Canada-Chile Free Trade Agreement

Chapter D - Rules of Origin

Article D-01: Originating Goods

Except as otherwise provided in this Chapter, a good shall originate in the territory of a Party where:

a. the good is wholly obtained or produced entirely in the territory of one or both of the Parties, as defined in Article D-16;

b. each of the non-originating materials used in the production of the good undergoes an applicable change in tariff classification set out in Annex D-01 as a result of production occurring entirely in the territory of one or both of the Parties, or the good otherwise satisfies the applicable requirements of that Annex where no change in tariff classification is required, and the good satisfies all other applicable requirements of this Chapter;

c. the good is produced entirely in the territory of one or both of the Parties exclusively from originating materials; or

d. except for a good provided for in Chapters 61 through 63 of the Harmonized System, the good is produced entirely in the territory of one or both of the Parties but one or more of the non-originating materials that are used in the production of the good do not undergo a change in tariff classification because

  • i. the good was imported into the territory of a Party in an unassembled or a disassembled form but was classified as an assembled good pursuant to Rule 2(a) of the General Rules for the Interpretation of the Harmonized System, or
  • ii. the heading for the good provides for and specifically describes both the good itself and its parts and is not further subdivided into subheadings, or the subheading for the good provides for and specifically describes both the good itself and its parts,

provided that the regional value content of the good, determined in accordance with Article D-02, is not less than 35 per cent where the transaction value method is used, or is not less than 25 per cent where the net cost method is used, and that the good satisfies all other applicable requirements of this Chapter1.

Article D-02: Regional Value Content

1. Except as provided in paragraph 5, each Party shall provide that the regional value content of a good shall be calculated, at the choice of the exporter or producer of the good, on the basis of either the transaction value method set out in paragraph 2 or the net cost method set out in paragraph 3.

2. Each Party shall provide that an exporter or producer may calculate the regional value content of a good on the basis of the following transaction value method:

  TV - VNM
RVC = -------------- x 100

        TV

where

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

TV is the transaction value of the good adjusted to a F.O.B. basis; and

VNM is the value of non-originating materials used by the producer in the production of the good.

3. Each Party shall provide that an exporter or producer may calculate the regional value content of a good on the basis of the following net cost method:

   NC - VNM
RVC = -------------- x 100

        NC

where

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

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.

4. The value of non-originating materials used by the producer in the production of a good shall not, for purposes of calculating the regional value content of the good under paragraph 2 or 3, include the value of non-originating materials used to produce originating materials that are subsequently used in the production of the good2.

5. Each Party shall provide that an exporter or producer shall calculate the regional value content of a good solely on the basis of the net cost method set out in paragraph 3 where:

  • a. there is no transaction value for the good;
  • b. the transaction value of the good is unacceptable under Article 1 of the Customs Valuation Code;
  • c. the good is sold by the producer to a related person and the volume, by units of quantity, of sales of identical or similar goods to related persons during the six-month period immediately preceding the month in which the good is sold exceeds 85 per cent of the producer's total sales of such goods during that period;
  • d. the good is
    • i. a motor vehicle,
    • ii. identified in Annex D-03.1 and is for use in a motor vehicle, or
    • iii. provided for in subheading 6401.10 through 6406.10;
  • e. the exporter or producer chooses to accumulate the regional value content of the good in accordance with Article D-04; or
  • f. the good is designated as an intermediate material under paragraph 10 and is subject to a regional value-content requirement.

6. If an exporter or producer of a good calculates the regional value content of the good on the basis of the transaction value method set out in paragraph 2 and a Party subsequently notifies the exporter or producer, during the course of a verification pursuant to Chapter E (Customs Procedures), that the transaction value of the good, or the value of any material used in the production of the good, is required to be adjusted or is unacceptable under Article 1 of the Customs Valuation Code, the exporter or producer may then also calculate the regional value content of the good on the basis of the net cost method set out in paragraph 3.

7. Nothing in paragraph 6 shall be construed to prevent any review or appeal available under Article E-10 (Review and Appeal) of an adjustment to or a rejection of:

  • a. the transaction value of a good; or
  • b. the value of any material used in the production of a good.

