CUSMA Rules of Origin Regulations — 8
ocated in a CUSMA country produces a bicycle that is subject to a regional value content requirement under subsection 3 (2). The producer also produces a chainring that is used in the production of the bicycle. Both originating materials and non-originating materials are used in the production of the chainring. The chainring is subject to a change in tariff classification requirement under subsection 3 (2). The costs to produce the chainring 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 $0.30 in royalties): $0.50 Other costs: $0.10 Total cost of the chainring: $10.60 The producer designates the chainring as an intermediate material and determines that, because all of the non-originating materials that are used in the production of the chainring undergo an applicable change in tariff classification set out in Schedule 1, the chainring would, under subsection 3 (2) qualify as an originating material. The cost of the non-originating materials used in the production of the chainring is therefore not included in the value of non-originating materials that are used in the production of the bicycle for the purpose of determining the regional value content of the bicycle. Because the chainring is designated as an intermediate material, the total cost of the chainring, which is $10.60, is treated as the cost of originating materials for the purpose of calculating the regional value content of the bicycle. The total cost of the bicycle 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 the bicycle: $28.20 Example 3 (subsection (7)): 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 (1). The following situations demonstrate how this is achieved: Situation A A producer located in a CUSMA country produces a bicycle that is subject to a regional value content requirement of 50% under the net cost method. The bicycle satisfies all other applicable requirements of these Regulations. The producer purchases a bicycle frame, which is used in the production of the bicycle, from a supplier located in a CUSMA country. The value of the frame determined in accordance with subsection (1) is $11.00. The frame is an originating material. All other materials used in the production of the bicycle are non-originating materials. The net cost of the bicycle is determined as follows: Product costs: Value of originating materials (bicycle frame) $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 the bicycle: $23.60 Excluded costs (included in period costs): $0.20 Net cost of the bicycle: $23.40 The regional value content of the bicycle is calculated as follows: RVC = (NC − VNM) ÷ NC × 100 = ($23.40 − $5.50) ÷ $23.40 × 100 = 76.5% The regional value content of the bicycle is 76.5% and the bicycle, therefore, qualifies as an originating good. Situation B A producer located in a CUSMA country produces a bicycle that is subject to a regional value content requirement of 50% under the net cost method. The bicycle satisfies all other applicable requirements of these Regulations. The producer self-produces the bicycle frame that is used in the production of the bicycle. The costs to produce the frame are the following: Product costs: Value of originating materials $1.00 Value of non-originating materials $7.50 Other product costs