19 U.S.C. § 3332 (CUSTOMS DUTIES)
§ 3332. Rules of origin
(a) Originating goods
(1) In general
For purposes of implementing the tariff treatment and quantitative restrictions provided for under the Agreement, except as otherwise provided in this section, a good originates in the territory of a NAFTA country if—
(A) the good is wholly obtained or produced entirely in the territory of one or more of the NAFTA countries;
(B)
(i) each nonoriginating material used in the production of the good—
(I) undergoes an applicable change in tariff classification set out in Annex 401 of the Agreement as a result of production occurring entirely in the territory of one or more of the NAFTA countries; or
(II) where no change in tariff classification is required, the good otherwise satisfies the applicable requirements of such Annex; and
(ii) the good satisfies all other applicable requirements of this section;
(C) the good is produced entirely in the territory of one or more of the NAFTA countries exclusively from originating materials; or
(D) except for a good provided for in chapters 61 through 63 of the HTS, the good is produced entirely in the territory of one or more of the NAFTA countries, but one or more of the nonoriginating materials, that are provided for as parts under the HTS and are used in the production of the good, does not undergo a change in tariff classification because—
(i) the good was imported into the territory of a NAFTA country in an unassembled or a disassembled form but was classified as an assembled good pursuant to General Rule of Interpretation 2(a) of the HTS; or
(ii)
(I) the heading for the good provides for and specifically describes both the good itself and its parts and is not further subdivided into subheadings; or
(II) the subheading for the good provides for and specifically describes both the good itself and its parts.
(2) Special rules
(A) Foreign-trade zones
Subparagraph (B) of paragraph (1) shall not apply to a good produced in a foreign-trade zone or subzone (established pursuant to the Act of June 18, 1934, commonly known as the Foreign Trade Zones Act [19 U.S.C. 81a et seq.]) that is entered for consumption in the customs territory of the United States.
(B) Regional value-content requirement
For purposes of subparagraph (D) of paragraph (1), a good shall be treated as originating in a NAFTA country if the regional value-content of the good, determined in accordance with subsection (b), is not less than 60 percent where the transaction value method is used, or not less than 50 percent where the net cost method is used, and the good satisfies all other applicable requirements of this section.
(b) Regional value-content
(1) In general
Except as provided in paragraph (5), the regional value-content of a good shall be calculated, at the choice of the exporter or producer of the good, on the basis of—
(A) the transaction value method described in paragraph (2); or
(B) the net cost method described in paragraph (3).
(2) Transaction value method
(A) In general
An exporter or producer may calculate the regional value-content of a good on the basis of the following transaction value method:
rvc
=
tv–vnm
×
100
tv
(B) Definitions
For purposes of subparagraph (A):
(i) The term “RVC” means the regional value-content, expressed as a percentage.
(ii) The term “TV” means the transaction value of the good adjusted to a F.O.B. basis.
(iii) The term “VNM” means the value of nonoriginating materials used by the producer in the production of the good.
(3) Net cost method
(A) In general
An exporter or producer may calculate the regional value-content of a good on the basis of the following net cost method:
rvc
=
nc–vnm
×
100
nc
(B) Definitions
For purposes of subparagraph (A):
(i) The term “RVC” means the regional value-content, expressed as a percentage.
(ii) The term “NC” means the net cost of the good.
(iii) The term “VNM” means the value of nonoriginating materials used by the producer in the production of the good.
(4) Value of nonoriginating materials used in originating materials
Except as provided in subsection (c)(1), and for a motor vehicle identified in subsection (c)(2) or a component identified in Annex 403.2 of the Agreement, the value of nonoriginating materials used by the producer in the production of a good shall not, for purposes of calculating the regional value-content of the good under paragraph (2) or (3), include the value of nonoriginating materials used to produce originating materials that are subsequently used in the production of the good.
(5) Net cost method must be used in certain cases
An exporter or producer shall calculate the regional value-content of a good solely on the basis of the net cost method described in paragraph (3), if—
(A) there is no transaction value for the good;
(B) the transaction value of the good is unacceptable under Article 1 of the Customs Valuation Code;
(C) the good is sold by the producer to a related person and the volume, by units of quantity, of sales of identical or similar goods to related persons during the six-month period immediately preceding the month in which the good is sold exceeds 85 percent of the producer’s total sales of such goods during that period;
(D) the good is—
(i) a motor vehicle provided for in heading 8701 or 8702, subheadings 8703.21 through 8703.90, or heading 8704, 8705, or 8706;
(ii) identified in Annex 403.1 or 403.2 of the Agreement and is for use in a motor vehicle provided for in heading 8701 or 8702, subheadings 8703.21 through 8703.90, or heading 8704, 8705, or 8706;
(iii) provided for in subheadings 6401.10 through 6406.10; or
(iv) a word processing machine provided for in subheading 8469.10.00;
(E) the exporter or producer chooses to accumulate the regional value-content of the good in accordance with subsection (d); or
(F) the good is designated as an intermediate material under paragraph (10) and is subject to a regional value-content requirement.
(6) Net cost method allowed for adjustments
If an exporter or producer of a good calculates the regional value-content of the good on the basis of the transaction value method and a NAFTA country subsequently notifies the exporter or producer, during the course of a verification conducted in accordance with chapter 5 of the Agreement, that the transaction value of the good or the value of any material used in the production of the good must be adjusted or is unacceptable under Article 1 of the Customs Valuation Code, the exporter or producer may calculate the regional value-content of the good on the basis of the net cost method.