8. For purposes of calculating the net cost of a good under paragraph 3, the producer of the good may:

  • a. calculate the total cost incurred with respect to all goods produced by that producer, subtract any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and non-allowable interest costs that are included in the total cost of all such goods, and then reasonably allocate the resulting net cost of those goods to the good;
  • b. calculate the total cost incurred with respect to all goods produced by that producer, reasonably allocate the total cost to the good, and then subtract any sales promotion, marketing and after-sales service costs, royalties,shipping and packing costs and non-allowable interest costs that are included in the portion of the total cost allocated to the good; or
  • c. reasonably allocate each cost that forms part of the total cost incurred with respect to the good so that the aggregate of these costs does not include any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and non-allowable interest costs,

provided that the allocation of all such costs is consistent with the provisions regarding the reasonable allocation of costs set out in the Uniform Regulations, established under Article E-11 (Customs Procedures - Uniform Regulations)3.

9. Except as provided in paragraph 11, the value of a material used in the production of a good shall:

  • a. be the transaction value of the material determined in accordance with Article 1 of the Customs Valuation Code; or
  • b. in the event that there is no transaction value or the transaction value of the material is unacceptable under Article 1 of the Customs Valuation Code, be determined in accordance with Articles 2 through 7 of the Customs Valuation Code; and
  • c. where not included under subparagraph (a) or (b), include
    • i. freight, insurance, packing and all other costs incurred in transporting the material to the location of the producer,
    • ii. duties, taxes and customs brokerage fees on the material paid in the territory of one or both of the Parties, and
    • iii. the cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of renewable scrap or by-product.

10. Any self-produced material that is used in the production of a good may be designated by the producer of the good as an intermediate material for the purpose of calculating the regional value content of the good under paragraph 2 or 3, provided that where the intermediate material is subject to a regional value-content requirement, no other self-produced material subject to a regional value-content requirement used in the production of that intermediate material may itself be designated by the producer as an intermediate material4.

11. The value of an intermediate material shall be:

  • a. the total cost incurred with respect to all goods produced by the producer of the good that can be reasonably allocated to that intermediate material; 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.

12. The value of an indirect material shall be based on the Generally Accepted Accounting Principles applicable in the territory of the Party in which the good is produced.

13. Notwithstanding the regional value-content requirement specified in an applicable rule in Annex D-01 for the tariff provision under which a good is classified, a good shall be an originating good where:

  • a. the good is provided in tariff item 6402.19.aa (sports footwear with rubber or plastic soles and uppers, for golf, hiking, running or curling), subheading 6402.99, tariff item 6403.19.aa (sports footwear with leather uppers, for riding, golf, hiking, climbing, curling, bowling, skating or training), subheading 6403.40 or 6403.91, tariff item 6404.11.aa (hiking footwear with rubber soles and canvas uppers), 6404.11.bb (hiking footwear with plastic soles and canvas uppers) or 6404.19.aa (shoes or sandals with plastic soles and canvas uppers) or subheading 6406.10;
  • b. each of the non-originating materials used in the production of the good undergoes the change of tariff classification specified in the applicable rule in Annex D-01 for that tariff provision;
  • c. the regional value content of that good is not less than
    • i. 40 per cent under the net cost method for the period January 1, 1997, to December 31, 1997,
    • ii. 45 per cent under the net cost method for the period January 1, 1998, to December 31, 1998,
    • iii. 50 per cent under the net cost method for the period January 1, 1999, to December 31, 1999, and
    • iv. 55 per cent under the net cost method on January 1, 2000, and thereafter; and
  • d. the good meets any other applicable requirements set out in this Chapter.

14. Notwithstanding the regional value-content requirement specified in an applicable rule in Annex D-01 for the tariff provision under which a good is classified, a good shall be an originating good where:

  • a. the good is provided for in heading 64.01, subheading 6402.12, tariff item 6402.19.bb (sports footwear with rubber or plastic soles and uppers, for soccer, other football, baseball or bowling), subheading 6402.20 through 6402.91 or 6403.12, tariff item 6403.19.bb (sports footwear with leather uppers, for soccer, other football or baseball) or 6403.19.cc (sports footwear with leather uppers, for other purposes), subheading 6403.20 through 6403.30, 6403.51 through 6403.59 or 6403.99, tariff item 6404.11.cc (sports footwear with rubber soles and canvas uppers, for soccer, training or tennis), 6404.11.dd (sports footwear with plastic solesand canvas uppers, for soccer, training or tennis) or 6404.19.bb (shoes or sandals with rubber soles and canvas uppers), subheading 6404.20, heading 64.05 or subheading 6406.20 through 6406.99;
  • b. each of the non-originating materials used in the production of the good undergoes the change of tariff classification specified in the applicable rule in Annex D-01 for that tariff provision;
  • c. the regional value content of that good is not less than
    • i. 40 per cent under the net cost method for the period January 1, 1997, to December 31, 1997,
    • ii. 47.5 per cent under the net cost method for the period January 1, 1998, to December 31, 1998, and
    • iii. 55 per cent under the net cost method on January 1, 1999, and thereafter; and
  • d. the good meets any other applicable requirements set out in this Chapter.

