H. R. 3450—15
(5) NET COST METHOD MUST BE USED IN CERTAIN CASES.—
An exporter or producer shall calculate the regional value-
content of a good solely on the basis of the net cost method
described in paragraph (3), if—
(A) there is no transaction value for the good;
(B) the transaction value of the good is unacceptable
under Article 1 of the Customs Valuation Code;
(C) the good is sold by the producer to a related person
and the volume, by units of quantity, of sales of identical
or similar goods to related persons during the six-month
period immediately preceding the month in which the good
is sold exceeds 85 percent of the producer’s total sales
of such goods during that period;
(D) the good is—
(i) a motor vehicle provided for in heading 8701
or 8702, subheadings 8703.21 through 8703.90, or
heading 8704, 8705, or 8706;
(ii) identified in Annex 403.1 or 403.2 of the Agree-
ment and is for use in a motor vehicle provided for
in heading 8701 or 8702, subheadings 8703.21 through
8703.90, or heading 8704, 8705, or 8706;
(iii) provided for in subheadings 6401.10 through
6406.10; or
(iv) a word processing machine provided for in
subheading 8469.10.00;
(E) the exporter or producer chooses to accumulate
the regional value-content of the good in accordance with
subsection (d); or
(F) the good is designated as an intermediate material
under paragraph (10) and is subject to a regional value-
content requirement.
(6) NET COST METHOD ALLOWED FOR ADJUSTMENTS.—If an
exporter or producer of a good calculates the regional value-
content of the good on the basis of the transaction value method
and a NAFTA country subsequently notifies the exporter or
producer, during the course of a verification conducted in
accordance with chapter 5 of the Agreement, that the trans-
action value of the good or the value of any material used
in the production of the good must be adjusted or is unaccept-
able under Article 1 of the Customs Valuation Code, the
exporter or producer may calculate the regional value-content
of the good on the basis of the net cost method.
(7) REVIEW
OF
ADJUSTMENT.—Nothing in paragraph (6)
shall be construed to prevent any review or appeal available
in accordance with article 510 of the Agreement with respect
to an adjustment to or a rejection of—
(A) the transaction value of a good; or
(B) the value of any material used in the production
of a good.
(8) CALCULATING NET COST.—The producer may, consistent
with regulations implementing this section, calculate the net
cost of a good under paragraph (3), by—
(A) calculating the total cost incurred with respect
to all goods produced by that producer, subtracting any
sales promotion, marketing and after-sales service costs,
royalties, shipping and packing costs, and nonallowable
interest costs that are included in the total cost of all
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H. R. 3450—16
such goods, and reasonably allocating the resulting net
cost of those goods to the good;
(B) calculating the total cost incurred with respect
to all goods produced by that producer, reasonably allocat-
ing the total cost to the good, and subtracting any sales
promotion, marketing and after-sales service costs, royal-
ties, shipping and packing costs, and nonallowable interest
costs that are included in the portion of the total cost
allocated to the good; or
(C) reasonably allocating each cost that is part of the
total cost incurred with respect to the good so that the
aggregate of these costs does not include any sales pro-
motion, marketing and after-sales service costs, royalties,
shipping and packing costs, or nonallowable interest costs.
(9) VALUE OF MATERIAL USED IN PRODUCTION.—Except as
provided in paragraph (11), the value of a material used in
the production of a good—
(A) shall—
(i) be the transaction value of the material deter-
mined in accordance with Article 1 of the Customs
Valuation Code; or
(ii) in the event that there is no transaction value
or the transaction value of the material is unacceptable
under Article 1 of the Customs Valuation Code, be
determined in accordance with Articles 2 through 7
of the Customs Valuation Code; and
(B) if not included under clause (i) or (ii) of subpara-
graph (A), shall include—
(i) freight, insurance, packing, and all other costs
incurred in transporting the material to the location
of the producer;
(ii) duties, taxes, and customs brokerage fees paid
on the material in the territory of one or more of
the NAFTA countries; and
(iii) the cost of waste and spoilage resulting from
the use of the material in the production of the good,
less the value of renewable scrap or by-product.
(10) INTERMEDIATE MATERIAL.—Except for goods described
in subsection (c)(1), any self-produced material, other than a
component identified in Annex 403.2 of the Agreement, that
is used in the production of a good may be designated by
the producer of the good as an intermediate material for the
purpose of calculating the regional value-content of the good
under paragraph (2) or (3); provided that if the intermediate
material is subject to a regional value-content requirement,
no other self-produced material that is subject to a regional
value-content requirement and is used in the production of
the intermediate material may be designated by the producer
as an intermediate material.
