ADJUSTED VALUE - Trade Compliance Training for...

ITC TEAMRESOURCES

Revised 02-08-2017

A B C D E F G H I L M N O P R S T V

These materials are provided for informational use only and should not be considered legal advice. Before making any decisions based on this information, you are encouraged to consult competent legal advisors.

TABLE OF CONTENTS

ACCESSORIES, SPARE PARTS & TOOLS 4ACCUMULATION 4ADJUSTED VALUE 6

AMERICAN AUTOMOBILE LABELING ACT (AALA)

6

ANNEX 401 7ASSIST 9AVERAGING 11BILL OF MATERIAL (BOM) 12BUILD-DOWN 12BUILD-UP 12BUY AMERICA 13BUY AMERICAN 20CLASSIFICATION 21COMPONENT 21COUNTRY OF ORIGIN MARKING 21CUSTOMS RULINGS ONLINE SEARCH SYSTEM (CROSS)

23

DE MINIMIS 24DISASSEMBLY 24EXIM BANK 26FUNGIBILE GOODS 28GENERALIZED SYSTEM OF PREFERENCES (GSP)

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HEAVY DUTY AUTOMOTIVE GOOD 30HEAVY DUTY AUTOMOTIVE COMPONENT 30HEAVY DUTY TRUCK 30HARMONIZED TARIFF SCHEDULE (HTS) 30INCOTERMS 31INTERMEDIATE MATERIAL 31LIGHT DUTY AUTOMOTIVE GOOD 34LIGHT DUTY TRUCK 34MANUFACTURED PRODUCT 35MANUFACTURING PROCESS 35MANUFACTURER’S AFFIDAVIT (MA) 35MARKING RULES 35NAFTA CERTIFICATE OF ORIGIN 36NAFTA MARKING RULES 37NAFTA PREFERENCE OVERRIDE 38NAFTA QUALIFICATION PROCESS 38NET COST 40NO(1) 41NON-ORIGINATING 41NON-QUALIFYING OPERATIONS 42ORIGINATING 43PACKAGING 44PACKING 44PREFERENCE CRITERIA (NAFTA) 44REASONABLE CARE 46RECORDKEEPING 46REGIONAL VALUE CONTENT (RVC) 47

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ROLLING STOCK 48RULINGS 48SETS 49SIMPLE ASSEMBLY 49SUBCOMPONENT 49SUBSTANTIAL TRANSFORMATION 49TARIFF SHIFT 51TRACED MATERIAL 51TRACED VALUE 51TRANSACTION VALUE 51TRANSSHIPMENT 52VALUE OF NON-ORIGINATING MATERIAL (VNM) 53VALUE OF ORIGINATING MATERIAL (VOM) 53

ACRONYMS 54SCHEDULE IV (LIGHT DUTY TRACING LIST) 57

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ACCESSORIES, SPARE PARTS & TOOLS - Accessories, spare parts, and tools that are delivered with the

goods and that form part of the goods' standard accessories, spare parts, or tools, are considered originating if the goods

originate, and are disregarded in determining whether all the non-originating materials undergo any Annex 401 tariff change. This

provision applies provided the accessories, spare parts and tools are invoiced with the goods and the quantities and value are

customary for the goods. However, if the goods are subject to a regional value-content requirement, the value of the accessories,

spare parts, and 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 goods.

High definition television receivers originating in Mexico are sold with remote controls made in Taiwan. The remote controls are

invoiced and packed with the television receivers and are of a kind customarily sold with high definition television receivers.

Since the television receivers originate, the remote controls are considered originating for purposes of satisfying the required

change in tariff classification. The remote controls must, however, be counted as non-originating materials in the regional value-

content calculation.

Accessories, Spare Parts and Tools | U.S. Customs and Border Protection

ACCUMULATION - When producers determine the regional value content of goods, the entire value of the materials

used in the production of the goods that they acquire from suppliers is considered as wholly originating or wholly non-originating,

as appropriate. The accumulation provision allows the producer or exporter of goods to choose to include as part of the goods'

regional value content any regional value added by suppliers of non-originating materials used to produce the final goods. Thus,

accumulation allows the producer to reduce the value of the non-originating materials used in the production of the good, by

taking into account the NAFTA inputs incorporated into those non-originating materials.

Thus, where a producer finds he is unable to satisfy a regional value-content requirement based on (i) his own processing costs

and (ii) the value of originating materials he uses to produce a good, accumulation allows him to include (iii) any regional value

added in the NAFTA territory by other persons who produced non-originating materials that were subsequently incorporated into

the final good.

The conditions for using accumulation are:

producers/exporters who choose to use accumulation must use the net cost method to calculate any regional value content;

producers/exporters of goods must obtain information on net cost and the regional value content of non-originating

materials used to make their goods from the producers (suppliers) of those materials--it will not be obtained by government

authorities;

all non-originating materials used in the production of the goods must undergo the tariff classification change set out in

Annex 401 of the Agreement, and the goods, must satisfy any applicable regional value-content requirement, entirely in the

territory of one or more of the NAFTA countries; and

the goods must satisfy all other applicable requirements of the rules of origin.

Company A imports unfinished bearing rings (HTS 8482.99) into Canada from Japan and further processes them into finished rings (HTS 8482.99.11 in Canada). Since the finished bearing rings contain non-originating materials, they must satisfy the Annex 401 origin criterion to be considered originating. The Annex 401 origin criterion for HTS 8482.99 is:A change to subheading 8482.91 through 8482.99 from any other heading.Since the unfinished bearings rings are classified in the same tariff subheading as the finished rings, there is no change in headings. Accordingly, the finished bearing rings cannot be considered originating, even though they contain some regional

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A

http://www.cbp.gov/trade/nafta/guide-customs-procedures/other-provisions-relating-origin/accessories

value content by virtue of the labor and other costs associated with the finishing operations in Canada.Company A's per unit cost is:

Non-originating (Japanese) materials $0.75

Originating materials 0.15

Labor 0.35

Overhead 0.05

Total cost 1.30

Subsequently, Company A sells the finished rings (HTS 8482.99.11 in Canada) for $1.45 to Company B in the United States, who incorporates the rings into ball bearings (HTS 8482.10). Company B exports the bearings to Mexico and wants to claim NAFTA preferential treatment. The rule of origin for HTS 8482.10 is:A change to subheading 8482.10 through 8482.80 from any subheading outside that group, except from Canadian tariff item 8482.99.11 or 8482.99.91, U.S. tariff item 8482.99.05, 8482.99.15, 8482.99.25 or Mexican tariff item 8482.99.01 or 8482.99.03; orA change to subheading 8482.10 through 8482.80 from Canadian tariff item 8482.99.11 or 8482.99.91, U.S. tariff item 8482.99.05, 8482.99.15, 8482.99.25 or Mexican tariff item 8482.99.01 or 8482.99.03, whether or not there is also a change from any subheading outside that group, provided there is a regional value content of not less than:60 percent where the transaction value method is used, or50 percent where the net cost method is used.

The bearings do not meet the tariff change described in the first rule.They do, however, meet the tariff change described in the second rule and, provided they satisfy one of the two regional value-content requirements, can be considered originating. Company B knows it is short in meeting the regional value content under either method so it decides to accumulate its regional value content with that of Company A. Assuming Company A sold the rings to Company B for $1.45 per unit, and A is willing to disclose to B the regional value content in the finished rings that it sold to B, the following demonstrates the benefits of accumulation:Without AccumulationNon-originating ring (A) $1.45Originating material (B) $0.45Labor (B) $0.75Overhead (B) $0.05Total $2.70With AccumulationNon-regional value content of ring (A) $0.75Regional value content of ring (A) $0.55Originating material (B) $0.45Labor (B) $0.75Overhead (B) $0.05

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Total $2.55The $0.75 represents the value of the non-originating materials, which in this case are the unfinished bearing rings imported into Canada from Japan.The regional value content, using the net cost method, is:RVC = NC -- VNM x 100NCRVC = regional value contentNC = net costVNM = value of non-originating materialsTherefore, the regional value content calculation, with and without accumulation, is:Without Accumulation With Accumulation$2.70 -- $1.45 x 100 = 46% $2.55-- $0.75 x 100 = 71%$2.70 $2.55Thus, accumulation allows Company B to qualify the bearings as originating by aggregating the regional value content of both Company A and Company B.

http://www.cbp.gov/trade/nafta/guide-customs-procedures/other-instances-confer-origin/accumulation

ADJUSTED VALUE – 19 CFR §10.450 Definitions.

(a) Adjusted value. “Adjusted value” means the value determined in accordance with Articles 1 through 8, Article 15, and the

corresponding interpretative notes of the Customs Valuation Agreement, adjusted, if necessary, to exclude any costs, charges,

or expenses incurred for transportation, insurance, and related services incident to the international shipment of the merchandise

from the country of exportation to the place of importation and the value of packing materials and containers for shipment as

defined in §10.450(m) of this subpart;

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AMERICAN AUTOMOBILE LABELING ACT (AALA) - Congress passed the American Automobile

Labeling Act (AALA) to help consumers in the selection of new vehicles by providing information about the country of origin of

vehicles and their parts.

AALA Formula

US + CA Value = US/CA Content %

Selling Price

See Title 49: Transportation PART 583—AUTOMOBILE PARTS CONTENT LABELING for more information.

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ANNEX 401 - Article 401(b) indicates that goods may "originate" in Canada, Mexico or the United States, even if they

contain non-originating materials, if the materials satisfy the rule of origin specified in Annex 401 of the Agreement. The Annex

401 rules of origin are commonly referred to as specific rules of origin and are based on a change in tariff classification, a

regional value-content requirement or both. Annex 401 is organized by Harmonized Tariff Schedule (HTS) number, so one must

know the HTS number of a good, and the HTS numbers of all the non-NAFTA materials used to produce the good, to find its

specific rule of origin and determine if the rule has been met. Annex 401 gives the applicable rule of origin opposite the HTS

number. For up-to-date Annex 401 information, refer to the specific Rules of Origin found in General Note 12 (t) of the

Harmonized Tariff Schedule (US), D Memorandum 11-5-2 and any Customs Notices (CA) and the Diario Oficial dated March 27,

1996 and the Decree promulgating the modifications of NAFTA's Annex 401 published in the Diario Oficial dated March 27, 1996

(MX).