Article D-03: Automotive Goods

1. Notwithstanding the regional value-content requirement specified in an applicable rule in Annex D-01 for the tariff provision under which a good is classified, a good shall be an originating good where:

  • a. the good is provided for in a tariff provision identified in Annex D-03.1;
  • b. the good is for use in a motor vehicle;
  • c. each of the non-originating materials used in the production of the good undergoes the change of tariff classification specified in the applicable rule in Annex D-01 for that tariff provision;
  • d. the regional value content of that good is not less than 30 per cent under the net cost method; and
  • e. the good meets any other applicable requirements set out in this Chapter.

2. For purposes of calculating the regional value content of a motor vehicle, the producer may average its calculation over its fiscal year, using any one of the following categories, on the basis of either all motor vehicles in the category or only those motor vehicles in the category that are exported to the territory of the other Party:

  • a. the same model line of motor vehicles in the same class of vehicles produced in the same plant in the territory of a Party;
  • b. the same class of motor vehicles produced in the same plant in the territory of a Party;
  • c. the same model line of motor vehicles produced in the territory of a Party; or
  • d. if applicable, the basis set out in Annex D-03.2.

3. For purposes of calculating the regional value content for any or all goods provided for in a tariff provision listed in Annex D-03.1 produced in the same plant, the producer of the good may:

  • a. average its calculation
    • i. over the fiscal year of the motor vehicle producer to whom the good is sold,
    • ii. over any quarter or month, or
    • iii. over its fiscal year, if the good is sold as an aftermarket part;
  • b. calculate the average referred to in subparagraph (a) separately for any or all goods sold to one or more motor vehicle producers; or
  • c. with respect to any calculation under this paragraph, calculate separately for those goods that are exported to the territory of the other Party.

Article D-04: Accumulation

1. For purposes of determining whether a good is an originating good, the production of the good in the territory of one or both of the Parties by one or more producers shall, at the choice of the exporter or producer of the good for which preferential tariff treatment is claimed, be considered to have been performed in the territory of either of the Parties by that exporter or producer, provided that:

  • a. all non-originating materials used in the production of the good undergo an applicable tariff classification change set out in Annex D-01, and the good satisfies any applicable regional value-content requirement, entirely in the territory of one or both of the Parties; and
  • b. the good satisfies all other applicable requirements of this Chapter.

2. For purposes of Article D-02(10), the production of a producer that chooses to accumulate its production with that of other producers under paragraph 1 shall be considered to be the production of a single producer.

Article D-05: De Minimis

1. Except as provided in paragraphs 3 through 6, a good shall be considered to be an originating good if the value of all non-originating materials used in the production of the good that do not undergo an applicable change in tariff classification set out in Annex D-01 is not more than 9 per cent of the transaction value of the good, adjusted to a F.O.B. basis, or, if the transaction value of the good is unacceptable under Article 1 of the Customs Valuation Code, the value of all such non-originating materials is not more than 9 per cent of the total cost of the good, provided that:

  • a. if the good is subject to a regional value-content requirement, the value of such non-originating materials shall be taken into account in calculating the regional value content of the good; and
  • b. the good satisfies all other applicable requirements of this Chapter.

2. A good that is otherwise subject to a regional value-content requirement shall not be required to satisfy such requirement if the value of all non-originating materials used in the production of the good is not more than 9 per cent of the transaction value of thegood, adjusted to a F.O.B. basis, or, if the transaction value of the good is unacceptable under Article 1 of the Customs Valuation Code, the value of all non-originating materials is not more than 9 per cent of the total cost of the good, provided that the good satisfies all other applicable requirements of this Chapter.