(7) Review of adjustment
Nothing in paragraph (6) shall be construed to prevent any review or appeal available in accordance with article 510 of the Agreement with respect to an adjustment to or a rejection of—
(A) the transaction value of a good; or
(B) the value of any material used in the production of a good.
(8) Calculating net cost
The producer may, consistent with regulations implementing this section, calculate the net cost of a good under paragraph (3), by—
(A) calculating the total cost incurred with respect to all goods produced by that producer, subtracting any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and nonallowable interest costs that are included in the total cost of all such goods, and reasonably allocating the resulting net cost of those goods to the good;
(B) calculating the total cost incurred with respect to all goods produced by that producer, reasonably allocating the total cost to the good, and subtracting any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and nonallowable interest costs that are included in the portion of the total cost allocated to the good; or
(C) reasonably allocating each cost that is part of the total cost incurred with respect to the good so that the aggregate of these costs does not include any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, or nonallowable interest costs.
(9) Value of material used in production
Except as provided in paragraph (11), the value of a material used in the production of a good—
(A) shall—
(i) be the transaction value of the material determined in accordance with Article 1 of the Customs Valuation Code; or
(ii) in the event that there is no transaction value or the transaction value of the material is unacceptable under Article 1 of the Customs Valuation Code, be determined in accordance with Articles 2 through 7 of the Customs Valuation Code; and
(B) if not included under clause (i) or (ii) of subparagraph (A), shall include—
(i) freight, insurance, packing, and all other costs incurred in transporting the material to the location of the producer;
(ii) duties, taxes, and customs brokerage fees paid on the material in the territory of one or more of the NAFTA countries; and
(iii) the cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of renewable scrap or by-product.
(10) Intermediate material
Except for goods described in subsection (c)(1), any self-produced material, other than a component identified in Annex 403.2 of the Agreement, that is used in the production of a good may be designated by the producer of the good as an intermediate material for the purpose of calculating the regional value-content of the good under paragraph (2) or (3); provided that if the intermediate material is subject to a regional value-content requirement, no other self-produced material that is subject to a regional value-content requirement and is used in the production of the intermediate material may be designated by the producer as an intermediate material.
(11) Value of intermediate material
The value of an intermediate material shall be—
(A) the total cost incurred with respect to all goods produced by the producer of the good that can be reasonably allocated to the intermediate material; or
(B) the aggregate of each cost that is part of the total cost incurred with respect to the intermediate material that can be reasonably allocated to that intermediate material.
(12) Indirect material
The value of an indirect material shall be based on the Generally Accepted Accounting Principles applicable in the territory of the NAFTA country in which the good is produced.
(c) Automotive goods
(1) Passenger vehicles and light trucks, and their automotive parts
For purposes of calculating the regional value-content under the net cost method for—
(A) a good that is a motor vehicle for the transport of 15 or fewer persons provided for in subheading 8702.10.00 or 8702.90.00, or a motor vehicle provided for in subheadings 8703.21 through 8703.90, or subheading 8704.21 or 8704.31, or
(B) a good provided for in the tariff provisions listed in Annex 403.1 of the Agreement, that is subject to a regional value-content requirement and is for use as original equipment in the production of a motor vehicle for the transport of 15 or fewer persons provided for in subheading 8702.10.00 or 8702.90.00, or a motor vehicle provided for in subheadings 8703.21 through 8703.90, or subheading 8704.21 or 8704.31,
the value of nonoriginating materials used by the producer in the production of the good shall be the sum of the values of all nonoriginating materials, determined in accordance with subsection (b)(9) at the time the nonoriginating materials are received by the first person in the territory of a NAFTA country who takes title to them, that are imported from outside the territories of the NAFTA countries under the tariff provisions listed in Annex 403.1 of the Agreement and are used in the production of the good or that are used in the production of any material used in the production of the good.
(2) Other vehicles and their automotive parts
For purposes of calculating the regional value-content under the net cost method for a good that is a motor vehicle provided for in heading 8701, subheading 8704.10, 8704.22, 8704.23, 8704.32, or 8704.90, or heading 8705 or 8706, a motor vehicle for the transport of 16 or more persons provided for in subheading 8702.10.00 or 8702.90.00, or a component identified in Annex 403.2 of the Agreement for use as original equipment in the production of the motor vehicle, the value of nonoriginating materials used by the producer in the production of the good shall be the sum of—
(A) for each material used by the producer listed in Annex 403.2 of the Agreement, whether or not produced by the producer, at the choice of the producer and determined in accordance with subsection (b), 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
(A) In general
For purposes of calculating the regional value-content of a motor vehicle described in paragraph (1) or (2), the producer may average its calculation over its fiscal year, using any of the categories described in subparagraph (B), on the basis of either all motor vehicles in the category or on the basis of only the motor vehicles in the category that are exported to the territory of one or more of the other NAFTA countries.
(B) Category described
A category is described in this subparagraph if it is—
(i) the same model line of motor vehicles in the same class of vehicles produced in the same plant in the territory of a NAFTA country;
(ii) the same class of motor vehicles produced in the same plant in the territory of a NAFTA country;
(iii) the same model line of motor vehicles produced in the territory of a NAFTA country; or
(iv) if applicable, the basis set out in Annex 403.3 of the Agreement.