Tariff Change

When a rule of origin is based on a change in tariff classification, each of the non-originating materials used in the production of

the goods must undergo the applicable change as a result of production occurring entirely in the NAFTA region. This means that

the non-originating materials are classified under one tariff provision prior to processing and classified under another upon

completion of processing. The specific rule of origin in Annex 401 defines exactly what change in tariff classification must occur

for the goods to be considered "originating." (Please see the section on "de minimis" in Chapter 3 of this Guide.)

Frozen pork meat (HTS 02.03) is imported into the United States from Hungary and combined with spices imported from the Caribbean (HTS 09.07-9.10) and cereals grown and produced in the U.S. to make pork sausage (HTS 16.01). The Annex 401 rule of origin for HTS 16.01 states:A change to heading 16.01 through 16.05 from any other chapter.Since the imported frozen meat is classified in Chapter 2 and the spices are classified in Chapter 9, these non-originating materials meet the required tariff change. One does not consider whether the cereal meets the applicable tariff change since it is originating--only non-originating materials must undergo the tariff change.

Regional Value Content

Some Annex 401 specific rules of origin require that a good have a minimum regional value content, meaning that a certain

percentage of the value of the goods must be from North America. Article 402 gives two formulas for calculating the regional

value content. In general, the exporter or producer may choose between these two formulas: the "transaction value" method or

the "net cost" method. Having two methods gives producers more than one way of demonstrating that the rule of origin has been

satisfied. The transaction value method is generally simpler to use but a producer may choose whichever method is most

advantageous.

The transaction value method calculates the value of the non-originating materials as a percentage of the GATT transaction

value of the good, which is the total price paid for the good, with certain adjustments for packing and other items, and is based

on principles of the GATT Customs Valuation Code. The essence of this method is that the value of non-originating materials can

be calculated as a percentage of the invoice price which is usually the price actually paid for them. Because the transaction value

method permits the producer to count all of its costs and profit as territorial, the required percentage of regional value content

under this method is higher than under the net cost method.

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However, there are a number of situations where the transaction value method cannot be used and the net cost method is the

only alternative. The net cost method must be used when there is no transaction value, in some related party transactions, for

certain motor vehicles and parts, when a producer is accumulating regional value content (see Chapter 3 for a discussion of

accumulation), as well as to determine the regional value content for designated intermediate materials (see Chapter 3). The

producer may also revert to the net cost method if the result using the transaction value method is unfavorable.

The formula for calculating the regional value content using the transaction value method is:

RVC =

TV -

VNM X 100

TV

where RVC is the regional value content, expressed as a percentage;

TV is the transaction value of 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.

The net cost method calculates the regional value content as a percentage of the net cost to produce the good. Net cost

represents all of the costs incurred by the producer minus expenses for sales promotion (including marketing and after-sales

service), royalties, shipping and packing costs and non-allowable interest costs. The percentage content required for the net cost

method is lower that the percentage content required under the transaction value method because of the exclusion of certain

costs from the net cost calculation.

An electric hair curling iron (HTS 8516.32) is made in Mexico from Japanese hair curler parts (HTS 8516.90). Each hair curling iron is sold for US$4.40; the value of the non-originating hair curler parts is US$1.80. The Annex 401 rule of origin for HTS 8516.32 states:A change to subheading 8516.32 from subheading 8516.80 or any other heading; orA change to subheading 8516.32 from subheading 8516.90, whether or not there is also a change from subheading 8516.80 or any other heading, provided there is a regional value content of not less than: (a) 60 percent where the transaction value method is used, or (b) 50 percent where the net cost method is used.The first of these two rules is not met since there is no heading change, therefore the producer must verify if the curling irons can qualify under the second rule. In the second rule the required subheading change is met (from HTS 8516.90 to 8516.32) so one proceeds to calculate the regional value content. The regional value content under the transaction value method is:(4.40 -- 1.80) x 100 = 59.1%4.40The hair curler is not considered an originating good under this method, since the required regional value content is 60 percent where the transaction value is used.

The formula for calculating the regional value content using the net cost method is:

RVC =

NC -

VNM X 100

NC

where RVC is the regional value content, expressed as a percentage;

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NC is the net cost of the good; and VNM is the value of non-originating materials used by the producer in the production of the

good.

Instead, the producer uses the net cost method. The total cost to produce the hair curler is US$3.90, which includes US$0.25 for

shipping and packing costs. There are no costs for royalties, sales promotion or non-allowable interest. The net cost is therefore

US$3.65. The regional value content under the net cost method is:

RVC

=

3.65 -

1.8050.70

%3.65

The hair curler would be considered originating, since the required regional value content is 50 percent where the net cost

method is used.

http://www.cbp.gov/trade/nafta/guide-customs-procedures/rules-origin/meets-annex

ASSIST - An assist is any of the items listed below that the buyer of imported merchandise provides directly or indirectly, free

of charge or at a reduced cost, for use in the production or sale of merchandise for export to the United States.

Materials, components, parts, and similar items incorporated in the imported merchandise.

Tools, dies, molds, and similar items used in producing the imported merchandise.

Merchandise consumed in producing the imported merchandise.

Engineering, development, artwork, design work, and plans and sketches that are undertaken outside the United

States and are necessary for the production of the imported merchandise. "Engineering, development," etc. will not be

treated as an assist if the service or work is 1) performed by a person domiciled within the United States, 2) performed

while that person is acting as an employee or agent of the buyer of the imported merchandise, and 3) incidental to

other engineering, development, artwork, design work, or plans or sketches undertaken within the United States.

In determining the value of an assist, the following rules apply:

1. The value is either a) the cost of acquiring the assist, if acquired by the importer from an unrelated seller, or b) the cost

of producing the assist, if produced by the importer or a person related to the importer.

2. The value includes the cost of transporting the assist to the place of production.

3. The value of assists used in producing the imported merchandise is adjusted to reflect use, repairs, modifications, or

other factors affecting the value of the assists. Assists of this type include such items as tools, dies, and molds.

EXAMPLE: If the importer previously used the assist, regardless of whether he acquired or produced it, the original cost of acquisition or of production must be decreased to reflect the use. Alternatively, repairs and modifications may result in the value of the assist having to be adjusted upwards.

In the case of engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the United States, the value is a) the cost of obtaining copies of the assist, if the assist is available in the public domain; b) the cost of the purchase or lease if the assist was bought or leased by the buyer from an unrelated person; c) the value added outside the United States, if the assist was produced in the United States and one or more foreign countries.

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So far as possible, the buyer's commercial record system is used to determine the value of an assist, especially such assists as engineering, development, artwork, design work, and plans and sketches undertaken elsewhere than in the United States.

EXAMPLE: A U.S. buyer supplied detailed designs to the foreign producer. These designs were necessary to manufacture the imported merchandise. The U.S. importer bought the U.S. produced designs from an engineering company in the U.S. for submission to his foreign supplier. Should the appraised value of the merchandise include the value of the assist?

No, design work undertaken in the U.S. may not be added to the price actually paid or payable.

EXAMPLE: A U.S. buyer purchases merchandise from a foreign producer. The price actually paid or payable includes the cost of a U.S. design incorporated in the merchandise. Is there any authority to deduct the cost of the U.S. design from the price actually paid or payable?

No authority exists to deduct such costs when included in the price actually paid or payable.

EXAMPLE: A U.S. buyer supplied molds free of charge to the foreign producer. The molds were necessary to manufacture merchandise for the U.S. importer. The U.S. importer had some of the molds manufactured by a U.S. company and others manufactured in a third country. Should the appraised value of the merchandise include the value of the molds?

Yes. Molds that are used in the production of the imported merchandise and supplied directly or indirectly and free of charge or at reduced cost by the buyer, regardless of where they are manufactured, are a required addition to be made to transaction value.

Having determined the value of an assist, the next step is to apportion that value to the imported merchandise. The

apportionment is done reasonably and according to generally accepted accounting principles. By the latter is meant any

generally recognized consensus or substantial authoritative support regarding the recording and measuring of assets and

liabilities and changes therein, the disclosing of information, and the preparing of financial statements.

The method used to apportion the value of the assist depends on the details. For example, suppose the entire anticipated

production using the assist is to be exported to the United States. Then the value of the assist could be pro-rated any one of

several ways: over the first shipment if the importer wants to pay duty on the entire value at one time, over the number of units

produced up to the time of the first shipment, or over the entire anticipated production. If the entire anticipated production is not

destined for the United States, some other method of apportionment will be used that is consistent with generally accepted

accounting principles.

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AVERAGING - Producers of automotive goods may elect to average their costs when calculating the regional value

content. A motor vehicle producer may average the calculation over its fiscal year either by all motor vehicles or only those motor

vehicles in a category that are exported to another NAFTA party. The four categories are:

the same model line of motor vehicles in the same class of vehicles produced in the same plant;

the same class of motor vehicles produced in the same plant;

the same model line of motor vehicles produced;

special averaging rules for CAMI Automotive, Inc.

Producers of components that must be traced may also average their costs. A producer may average its calculation:

over the fiscal year of the motor vehicle producer to whom the good is sold;

over any quarter or month, or

over its fiscal year, if the good is sold as an aftermarket part.

Producers may elect to calculate the average separately for any or all goods sold to one or more motor vehicle producers or

calculate separately those goods that are exported to Canada, Mexico and/or the United States.

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BILL OF MATERIAL (BOM) – A list of materials used in the production of a good. Below is a list of elements that

may be available in your BOM.