(11) VALUE OF INTERMEDIATE MATERIAL.—The value of an
intermediate material shall be—
(A) the total cost incurred with respect to all goods
produced by the producer of the good that can be reasonably
allocated to the intermediate material; or
(B) the aggregate of each cost that is part of the total
cost incurred with respect to the intermediate material
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H. R. 3450—17
that can be reasonably allocated to that intermediate mate-
rial.
(12) INDIRECT MATERIAL.—The value of an indirect material
shall be based on the Generally Accepted Accounting Principles
applicable in the territory of the NAFTA country in which
the good is produced.
(c) AUTOMOTIVE GOODS.—
(1) PASSENGER VEHICLES AND LIGHT TRUCKS, AND THEIR
AUTOMOTIVE PARTS.—For purposes of calculating the regional
value-content under the net cost method for—
(A) a good that is a motor vehicle for the transport
of 15 or fewer persons provided for in subheading
8702.10.00 or 8702.90.00, or a motor vehicle provided for
in subheadings 8703.21 through 8703.90, or subheading
8704.21 or 8704.31, or
(B) a good provided for in the tariff provisions listed
in Annex 403.1 of the Agreement, that is subject to a
regional value-content requirement and is for use as origi-
nal equipment in the production of a motor vehicle for
the transport of 15 or fewer persons provided for in sub-
heading 8702.10.00 or 8702.90.00, or a motor vehicle pro-
vided for in subheadings 8703.21 through 8703.90, or sub-
heading 8704.21 or 8704.31,
the value of nonoriginating materials used by the producer
in the production of the good shall be the sum of the values
of all nonoriginating materials, determined in accordance with
subsection (b)(9) at the time the nonoriginating materials are
received by the first person in the territory of a NAFTA country
who takes title to them, that are imported from outside the
territories of the NAFTA countries under the tariff provisions
listed in Annex 403.1 of the Agreement and are used in the
production of the good or that are used in the production
of any material used in the production of the good.
(2) OTHER VEHICLES AND THEIR AUTOMOTIVE PARTS.—For
purposes of calculating the regional value-content under the
net cost method for a good that is a motor vehicle provided
for in heading 8701, subheading 8704.10, 8704.22, 8704.23,
8704.32, or 8704.90, or heading 8705 or 8706, a motor vehicle
for the transport of 16 or more persons provided for in sub-
heading 8702.10.00 or 8702.90.00, or a component identified
in Annex 403.2 of the Agreement for use as original equipment
in the production of the motor vehicle, the value of
nonoriginating materials used by the producer in the production
of the good shall be the sum of—
(A) for each material used by the producer listed in
Annex 403.2 of the Agreement, whether or not produced
by the producer, at the choice of the producer and deter-
mined in accordance with subsection (b), either—
(i) 
the 
value 
of 
such 
material 
that 
is
nonoriginating, or
(ii) the value of nonoriginating materials used in
the production of such material; and
(B) the value of any other nonoriginating material
used by the producer that is not listed in Annex 403.2
of the Agreement determined in accordance with subsection
(b).
(3) AVERAGING PERMITTED.—
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H. R. 3450—18
(A) IN
GENERAL.—For purposes of calculating the
regional value-content of a motor vehicle described in para-
graph (1) or (2), the producer may average its calculation
over its fiscal year, using any of the categories described
in subparagraph (B), on the basis of either all motor
vehicles in the category or on the basis of only the motor
vehicles in the category that are exported to the territory
of one or more of the other NAFTA countries.
(B) CATEGORY DESCRIBED.—A category is described in
this subparagraph if it is—
(i) the same model line of motor vehicles in the
same class of vehicles produced in the same plant
in the territory of a NAFTA country;
(ii) the same class of motor vehicles produced in
the same plant in the territory of a NAFTA country;
(iii) the same model line of motor vehicles produced
in the territory of a NAFTA country; or
(iv) if applicable, the basis set out in Annex 403.3
of the Agreement.