(4) Annex 403.1 and Annex 403.2
For purposes of calculating the regional value-content for any or all goods provided for in a tariff provision listed in Annex 403.1 of the Agreement, or a component or material identified in Annex 403.2 of the Agreement, produced in the same plant, the producer of the good may—
(A) average its calculation—
(i) over the fiscal year of the motor vehicle producer to whom the good is sold;
(ii) over any quarter or month; or
(iii) over its fiscal year, if the good is sold as an aftermarket part;
(B) calculate the average referred to in subparagraph (A) separately for any or all goods sold to one or more motor vehicle producers; or
(C) with respect to any calculation under this paragraph, make a separate calculation for goods that are exported to the territory of one or more NAFTA countries.
(5) Phase-in of regional value-content requirement
Notwithstanding Annex 401 of the Agreement, and except as provided in paragraph (6), the regional value-content requirement shall be—
(A) for a producer’s fiscal year beginning on the day closest to January 1, 1998, and thereafter, 56 percent calculated under the net cost method, and for a producer’s fiscal year beginning on the day closest to January 1, 2002, and thereafter, 62.5 percent calculated under the net cost method, for—
(i) a good that is a motor vehicle for the transport of 15 or fewer persons provided for in subheading 8702.10.00 or 8702.90.00, or a motor vehicle provided for in subheadings 8703.21 through 8703.90, or subheading 8704.21 or 8704.31; and
(ii) a good provided for in heading 8407 or 8408, or subheading 8708.40, that is for use in a motor vehicle identified in clause (i); and
(B) for a producer’s fiscal year beginning on the day closest to January 1, 1998, and thereafter, 55 percent calculated under the net cost method, and for a producer’s fiscal year beginning on the day closest to January 1, 2002, and thereafter, 60 percent calculated under the net cost method, for—
(i) a good that is a motor vehicle provided for in heading 8701, subheading 8704.10, 8704.22, 8704.23, 8704.32, or 8704.90, or heading 8705 or 8706, or a motor vehicle for the transport of 16 or more persons provided for in subheading 8702.10.00 or 8702.90.00;
(ii) a good provided for in heading 8407 or 8408, or subheading 8708.40 that is for use in a motor vehicle identified in clause (i); and
(iii) except for a good identified in subparagraph (A)(ii) or a good provided for in subheadings 8482.10 through 8482.80, or subheading 8483.20 or 8483.30, a good identified in Annex 403.1 of the Agreement that is subject to a regional value-content requirement and is for use in a motor vehicle identified in subparagraph (A)(i) or (B)(i).
(6) New and refitted plants
The regional value-content requirement for a motor vehicle identified in paragraph (1) or (2) shall be—
(A) 50 percent for 5 years after the date on which the first motor vehicle prototype is produced in a plant by a motor vehicle assembler, if—
(i) it is a motor vehicle of a class, or marque, or, except for a motor vehicle identified in paragraph (2), size category and underbody, not previously produced by the motor vehicle assembler in the territory of any of the NAFTA countries;
(ii) the plant consists of a new building in which the motor vehicle is assembled; and
(iii) the plant contains substantially all new machinery that is used in the assembly of the motor vehicle; or
(B) 50 percent for 2 years after the date on which the first motor vehicle prototype is produced at a plant following a refit, if it is a motor vehicle of a class, or marque, or, except for a motor vehicle identified in paragraph (2), size category and underbody, different from that assembled by the motor vehicle assembler in the plant before the refit.
(7) Election for certain vehicles from Canada
In the case of goods provided for in subheadings 8703.21 through 8703.90, or subheading 8704.21 or 8704.31, exported from Canada directly to the United States, and entered on or after January 1, 1989, and before the date of entry into force of the Agreement between the United States and Canada, an importer may elect to use the rules of origin set out in this section in lieu of the rules of origin contained in section 202 of the United States-Canada Free-Trade Agreement Implementation Act of 1988 (19 U.S.C. 2112 note) and may elect to use the method for calculating the value of nonoriginating materials established in article 403(2) of the Agreement in lieu of the method established in article 403(1) of the Agreement for purposes of determining eligibility for preferential duty treatment under the United States-Canada Free-Trade Agreement. Any election under this paragraph shall be made in writing to the Customs Service not later than the date that is 180 days after the date of entry into force of the Agreement between the United States and Canada. Any such election may be made only if the liquidation of such entry has not become final. For purposes of averaging the calculation of regional value-content for the goods covered by such entry, where the producer’s 1989–1990 fiscal year began after January 1, 1989, the producer may include the period between January 1, 1989, and the beginning of its first fiscal year after January 1, 1989, as part of fiscal year 1989–1990.
(d) Accumulation
(1) Determination of originating good
For purposes of determining whether a good is an originating good, the production of the good in the territory of one or more of the NAFTA countries by one or more producers shall, at the choice of the exporter or producer of the good, be considered to have been performed in the territory of any of the NAFTA countries by that exporter or producer, if—
(A) all nonoriginating materials used in the production of the good undergo an applicable tariff classification change set out in Annex 401 of the Agreement;
(B) the good satisfies any applicable regional value-content requirement; and
(C) the good satisfies all other applicable requirements of this section.