Indent Level

Finished Good Part Number

Finished Good Description (Complete, English)

Customer Cross-Reference Part Number (if available)

Material Part Number

Material Description (Complete, English)

Vendor Cross-Reference Part Number (if available)

Vendor Name

Vendor Number (Globus)

Purchased Material Identification (Purchased vs Self-Produced)

Purchased Material Cost (Per Unit)

Self-Produced Sub-component Material Cost

Overhead Cost

Labor Cost

Burden Cost

Outside Processing Identifier (if applicable)

Quantities

Packing Material Identifier

Assists (cost / materials received at no cost)

BUILD-DOWN – A method for determining regional value content (RVC). The formula is:

RVC =AV-VNM

x 100AV

AV – Adjusted Value VNM – Value of Non-originating Material

BUILD-UP – A method used for determining regional value content (RVC). The formula is:

RVC =VOM

x 100AV

VOM – Value of Originating Material AV – Adjusted Value

BUY AMERICA – A federal statute generally applicable to state and local government projects, typically when these

projects are funded by the Federal Transit Authority (FTA). Some states have implemented state versions.

For the final manufactured good to qualify as U.S. originating, Buy America requires that the good offered in a bid:

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B

• be manufactured in the U.S.; and

• 60% of its components, by cost, be made in the U.S. (Components are engines, transmissions, axles, frame rails,

certain assemblies, etc.)

Must be able to distinguish between components and sub-components. a. Self-Produced Components/Sub-Components

i. Labor & OH used to qualify self-produced sub-components ii. Labor not used in final finished good qualification iii. Foreign freight & US duty (perhaps an average) added as VnM on a truck without a body

b. Purchased Components/Sub-Componentsi. Solicit suppliers of sub-components for country of origin only

Solicit suppliers of components for a U.S. Content Statement (this will be used as an originating statement and accumulation statement for Buy America)

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CONDUCTING PRE-AWARD AND POST-DELIVERY AUDITS FOR ROLLING STOCK PROCUREMENTSBest practices handbook for recipients, auditors, manufacturers, and suppliers.… to assist recipients, auditors, rolling stock manufacturers (manufacturers), and subcontractors and suppliers (suppliers) in

understanding and correctly applying FTA’s pre-award and post-delivery audit requirements for rolling stock vehicle (vehicle)

purchases.

4.3.3. Domestic Content Worksheet Instructions[On the following pages] is a sample of the Domestic Content Worksheet with step-by-step instructions. The worksheet should

include any components listed in the Appendices to 49 CFR § 661.11. Generally, Parts installed on the Rolling Stock End

Product at the Final Assembly Site are considered components. Those cells that are colored gray or white are intended for input.

Other cells highlighted in yellow are calculated or protected from change. As stated in 49 CFR § 661.11, the cost for the

component would be the purchase price paid by the vehicle manufacturer to the component supplier. Similarly, the cost for the

subcomponent would be the purchase price paid by the component supplier to the subcomponent supplier. These purchase

prices should include the cost of labor and materials incorporated into the component or subcomponent, an allowance for profit,

and the administrative and overhead costs attributable to that component or subcomponent under normal accounting principles.

In addition, transportation costs to the final assembly location must be included in calculating the cost of foreign components and

subcomponents (if components using foreign subcomponents are manufactured by the vehicle manufacturer at the vehicle final

assembly location).

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STEP 1In System/Component/Subcomponent column, fill in all vehicle components, including as a minimum those identified in

Appendices B and C to 49 CFR Part § 661.11, that will add up to 100% Vehicle Material Cost, domestic and foreign. Identify

components and subcomponent by name and/or part number traceable to the procurement. For each component, fill in

corresponding subcomponents as applicable. Identify major subcomponents as separate line items. Combine minor

subcomponents as a single line item denoted as “various,” “miscellaneous,” or “other.” Use extra pages as needed to cover all

components and subcomponents.

STEP 2In Supplier Name column, fill in supplier’s name for each component and corresponding subcomponent(s).

STEP 3In the first Manufacturing Location column, for each component and corresponding subcomponent(s), select U.S., Foreign w/

Tariff Exemption, or Foreign from the selector box.

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STEP 4In the second Manufacturing Location column for each component and corresponding subcomponent(s), fill in the City and State

for U.S. or the City and Country for Foreign.

STEP 5In Component Total Cost (including Profit & Manufacturing) row, fill in the component total cost, which includes overhead and

manufacturing costs.

STEP 6In Component and Subcomponent Material Costs columns:

a) For each component, enter the dollar amount of the corresponding subcomponent(s) under the U.S. and Foreign sub-

columns, on the designated row(s).

b) Compute the material subtotal cost for each component by adding the cost of all of its U.S. and Foreign corresponding

subcomponents, and enter on the row designated Component Material Subtotal under the U.S. and Foreign sub-columns as

applicable.

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STEP 7In Subcomponent % of Component and Component Total % columns:

a) For each component, compute the material cost percentage of each of its U.S. and Foreign corresponding subcomponents,

and enter on the designated rows under U.S. and Foreign sub-columns as applicable.

b) Calculate the total material cost percentage of each U.S. and Foreign component by dividing its cost into Component Total, in

Component / Subcomponent Cost columns under U.S. and Foreign sub-columns as applicable. This should total 100% of U.S. and Foreign sub-columns costs on the row designated Component Material Subtotal.

STEP 8

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In U.S. Content (if U.S. content >60%, count 100%) column and on the row designated Component Total Cost for each

component, enter the total material cost for that component. Calculate the total material cost using the formula:

a) If the component is U.S. and the U.S. percentage of the component is greater than 60%

Then add Component Total Cost to the column U.S. Content to count 100%; or

b) If the component is U.S. and the U.S. percentage of the component is less than 60%

Then add the total of only U.S. subcomponent material costs on the row Component Material Subtotal, to the column

U.S. Content; or

c) If the component is foreign and the U.S. components being incorporated into the foreign component receive a tariff exemption

Then add the total of only U.S. subcomponent material costs on the row Component Material Subtotal, to the column

U.S. Content; or

d) If the component is foreign

Then enter $0.00 in the column labeled U.S. Content

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STEP 9In Component % of Vehicle columns under U.S. and Foreign sub-columns, for each component, enter its U.S. and Foreign

material cost percentage in relation to the total vehicle content percentage on the row designated Vehicle Material Total Cost under U.S. and Foreign subcolumns as applicable. Calculate the percentage as follows:

a) If the component has greater than 60% U.S. content

Then divide the cost on the row designated U.S. Content into the row designated Vehicle Material Total Cost.

There will only be an entry for the Component % of Vehicle columns under the U.S. sub-column. The Foreign sub-

column should record zero percentage.

b) If the component has less than 60% U.S. content

First, divide the cost on the row designated U.S. Content into row designated Vehicle Material Total Cost.

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Second, divide the cost on the row designated Foreign Content into row designated Vehicle Material Total Cost. There

will be an entry for the Component % of Vehicle columns under both the U.S. and Foreign sub-column.

c) If a component is 0% U.S. content or if the component is foreign and the U.S. components being incorporated in the foreign

component did not receive a tariff exemption

Then divide the Foreign Content into the row designated Vehicle Total Material Cost. There will be an entry for the component cost in Component % of Vehicle columns and under Foreign sub-column and

U.S. sub-column should read zero percentage.

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STEP 10Add up all the percentages in the column Component % of Vehicle and the corresponding U.S. and Foreign sub-columns to

determine the overall domestic content of the vehicle.

https://www.transit.dot.gov/sites/fta.dot.gov/files/docs/DRAFT_Pre-Award_and_Post-Delivery_Handbook_15-05-01_2.pdf

BUY AMERICAN – A federal statute that typically applies when the federal government is directly purchasing products or

materials or a federal building or facility is being constructed (such as US highways, federal prisons, etc.).

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https://www.transit.dot.gov/sites/fta.dot.gov/files/docs/DRAFT_Pre-Award_and_Post-Delivery_Handbook_15-05-01_2.pdf

CLASSIFICATION - The Harmonized Tariff Schedule of the United States Annotated (HTSA) provides the applicable

tariff rates and statistical categories for all merchandise imported into the United States; it is based on the international

Harmonized System, the global system of nomenclature that is used to describe most world trade in goods.

Classification is the basis and the foundation for your entire import/export compliance program.

Automotive Dictionary - http://www.motorera.com/dictionary/

http://www.usitc.gov/tata/hts/index.htm

http://www.customsinfo.com/Industry-Blog/bid/123187/What-is-an-HTS-Code

COMPONENT – Any article, material, or supply, whether manufactured or unmanufactured, that is directly incorporated

into the end product at the final assembly location. (Buy America Definition)

http://www.ecfr.gov/cgi-bin/text-idx?SID=1684f8762c19ad584fc82fd84c11eb69&mc=true&node=pt49.7.661&rgn=div5

COUNTRY OF ORIGIN MARKING –

(Generally) For goods made in one country with no foreign inputs, determination of the country of origin is easy--it is the country

of production. Increasingly, however, goods are processed in multiple countries using both domestic and foreign materials,

thereby complicating the determination of the country of origin. The NAFTA provides that Canada, Mexico and the United states

write specific rules defining "country of origin". In the United States, the marking statute, Section 304, Tariff Act of 1930, as

amended (19 U.S.C. 1304) requires that, unless excepted, every article of foreign origin (or its container) imported into the U.S.

shall be marked with its country of origin. Paragraph 1 of Annex 311 of the NAFTA provides that the NAFTA parties shall

establish "Marking Rules" to determine when a good is a good of a NAFTA country. The Marking Rules established by the United

States are set forth in 19 CFR Part 102 which are used to determine the country of origin. The Marking Rules are distinct from

the rules of origin that are used to determine whether a good is originating under Article 401 of the Agreement. The Marking

Rules are all based on a tariff change and are largely the same in all three countries.

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C


http://www.customsinfo.com/Industry-Blog/bid/123187/What-is-an-HTS-Code


http://www.motorera.com/dictionary/

Originating goods and goods which undergo the specific tariff classification changes prescribed by the Marking Rules are

considered goods of Canada, Mexico or the United States (as appropriate) and are subject to the Agreement's provisions on

marking. Goods may be marked with the country of origin in English, Spanish or French, except that Canada, Mexico and the

United States may, as part of their general consumer information measures, require that an imported good be marked with its

country of origin in the same manner as prescribed for domestic goods. Unless specifically exempted, Canada, Mexico and the

United States may require that goods imported from another NAFTA country be marked in a conspicuous place legibly, indelibly,

and sufficiently permanently to indicate to the ultimate purchaser the country of origin of the article. Such marking requirements

must comply with the NAFTA's general provisions on methods of marking, exemptions, etc.