3. Paragraph 1 does not apply to:

  • a. a non-originating material provided for in Chapter 4 of the Harmonized System or tariff item 1901.90.aa (dairy preparations containing over 10 per cent by weight of milk solids) that is used in the production of a good provided for in Chapter 4 of the Harmonized System;
  • b. a non-originating material provided for in Chapter 4 of the Harmonized System or tariff item 1901.90.aa (dairy preparations containing over 10 per cent by weight of milk solids) that is used in the production of a good provided for in tariff item 1901.10.aa (infant preparations containing over 10 per cent by weight of milk solids), 1901.20.aa (mixes and doughs, containing over 25 per cent by weight of butterfat, not put up for retail sale), 1901.90.aa (dairy preparations containing over 10 per cent by weight of milk solids), heading 21.05 or tariff item 2106.90.dd (preparations containing over 10 per cent by weight of milk solids), 2202.90.cc (beverages containing milk) or 2309.90.aa (animal feeds containing over 10 per cent by weight of milk solids);
  • c. a non-originating material provided for in Chapter 15 of the Harmonized System that is used in the production of a good provided for in heading 15.01 through 15.08, 15.12, 15.14 or 15.15;
  • d. a non-originating material provided for in heading 17.01 that is used in the production of a good provided for in heading 17.01 through 17.03;
  • e. a non-originating material provided for in Chapter 17 of the Harmonized System or heading 18.05 that is used in the production of a good provided for in subheading 1806.10;
  • f. a non-originating material provided for in heading 22.03 through 22.07 that is used in the production of a good provided for in heading 22.03 through 22.07 or subheading 2208.20;
  • g. a non-originating material used in the production of a good provided for in tariff item 7321.11.aa (gas stove or range), subheading 8415.10, 8415.20 through 8415.83, 8418.10 through 8418.21, 8418.29 through 8418.40, 8421.12, 8422.11, 8450.11 through 8450.20 or 8451.21 through 8451.29, heading 84.56 through 84.63 or 84.77, tariff item 8516.60.aa (electric stove or range) or subheading 8526.10;
  • h. a non-originating material provided for in tariff item 8548.10.aa (spent primary cells, spent primary batteries and spent electric accumulators) that is used in the production of a good provided for in heading 85.06 or 85.07; or
  • i. a printed circuit assembly, including a part that incorporates a printed circuit assembly, that is a non-originating material used in the production of a good where the applicable change in tariff classification for the good, as set out in Annex D-01, places restrictions on the use of such non-originating material.

4. Paragraph 1 does not apply to a non-originating single juice ingredient provided for in heading 20.09 that is used in the production of a good provided for in tariff item2106.90.cc (concentrated mixtures of fruit or vegetable juice, fortified with minerals or vitamins) or 2202.90.bb (mixtures of fruit or vegetable juices, fortified with minerals or vitamins).

5. Paragraph 1 does not apply to a non-originating material used in the production of a good provided for in Chapter 1 through 21 of the Harmonized System unless the non-originating material is provided for in a different subheading than the good for which origin is being determined under this Article.

6. A good provided for in Chapter 50 through 63 of the Harmonized System that does not originate because certain fibres or yarns used in the production of the component of the good that determines the tariff classification of the good do not undergo an applicable change in tariff classification set out in Annex D-01, shall nonetheless be considered to originate if the total weight of all such fibres or yarns in that component is not more than 9 per cent of the total weight of that component. 5

Article D-06: Fungible Goods and Materials

For purposes of determining whether a good is an originating good:

  • a. where originating and non-originating fungible materials are used in the production of a good, the determination of whether the materials are originating need not be made through the identification of any specific fungible material, but may be determined on the basis of any of the inventory management methods set out in the Uniform Regulations; and
  • b. where originating and non-originating fungible goods are commingled and exported in the same form, the determination may be made on the basis of any of the inventory management methods set out in the Uniform Regulations.

Article D-07: Accessories, Spare Parts and Tools

Accessories, spare parts or tools delivered with the good that form part of the good's standard accessories, spare parts, or tools, shall be considered as originating if the good originates and shall 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 Annex D-01, provided that:

  • a. the accessories, spare parts or tools are not invoiced separately from the good;
  • b. the quantities and value of the accessories, spare parts or tools are customary for the good; and
  • c. if the good is subject to a regional value-content requirement, the value of the accessories, spare parts or 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 good.

Article D-08: Indirect Materials

An indirect material shall be considered to be an originating material without regard to where it is produced.

Article D-09: Packaging Materials and Containers for Retail Sale

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 Annex D-01, 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.

Article D-10: Packing Materials and Containers for Shipment

Packing materials and containers in which a good is packed for shipment shall be disregarded in determining whether:

  • a. the non-originating materials used in the production of the good undergo an applicable change in tariff classification set out in Annex D-01; and
  • b. the good satisfies a regional value-content requirement.

Article D-11: Transshipment

A good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of Article D-01 if, subsequent to that production, the good undergoes further production or any other operation outside the territories of the Parties, other than unloading, reloading or any other operation necessary to preserve it in good condition or to transport the good to the territory of a Party.

Article D-12: Non-Qualifying Operations

A good shall not be considered to be an originating good merely by reason of:

  • a. mere dilution with water or another substance that does not materially alter the characteristics of the good; or
  • b. any production or pricing practice in respect of which it may be demonstrated, on the basis of a preponderance of evidence, that the object was to circumvent this Chapter.