The requirements of subparagraphs (A) and (B) must be satisfied entirely in the territory of one or more of the NAFTA countries.
(2) Treatment as single producer
For purposes of subsection (b)(10), the production of a producer that chooses to accumulate its production with that of other producers under paragraph (1) shall be treated as the production of a single producer.
(e) De minimis amounts of nonoriginating materials
(1) In general
Except as provided in paragraphs (3), (4), (5), and (6), a good shall be considered to be an originating good if—
(A) the value of all nonoriginating materials used in the production of the good that do not undergo an applicable change in tariff classification (set out in Annex 401 of the Agreement) is not more than 7 percent of the transaction value of the good, adjusted to a F.O.B. basis, or
(B) where the transaction value of the good is unacceptable under Article 1 of the Customs Valuation Code, the value of all such nonoriginating materials is not more than 7 percent of the total cost of the good,
provided that the good satisfies all other applicable requirements of this section and, if the good is subject to a regional value-content requirement, the value of such nonoriginating materials is taken into account in calculating the regional value-content of the good.
(2) Goods not subject to regional value-content requirement
A good that is otherwise subject to a regional value-content requirement shall not be required to satisfy such requirement if—
(A)
(i) the value of all nonoriginating materials used in the production of the good is not more than 7 percent of the transaction value of the good, adjusted to a F.O.B. basis; or
(ii) where the transaction value of the good is unacceptable under Article 1 of the Customs Valuation Code, the value of all nonoriginating materials is not more than 7 percent of the total cost of the good; and
(B) the good satisfies all other applicable requirements of this section.
(3) Dairy products, etc.
Paragraph (1) does not apply to—
(A) a nonoriginating material provided for in chapter 4 of the HTS or a dairy preparation containing over 10 percent by weight of milk solids provided for in subheading 1901.90.30, 1901.90.40, or 1901.90.80 that is used in the production of a good provided for in chapter 4 of the HTS;
(B) a nonoriginating material provided for in chapter 4 of the HTS or a dairy preparation containing over 10 percent by weight of milk solids provided for in subheading 1901.90.30, 1901.90.40, or 1901.90.80 that is used in the production of—
(i) preparations for infants containing over 10 percent by weight of milk solids provided for in subheading 1901.10.00;
(ii) mixes and doughs, containing over 25 percent by weight of butterfat, not put up for retail sale, provided for in subheading 1901.20.00;
(iii) a dairy preparation containing over 10 percent by weight of milk solids provided for in subheading 1901.90.30, 1901.90.40, or 1901.90.80;
(iv) a good provided for in heading 2105 or subheading 2106.90.05, or preparations containing over 10 percent by weight of milk solids provided for in subheading 2106.90.15, 2106.90.40, 2106.90.50, or 2106.90.65;
(v) a good provided for in subheading 2202.90.10 or 2202.90.20; or
(vi) animal feeds containing over 10 percent by weight of milk solids provided for in subheading 2309.90.30;
(C) a nonoriginating material provided for in heading 0805 or subheadings 2009.11 through 2009.30 that is used in the production of—
(i) a good provided for in subheadings 2009.11 through 2009.30, or subheading 2106.90.16, or concentrated fruit or vegetable juice of any single fruit or vegetable, fortified with minerals or vitamins, provided for in subheading 2106.90.19; or
(ii) a good provided for in subheading 2202.90.30 or 2202.90.35, or fruit or vegetable juice of any single fruit or vegetable, fortified with minerals or vitamins, provided for in subheading 2202.90.36;
(D) a nonoriginating material provided for in chapter 9 of the HTS that is used in the production of instant coffee, not flavored, provided for in subheading 2101.10.20;
(E) a nonoriginating material provided for in chapter 15 of the HTS that is used in the production of a good provided for in headings 1501 through 1508, or heading 1512, 1514, or 1515;
(F) a nonoriginating material provided for in heading 1701 that is used in the production of a good provided for in headings 1701 through 1703;
(G) a nonoriginating material provided for in chapter 17 of the HTS or heading 1805 that is used in the production of a good provided for in subheading 1806.10;
(H) a nonoriginating material provided for in headings 2203 through 2208 that is used in the production of a good provided for in headings 2207 through 2208;
(I) a nonoriginating material used in the production of—
(i) a good provided for in subheading 7321.11.30;
(ii) a good provided for in subheading 8415.10, subheadings 8415.81 through 8415.83, subheadings 8418.10 through 8418.21, subheadings 8418.29 through 8418.40, subheading 8421.12 or 8422.11, subheadings 8450.11 through 8450.20, or subheadings 8451.21 through 8451.29;
(iii) trash compactors provided for in subheading 8479.89.60; or
(iv) a good provided for in subheading 8516.60.40; and
(J) a printed circuit assembly that is a nonoriginating material used in the production of a good where the applicable change in tariff classification for the good, as set out in Annex 401 of the Agreement, places restrictions on the use of such nonoriginating material.
(4) Certain fruit juices
Paragraph (1) does not apply to a nonoriginating single juice ingredient provided for in heading 2009 that is used in the production of—
(A) a good provided for in subheading 2009.90, or concentrated mixtures of fruit or vegetable juice, fortified with minerals or vitamins, provided for in subheading 2106.90.19; or
(B) mixtures of fruit or vegetable juices, fortified with minerals or vitamins, provided for in subheading 2202.90.39.
