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CUSMA Rules of Origin Regulations (SOR/2020-155)

Regulations are current to 2020-12-28 and last amended on 2020-07-01. Previous Versions

PART 4Material

Marginal note:Value of material used in production

  •  (1) Except as otherwise provided for non-originating materials used in the production of a good referred to in section 14 or subsection 15(1), and except in the case of indirect materials, intermediate materials and packing materials and containers, for the purpose of calculating the regional value content of a good and for the purposes of subsections 5(1) and (4), the value of a material that is used in the production of the good is

    • (a) except as otherwise provided in subsection (4), if the material is imported by the producer of the good into the territory of the CUSMA country in which the good is produced, the transaction value of the material at the time of importation, including the costs incurred in the international shipment of the material;

    • (b) if the material is acquired by the producer of the good from another person located in the territory of the CUSMA country in which the good is produced

      • (i) the price paid or payable by the producer in the CUSMA country where the producer is located,

      • (ii) the value as determined for an imported material in paragraph (a), or

      • (iii) the earliest ascertainable price paid or payable in the territory of the CUSMA country where the good is produced; or

    • (c) for a material that is self-produced

      • (i) all the costs incurred in the production of the material, including general expenses, and

      • (ii) an amount equivalent to the profit added in the normal course of trade or equal to the profit that is usually reflected in the sale of goods of the same class or kind as the self-produced material that is being valued if no self-produced material that has been used in its production has been valued including the amount equivalent or equal to the profit according to this paragraph.

  • Marginal note:Adjustments

    (2) The following costs may be deducted from the value of a non-originating material or material of undetermined origin if they are included under subsection (1):

    • (a) the costs of freight, insurance and packing and all other costs incurred in transporting the material to the location of the producer;

    • (b) duties and taxes paid or payable with respect to the material in the territory of one or more of the CUSMA countries, other than duties and taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable;

    • (c) customs brokerage fees, including the cost of in-house customs brokerage services, incurred with respect to the material in the territory of one or more of the CUSMA countries; and

    • (d) the cost of waste and spoilage resulting from the use of the material in the production of the good, minus the value of any reusable scrap or by-product.

  • Marginal note:Documentary evidence required

    (3) If the cost or expense listed in subsection (2) is unknown or documentary evidence of the amount of the adjustment is not available, no adjustment is to be made for that particular cost or expense.

  • Marginal note:Unacceptable transaction value

    (4) For the purposes of paragraph (1)(a), if the transaction value of the material referred to in that paragraph is unacceptable or if there is no transaction value in accordance with Schedule 4, the value of the material must be determined in accordance with Schedule 6 and, if the costs referred to in subsection (2) are included in that value, those costs may be deducted from that value.

  • Marginal note:Costs recorded on books

    (5) For the purposes of subsection (1), the costs referred to in paragraph (1)(c) are the costs referred to in that paragraph that are recorded on the books of the producer of the good.

  • Marginal note:Designation of self-produced material as intermediate material

    (6) For the purpose of calculating the regional value content of a good, the producer of the good may designate as an intermediate material any self-produced material that is used in the production of the good, provided that, if an intermediate material is subject to a regional value content requirement, no other self-produced material that is subject to a regional value content requirement and is incorporated into that intermediate material is also designated by the producer as an intermediate material.

  • Marginal note:Particulars

    (7) For the purposes of subsection (6),

    • (a) in order to qualify as an originating material, a self-produced material that is designated as an intermediate material must qualify as an originating material under these Regulations;

    • (b) the designation of a self-produced material as an intermediate material is to be made solely at the choice of the producer of that self-produced material; and

    • (c) except as otherwise provided in subsection 9(6), the proviso set out in subsection (6) does not apply with respect to an intermediate material used by another producer in the production of a material that is subsequently acquired and used in the production of a good by the producer referred to in subsection (6).