Article D-13: Interpretation and Application

For purposes of this Chapter:

  • a. the basis for tariff classification in this Chapter is the Harmonized System6;
  • b. where a good referred to by a tariff item number is described in parentheses following the tariff item number, the description is provided for purposes of reference only;
  • c. where applying Article D-01(d), the determination of whether a heading or subheading under the Harmonized System provides for and specifically describes both a good and its parts shall be made on the basis of the nomenclature of the heading or subheading and the relevant Section or Chapter Notes, in accordance with the General Rules for the Interpretation of the Harmonized System;
  • d. in applying the Customs Valuation Code under this Chapter
    • i. the principles of the Customs Valuation Code shall apply to domestic transactions, with such modifications as may be required by the circumstances, as would apply to international transactions,
    • ii. the provisions of this Chapter shall take precedence over the Customs Valuation Code to the extent of any difference, and
    • iii. the definitions in Article D-16 shall take precedence over the definitions in the Customs Valuation Code to the extent of any difference; and
  • e. all costs referred to in this Chapter shall be recorded and maintained in accordance with the Generally Accepted Accounting Principles applicable in the territory of the Party in which the good is produced.

Article D-14: Consultation and Modifications

1. The Parties shall consult regularly to ensure that this Chapter is administered effectively, uniformly and consistently with the spirit and objectives of this Agreement, and shall cooperate in the administration of this Chapter in accordance with Chapter E.

2. A Party that considers that this Chapter requires modification to take into account developments in production processes or other matters may submit a proposed modification along with supporting rationale and any studies to the other Party for consideration and any appropriate action under Chapter E.

Article D-15: NAFTA Accession

Upon the accession of Chile to the NAFTA, the rules of origin in this Chapter shall be replaced by the rules of origin to be negotiated as part of the terms of the accession of Chile to the NAFTA.

Article D-16: Definitions

For purposes of this Chapter:

class of motor vehicles means any one of the following categories of motor vehicles:

  • a. motor vehicles provided for in subheading 8701.20, tariff item 8702.10.aa or 8702.90.aa (vehicles for the transport of 16 or more persons), subheading 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90 or heading 87.05;
  • b. motor vehicles provided for in subheading 8701.10 or 8701.30 through 8701.90;
  • c. motor vehicles provided for in tariff item 8702.10.bb or 8702.90.bb (vehicles for the transport of 15 or fewer persons) or subheading 8704.21 or 8704.31; or
  • d. motor vehicles provided for in subheading 8703.21 through 8703.90;

F.O.B. means free on board, regardless of the mode of transportation, at the point of direct shipment by the seller to the buyer;

fungible goods or fungible materials means goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical;

goods wholly obtained or produced entirely in the territory of one or both of the Parties means:

  • a. mineral goods extracted in the territory of one or both of the Parties;
  • b. vegetable goods, as such goods are defined in the Harmonized System, harvested in the territory of one or both of the Parties;
  • c. live animals born and raised in the territory of one or both of the Parties;
  • d. goods obtained from hunting, trapping or fishing in the territory of one or both of the Parties;
  • e. goods (fish, shellfish and other marine life) taken from the sea by vessels registered or recorded with a Party and flying its flag;
  • f. goods produced on board factory ships from the goods referred to in subparagraph (e) provided such factory ships are registered or recorded with that Party and fly its flag;
  • g. goods taken by a Party or a person of a Party from the seabed or beneath the seabed outside territorial waters, provided that a Party has rights to exploit such seabed;
  • h. goods taken from outer space, provided they are obtained by a Party or a person of a Party and not processed in a non-Party;
    • i. waste and scrap derived from
    • i. production in the territory of one or both of the Parties, or
  • ii. used goods collected in the territory of one or both of the Parties, provided such goods are fit only for the recovery of raw materials; and
  • j. goods produced in the territory of one or both of the Parties exclusively from goods referred to in subparagraphs (a) through (i), or from their derivatives, at any stage of production;

identical or similar goods means "identical goods" and "similar goods", respectively, as defined in the Customs Valuation Code;

indirect material means a good used in the production, testing or inspection of a good but not physically incorporated into the good, or a good used in the maintenance of buildings or the operation of equipment associated with the production of a good, including:

  • a. fuel and energy;
  • b. tools, dies and moulds;
  • c. spare parts and materials used in the maintenance of equipment and buildings;
  • d. lubricants, greases, compounding materials and other materials used in production or used to operate equipment and buildings;
  • e. gloves, glasses, footwear, clothing, safety equipment and supplies;
  • f. equipment, devices, and supplies used for testing or inspecting the goods;
  • g. catalysts and solvents; and
  • h. any other goods that are not incorporated into the good but whose use in the production of the good can reasonably be demonstrated to be a part of that production;

intermediate material means a material that is self-produced and used in the production of a good, and designated pursuant to Article D-02(10);

material means a good that is used in the production of another good, and includes a part or an ingredient;

model line means a group of motor vehicles having the same platform or model name;

motor vehicle means a motor vehicle provided for in heading 87.01 or 87.02, subheading 8703.21 through 8703.90 or heading 87.04 and 87.05;

net cost means total cost minus sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs, and non-allowable interest costs that are included in the total cost;

net cost of a good means the net cost that can be reasonably allocated to a good using one of the methods set out in Article D-02(8);

non-allowable interest costs means interest costs incurred by a producer that exceed 700 basis points above the applicable national government interest rate identified in the Uniform Regulations for comparable maturities;

non-originating good or non-originating material means a good or material that does not qualify as originating under this Chapter;

producer means a person who grows, mines, harvests, fishes, traps, hunts, manufactures, processes or assembles a good;

production means growing, mining, harvesting, fishing, trapping, hunting, manufacturing, processing or assembling a good;

reasonably allocate means to apportion in a manner appropriate to the circumstances;

related person means a person related to another person on the basis that:

  • a. they are officers or directors of one another's businesses;
  • b. they are legally recognized partners in business;
  • c. they are employer and employee;
  • d. any person directly or indirectly owns, controls or holds 25 per cent or more of the outstanding voting stock or shares of each of them;
  • e. one of them directly or indirectly controls the other;
  • f. both of them are directly or indirectly controlled by a third person; or
  • g. they are members of the same family (members of the same family are natural or adoptive children, brothers, sisters, parents, grandparents, or spouses);

royalties means payments of any kind, including payments under technical assistance or similar agreements, made as consideration for the use or right to use any copyright, literary, artistic, or scientific work, patent, trademark, design, model, plan, secret formula or process, excluding those payments under technical assistance or similar agreements that can be related to specific services such as:

  • a. personnel training, without regard to where performed; and
  • b. if performed in the territory of one or both of the Parties, engineering, tooling, die-setting, software design and similar computer services, or other services;

sales promotion, marketing and after-sales service costs means the following costs related to sales promotion, marketing and after-sales service:

a. sales and marketing promotion; media advertising; advertising and market research; promotional and demonstration materials; exhibits; sales conferences, trade shows and conventions; banners; marketing displays; free samples; sales, marketing and after-sales service literature (product brochures, catalogues, technical literature, price lists, service manuals, sales aid information); establishment and protection of logos and trademarks; sponsorships; wholesale and retail restocking charges; entertainment;

b. sales and marketing incentives; consumer, retailer or wholesaler rebates; merchandise incentives;

c. salaries and wages, sales commissions, bonuses, benefits (for example, medical, insurance, pension), travelling and living expenses, membership and professional fees, for sales promotion, marketing and after-sales service personnel;

d. recruiting and training of sales promotion, marketing and after-sales service personnel, and after-sales training of customers' employees, where such costs are identified separately for sales promotion, marketing and after-sales service of goods on the financial statements or cost accounts of the producer;

e. product liability insurance;

f. office supplies for sales promotion, marketing and after-sales service of goods, where such costs are identified separately for sales promotion,marketing and after-sales service of goods on the financial statements or cost accounts of the producer;

g. telephone, mail and other communications, where such costs are identified separately for sales promotion, marketing and after-sales service of goods on the financial statements or cost accounts of the producer;

h. rent and depreciation of sales promotion, marketing and after-sales service offices and distribution centres;

i. property insurance premiums, taxes, cost of utilities, and repair and maintenance of sales promotion, marketing and after-sales service offices and distribution centres, where such costs are identified separately for sales promotion, marketing and after-sales service of goods on the financial statements or cost accounts of the producer; and

j. payments by the producer to other persons for warranty repairs;

self-produced material means a material that is produced by the producer of a good and used in the production of that good;

shipping and packing costs means the costs incurred in packing a good for shipment and shipping the good from the point of direct shipment to the buyer, excluding costs of preparing and packaging the good for retail sale;

total cost means all product costs, period costs and other costs incurred in the territory of one or both of the Parties;

transaction value means the price actually paid or payable for a good or material with respect to a transaction of the producer of the good, adjusted in accordance with the principles of paragraphs 1, 3 and 4 of Article 8 of the Customs Valuation Code, regardless of whether the good or material is sold for export; and

used means used or consumed in the production of goods.