(5) Goods provided for in chapters 1 through 27 of the HTS
Paragraph (1) does not apply to a nonoriginating material used in the production of a good provided for in chapters 1 through 27 of the HTS unless the nonoriginating material is provided for in a different subheading than the good for which origin is being determined under this section.
(6) Goods provided for in chapters 50 through 63 of the HTS
A good provided for in chapters 50 through 63 of the HTS, that does not originate because certain fibers or yarns used in the production of the component of the good that determines the tariff classification of the good do not undergo an applicable change in tariff classification set out in Annex 401 of the Agreement, shall be considered to be a good that originates if the total weight of all such fibers or yarns in that component is not more than 7 percent of the total weight of that component.
(f) Fungible goods and materials
For purposes of determining whether a good is an originating good—
(1) if originating and nonoriginating fungible materials are used in the production of the good, the determination of whether the materials are originating need not be made through the identification of any specific fungible material, but may be determined on the basis of any of the inventory management methods set out in regulations implementing this section; and
(2) if originating and nonoriginating fungible goods are commingled and exported in the same form, the determination may be made on the basis of any of the inventory management methods set out in regulations implementing this section.
(g) Accessories, spare parts, or tools
(1) In general
Except as provided in paragraph (2), accessories, spare parts, or tools delivered with the good that form part of the good’s standard accessories, spare parts, or tools shall—
(A) be considered as originating goods if the good is an originating good, and
(B) be disregarded in determining whether all the nonoriginating materials used in the production of the good undergo an applicable change in tariff classification set out in Annex 401 of the Agreement.
(2) Conditions
Paragraph (1) shall apply only if—
(A) the accessories, spare parts, or tools are not invoiced separately from the good;
(B) the quantities and value of the accessories, spare parts, or tools are customary for the good; and
(C) in any case in which the good is subject to a regional value-content requirement, the value of the accessories, spare parts, or tools are taken into account as originating or nonoriginating materials, as the case may be, in calculating the regional value-content of the good.
(h) Indirect materials
An indirect material shall be considered to be an originating material without regard to where it is produced.
(i) Packaging materials and containers for retail sale
Packaging materials and containers in which a good is packaged for retail sale, if classified with the good, shall be disregarded in determining whether all the nonoriginating materials used in the production of the good undergo an applicable change in tariff classification set out in Annex 401 of the Agreement. If the good is subject to a regional value-content requirement, the value of such packaging materials and containers shall be taken into account as originating or nonoriginating materials, as the case may be, in calculating the regional value-content of the good.
(j) Packing materials and containers for shipment
Packing materials and containers in which a good is packed for shipment shall be disregarded—
(1) in determining whether the nonoriginating materials used in the production of the good undergo an applicable change in tariff classification set out in Annex 401 of the Agreement; and
(2) in determining whether the good satisfies a regional value-content requirement.
(k) Transshipment
A good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of subsection (a) if, subsequent to that production, the good undergoes further production or any other operation outside the territories of the NAFTA countries, other than unloading, reloading, or any other operation necessary to preserve it in good condition or to transport the good to the territory of a NAFTA country.
(l) Nonqualifying operations
A good shall not be considered to be an originating good merely by reason of—
(1) mere dilution with water or another substance that does not materially alter the characteristics of the good; or
(2) any production or pricing practice with respect to which it may be demonstrated, by a preponderance of evidence, that the object was to circumvent this section.
(m) Interpretation and application
For purposes of this section:
(1) The basis for any tariff classification is the HTS.
(2) Except as otherwise expressly provided, whenever in this section there is a reference to a heading or subheading such reference shall be a reference to a heading or subheading of the HTS.
(3) In applying subsection (a)(4), the determination of whether a heading or subheading under the HTS provides for and specifically describes both a good and its parts shall be made on the basis of the nomenclature of the heading or subheading, the rules of interpretation, or notes of the HTS.
(4) In applying the Customs Valuation Code—
(A) the principles of the Customs Valuation Code shall apply to domestic transactions, with such modifications as may be required by the circumstances, as would apply to international transactions;
(B) the provisions of this section shall take precedence over the Customs Valuation Code to the extent of any difference; and
(C) the definitions in subsection (p) shall take precedence over the definitions in the Customs Valuation Code to the extent of any difference.
(5) All costs referred to in this section shall be recorded and maintained in accordance with the Generally Accepted Accounting Principles applicable in the territory of the NAFTA country in which the good is produced.
(n) Origin of automatic data processing goods
Notwithstanding any other provision of this section, when the NAFTA countries apply the rate of duty described in paragraph 1 of section A of Annex 308.1 of the Agreement to a good provided for under the tariff provisions set out in Table 308.1.1 of such Annex, the good shall, upon importation from a NAFTA country, be deemed to originate in the territory of a NAFTA country for purposes of this section.
(o) Special rule for certain agricultural products
Notwithstanding any other provision of this section, for purposes of applying a rate of duty to a good provided for in—
(1) heading 1202 that is exported from the territory of Mexico, if the good is not wholly obtained in the territory of Mexico,
(2) subheading 2008.11 that is exported from the territory of Mexico, if any material provided for in heading 1202 used in the production of that good is not wholly obtained in the territory of Mexico, or
(3) subheading 1806.10.42 or 2106.90.12 that is exported from the territory of Mexico, if any material provided for in subheading 1701.99 used in the production of that good is not a qualifying good,
such good shall be treated as a nonoriginating good and, for purposes of this subsection, the terms “qualifying good” and “wholly obtained in the territory of” have the meaning given such terms in paragraph 26 of section A of Annex 703.2 of the Agreement.