  • Marginal note:Value of intermediate material

    (8) The value of an intermediate material is, at the choice of the producer of the good,

    • (a) the total cost incurred with respect to all goods produced by the producer that can be reasonably allocated to that intermediate material in accordance with Schedule 5; or

    • (b) the aggregate of each cost that forms part of the total cost incurred with respect to that intermediate material that can be reasonably allocated to that intermediate material in accordance with Schedule 5.

  • Marginal note:Calculation of total cost

    (9) Total cost under subsection (8) consists of the costs referred to in subsection 1(6) and is calculated in accordance with that subsection and subsection 1(7).

  • Marginal note:Rescission of designation

    (10) If a producer of a good designates a self-produced material as an intermediate material under subsection (6) and the customs administration of a CUSMA country into which the good is imported determines during a verification of origin of the good that the intermediate material is a non-originating material and notifies the producer of this in writing before the written determination of whether the good qualifies as an originating good, the producer may rescind the designation in which case the regional value content of the good is to be calculated as though the self-produced material were not so designated.

  • Marginal note:Effect of rescission

    (11) A producer of a good who rescinds a designation under subsection (10) may, not later than 30 days after the day on which the customs administration referred to in subsection (10) notifies the producer in writing that the self-produced material is a non-originating material, designate as an intermediate material another self-produced material that is incorporated into the good, subject to the proviso set out in subsection (6).

  • Marginal note:Second rescission

    (12) If a producer of a good designates another self-produced material as an intermediate material under subsection (6) and the customs administration referred to in subsection (10) determines during the verification of origin of the good that that self-produced material is a non-originating material,

    • (a) the producer may rescind the designation in which case the regional value content of the good is to be calculated as though the self-produced material were not so designated; and

    • (b) the producer may not designate another self-produced material that is incorporated into the good as an intermediate material.

  • Marginal note:Indirect materials

    (13) For the purpose of determining whether a good is an originating good, an indirect material that is used in the production of the good

    • (a) is considered to be an originating material, regardless of where that indirect material is produced; and

    • (b) if the good is subject to a regional value content requirement, for the purpose of calculating the net cost under the net cost method, has a value that is equal to the costs of that material that are recorded on the books of the producer of the good.

  • Marginal note:Packaging materials and containers

    (14) Packaging materials and containers, if classified under the Harmonized System with the good that is packaged therein, must be disregarded for the purpose of

    • (a) determining whether all of the non-originating materials used in the production of the good undergo an applicable change in tariff classification;

    • (b) determining whether a good is wholly obtained or produced; and

    • (c) determining under subsection 5(1) the value of non-originating materials that do not undergo an applicable change in tariff classification.

  • Marginal note:Value of packaging materials and containers — cases where taken into account

    (15) If packaging materials and containers are classified under the Harmonized System with the good that is packaged therein and that good is subject to a regional value content requirement, the value of those packaging materials and containers must be taken into account as originating materials or non-originating materials, as the case may be, for the purpose of calculating the regional value content of the good.

  • Marginal note:Packaging materials and containers — self-produced

    (16) For the purposes of subsection (15), if packaging materials and containers are self-produced materials, the producer may choose to designate those materials as intermediate materials under subsection (6).

  • Marginal note:Packing materials and containers

    (17) For the purpose of determining whether a good is an originating good, packing materials and containers are disregarded.

  • Marginal note:Fungible materials and fungible goods

    (18) A fungible material or fungible good is an originating good if

    • (a) when originating and non-originating fungible materials

      • (i) are withdrawn from an inventory in one location and used in the production of the good, or

      • (ii) are withdrawn from inventories in more than one location in the territory of one or more of the CUSMA countries and used in the production of the good at the same production facility,

      the determination of whether the materials are originating is made on the basis of an inventory management method recognized in the Generally Accepted Accounting Principles of, or otherwise accepted by, the CUSMA country in which the production is performed or an inventory management method set out in Schedule 8; or

    • (b) when originating and non-originating fungible goods are commingled and exported in the same form, the determination of whether the goods are originating is made on the basis of an inventory management method recognized in the Generally Accepted Accounting Principles of, or otherwise accepted by, the CUSMA country from which the good is exported or an inventory management method set out in Schedule 8.