Annex D-03.1

List of Tariff Provisions for Article D-03(1)

Note: For purposes of reference only, descriptions are provided next to the corresponding tariff provision.

4009.12, 4009.22, 4009.32 and 4009.42: Tubes, pipes and hoses, of vulcanized rubber

4016.99.aa: Vibration control goods, of a kind used in the vehicles of heading 87.01 through 87.05

8301.20.00: Locks of a kind used for motor vehicles

8407.33.00: Engines of a cylinder capacity exceeding 250cc but not exceeding 1000cc, for vehicles of Chapter 87

8407.34: Engines of a cylinder capacity exceeding 1000cc, for vehicles of Chapter 87

8408.20: Diesel engines, for vehicles of Chapter 87

8409.91: Parts of engines

8409.99: Parts of engines

8413.30.aa: Fuel pumps for internal combustion piston engines

8413.60.00: Rotary positive displacement pumps

8414.59.00: Fans

8414.80.aa: Turbo-chargers and superchargers, for motor vehicles

8415.20: Air conditioning machines, for motor vehicles

8421.23.00: Oil or petrol-filters for internal combustion engines

8421.31.aa: Air filters for motor vehicles

8421.39.aa: Catalytic converters

8425.39.aa: Automotive winches

8425.42.00: Jacks and hoists, hydraulic, for raising vehicles

8425.49.00: Jacks and hoists, for raising vehicles

8431.10.aa: Parts used with certain machinery of heading 84.25

8481.20.00: Valves for oleohydraulic or pneumatic transmissions

8481.30.aa: Check valves, for automotive use

8481.80.aa: Valves, for automotive use

8482.10: Ball bearings

8482.20: Tapered roller bearings

8482.30.00: Spherical roller bearings

8482.40.00: Needle roller bearings

8482.50.00: Cylindrical roller bearings

8482.80.aa: Other ball/roller bearings, for use in motor vehicles of Chapter 87

8483.10.aa: Transmission shafts and cranks, for automotive use

8483.20.00: Bearing housings

8483.30.00: Bearing housings and plain shaft bearings

8483.40: Gears and gearing

8483.50.aa: Flywheels and pulleys, for automotive use

8483.60.aa: Clutches and shaft couplings, for automotive use

8501.10: Electric motors of an input not exceeding 37.5 W

8501.20: Universal AC/DC motors of an output exceeding 37.5 W

8501.31: DC motors and generators of an output not exceeding 750 W

8501.32: DC motors and generators of an output exceeding 750 W but not exceeding 75 KW

8507.10.00: Batteries (lead-acid)

8507.20: Batteries (lead-acid)

8507.30: Batteries (nickel-cadmium)

8507.40: Batteries (nickel-iron)

8507.80: Other batteries

8511.10.00: Spark plugs

8511.20.aa: Ignition magnetos, magneto-dynamos and magnetic flywheels for internal combustion engines

8511.30.00: Distributors and ignition coils

8511.40.00: Starter motors and dual purpose starter-generators

8511.50.00: Other generators

8511.80.00: Other electrical ignition or starting equipment

8512.20.00: Lighting or visual signalling equipment

8512.30.00: Sound signalling equipment

8512.40.00: Windscreen wipers, defrosters and demisters

8516.10.aa: Immersion heaters designed for automotive installation

8536.41.aa: Relays (automotive signalling flashers)

8536.50.aa: Motor starters, for automotive use

8536.50.bb: Other switches, for automotive use

8536.90.aa: Other apparatus, for automotive use

8537.10.bb: Motor control centres, for automotive use

8539.10.aa: Sealed beam lamp units for use in motor vehicles of Chapter 87

8539.21.aa: Tungsten halogen, for automotive use

8539.29.aa: Other filament lamps for voltage not exceeding 31 V

8544.30: Wiring sets

8544.41.aa: Electric conductors fitted with connectors for a voltage not exceeding 80 V, for automotive use

87.06: Chassis fitted with engines, for motor vehicles of 87.01 to 87.05

87.07: Bodies (including cabs), for motor vehicles of 87.01 to 87.05

8708.10.aa: Bumpers, but not parts thereof

8708.29.aa: Body stampings

8708.29.bb: Inflators and modules for airbags

8708.29.cc: Door assemblies

8708.29.dd: Airbags for use in motor vehicles

8708.29.ee: Other parts and accessories not elsewhere classified under subheading 8708.29