(p) Definitions
For purposes of this section—
(1) Class of motor vehicles
The term “class of motor vehicles” means any one of the following categories of motor vehicles:
(A) Motor vehicles provided for in subheading 8701.20, subheading 8704.10, 8704.22, 8704.23, 8704.32, or 8704.90, or heading 8705 or 8706, or motor vehicles designed for the transport of 16 or more persons provided for in subheading 8702.10.00 or 8702.90.00.
(B) Motor vehicles provided for in subheading 8701.10, or subheadings 8701.30 through 8701.90.
(C) Motor vehicles for the transport of 15 or fewer persons provided for in subheading 8702.10.00 or 8702.90.00, or motor vehicles provided for in subheading 8704.21 or 8704.31.
(D) Motor vehicles provided for in subheadings 8703.21 through 8703.90.
(2) Customs Valuation Code
The term “Customs Valuation Code” means the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, including its interpretative notes.
(3) F.O.B.
The term “F.O.B.” means free on board, regardless of the mode of transportation, at the point of direct shipment by the seller to the buyer.
(4) Fungible goods and fungible materials
The terms “fungible goods” and “fungible materials” mean goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical.
(5) Generally Accepted Accounting Principles
The term “Generally Accepted Accounting Principles” means the recognized consensus or substantial authoritative support in the territory of a NAFTA country with respect to the recording of revenues, expenses, costs, assets and liabilities, disclosure of information, and preparation of financial statements. These standards may be broad guidelines of general application as well as detailed standards, practices, or procedures.
(6) Goods wholly obtained or produced entirely in the territory of one or more of the NAFTA countries
The term “goods wholly obtained or produced entirely in the territory of one or more of the NAFTA countries” means—
(A) mineral goods extracted in the territory of one or more of the NAFTA countries;
(B) vegetable goods harvested in the territory of one or more of the NAFTA countries;
(C) live animals born and raised in the territory of one or more of the NAFTA countries;
(D) goods obtained from hunting, trapping, or fishing in the territory of one or more of the NAFTA countries;
(E) goods (such as fish, shellfish, and other marine life) taken from the sea by vessels registered or recorded with a NAFTA country and flying its flag;
(F) goods produced on board factory ships from the goods referred to in subparagraph (E), if such factory ships are registered or recorded with that NAFTA country and fly its flag;
(G) goods taken by a NAFTA country or a person of a NAFTA country from the seabed or beneath the seabed outside territorial waters, provided that a NAFTA country has rights to exploit such seabed;
(H) goods taken from outer space, if the goods are obtained by a NAFTA country or a person of a NAFTA country and not processed in a country other than a NAFTA country;
(I) waste and scrap derived from—
(i) production in the territory of one or more of the NAFTA countries; or
(ii) used goods collected in the territory of one or more of the NAFTA countries, if such goods are fit only for the recovery of raw materials; and
(J) goods produced in the territory of one or more of the NAFTA countries exclusively from goods referred to in subparagraphs (A) through (I), or from their derivatives, at any stage of production.
(7) Identical or similar goods
The term “identical or similar goods” means “identical goods” and “similar goods”, respectively, as defined in the Customs Valuation Code.
(8) Indirect material
(A) The term “indirect material” means a good—
(i) used in the production, testing, or inspection of a good but not physically incorporated into the good, or
(ii) used in the maintenance of buildings or the operation of equipment associated with the production of a good,
in the territory of one or more of the NAFTA countries.
(B) When used for a purpose described in subparagraph (A), the following materials are among those considered to be indirect materials:
(i) Fuel and energy.
(ii) Tools, dies, and molds.
(iii) Spare parts and materials used in the maintenance of equipment and buildings.
(iv) Lubricants, greases, compounding materials, and other materials used in production or used to operate equipment and buildings.
(v) Gloves, glasses, footwear, clothing, safety equipment, and supplies.
(vi) Equipment, devices, and supplies used for testing or inspecting the goods.
(vii) Catalysts and solvents.
(viii) Any other goods that are not incorporated into the good, if the use of such goods in the production of the good can reasonably be demonstrated to be a part of that production.
(9) Intermediate material
The term “intermediate material” means a material that is self-produced, used in the production of a good, and designated pursuant to subsection (b)(10).
(10) Marque
The term “marque” means the trade name used by a separate marketing division of a motor vehicle assembler.
(11) Material
The term “material” means a good that is used in the production of another good and includes a part or an ingredient.
(12) Model line
The term “model line” means a group of motor vehicles having the same platform or model name.
(13) Motor vehicle assembler
The term “motor vehicle assembler” means a producer of motor vehicles and any related persons or joint ventures in which the producer participates.
(14) NAFTA country
The term “NAFTA country” means the United States, Canada or Mexico for such time as the Agreement is in force with respect to Canada or Mexico, and the United States applies the Agreement to Canada or Mexico.
(15) New building
The term “new building” means a new construction, including at least the pouring or construction of new foundation and floor, the erection of a new structure and roof, and installation of new plumbing, electrical, and other utilities to house a complete vehicle assembly process.