Method

Generally, goods of Canada, Mexico and the United States may be marked using any reasonable method, including stickers,

labels, tags, or paint. The marking must be conspicuous, legible and sufficiently permanent to survive normal distribution and

store handling.

Containers

A usual container imported empty, whether or not disposable, need not be marked with its country of origin. (A usual container is

one in which the good will ordinarily reach its ultimate purchaser.) However, the master container in which the usual containers

are imported may be required to be marked with the country of origin of its contents.

A wine producer in California imports empty glass bottles made in Mexico to bottle its wine. The empty glass bottles need not be individually marked "Mexico" but the United States may require that the outer cardboard box in which the bottles are imported be marked "Mexico."A usual container imported filled, whether or not disposable is not required to be marked with its own country of origin. A NAFTA

country may, however, require that the container be marked with the country of origin of its contents, unless the contents are

marked with their country of origin and the container can be readily opened for inspection of the contents, or the marking of the

contents is clearly visible through the container.

Exemptions

Canada, Mexico and the United States shall exempt from country of origin marking requirements a good of another NAFTA

country that:

is a crude substance;

is imported for use by the importer and is not intended for sale in the form in which it was imported;

is to undergo production in the territory of the importing country by the importer, or on its behalf, in a manner that would

result in the good becoming a good of the importing country under the marking rules;

by reason of its character, or the circumstances of its importation, the ultimate purchaser would reasonably know its

country of origin even though it is not marked;

was produced more than 20 years prior to its importation;

for purposes of temporary duty-free admission, is in transit or in bond or otherwise under customs administration

control;

is an original work of art; or

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is provided for in subheading 6904.10 [ceramic building bricks, blocks and tiles], or heading 8541 [diodes, transistor

and similar semiconductor devices] or 8542 [electronic integrated circuits and microassemblies].

Additional products are exempt from country of origin marking requirements, but Canada, Mexico and the United States may

require that their outermost usual containers be marked to indicate the country of origin of the goods they contain. These include

a Canadian, Mexican or U.S. good that:

is incapable of being marked;

cannot be marked prior to exportation to the territory of another NAFTA country without causing injury to the goods;

cannot be marked except at a cost that is substantial in relation to its customs value so as to discourage its

exportation;

cannot be marked without materially impairing its function or substantially detracting from its appearance.

is in a container that is marked in a manner that will reasonably indicate the good's origin to the ultimate purchaser.

was imported without the required marking and cannot be marked after its importation except at a cost that would be

substantial in relation to its customs value, provided that the failure to mark the good before importation was not for the

purpose of avoiding compliance with the requirement.

Goods Not Marked at Time of Importation

Importers are allowed, where administratively practicable, to mark goods that are not marked at the time of importation, prior to

their release from customs control or custody. This rule applies unless an importer has repeatedly violated the country of origin

marking requirements after receiving written notification that the goods are required to be marked prior to importation.

Canada, Mexico and the United States may impose special marking duties or penalties for repeated violations of country of origin

marking requirements after written notification, as well as for removal of the goods from customs custody or control before the

goods have been marked. Additional duties or penalties may also be imposed for deceptive marking.

For further information regarding the country of origin marking requirements and exceptions in the United States, see 19 CFR

Part 134.

http://www.cbp.gov/trade/nafta/guide-customs-procedures/country-origin-marking

CUSTOMS RULINGS ONLINE SEARCH SYSTEM (CROSS) - A searchable database of CBP rulings

that can be retrieved based on simple or complex search characteristics using keywords and Boolean operators. CROSS has the

added functionality of CROSS referencing rulings from the initial search result set with their modified, revoked or referenced

counterparts.

Rulings collections are separated into Headquarters and New York and span the years 1989 to present. Collections can be

searched individually or collectively. For more information about features or how to use CROSS, please visit the HELP section.

http://rulings.cbp.gov/

DE MINIMIS - Although requiring a change in tariff classification is a very simple principle, it requires that all non-originating

materials undergo the required change. A very low percentage of the materials may not undergo the tariff change, thus

preventing the goods from originating. Therefore, the Agreement contains a de minimis provision that allows goods to qualify as

originating provided such materials are not more than a certain percentage (seven percent in most cases) of the transaction

value of the goods adjusted to an FOB basis or, in some cases, of the total cost of the goods.

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D

http://rulings.cbp.gov/

http://www.cbp.gov/trade/nafta/guide-customs-procedures/country-origin-marking

In addition, where failure of materials to undergo a required change in tariff classification triggers a requirement for a minimum

regional value content, the calculation of that content is waived if the value of all non-originating materials used in the production

of the goods is not more than the specified de minimis amount.

However, if after application of the de minimis allowance the goods must still meet a regional value-content requirement in order

to qualify as originating (that is, if the value of all non-originating materials exceeds the applicable de minimis allowance), the

value of all non-originating materials must be taken into account in calculating the regional value content.

A manufacturer purchases inexpensive textile watch straps made in Taiwan (HTS 91.13), to be assembled with originating mechanical watch movements (HTS 91.08) and originating cases (HTS 91.12). The value of the straps is less than seven percent of the transaction value of the final watch (HTS 91.02) adjusted to an FOB basis. The Annex 401 origin criterion for HTS 91.02 is:A change to heading 91.01 through 91.07 from any other chapter; orA change to heading 91.01 through 91.07 from 91.14, whether or not there is also a change from any other chapter, provided there is a regional value content of not less than: 60 percent where the transaction value method is used, or50 percent where the net cost method is used.Only non-originating materials need undergo the required tariff classification change: in this case, the textile straps. The straps do not satisfy either of the indicated tariff changes but since their value is less than seven percent of the transaction value of the finished watch adjusted to an FOB basis, the de minimis rule applies and the watches can be considered originating.

Excluded Products. The Article 405 de minimis rule does not apply to the following materials (see website for COMPLETE list):

- printed circuit assemblies used in the production of a good if the change in tariff classification prescribed by Annex 401

for that good places restrictions on their use.

http://www.cbp.gov/trade/nafta/guide-customs-procedures/other-instances-confer-origin/deminimis

DISASSEMBLY – 19 CFR §181.132 Disassembly.

(a) Treated as production. For purposes of implementing the rules of origin provisions of General Note 12, HTSUS, and Chapter

Four of the NAFTA, except as provided in paragraph (b) of this section, disassembly is considered to be production, and a

component recovered from a good disassembled in the territory of a Party will be considered to be originating as the result of

such disassembly provided that the recovered component satisfies all applicable requirements of Annex 401 and this part.

(b) Exception; new goods. Disassembly, as provided in paragraph (a) of this section, will not be considered production in the

case of components that are recovered from new goods. For purposes of this paragraph, a “new good” means a good which is in

the same condition as it was when it was manufactured and which meets the commercial standards for new goods in the

relevant industry.


SID=2d66a5b2f0655667a60cc73820458c41&mc=true&node=pt19.2.181&rgn=div5#se19.2.181_1132

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http://www.ecfr.gov/cgi-bin/text-idx?SID=2d66a5b2f0655667a60cc73820458c41&mc=true&node=pt19.2.181&rgn=div5%23se19.2.181_1132

http://www.ecfr.gov/cgi-bin/text-idx?SID=2d66a5b2f0655667a60cc73820458c41&mc=true&node=pt19.2.181&rgn=div5%23se19.2.181_1132

http://www.cbp.gov/trade/nafta/guide-customs-procedures/other-instances-confer-origin/deminimis

EXIM BANK - The Export-Import Bank of the United States (Ex-Im Bank) is an independent U.S. government agency that

helps finance the foreign sales of U.S. goods and services.

A critical part of Ex-Im Bank's mission is to create and sustain jobs in the US. By requiring that items Ex-Im Bank supports be

made here in the US, we ensure that we are helping to create and sustain jobs here at home. Other Export Credit Agencies

(ECA's) have less stringent requirements. Our US content requirements are liberal, and take into account that exporters want to

further liberalize the US content requirement to be more competitive with other ECA's, while labor unions are concerned about

exporting jobs. For short-term transactions (credit terms up to 180 days), products and services must contain at least 50.1% U.S.

content, including labor but excluding mark-up. For medium-term transactions (generally sales of capital equipment with

repayment terms between 1 and 5 years), the US content requirement is 85% for Ex-Im Bank to support the entire transaction.

Requirements and Restrictions

To be eligible for Ex-Im Bank's insurance and financing products, your business, its exports and your foreign customers must

meet certain requirements, which are detailed below.

Goods and services must be exported from the United States

Ex-Im Bank's products support U.S. jobs by promoting exports of goods and services from the United States to foreign

customers. Exported products are eligible for Ex-Im support only if they are shipped from the United States to a foreign

buyer. Ex-Im does not provide financial support for imports into the United States.

Exports must have 50% U.S. content

Goods and services exported by U.S. businesses are eligible for Ex-Im Bank coverage if they meet the following

conditions regarding U.S. content.

Each product must have more than 50% U.S content based on all direct costs and indirect costs, including but not

limited to labor, materials, research and administrative costs, exclusive of profit.

OR

The aggregate content of all products in an invoice must be more than 50% U.S. based on all direct and indirect costs,

including but not limited to labor, materials, research, and administrative costs, exclusive of profit.

OR

If the U.S. content of any product or aggregate U.S. content of all products in an invoice is 50% or less, only the U.S.

content is eligible.

Note: Value added after export from the U.S., as well as foreign charges such as import duties, taxes, and inland freight are

excluded from the content of an exported good or service.

Export destinations must not be restricted countries

Ex-Im Bank will only support U.S. exports to approved countries. Ex-Im maintains a Country Limitation Schedule

(CLS), which details restrictions on support for exports to certain countries. For further details, click here to view the complete

CLS.

