of Position, and                             
      (F) AICPA Issues Papers and Practice Bulletins,                   
    (ii) the following publications of the Financial Accounting         
     Standards Board (FASB), as updated from time to time:              
      (A) FASB Accounting Standards and Interpretations,                
      (B) FASB Technical Bulletins, and                                 
      (C) FASB Concepts Statements.                                     
                                                                        




PART 191--DRAWBACK

    1. The general authority citation for Part 191 is revised to read 
as follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20, 
Harmonized Tariff Schedule of the United States), 1313, 1624.    
* * * * *
    2. The last sentence of Sec. 191.0 is republished to read as 
follows:


Sec. 191.0  Scope.

    * * * Additional drawback provisions relating to the North American 
Free Trade Agreement are contained in subpart E of part 181 of this 
chapter.
    Dated: August 16, 1995.
George J. Weise,
Commissioner of Customs.
    Approved:
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 95-21716 Filed 8-30-95; 9:56 am]
BILLING CODE 4820-02-P