  • Marginal note:Choice for fiscal year

    (19) The inventory management method selected under subsection (18) must be used throughout the fiscal year of the producer or the person that selected the inventory management method.

  • Marginal note:Claim

    (20) An importer may claim that a fungible material or good is originating if the importer, producer or exporter has physically segregated each fungible material or good so as to allow its specific identification.

  • Marginal note:Choice of inventory management method

    (21) If fungible materials referred to in paragraph (18)(a) and fungible goods referred to in paragraph (18)(b) are withdrawn from the same inventory, the inventory management method used for the materials must be the same as the inventory management method used for the goods, and if the averaging method is used, the respective averaging periods for fungible materials and fungible goods are to be used.

  • Marginal note:Written notice

    (22) A choice of inventory management methods under subsection (18) is considered to have been made when the customs administration of the CUSMA country into which the good is imported is informed in writing of the choice during the course of a verification of origin of the good.

  • Marginal note:Accessories, spare parts, tools, or instructional or other information materials

    (23) For the purposes of subsections (24) to (27), accessories, spare parts, tools, or instructional or other information materials are covered when

    • (a) they are classified and delivered with, but not invoiced separately from, the good; and

    • (b) their type, quantity and value are customary for the good within the industry that produces the good.

  • Marginal note:Exclusion

    (24) Accessories, spare parts, tools, or instructional or other information materials are to be disregarded for the purpose of determining

    • (a) whether a good is wholly obtained;

    • (b) whether the non-originating materials used in the production of the good satisfy a process or change in tariff classification requirement set out in Schedule 1; or

    • (c) under subsection 5(1), the value of non-originating materials that do not undergo an applicable change in tariff classification.

  • Marginal note:Value for regional value content

    (25) If a good is subject to a regional value content requirement, the value of accessories, spare parts, tools, or instructional or other information materials is to be taken into account as originating materials or non-originating materials, as the case may be, in calculating the regional value content of the good.

  • Marginal note:Designation

    (26) For the purposes of subsection (25), if accessories, spare parts, tools or instructional or other information materials are self-produced materials, the producer may choose to designate those materials as intermediate materials under subsection (6).

  • Marginal note:Originating status

    (27) A good’s accessories, spare parts, tools, or instructional or other information materials have the originating status of the good with which they are delivered.

  • Marginal note:Examples illustrating the provisions on materials

    (28) Each of the following examples is an “Example” as referred to in subsection 1(4).

    • Example 1 (subsection (4)): Transaction value not determined in a manner consistent with Schedule 6

      Producer A, located in CUSMA country A, imports a bicycle chainring into CUSMA country A. Producer A purchased the chainring from a middleman located in CUSMA country B. The middleman purchased the chainring from a manufacturer located in CUSMA country B. Under the laws of CUSMA country A that implement the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, 1994, the customs value of the chainring was based on the price actually paid or payable by the middleman to the manufacturer. Producer A uses the chainring to produce a bicycle and exports the bicycle to CUSMA country C. The bicycle is subject to a regional value content requirement.

      Under subsection 3(1) of Schedule 6, the price actually paid or payable is the total payment made or to be made by the producer to or for the benefit of the seller of the material. Section 1 of that Schedule defines “producer” and “seller” for the purposes of that Schedule. A producer is the person who uses the material in the production of a good that is subject to a regional value content requirement. A seller is the person who sells the material being valued to the producer.

      The transaction value of the chainring was not determined in a manner consistent with Schedule 6 because it was based on the price actually paid or payable by the middleman to the manufacturer, rather than on the price actually paid or payable by Producer A to the middleman. Thus, subsection (4) applies and the chainring is valued in accordance with Schedule 6.