Exports must be non-military in nature

Ex-Im Bank is prohibited by law from financing exports of defense articles and defense services. In defining what

constitutes a "defense article" or "defense service," Ex-Im Bank uses criteria based on the identity of the foreign end-user, the

nature of the item, and the use to which the item will be put. If the items are sold to a military organization or designed primarily

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E

http://www.exim.gov/tools/countrylimitationschedule/index.cfm

http://www.exim.gov/tools/countrylimitationschedule/index.cfm

for military use, they are presumed to be defense articles unless proven otherwise.

Exceptions

If the export item has "dual use" (both military and commercial or civilian applications), it is eligible for

support if there is convincing evidence that the item is non-lethal in nature and will be used primarily for

civilian activities.

If a good is a defense article and is not eligible for financing, but it will be used for drug interdiction purposes,

the ban on Ex-Im support can be waived.

Exports that are eligible when buyer is a military entity

Humanitarian items such as lifesaving, rescue and medical equipment (ambulances, hospital supplies, etc.)

are not considered defense articles, even if sold to a military entity.

Small craft (marine vessels, small aircraft) used for routine border patrol, drug interdiction and natural

resource monitoring are not considered defense articles, even if sold to a military entity.

Exports of food that ultimately will be consumed by the U.S. military are not considered defense articles.

http://www.exim.gov/smallbusiness/smallbuscust/FAQ.cfm

http://www.exim.gov/smallbusiness/policies/Requirements-and-Restrictions.cfm

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http://www.exim.gov/smallbusiness/policies/Requirements-and-Restrictions.cfm

FUNGIBILE GOODS - Goods that are interchangeable for commercial purposes, and have essentially identical

properties. When a producer mixes originating and non-originating fungible goods, so that physical identification of originating

goods is impossible, the producer may determine origin of those goods based on any of the standard inventory accounting

methods (e.g., FIFO, LIFO) specified in the Uniform Regulations. These provisions apply equally to fungible materials that are

used in the production of a good.

Company Y of Mexico supplies clips to airplane manufacturers throughout North America. Some of the clips Y supplies

originate in Mexico and others are made in China. All of the clips are of identical construction and are intermingled at Y's

warehouse so that they are indistinguishable. On January 1, Company Y buys 3000 clips of Mexican origin; on January 3 it

buys 1000 clips of Chinese origin. If Company Y elects FIFO inventory procedures, the first 3000 clips it uses to fill an order

are considered Mexican, regardless of their actual origin.

http://www.cbp.gov/trade/nafta/guide-customs-procedures/other-instances-confer-origin/fungible-goods

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F

GENERALIZED SYSTEM OF PREFERENCES (GSP) - The Generalized System of Preferences (GSP)

provides duty-free treatment to goods of designated beneficiary countries and territories. The program was authorized by the

Trade Act of 1974 (19 U.S.C. 2461 et seq.) as a means of promoting economic growth in the developing countries and was

instituted on January 1, 1976.

The list of GSP beneficiary developing countries (BDCs) are laid out in General Note 4(a) of the Harmonized Tariff Schedule of

the United States (HTSUS). The list of eligible countries may be modified upon determination by the USTR’s Trade Policy Staff

Committee and subsequent Presidential Proclamation. GSP eligibility is based on factors laid out in 19 U.S.C. 2642.

The GSP program imposes quantitative ceilings on GSP benefits for each product and BDC. Such ceilings are termed

Competitive Need Limitations (CNLs), and may be waived under certain circumstances.

The GSP program has effective dates which are specified in relevant legislation, thereby requiring periodical reauthorization in

order to remain in effect.

Generalized System of Preferences (GSP) | U.S. Customs and Border Protection

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http://www.cbp.gov/trade/priority-issues/trade-agreements/special-trade-legislation/generalized-system-preferences

HEAVY DUTY AUTOMOTIVE GOOD - A heavy-duty vehicle or a heavy-duty component.

http://www.ecfr.gov/cgi-bin/text-idx?SID=897902390ddb5280a89014441398686c&mc=true&node=pt19.2.181&rgn=div5

HEAVY DUTY AUTOMOTIVE COMPONENT - An automotive component or automotive component assembly

that is for use as original equipment in the production of a heavy-duty vehicle.


HEAVY DUTY TRUCK - A vehicle with a chassis for the transport of goods or more than ten people with a GVW over

8,864 kgs.

HARMONIZED TARIFF SCHEDULE (HTS) – See CLASSIFICATION.

CA - http://www.cbsa-asfc.gc.ca/import/tc-ct-eng.html

MX - http://www.siicex-caaarem.org.mx/

US - http://www.usitc.gov/tata/hts/index.htm

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H


http://www.siicex-caaarem.org.mx/

http://www.cbsa-asfc.gc.ca/import/tc-ct-eng.html



INCOTERMS – They are an abbreviation for International Commercial Terms. They are a set of rules which define the

responsibilities of sellers and buyers for the delivery of goods under sales contracts for domestic and international trade. They

are published by the International Chamber of Commerce (ICC) and are widely used in international commercial transactions.

http://www.export.gov/faq/eg_main_023922.asp

INTERMEDIATE MATERIAL - For the purpose of calculating the regional value content of final goods (using either

the transaction value method or the net cost method), Article 402(10) allows a producer to designate as an intermediate material

any self-produced, originating material used in the production of the final goods. As long as the intermediate material qualifies as

an originating material, its entire value may be treated as originating in determining the regional value content of the finished

goods.

The purpose of the intermediate material designation is to treat vertically integrated manufacturers more nearly in the same

manner as producers who purchase materials from independent suppliers. If you produce your own materials from non-NAFTA

inputs, the intermediate materials provision may help your goods to qualify as originating. This provision covers all goods and

materials except:

automotive goods defined in Article 403(1) and described in Annex 403.1 and;

components described in Annex 403.2, specifically engines and gearboxes.

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http://www.export.gov/faq/eg_main_023922.asp

An intermediate material is a self-produced material, designated by the producer, that meets the rules of origin of Article 401 and

that is incorporated into the final good. Article 415 defines a self-produced material as a material produced by the same party

that produced the final goods and which is used in the production of those final goods.

An intermediate material may be composed of originating and non-originating submaterials. After determining that an

intermediate material satisfies the applicable rule of origin under Article 401, the total cost to produce that intermediate material

is treated as an originating cost. In other words, the producer would not include the value of the non-originating materials used to

produce the intermediate material as part of the value of non-originating materials when calculating the regional value content of

the final goods. The benefit of designating an intermediate material is that the producer may treat self-produced materials

similarly to the way in which he would treat an originating material purchased at arm's length for purposes of determining the

value of the non-originating materials of the final goods.

If the intermediate material must satisfy a minimum regional value content to qualify as originating, the net cost method must be

used to calculate that regional value content.

A producer may make any number of intermediate material designations provided that no material subject to a regional value-

content requirement may be designated as an intermediate material if it contains submaterials also subject to a regional value-

content requirement that were also designated as intermediate materials.

Company Z manufacturers forklift trucks in Canada and makes some of the material used in their production. As illustrated in the graphic above, each geometric symbol represents a material. The circles at the top (i.e., outer races, balls, steel, gaskets, impellers, bearings, engine blocks, crank shafts) are materials acquired from sellers in non-NAFTA countries. The squares are self-produced materials (i.e., rod-end bearings, casings, impeller assemblies, engines). They are considered horizontal materials in relation to each other. The impeller assemblies may not be designated as intermediate materials because they do not meet the Annex 401 rule of origin ("A change to subheading 8413.91 from any other heading"). However, the rod-end bearings, casings and engines could all be designated intermediate materials provided they satisfy the applicable Annex 401 rules of origin (the casings undoubtedly meet the rule of origin, which provides for "a change to subheading 8412.90 from any other heading"). The engines and rod-end bearings meet the required tariff change prescribed in the Annex 401 rules of origin but would also have to meet a regional value-content requirement to qualify as originating.The rod-end bearings and casings are used in the production of the cylinders. Likewise, the impeller assemblies and engines are used in the production of the pumps that drive the hydraulic mechanisms of the forklifts. The cylinders and pumps (represented by triangles) are intermediate materials that are horizontal in relation to each other and vertical in relation to the materials from which they were made. As long as there is no regional value-content requirement for more than one intermediate material in the vertical stream, each new material may be designated as an intermediate material.The cylinders originate because the rod-end bearings meet the required tariff shift ("A change to heading 8412.10 through 8412.80 from any other heading") and the casings are originating (and therefore are not required to undergo the prescribed tariff change). Thus, Company Z may choose to designate both the rod-end bearings and the cylinders as intermediate materials because only one of them is subject to a regional value-content requirement.The engines and pumps, however, are both subject to regional value-content requirements and therefore Company Z must choose which is most advantageous: to designate the engines as an intermediate material or to designate the pumps.

Where a single producer designates intermediate materials that qualify as originating solely based on a tariff change, that is,

without having to satisfy a regional value-content requirement, subsequent designations can be made with previously designated

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intermediate materials. Thus, in the example above, if the engine were not subject to a regional value-content requirement, both

it and the pump could be designated as intermediate materials.

There are two methods for determining the value of an intermediate material:

the total cost incurred with respect to all goods produced that can be reasonably allocated to that intermediate material;

or

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.

The two methods allow producers to select the one that best fits their production and accounting practices. The value of the

intermediate material should be approximately the same using either method. However, the net cost method must be used for

intermediate materials subject to a regional value-content requirement. Article 402(8) of the Agreement lists those costs which

may not be included when calculating the regional value content of the intermediate material using the net cost method:

sales promotion, including marketing and after-sales service costs;

royalties;

shipping and packing costs;

now-allowable interest costs.

Although these costs are excluded in the net cost calculation, they do form part of the total cost of the material. Accordingly,

costs such as royalties are excluded when calculating the net cost for purposes of determining whether the material satisfies a

regional value-content requirement (and thus originates and can be designated an intermediate material), but are included in the

total value of the material once its origin has been determined. As noted above, the total value of an intermediate material may

be counted as an originating cost.

http://www.cbp.gov/trade/nafta/guide-customs-procedures/other-instances-confer-origin/intermediate-materials

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http://www.cbp.gov/trade/nafta/guide-customs-procedures/other-instances-confer-origin/intermediate-materials

LIGHT DUTY AUTOMOTIVE GOOD - 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 TRUCK - A vehicle with a chassis, for the transportation of cargo or over 10 people, with a GVW of over

2,727 but less than 7,272 kgs.