8708.50.aa: For vehicles of heading 87.03

8708.60.aa: For vehicles of heading 87.03

8708.70.aa: Road wheels, but not parts or accessories thereof

8708.80.aa: McPherson Struts

8708.93.aa: Clutches, but not parts thereof

8708.99.aa: Vibration control goods containing rubber

8708.99.bb: Doubled flanged wheel hub units incorporating ball bearings

8708.99.cc: Airbags for use in motor vehicles, where not provided for under subheading 8708.29

8708.99.dd: Half-shafts and drive shafts

8708.99.ee: Other parts for powertrains

8708.99.ff: Parts for suspension systems

8708.99.gg: Parts for steering systems

8708.99.hh: Other parts and accessories not elsewhere classified under subheading 8708.99

9017.80: Other instruments, for measuring

9026.10: Instruments for measuring or checking the flow or level of liquids

9031.80: Other instruments, appliances and machines

9032.10: Thermostats

9032.20.00: Manostats

9032.89: Other instruments and apparatus

9104.00.00: Instrument panel clocks

9401.20.00: Seats for motor vehicles

Annex D-03.2

Regional Value-Content Calculation for Related Motor Vehicle Producer

1. For the purpose of Article D-03, in determining whether motor vehicles produced by a motor vehicle producer in the territory of a Party and imported into the territory of the other Party qualify as originating goods, the producer may average its calculation of the regional value content of a class of motor vehicles or a model line of motor vehicles produced in a fiscal year in the territory of a Party ("the territory of production") by that producer for sale in the territory of the other Party with the calculation of the regional value content of the corresponding class of motor vehicles or model line of motor vehicles produced in the territory of production by a related producer in the fiscal year that corresponds most closely to the producer's fiscal year, provided that:

a. the related group acquires 75 per cent or more by unit of quantity of the class of motor vehicles or model line of motor vehicles, as the case may be, that the producer has produced in the territory of a Party in that fiscal year for sale in the territory of the other Party;

b. the producer and the related producer each produced motor vehicles in the territory of the same Party at any time up to two years from the date of coming into force of this Agreement; and

c. where a producer otherwise qualifies under this Annex, notice of such qualification has been provided by the Party referred to in paragraph (b) to the other Party no later than two years from the date of coming into force of this Agreement.

2. If the related group acquires less than 75 per cent by unit by quantity of the class of motor vehicles or model line of motor vehicles, as the case may be, that the producer has produced in the territory of a Party in that fiscal year for sale in the territory of the other Party, the producer may average in the manner set out in paragraph 1 only those motor vehicles that are acquired by the related producer for distribution under the marque of either the producer or the related group.

3. In calculating the regional value content of motor vehicles produced by the producer in the territory of a Party, the producer may choose to average the calculation in paragraph 1 or 2 over a period of two fiscal years in the event that any motor vehicle assembly plant operated by the producer or any motor vehicle assembly plant operated by the related producer with which the producer is averaging its regional value content is closed for more than two consecutive months:

  • a. for the purpose of re-tooling for a model change, or
  • b. as the result of any event or circumstance (other than the imposition of anti-dumping and countervailing duties, or an interruption of operations resulting from a labour strike, lock-out, labour dispute, picketing or boycott of or by employees), that the producer or the related producer could not reasonably have been expected to avert by corrective action or by exercise of due care and diligence, including a shortage of materials, failure of utilities, or inability to obtain or delay in obtaining raw materials, parts, fuel or utilities.

The averaging may be for the producer's fiscal year in which a motor vehicle producer's or a related producer's plant with which the producer is averaging is closed and either theprevious or subsequent fiscal year. In the event that the period of closure spans two fiscal years, the averaging may be only for those two fiscal years.

4. For the purposes of this Annex, where as a result of an amalgamation, reorganization, division or similar transaction:

  • a. a motor vehicle producer (the "successor producer") acquires all or substantially all of the assets used by the related group; and
  • b. the successor producer, directly or indirectly controls, or is controlled by, the related group, or both the successor producer and the related group are controlled by the same person,

the successor producer shall be deemed to be the related producer.

5. For the purposes of this Annex:

  • a. a motor vehicle producer is related to another motor vehicle producer when it owns 50 per cent or more of the common voting stock of the other motor vehicle producer at the beginning of the other motor vehicle producer's fiscal year;
  • b. marque means the trade name used by a separate marketing division of a producer of motor vehicles and any related persons or joint ventures in which the producer participates;
  • c. producer means a motor vehicle producer;
  • d. related group means a related producer and any subsidiary directly or indirectly owned by it or by any combination thereof; and
  • e. related producer means a motor vehicle producer that is related to another motor vehicle producer within the meaning of subparagraph (a).