    • Example 2 (subsection (7)): Value of intermediate materials

      A producer located in a CUSMA country produces a bicycle that is subject to a regional value content requirement under subsection 3(2). The producer also produces a chainring that is used in the production of the bicycle. Both originating materials and non-originating materials are used in the production of the chainring. The chainring is subject to a change in tariff classification requirement under subsection 3(2). The costs to produce the chainring are the following:

      • Product costs:
        • Value of originating materialsblank line$1.00
        • Value of non-originating materialsblank line$7.50
        • Other product costsblank line$1.50
      • Period costs (including $0.30 in royalties):blank line$0.50
      • Other costs:blank line$0.10
      • Total cost of the chainring:blank line$10.60

      The producer designates the chainring as an intermediate material and determines that, because all of the non-originating materials that are used in the production of the chainring undergo an applicable change in tariff classification set out in Schedule 1, the chainring would, under subsection 3(2) qualify as an originating material. The cost of the non-originating materials used in the production of the chainring is therefore not included in the value of non-originating materials that are used in the production of the bicycle for the purpose of determining the regional value content of the bicycle. Because the chainring is designated as an intermediate material, the total cost of the chainring, which is $10.60, is treated as the cost of originating materials for the purpose of calculating the regional value content of the bicycle. The total cost of the bicycle is determined in accordance with the following figures:

      • Product costs:
        • Value of originating materials
          • - intermediate materialsblank line$10.60
          • - other materialsblank line$3.00
        • Value of non-originating materialsblank line$5.50
      • Other product costs:blank line$6.50
      • Period costs:blank line$2.50
      • Other costs:blank line$0.10
      • Total cost of the bicycle:blank line$28.20
    • Example 3 (subsection (7)): Effects of the designation of self-produced materials on net cost

      The ability to designate intermediate materials helps to put the vertically integrated producer who is self-producing materials that are used in the production of a good on par with a producer who is purchasing materials and valuing those materials in accordance with subsection (1). The following situations demonstrate how this is achieved:

      Situation A

      A producer located in a CUSMA country produces a bicycle that is subject to a regional value content requirement of 50% under the net cost method. The bicycle satisfies all other applicable requirements of these Regulations. The producer purchases a bicycle frame, which is used in the production of the bicycle, from a supplier located in a CUSMA country. The value of the frame determined in accordance with subsection (1) is $11.00. The frame is an originating material. All other materials used in the production of the bicycle are non-originating materials. The net cost of the bicycle is determined as follows:

      • Product costs:
        • Value of originating materials (bicycle frame)blank line$11.00
        • Value of non-originating materialsblank line$5.50
        • Other product costsblank line$6.50
      • Period costs (including $0.20 in excluded costs):blank line$0.50
      • Other costs:blank line$0.10
      • Total cost of the bicycle:blank line$23.60
      • Excluded costs (included in period costs):blank line$0.20
      • Net cost of the bicycle:blank line$23.40

      The regional value content of the bicycle is calculated as follows:

      RVC=(NC − VNM) ÷ NC × 100
      =($23.40 − $5.50) ÷ $23.40 × 100
      =76.5%

      The regional value content of the bicycle is 76.5% and the bicycle, therefore, qualifies as an originating good.

      Situation B

      A producer located in a CUSMA country produces a bicycle that is subject to a regional value content requirement of 50% under the net cost method. The bicycle satisfies all other applicable requirements of these Regulations. The producer self-produces the bicycle frame that is used in the production of the bicycle. The costs to produce the frame are the following:

      • Product costs:
        • Value of originating materialsblank line$1.00
        • Value of non-originating materialsblank line$7.50
        • Other product costsblank line$1.50
      • Period costs (including $0.20 in excluded costs):blank line$0.50
      • Other costs:blank line$0.10
      • Total cost of the bicycle frame:blank line$10.60

      Additional costs to produce the bicycle are the following:

      • Product costs:
        • Value of originating materialsblank line$0.00
        • Value of non-originating materialsblank line$5.50
        • Other product costsblank line$6.50
      • Period costs (including $0.20 in excluded costs):blank line$0.50
      • Other costs:blank line$0.10
      • Total additional costs:blank line$12.60

      The producer does not designate the bicycle frame as an intermediate material under subsection (6). The net cost of the bicycle is calculated as follows:

      Costs of the bicycle frame (not designated as an intermediate material) ($)Additional costs to produce the bicycle ($)Total ($)
      Product costs:

      Value of originating materials

      1.000.001.00

      Value of non-originating materials

      7.505.5013.00

      Other product costs

      1.506.508.00
      Period costs (including $0.20 in excluded costs):0.500.501.00
      Other costs:0.100.100.20
      Total cost of the bicycle:10.6012.6023.20
      Excluded costs (in period costs)0.200.200.40
      Net cost of the bicycle (total cost minus excluded costs):22.80

      The regional value content of the bicycle is calculated as follows:

      RVC=(NC − VNM) ÷ NC × 100
      =($22.80 − $13.00) ÷ $22.80 × 100
      =42.9%

      The regional value content of the bicycle is 42.9% and the bicycle, therefore, does not qualify as an originating good.

      Situation C

      A producer located in a CUSMA country produces a bicycle that is subject to a regional value content requirement of 50% under the net cost method. The bicycle satisfies all other applicable requirements of these Regulations. The producer self-produces the bicycle frame that is used in the production of the bicycle. The costs to produce the frame are the following:

      • Product costs:
        • Value of originating materialsblank line$1.00
        • Value of non-originating materialsblank line$7.50
        • Other product costsblank line$1.50
      • Period costs (including $0.20 in excluded costs):blank line$0.50
      • Other costsblank line$0.10
      • Total cost of the bicycle frame:blank line$10,60

      Additional costs to produce the bicycle are the following:

      • Product costs:
        • Value of originating materialsblank line$0.00
        • Value of non-originating materialsblank line$5.50
        • Other product costsblank line$6.50
      • Period costs (including $0.20 in excluded costs):blank line$0.50
      • Other costs:blank line$0.10
      • Total additional costs:blank line$12.60

      The producer designates the frame as an intermediate material under subsection (6). The frame qualifies as an originating material under subsection 3(2). Therefore, the value of non-originating materials used in the production of the frame is not included in the value of non-originating materials for the purpose of calculating the regional value content of the bicycle. The net cost of the bicycle is calculated as follows:

      Costs of the bicycle frame (designated as an intermediate material) ($)Additional costs to produce the bicycle ($)Total ($)
      Product costs:

      Value of originating materials

      10.600.0010.60

      Value of non-originating materials

      5.505.50

      Other product costs

      6.506.50
      Period costs (including $0.20 in excluded costs):0.500.50
      Other costs:0.100.10
      Total cost of the bicycle:10.6012.6023.20
      Excluded costs (in period costs)0.200.20
      Net cost of the bicycle (total cost minus excluded costs):23.00

      The regional value content of the bicycle is calculated as follows:

      RVC=(NC − VNM) ÷ NC × 100
      =($23.00 − $5.50) ÷ $23.00 × 100
      =76.1%

      The regional value content of the bicycle is 76.1% and the bicycle, therefore, qualifies as an originating good.

    • Example 4: Originating materials acquired from a producer who produced them using intermediate materials

      Producer A, located in CUSMA country A, produces switches. In order for the switches to qualify as originating goods, Producer A designates subassemblies of the switches as intermediate materials. The subassemblies are subject to a regional value content requirement. They satisfy that requirement and qualify as originating materials. The switches are also subject to a regional value content requirement and, with the subassemblies designated as intermediate materials, are determined to have a regional value content of 65%.

      Producer A sells the switches to Producer B, located in CUSMA country B, who uses them to produce switch assemblies that are used in the production of Good B. The switch assemblies are subject to a regional value content requirement. Producers A and B are not accumulating their production within the meaning of section 9. Producer B is therefore able, under subsection (6), to designate the switch assemblies as intermediate materials.