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MANUFACTURED PRODUCT - An item produced as a result of the manufacturing process. (Buy America

Definition) http://www.ecfr.gov/cgi-bin/text-idx?SID=1684f8762c19ad584fc82fd84c11eb69&mc=true&node=pt49.7.661&rgn=div5

MANUFACTURING PROCESS - The application of processes to alter the form or function of materials or of

elements of the product in a manner adding value and transforming those materials or elements so that they represent a new

end product functionally different from that which would result from mere assembly of the elements or materials. (Buy America

Definition)


MANUFACTURER’S AFFIDAVIT (MA) – A multi-purpose document used to declare the country of origin and/or

the manufacturer of a product (for marking purposes). Below are two links to very informative articles that go into more detail

about the various usage of an MA.

http://www.shippingsolutions.com/blog/defining-and-using-a-manufacturers-affidavit-part-1


MARKING RULES – See NAFTA MARKING RULES.

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M





NAFTA CERTIFICATE OF ORIGIN – This is a trilaterally agreed upon form used by Canada, Mexico, and the

United States to certify that goods qualify for the preferential tariff treatment accorded by NAFTA. The Certificate of Origin must

be completed by the exporter. A producer or manufacturer may also complete a certificate of origin in a NAFTA territory to be

used as a basis for an Exporter's Certificate of Origin. To make a claim for NAFTA preference, the importer must possess a

certificate of origin at the time the claim is made.

§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:

(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.

http://www.cbp.gov/trade/nafta/certificate-origin


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§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

§163.1(a) of this chapter.

(b) Submission of Certificate. An importer who claims preferential tariff treatment on a good under §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 CBP under this paragraph or under §181.32(b)(3) of this part:

(1) Shall be on CBP Form 434, or its electronic equivalent including privately-printed copies thereof, or on such other form as

approved by the Canadian or Mexican customs administration, or, as an alternative to CBP 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 International Trade,

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http://www.cbp.gov/trade/nafta/certificate-origin

U.S. Customs and Border Protection, Washington, DC 20229. An alternative format must contain the same information and

certification set forth on CBP 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 CBP 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.


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NAFTA MARKING RULES –

19 CFR Part 102

Subpart B—Rules of Origin

§102.11 General rules.

The following rules shall apply for purposes of determining the country of origin of imported goods other than textile and apparel

products covered by §102.21.

(a) The country of origin of a good is the country in which:

(1) The good is wholly obtained or produced;

(2) The good is produced exclusively from domestic materials; or

(3) Each foreign material incorporated in that good undergoes an applicable change in tariff classification set out in §102.20 and

satisfies any other applicable requirements of that section, and all other applicable requirements of these rules are satisfied.

(b) Except for a good that is specifically described in the Harmonized System as a set, or is classified as a set pursuant to

General Rule of Interpretation 3, where the country of origin cannot be determined under paragraph (a) of this section:

(1) The country of origin of the good is the country or countries of origin of the single material that imparts the essential character

to the good, or

(2) If the material that imparts the essential character to the good is fungible, has been commingled, and direct physical

identification of the origin of the commingled material is not practical, the country or countries of origin may be determined on the

basis of an inventory management method provided under the appendix to part 181 of this chapter.

(c) Where the country of origin cannot be determined under paragraph (a) or (b) of this section and the good is specifically

described in the Harmonized System as a set or mixture, or classified as a set, mixture or composite good pursuant to General

Rule of Interpretation 3, the country of origin of the good is the country or countries of origin of all materials that merit equal

consideration for determining the essential character of the good.

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(d) Where the country of origin of a good cannot be determined under paragraph (a), (b) or (c) of this section, the country of

origin of the good shall be determined as follows:

(1) If the good was produced only as a result of minor processing, the country of origin of the good is the country or countries of

origin of each material that merits equal consideration for determining the essential character of the good;

(2) If the good was produced by simple assembly and the assembled parts that merit equal consideration for determining the

essential character of the good are from the same country, the country of origin of the good is the country of origin of those parts;

or

(3) If the country of origin of the good cannot be determined under paragraph (d)(1) or (d)(2) of this section, the country of origin

of the good is the last country in which the good underwent production.

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NAFTA PREFERENCE OVERRIDE – 19 CFR §102.19

(a) Except in the case of goods covered by paragraph (b) of this section, if a good which is originating within the meaning

of §181.1(q) of this chapter is not determined under §102.11(a) or (b) or §102.21 to be a good of a single NAFTA country, the

country of origin of such good is the last NAFTA country in which that good underwent production other than minor processing,

provided that a Certificate of Origin (see §181.11 of this chapter) has been completed and signed for the good.

(b) If, under any other provision of this part, the country of origin of a good which is originating within the meaning of §181.1(q) of

this chapter is determined to be the United States and that good has been exported from, and returned to, the United States after

having been advanced in value or improved in condition in another NAFTA country, the country of origin of such good for

Customs duty purposes is the last NAFTA country in which that good was advanced in value or improved in condition before its

return to the United States.


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NAFTA QUALIFICATION PROCESS – Generally the NAFTA qualification process consists of the following

elements:

Person(s) knowledgeable of the requirements and company facts

Costed, indented BOMs

Classification of all goods and materials

Solicitation of supplier documentation / audit of responses

Application of NAFTA rules (tariff shift &/or RVC)

-Service, OEM, or both? (Traced value not required for service parts. If part is for service and OEM, treat as OEM.)-Heavy Duty, Light Duty, or both? (Heavy duty - only obtain traced value for engines, transmissions, and listed materials. Light duty - obtain traced value for everything!)

Preparation of NAFTA Certificate(s)

Recordkeeping requirements

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NET COST –

Start with Total Cost: Sum of: product costs

period costs

other costs

But excludes: profits

taxes on profits

Currency: gains are deducted

losses are included

Deduct excluded costs:

Sales promotion, marketing & after sales service;

-advertising

-promotional items

-exhibits

-sales conferences, trade shows

-free samples

-related literature

-price lists, manuals

-trademark & logo protection

-restocking charges

-sponsorships

-entertainment

-incentives

-rebates to consumers, etc.

-salaries, commissions, bonuses and benefits for related staff

-recruiting & training of personnel

-office, etc. expenses of sales & service personnel

-product liability insurance

-warranty repair costs & expenses

Royalties:

Payments of any kind for the use of, or right to use any copyright, etc., but excluding technical assistance agreement

payments for services such as:

-personnel training regardless of when done

-engineering, tooling, etc. performed in a NAFTA country

Shipping costs from the point of direct shipment to the buyer

Packing costs (but not retail packaging)

Interest costs over 700 basis points above comparable costs of the Federal government where the producer is located

Results: Net cost

Dennis Wright - STTAS


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NO(1) – Producer Indicator on NAFTA Certificate. (Also equivalent to NO2B for other FTA.) Qualification is based on your

knowledge of whether the good qualifies as an originating good. In many cases the "NO-1" designation is a relatively weak

statement and is apt to draw scrutiny from the regulators.

PORT OF BUFFALO PIPELINE NUMBER: 05-007

TITLE: NAFTA Certificates of Origin Based on Knowledge

DATE: December 8, 2004

TO: ALL BROKERS AND OTHER INTERESTED PARTIES

This office has verified several NAFTA claims that have involved exporters who are not the producers of the imported goods.

Certificates of Origin submitted in support of these claims have asserted that the goods qualify for such preferential tariff

treatment based on the exporter’s “knowledge” (CBP Form 434 Field 8).

The purpose of this notice is to reiterate that such NAFTA claims should be based on either a written statement from the

producer or a Certificate of Origin executed by the producer. Claims based on knowledge of a person who is not the producer

will not be accepted unless they are based on direct, first person observation of the operative facts. With the exception of

automobiles (which are subject to unique circumstances), claims based on knowledge should be limited to products, such as

fruits and vegetables, where it is possible to have direct knowledge that the goods satisfy the rules of origin.

With respect to entries of goods other than motor vehicles, NAFTA claims will be disallowed where, upon verification, the

exporter or importer asserts that either U.S. Customs and Border Protection (CBP) is aware that the goods qualify or that the

exporter’s personal knowledge forms the basis without sufficient information.

The exporter, not CBP, is responsible for providing satisfactory evidence of knowledge that the good originates. Such evidence

should reflect careful inquiry into the NAFTA rules of origin and the origin of the good, not the impression that the good qualifies

for such tariff preference. The failure to document such claims may result in penalty action in addition to the assessment of

import duties and fees.

Thank you for distributing this information to your staff and all interested and affected parties. If you have any questions

concerning this notice, you may contact Supervisory Import Specialist Sharon Swiatek at 716-646-3461.

/s/ Ann Marie Paul

for

Joseph J. Wilson

Port Director

http://www.shippingsolutions.com/blog/when-is-it-safe-to-use-no-1-on-the-nafta-certificate-of-origin

http://www.fca-natc.org/INFO/05-007~1.htm

NON-ORIGINATING – Does not qualify under the rules of origin set out in Chapter Four of the NAFTA.

NON-QUALIFYING OPERATIONS - Article 412 provides that goods shall not be considered to originate if they are

merely diluted with water or another substance that does not materially alter the characteristics of the goods. Thus, mere

dilution--even if it results in a change in tariff classification--is not sufficient to confer origin. However, dilution coupled with

another process may be sufficient to materially alter the characteristic of the goods and thereby confer origin.

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http://www.shippingsolutions.com/blog/when-is-it-safe-to-use-no-1-on-the-nafta-certificate-of-origin

Article 412 also indicates that goods will not be considered to originate if a preponderance of the evidence establishes that any

production or pricing practice has been used to circumvent the intent of the Chapter 4 origin rules. The rules of origin are

designed to ensure that the processing and costs incurred with respect to the products are commercially significant and

appropriate to the goods, as defined by the tariff change rules and, when applicable, the value content rules.