(16) Net cost
The term “net cost” means total cost less sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and nonallowable interest costs that are included in the total cost.
(17) Net cost of a good
The term “net cost of a good” means the net cost that can be reasonably allocated to a good using one of the methods set out in subsection (b)(8).
(18) Nonallowable interest costs
The term “nonallowable interest costs” means interest costs incurred by a producer as a result of an interest rate that exceeds the applicable Federal Government interest rate for comparable maturities by more than 700 basis points, determined pursuant to regulations implementing this section.
(19) Nonoriginating good; nonoriginating material
The term “nonoriginating good” or “nonoriginating material” means a good or material that does not qualify as an originating good or material under the rules of origin set out in this section.
(20) Originating
The term “originating” means qualifying under the rules of origin set out in this section.
(21) Producer
The term “producer” means a person who grows, mines, harvests, fishes, traps, hunts, manufactures, processes, or assembles a good.
(22) Production
The term “production” means growing, mining, harvesting, fishing, trapping, hunting, manufacturing, processing, or assembling a good.
(23) Reasonably allocate
The term “reasonably allocate” means to apportion in a manner appropriate to the circumstances.
(24) Refit
The term “refit” means a plant closure, for purposes of plant conversion or retooling, that lasts at least 3 months.
(25) Related persons
The term “related persons” means persons specified in any of the following subparagraphs:
(A) Persons who are officers or directors of one another’s businesses.
(B) Persons who are legally recognized partners in business.
(C) Persons who are employer and employee.
(D) Persons one of whom owns, controls, or holds 25 percent or more of the outstanding voting stock or shares of the other.
(E) Persons if 25 percent or more of the outstanding voting stock or shares of each of them is directly or indirectly owned, controlled, or held by a third person.
(F) Persons one of whom is directly or indirectly controlled by the other.
(G) Persons who are directly or indirectly controlled by a third person.
(H) Persons who are members of the same family.
For purposes of this paragraph, the term “members of the same family” means natural or adoptive children, brothers, sisters, parents, grandparents, or spouses.
(26) Royalties
The term “royalties” means payments of any kind, including payments under technical assistance or similar agreements, made as consideration for the use or right to use any copyright, literary, artistic, or scientific work, patent, trademark, design, model, plan, secret formula, or process. It does not include payments under technical assistance or similar agreements that can be related to specific services such as—
(A) personnel training, without regard to where performed; and
(B) if performed in the territory of one or more of the NAFTA countries, engineering, tooling, die-setting, software design and similar computer services, or other services.
(27) Sales promotion, marketing, and after-sales service costs
The term “sales promotion, marketing, and after-sales service costs” means the costs related to sales promotion, marketing, and after-sales service for the following:
(A) Sales and marketing promotion, media advertising, advertising and market research, promotional and demonstration materials, exhibits, sales conferences, trade shows, conventions, banners, marketing displays, free samples, sales, marketing and after-sales service literature (product brochures, catalogs, technical literature, price lists, service manuals, sales aid information), establishment and protection of logos and trademarks, sponsorships, wholesale and retail restocking charges, and entertainment.
(B) Sales and marketing incentives, consumer, retailer, or wholesaler rebates, and merchandise incentives.
(C) Salaries and wages, sales commissions, bonuses, benefits (such as medical, insurance, and pension), traveling and living expenses, and membership and professional fees for sales promotion, marketing, and after-sales service personnel.
(D) Recruiting and training of sales promotion, marketing, and after-sales service personnel, and after-sales training of customers’ employees, where such costs are identified separately for sales promotion, marketing, and after-sales service of goods on the financial statements or cost accounts of the producer.
(E) Product liability insurance.
(F) Office supplies for sales promotion, marketing, and after-sales service of goods, where such costs are identified separately for sales promotion, marketing, and after-sales service of goods on the financial statements or cost accounts of the producer.
(G) Telephone, mail, and other communications, where such costs are identified separately for sales promotion, marketing, and after-sales service of goods on the financial statements or cost accounts of the producer.
(H) Rent and depreciation of sales promotion, marketing, and after-sales service offices and distribution centers.
(I) Property insurance, taxes, utilities, and repair and maintenance of sales promotion, marketing, and after-sales service offices and distribution centers, where such costs are identified separately for sales promotion, marketing, and after-sales service of goods on the financial statements or cost accounts of the producer.
(J) Payments by the producer to other persons for warranty repairs.
(28) Self-produced material
The term “self-produced material” means a material that is produced by the producer of a good and used in the production of that good.
(29) Shipping and packing costs
The term “shipping and packing costs” means the costs incurred in packing a good for shipment and shipping the good from the point of direct shipment to the buyer, but does not include the costs of preparing and packaging the good for retail sale.
(30) Size category
The term “size category” means with respect to a motor vehicle identified in subsection (c)(1)(A)—
(A) 85 cubic feet or less of passenger and luggage interior volume;
(B) more than 85 cubic feet, but less than 100 cubic feet, of passenger and luggage interior volume;
(C) at least 100 cubic feet, but not more than 110 cubic feet, of passenger and luggage interior volume;
(D) more than 110 cubic feet, but less than 120 cubic feet, of passenger and luggage interior volume; and
(E) 120 cubic feet or more of passenger and luggage interior volume.
(31) Territory
The term “territory” means a territory described in Annex 201.1 of the Agreement.