      If Producers A and B were accumulating their production within the meaning of section 9, Producer B would be unable to designate the switch assemblies as intermediate materials because the production of both producers would be considered to be the production of one producer.

    • Example 5: Single producer and successive designations of materials subject to a regional value content requirement as intermediate materials

      Producer A, located in a CUSMA country, produces Material X and uses Material X in the production of Good B. Material X qualifies as an originating material because it satisfies the applicable regional value content requirement. Producer A designates Material X as an intermediate material.

      Producer A uses Material X in the production of Material Y, which is also used in the production of Good B. Material Y is also subject to a regional value content requirement. Under the proviso set out in subsection (6), Producer A cannot designate Material Y as an intermediate material, even if Material Y satisfies the applicable regional value content requirement, because Material X was already designated by Producer A as an intermediate material.

    • Example 6: Single producer and multiple designations of materials as intermediate materials

      Producer X, located in CUSMA country X, uses non-originating materials in the production of self-produced materials A, B and C. None of the self-produced materials are used in the production of any of the other self-produced materials.

      Producer X uses the self-produced materials in the production of Good O, which is exported to CUSMA country Y. Materials A, B and C qualify as originating materials because they satisfy the applicable regional value content requirements.

      Because none of the self-produced materials are used in the production of any of the other self-produced materials, then even though each self-produced material is subject to a regional value content requirement, Producer X may, under subsection (6), designate all of the self-produced materials as intermediate materials. The proviso set out in subsection (6) only applies if self-produced materials are used in the production of other self-produced materials and both are subject to a regional value content requirement.

    • Example 7 (subsection (23)):

      The following are examples of accessories, spare parts, tools, or instructional or other information materials that are delivered with a good and form part of the good’s standard accessories, spare parts, tools, or instructional or other information materials:

      • (a) consumables that must be replaced at regular intervals, such as dust collectors for an air-conditioning system;

      • (b) carrying cases for equipment;

      • (c) dust covers for machines;

      • (d) operational manuals for vehicles;

      • (e) brackets to attach equipment to a wall;

      • (f) bicycle tool kits or car jacks;

      • (g) sets of wrenches to change the bit on a chuck;

      • (h) brushes or other tools to clean out machines; and

      • (i) electrical cords and power bars for use with electronic goods.

    • Example 8: Value of indirect materials that are assists

      Producer A, located in a CUSMA country, produces a well-water pump that is subject to a regional value content requirement. The producer chooses to calculate the regional value content of that good using the net cost method. Producer A buys a mould-injected plastic water flow sensor from Producer B, located in the same CUSMA country, and uses it in the production of the pump. Producer A provides to Producer B, at no charge, moulds to be used in the production of the water flow sensor. The moulds have a value of $100 which is expensed in the current year by Producer A.

      The water flow sensor is subject to a regional value content requirement which Producer B chooses to calculate using the net cost method. For the purpose of determining the value of non-originating materials in order to calculate the regional value content of the water flow sensor, the moulds are considered to be an originating material because they are an indirect material. However, under subsection (13) they have a value of nil because the cost of the moulds with respect to the water flow sensor is not recorded on the books of Producer B.

      It is determined that the water flow sensor is a non-originating material. The cost of the moulds that is recorded on the books of Producer A is expensed in the current year. Under section 4 of Schedule 6, the value of the moulds (see subparagraph 4(1)(b)(ii) of Schedule 6) must be included in the value of the water flow sensor by Producer A when calculating the regional value content of the well-water pump. The cost of the moulds, although recorded on the books of producer A, cannot be included as a separate cost in the net cost of the well-water pump because it is already included in the value of the water flow sensor. The entire cost of the water flow sensor, which includes the cost of the moulds, is included in the value of non-originating materials for the purposes of calculating the regional value content of the well-water pump.

 
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