Non-qualifying Operations | U.S. Customs and Border Protection

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http://www.cbp.gov/trade/nafta/rules-orgin/non-qualifying-operations

ORIGINATING – Qualifying under the rules of origin set out in Chapter Four of the NAFTA.

http://www.export.gov/faq/eg_main_017496.asp#P25_2795

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PACKAGING – Packaging materials and containers in which a good is packaged for retail sale shall, if classified with the

good, be disregarded in determining whether all the non-originating materials used in the production of the good undergo the

applicable change in tariff classification set out in subdivision (t) of this note, and, 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 non-

originating materials, as the case may be, in calculating the regional value content of the good.

Packaging | U.S. Customs and Border Protection

PACKING - Packing materials and containers in which goods are packed for shipment are disregarded in determining

whether the non-originating materials used in the production of the goods undergo an applicable change in tariff classification set

out in Annex 401. They are also disregarded in determining whether the goods satisfy a regional value-content requirement.

Company X makes chairs (HTS 9401.69) in Mexico from Swedish furniture parts (HTS 9401.90). Company Y of Canada buys

chairs from Company X for C$10.90; this price includes C$0.90 for Guatemalan crates used to hold each chair during

international transit. The Annex 401 origin criterion for HTS 9401.69 is:

A change to subheading 9401.10 through 9401.80 from any other chapter; or

A change to subheading 9401.10 through 9401.80 from subheading 9401.90, whether or not there is also a change from any

other chapter, provided there is a regional value content of not less than:

60 percent where the transaction value method is used, or

50 percent where the net cost method is used.

The value of the Swedish parts is C$4.10. Under the transaction value method, the regional value content is:

10.00 - 4.10 x 100 = 59%

10.00

The chair does not originate because it does not have a minimum regional value content of 60 percent. Note that the packing

and shipping costs ($0.90) were deducted from the transaction value prior to calculating the regional value content.

Packing for Shipment | U.S. Customs and Border Protection

PREFERENCE CRITERIA (NAFTA) – The NAFTA Preference Criteria are grouped into categories identified on

the NAFTA Certificate of Origin by letters A through F:

A The good is "wholly obtained or produced entirely" in the territory of one or more of the NAFTA countries as referenced

in Article 415. Note: The purchase of a good in the territory does not necessarily render it "wholly obtained or produced". If the

good is an agricultural good, see also criterion F and Annex 703.2. (Reference: Article 401(a) and 415) Natural resources, e.g., anything grown, harvested, fished, or mined in any one of the NAFTA countries.

B The good is produced entirely in the territory of one or more of the NAFTA countries and satisfies the specific rule of

origin, set out in Annex 401, that applies to its tariff classification. The rule may include a tariff classification change, regional

value-content requirement, or a combination thereof. The good must also satisfy all other applicable requirements of Chapter

Four. If the good is an agricultural good, see also criterion F and Annex 703.2. (Reference: Article 401(b)) Manufactured goods that contain foreign parts, components, or raw materials and meet the requirements of its specific

NAFTA Rule of Origin.

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C The good is produced entirely in the territory of one or more of the NAFTA countries exclusively from originating

materials. Under this criterion, one or more of the materials may not fall within the definition of "wholly produced or obtained", as

set out in article 415. All materials used in the production of the good must qualify as "originating" by meeting the rules of Article

401(a) through (d). If the good is an agricultural good, see also criterion F and Annex 703.2. Reference: Article 401(c).Goods manufactured exclusively with NAFTA originating parts or components.

D Goods are produced in the territory of one or more of the NAFTA countries but do not meet the applicable rule of

origin, set out in Annex 401, because certain non-originating materials do not undergo the required change in tariff classification.

The goods do nonetheless meet the regional value-content requirement specified in Article 401(d). This criterion is limited to the

following two circumstances: 1. The good was imported into the territory of a NAFTA country in an unassembled or disassembled

form but was classified as an assembled good, pursuant to H.S. General Rule of Interpretation 2(a), or 2. The good incorporated

one or more non-originating materials, provided for as parts under the H.S., which could not undergo a change in tariff

classification because the heading provided for both the good and its parts and was not further subdivided into subheadings, or

the subheading provided for both the good and its parts and was not further subdivided. NOTE: This criterion does not apply to

Chapters 61 through 63 of H.S. (Reference: Article 401(d)) Covers goods where the HS code for the product and its parts is the same and the manufacturer is allowed to use

Regional Value Content to determine whether the good originates.

E Certain automatic data processing goods and their parts, specified in Annex 308.1, that do not originate in the territory

are considered originating upon importation into the territory of a NAFTA country from the territory of another NAFTA country

when the most-favored-nation tariff rate of the good conforms to the rate established in Annex 308.1 and is common to all

NAFTA countries. (Reference: Annex 308.1)HS code-specific Automatic Data Processing equipment.

F The good is an originating agricultural good under preference criterion A, B, or C above and is not subject to a

quantitative restriction in the importing NAFTA country because it is a "qualifying good" as defined in Annex 703.2, Section A or

B (please specify). A good listed in Appendix 703.2B.7 is also exempt from quantitative restrictions and is eligible for NAFTA

preferential tariff treatment if it meets the definition of "qualifying good" in Section A of Annex 703.2. NOTE 1: This criterion does

not apply to goods that wholly originate in Canada or the United States and are imported into either country. NOTE 2: A tariff rate

quota is not a quantitative restriction.

Applies to certain “agricultural” products exported only to Mexico.

https://www.census.gov/foreign-trade/aes/exporttraining/videos/preferencecriteria1109.pdf

http://www.cbp.gov/sites/default/files/documents/CBP%20Form%20434_3.pdf

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REASONABLE CARE – The degree of caution and concern for the safety of himself/herself and others an ordinarily

prudent and rational person would use in the circumstances. This is a subjective test of determining if a person is negligent,

meaning he/she did not exercise reasonable care.

ASKING AND ANSWERING THE FOLLOWING QUESTIONS MAY BE HELPFUL IN ASSISTING IMPORTERS IN THE

EXERCISE OF REASONABLE CARE:

GENERAL QUESTIONS FOR ALL TRANSACTIONS:

1. If you have not retained an expert to assist you in complying with Customs requirements, do you have access to the Customs

Regulations (Title 19 of the Code of Federal Regulations), the Harmonized Tariff Schedule of the United States, and the GPO

publication Customs Bulletin and Decisions? Do you have access to the Customs Internet Website, Customs Bulletin Board or

other research service to permit you to establish reliable procedures and facilitate compliance with Customs laws and

regulations?

2. Has a responsible and knowledgeable individual within your organization reviewed the Customs documentation prepared by

you or your expert to ensure that it is full, complete and accurate? If that documentation was prepared outside your own

organization, do you have a reliable system in place to insure that you receive copies of the information as submitted to U.S.

Customs and Border Protection; that it is reviewed for accuracy; and that U.S. Customs and Border Protection is timely apprised

of any needed corrections?

3. If you use an expert to assist you in complying with Customs requirements, have you discussed your importations in advance

with that person and have you provided that person with full, complete and accurate information about the import transactions?

4. Are identical transactions or merchandise handled differently at different ports or U.S. Customs and Border Protection offices

within the same port? If so, have you brought this to the attention of the appropriate U.S. Customs and Border Protection

officials?

Please follow link for the remainder of document.

http://dictionary.law.com/Default.aspx?selected=1730

http://www.cbp.gov/sites/default/files/documents/icp021_3.pdf

RECORDKEEPING – Article 505: Records

Each Party shall provide that:

a) an exporter or a producer in its territory that completes and signs a Certificate of Origin shall maintain in its territory, for five

years after the date on which the Certificate was signed or for such longer period as the Party may specify, all records relating to

the origin of a good for which preferential tariff treatment was claimed in the territory of another Party, including records

associated with

(i) the purchase of, cost of, value of, and payment for, the good that is exported from its territory,

(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 its territory, and

(iii) the production of the good in the form in which the good is exported from its territory; and

b) an importer claiming preferential tariff treatment for a good imported into the Party's territory shall maintain in that territory, for

five years after the date of importation of the good or for such longer period as the Party may specify, such documentation,

including a copy of the Certificate, as the Party may require relating to the importation of the good.

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REGIONAL VALUE CONTENT (RVC) – See ANNEX 401. Also see below.

RVC Formula

RVC =NC-VNM

x 100NC

NC = Net Cost

VNM = Value of Non-Originating Material

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.


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ROLLING STOCK - Transit vehicles such as buses, vans, cars, railcars, locomotives, trolley cars and buses, and ferry

boats, as well as vehicles used for support services.

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RULINGS – See CROSS.

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SETS – The term “goods put up in sets for retail sale” shall be taken to mean goods which:

(a) consist of at least two different articles which are, prima facie, classifiable in different headings. Therefore, for

example, six fondue forks cannot be regarded as a set within the meaning of this Rule;

(b) consist of products or articles put up together to meet a particular need or carry out a specific activity; and

(c) are put up in a manner suitable for sale directly to users without repacking (e.g., in boxes or cases or on boards).


SIMPLE ASSEMBLY - The fitting together of five or fewer parts all of which are foreign (excluding fasteners such as

screws, bolts, etc.) by bolting, gluing, soldering, sewing or by other means without more than minor processing.