(32) Total cost
The term “total cost” means all product costs, period costs, and other costs incurred in the territory of one or more of the NAFTA countries.
(33) Transaction value
Except as provided in subsection (c)(1) or (c)(2)(A), the term “transaction value” means the price actually paid or payable for a good or material with respect to a transaction of the producer of the good, adjusted in accordance with the principles of paragraphs 1, 3, and 4 of Article 8 of the Customs Valuation Code and determined without regard to whether the good or material is sold for export.
(34) Underbody
The term “underbody” means the floor pan of a motor vehicle.
(35) Used
The term “used” means used or consumed in the production of goods.
(q) Presidential proclamation authority
(1) In general
The President is authorized to proclaim, as a part of the HTS—
(A) the provisions set out in Appendix 6.A of Annex 300–B, Annex 401, Annex 403.1, Annex 403.2, and Annex 403.3, of the Agreement, and
(B) any additional subordinate category necessary to carry out this title 1 consistent with the Agreement.
(2) Modifications
Subject to the consultation and layover requirements of section 3313 of this title, the President may proclaim—
(A) modifications to the provisions proclaimed under the authority of paragraph (1)(A), other than the provisions of paragraph A of Appendix 6 of Annex 300–B and section XI of part B of Annex 401 of the Agreement; and
(B) a modified version of the definition of any term set out in subsection (p) (and such modified version of the definition shall supersede the version in subsection (p)), but only if the modified version reflects solely those modifications to the same term in article 415 of the Agreement that are agreed to by the NAFTA countries before December 8, 1994.
(3) Special rules for textiles
Notwithstanding the provisions of paragraph (2)(A), and subject to the consultation and layover requirements of section 3313 of this title, the President may proclaim—
(A) modifications to the provisions proclaimed under the authority of paragraph (1)(A) as are necessary to implement an agreement with one or more of the NAFTA countries pursuant to paragraph 2 of section 7 of Annex 300–B of the Agreement, and
(B) before December 8, 1994, modifications to correct any typographical, clerical, or other nonsubstantive technical error regarding the provisions of Appendix 6.A of Annex 300–B and section XI of part B of Annex 401 of the Agreement.
(Pub. L. 103–182, title II, § 202, Dec. 8, 1993, 107 Stat. 2069; Pub. L. 104–295, § 21(a)(2), Oct. 11, 1996, 110 Stat. 3529; Pub. L. 105–206, title V, § 5003(b)(4), July 22, 1998, 112 Stat. 790.)
heading: Repeal of Section
text: Pub. L. 116–113, title VI, § 601, Jan. 29, 2020, 134 Stat. 78, provided that, effective on the date the USMCA enters into force, this section is repealed.
heading: References in Text
text: Act of June 18, 1934, referred to in subsec. (a)(2)(A), is act June 18, 1934, ch. 590, 48 Stat. 998, as amended, which is classified generally to chapter 1A (§ 81a et seq.) of this title. For complete classification of this Act to the Code, see Tables.
Section 202 of the United States-Canada Free-Trade Agreement Implementation Act of 1988, referred to in subsec. (c)(7), is section 202 of Pub. L. 100–449, which is set out in a note under section 2112 of this title.
This title, referred to in subsec. (q)(1)(B), is title II of Pub. L. 103–182, Dec. 8, 1993, 107 Stat. 2068, which enacted this subchapter, amended sections 58c, 81c, 1304, 1311 to 1313, 1508, 1509, 1514, 1520, 1562, 1592, and 1628 of this title, and enacted provisions set out as notes under sections 58c, 1304, and 3331 of this title.
heading: Amendments
text: 1998—Subsec. (n). Pub. L. 105–206 struck out “most-favored-nation” before “rate of duty”.
1996—Subsec. (m)(4)(C). Pub. L. 104–295, § 21(a)(2)(A), substituted “subsection (p)” for “subsection (o)”.
Subsec. (p)(18). Pub. L. 104–295, § 21(a)(2)(B), substituted “Federal Government” for “federal government”.
heading: Effective Date of Repeal
text: Repeal effective on the date on which the USMCA enters into force, see section 601 of Pub. L. 116–113, set out as a note under section 3301 of this title.
heading: Effective Date
text: Section effective on the date the North American Free Trade Agreement enters into force with respect to the United States [Jan. 1, 1994], see section 213(b) of Pub. L. 103–182, set out as a note under section 3331 of this title.
heading: Transfer of Functions
text: For transfer of functions, personnel, assets, and liabilities of the United States Customs Service of the Department of the Treasury, including functions of the Secretary of the Treasury relating thereto, to the Secretary of Homeland Security, and for treatment of related references, see sections 203(1), 551(d), 552(d), and 557 of Title 6, Domestic Security, and the Department of Homeland Security Reorganization Plan of November 25, 2002, as modified, set out as a note under section 542 of Title 6. For establishment of U.S. Customs and Border Protection in the Department of Homeland Security, treated as if included in Pub. L. 107–296 as of Nov. 25, 2002, see section 211 of Title 6, as amended generally by Pub. L. 114–125, and section 802(b) of Pub. L. 114–125, set out as a note under section 211 of Title 6.
heading: North American Free Trade Agreement: Entry Into Force
text: The North American Free Trade Agreement entered into force on Jan. 1, 1994, see note set out under section 3311 of this title.