(4) ANNEX 403.1 AND ANNEX 403.2.—For purposes of calculat-
ing the regional value-content for any or all goods provided
for in a tariff provision listed in Annex 403.1 of the Agreement,
or a component or material identified in Annex 403.2 of the
Agreement, produced in the same plant, the producer of the
good may—
(A) average its calculation—
(i) over the fiscal year of the motor vehicle producer
to whom the good is sold;
(ii) over any quarter or month; or
(iii) over its fiscal year, if the good is sold as
an aftermarket part;
(B) calculate the average referred to in subparagraph
(A) separately for any or all goods sold to one or more
motor vehicle producers; or
(C) with respect to any calculation under this para-
graph, make a separate calculation for goods that are
exported to the territory of one or more NAFTA countries.
(5) PHASE-IN OF REGIONAL VALUE-CONTENT REQUIREMENT.—
Notwithstanding Annex 401 of the Agreement, and except as
provided in paragraph (6), the regional value-content require-
ment shall be—
(A) for a producer’s fiscal year beginning on the day
closest to January 1, 1998, and thereafter, 56 percent cal-
culated under the net cost method, and for a producer’s
fiscal year beginning on the day closest to January 1,
2002, and thereafter, 62.5 percent calculated under the
net cost method, for—
(i) a good that is a motor vehicle for the transport
of 15 or fewer persons provided for in subheading
8702.10.00 or 8702.90.00, or a motor vehicle provided
for in subheadings 8703.21 through 8703.90, or sub-
heading 8704.21 or 8704.31; and
(ii) a good provided for in heading 8407 or 8408,
or subheading 8708.40, that is for use in a motor
vehicle identified in clause (i); and
(B) for a producer’s fiscal year beginning on the day
closest to January 1, 1998, and thereafter, 55 percent cal-
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H. R. 3450—19
culated under the net cost method, and for a producer’s
fiscal year beginning on the day closest to January 1,
2002, and thereafter, 60 percent calculated under the net
cost method, for—
(i) a good that is a motor vehicle provided for
in heading 8701, subheading 8704.10, 8704.22, 8704.23,
8704.32, or 8704.90, or heading 8705 or 8706, or a
motor vehicle for the transport of 16 or more persons
provided for in subheading 8702.10.00 or 8702.90.00;
(ii) a good provided for in heading 8407 or 8408,
or subheading 8708.40 that is for use in a motor vehicle
identified in clause (i); and
(iii) except for a good identified in subparagraph
(A)(ii) or a good provided for in subheadings 8482.10
through 8482.80, or subheading 8483.20 or 8483.30,
a good identified in Annex 403.1 of the Agreement
that is subject to a regional value-content requirement
and is for use in a motor vehicle identified in subpara-
graph (A)(i) or (B)(i).
(6) NEW AND REFITTED PLANTS.—The regional value-content
requirement for a motor vehicle identified in paragraph (1)
or (2) shall be—
(A) 50 percent for 5 years after the date on which
the first motor vehicle prototype is produced in a plant
by a motor vehicle assembler, if—
(i) it is a motor vehicle of a class, or marque,
or, except for a motor vehicle identified in paragraph
(2), size category and underbody, not previously pro-
duced by the motor vehicle assembler in the territory
of any of the NAFTA countries;
(ii) the plant consists of a new building in which
the motor vehicle is assembled; and
(iii) the plant contains substantially all new
machinery that is used in the assembly of the motor
vehicle; or
(B) 50 percent for 2 years after the date on which
the first motor vehicle prototype is produced at a plant
following a refit, if it is a motor vehicle of a class, or
marque, or, except for a motor vehicle identified in para-
graph (2), size category and underbody, different from that
assembled by the motor vehicle assembler in the plant
before the refit.
(7) ELECTION
FOR
CERTAIN
VEHICLES
FROM
CANADA.—In
the case of goods provided for in subheadings 8703.21 through
8703.90, or subheading 8704.21 or 8704.31, exported from Can-
ada directly to the United States, and entered on or after
January 1, 1989, and before the date of entry into force of
the Agreement between the United States and Canada, an
importer may elect to use the rules of origin set out in this
section in lieu of the rules of origin contained in section 202
of 
the 
United 
States-Canada 
Free-Trade 
Agreement
Implementation Act of 1988 (19 U.S.C. 2112 note) and may
elect to use the method for calculating the value of
nonoriginating materials established in article 403(2) of the
Agreement in lieu of the method established in article 403(1)
of the Agreement for purposes of determining eligibility for
preferential duty treatment under the United States-Canada
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