SUBCOMPONENT – Any article, material, or supply, whether manufactured or unmanufactured, that is one step

removed from a component (as defined in paragraph (c) of this section) in the manufacturing process and that is incorporated

directly into a component. (Buy America Definition)


SUBSTANTIAL TRANSFORMATION - When an item in trade does not come entirely from a single country, this

legal principle is used to determine the origin of the item for purposes of recording trade data, assessing duties, marking, or

applying other measures. As developed by U.S. courts (see 19 U.S. Code section 1304), the term means that the item

underwent a fundamental change (normally as a result of processing or manufacturing in the country claiming origin) in form,

appearance, nature, or character, which adds to its value an amount or percentage that is significant in comparison to the value

which the item (or its components or materials) had when exported from the country in which it was first made or grown. Usually

a new article of commerce–normally one with a different name–is found to result from any process that Customs decides has

brought about a “substantial transformation” in the pre-existing elements. Imports into the United States must be marked or

labeled in English with their country of origin, based on this principle, under rules laid out in Customs regulations in order to tell

ultimate consumers the origin of the goods they buy or use; there are exceptions for items that cannot be marked without

damaging them or for goods that will be significantly changed before reaching the ultimate purchaser. Other countries and the

WTO Agreement on Rules of Origin utilize this concept to determine “country of origin,” though they may represent the concept

in varying ways, such as changes of tariff classification, value added, specified processing operations, or combinations of these

criteria.

Sugar from country A, flour from country B, dairy products from country C, and nuts from country D are taken to country E and undergo manufacturing to result in cookies. (The inputs were substantially transformed into a product of country E, in that a new type of goods resulted from processing.)

Fresh vegetables grown in various countries are taken to another country to be mixed together and frozen. (The vegetables were not substantially transformed into products of the country where mixing and freezing occurred, and the mixture must be labeled with the origin of each ingredient.)

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Repackaging, dilution with water, and similar minor processes usually do not cause a substantial transformation. Assembly or disassembly may result in a substantial transformation, depending on the nature of the products involved and the complexity of the operations.

http://www.usitc.gov/elearning/hts/media/2017/SubstantialTransformation.pdf

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TARIFF SHIFT – See ANNEX 401.

TRACED MATERIAL - 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.


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TRACED VALUE - Tracing ensures greater accuracy in calculating the regional value content by tracking the value of

major automotive components and subassemblies imported into the NAFTA region, so that the non-originating value of these

components and subassemblies is reflected in the regional value-content calculation of the motor vehicle or in auto parts

destined for original equipment use. This significantly limits the phenomenon known as "roll-up" and "roll-down," whereby the full

value of goods is counted as originating or non-originating content even though they may contain a mix of originating and non-

originating materials. For those components subject to tracing, any non-originating (non-NAFTA) value will remain non-

originating through all stages of assembly to the time of calculation of the regional value content of the motor vehicle (or auto part

destined for original equipment use). The value of traceable automotive components is determined at the time the non-originating

components are received by the first person in Canada, Mexico or the United States who takes title to them, after importation

from outside the NAFTA region. The value of the components will be determined in accordance with standard valuation norms

and will generally be the transaction value. Certain costs must be added to the transaction value if not included in it (e.g.,

packing, selling commissions).


TRANSACTION VALUE - The transaction value of imported merchandise is the price actually paid or payable for the

merchandise when sold for exportation to the United States, plus amounts equal to:

A. The packing costs incurred by the buyer.

B. Any selling commission incurred by the buyer.

C. The value, apportioned as appropriate, of any assist.

D. Any royalty or license fee that the buyer is required to pay, directly or indirectly, as a condition of the sale.

E. The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or

indirectly, to the seller.

These amounts (items A through E) are added only to the extent that each 1) is not included in the price, and 2) is based on

information accurately establishing the amount. If sufficient information is not available, then the transaction value cannot be

determined and the next basis of appraisement, in order of precedence, must be considered.


TRANSSHIPMENT - Goods that qualify as originating will lose that status if they do not remain under Customs control or

undergo any operation outside the NAFTA region, other than unloading, reloading, or any other operation necessary to preserve

them in good condition or to transport the goods to Canada, Mexico or the United States.

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Surgical instruments made in the United States (wholly of originating materials) and cotton gowns and bandages made in Mexico

(from fibers and fabric wholly grown and produced in Mexico) are sent to the Dominican Republic where they are packaged

together and then sterilized for use in operating rooms.

Upon their return to the United States, the medical sets are not eligible for preferential treatment under the NAFTA because they

underwent operations in the Dominican Republic that were not necessary to preserve the goods in good condition or to transport

them to the United States.

19 CFR 181 Appendix, Section 16

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.

http://www.cbp.gov/trade/nafta/guide-customs-procedures/other-provisions-relating-origin/transshipment


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http://www.cbp.gov/trade/nafta/guide-customs-procedures/other-provisions-relating-origin/transshipment

VALUE OF NON-ORIGINATING MATERIAL (VNM) – The value of non-originating materials used by the

producer in the production of the good.


VALUE OF ORIGINATING MATERIAL (VOM) - The value of originating materials acquired or self-produced,

and used by the producer in the production of the good.

https://ustr.gov/sites/default/files/uploads/agreements/fta/colombia/asset_upload_file788_10154.pdf

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https://ustr.gov/sites/default/files/uploads/agreements/fta/colombia/asset_upload_file788_10154.pdf


ACRONYMS

AAC Axle Alliance Company (No longer a legal entity.)AALA American Automobile Labeling ActABI Automated Broker InterfaceACE Automated Commercial EnvironmentAD Anti-DumpingADD Anti-Dumping DutiesAGOA African Growth and Opportunity ActASN Advance Shipping NoticeAV Adjusted ValueAWB Air Way BillBD Build downBOL or B/L Bill Of LadingBOM Bill of MaterialBU Build upBUYAM Buy AmericaCAFÉ Corporate Average Fuel EconomyCAFTA Central American Free Trade AreacbFC Common Basic Finance and ControllingCBP Customs and Border ProtectionCEE Centers of Excellence and ExpertiseCERT Certificate of Origin

CF28 Customs Form 28 - Official "Request for Information" from Customs used as a notice to review your process

CF29 Customs Form 29 - Official "Notice of Action" that is either proposed or has already been taken by Customs

CFR Code of Federal RegulationsCI Continuous ImprovementCO Certificate of OriginCOO or CofO Country of OriginC-TPAT Customs-Trade Partnership Against Terrorism CVD Countervailing DutyDDC Detroit Diesel CorporationDDR Detroit Diesel RemanufacturingDOT Department of TransportationDTNA Daimler Trucks North America, LLCDVCM Daimler Vehículos Comerciales México, S. de R.L. de C.V.EbiT Earnings before insurance and taxesEDI Electronic Data InterchangeEN Explanatory NoteEPA Environmental Protection AgencyEU European Union

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FA Focused AssessmentFCCC Freightliner Custom Chassis CorporationFHWA Federal HighWay AdministrationFOB Free on BoardFTA Federal Transit AdministrationFTA Free Trade AgreementFTZ Foreign Trade ZoneGAAP Generally Accepted Accounting Principles GATS General Agreements on Trade in ServicesGATT General Agreement on Tariffs and TradeGDP Gross Domestic ProductGFC Gross Factory CostGN General NoteGPA Government Procurement AgreementGRI General Rules of InterpretationGSP Generalized System of PreferencesGTM Global Trade ManagementHMF Harbor Maintenance FeeHTS Harmonized Tariff ScheduleICS Daimler's version of SOX (Internal Control Systems)IIP Indirect Intensification ProgramIIT Instruments of International TrafficIOR Importer Of RecordIPR Intellectual Property RightsISA Importer Self Assessment ProgramISF Importer Security Filing (10+2)ISO International Standards OrganizationITC International Trade ComplianceJIT Just In TimeKPI Key Performance Indicator LIFO Last In, First OutMA Manufacturer's AffidavitMB Mercedes-BenzMBDM Mercedes- Benz Desarrollo de Mercados, S. de R. L. de C. V.MBFS Mercedes-Benz Financial Services USA LLCMBMex Mercedes-Benz México S. de R.L. de C.V.MFN Most Favored NationMID Manufacturer's IdentificationMOH Material OverheadMPF Merchandise Processing FeeNAFTA North American Free Trade AgreementNC Net CostNHTSA National Highway Traffic Safety Administration

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OH OverheadPDC Part Distribution CenterPGA Participating Government AgencyPO Purchase OrderR&D Research and Development

RCTS Risk Control Tracking System. Also internal Daimler audit linked to ICS.

REGS RegulationsROS Return on SalesRVC Regional Value Content

SAP Systems Applications and Products (Systeme, Anwendungen, Produkte)

SED Shipper's Export DeclarationSOP Standard Operating Procedures

SOXSarbanes-Oxley: (To protect investors by improving the accuracy and

reliability of corporate disclosures made pursuant to the securities laws, and for other purposes.)

SPI Special Program IndicatorTBB Thomas Built BusTIB Transportaion Importation BondTIP Tactical Implementation PlanTOS Truck Operating SystemTPP Trans-Pacific PartnershipTV Transaction ValueUSAUCO US-Australia Certificate of OriginUSC United States CodeUSCLCO US-Chile Certificate of OriginUSITC United States International Trade CommisionVNM Value of Non-originating MaterialVOM Value of Originating MaterialWTO World Trade Organization

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SCHEDULE IV

LIST OF TARIFF PROVISIONS FOR THE PURPOSES OF SECTION 9 OF THE APPENDIX

4009 8512.204010.31 through 4010.34 8512.404010.39.10 through 4010.39.20 ex 8519.814011 8527.214016.93.10 8527.294016.99.30 8536.504016.99.55 8536.907007.11 8537.10.607007.21 8539.107009.10 8539.218301.20 8544.308407.31 87068407.32 87078407.33 8708.10.308407.34.05 8708.218407.34.14 8708.29.218407.34.18 8708.29.258407.34.25 8708.29.158407.34.35 8708.308407.34.44 8708.408407.34.48 8708.508407.34.55 8708.70.058408.20 8708.70.258409 8708.70.458413.30 8708.808414.59.30 8708.918414.80.05 8708.928415.20 8708.93.158421.39.40 8708.93.608481.20 8708.948481.30 8708.958481.80 8708.99.038482.10 through 8482.80 8708.99.278483.10 through 8483.40 8708.99.558483.50 8708.99.068501.10 8708.99.318501.20 8708.99.588501.31 8708.99.168501.32.45 8708.99.418507.20.40 8708.99.688507.30.40 8708.99.238507.40.40 8708.99.488507.80.40 8708.99.818511.30 9031.808511.40 9032.898511.50 9401.20

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