Canada-Israel Free Trade Agreement

Part Two - Trade in Goods

Chapter 3 - Rules of Origin

Rules for Originating Goods

Article 3.1: Basic Rules for 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 3.13;

(b) each of the non-originating materials used in the production of the good undergoes an applicable change in tariff classification set out in the rule for that good in Annex 3.1, and the good satisfies any other applicable requirement set out in that rule, as a result of production occurring entirely in the territory of one or both of the Parties;

(c) the good satisfies, as a result of production occurring entirely in the territory of one or both of the Parties, the applicable requirements set out in the rule for the good in Annex 3.1 where no change in tariff classification is required in that rule;

(d) the good is produced entirely in the territory of one or both of the Parties exclusively from originating materials; or

(e) 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 provided for as parts under the Harmonized System that are used in the production of the good do not undergo a change in tariff classification because

(i) the heading for the good provides for and specifically describes both the good itself and its parts and is not further subdivided into subheadings, or

(ii) the subheading for the good provides for and specifically describes both the good itself and its parts, provided that at least one category of identical or similar materials provided for in that heading or subheading be originating;

and the good satisfies all other applicable requirements of this Chapter.

3.2: De Minimis Rule for Originating Goods

1. Except as provided in paragraphs 2 and 3, a good shall also originate in the territory of a Party where the value of all the non-originating materials used in the production of a good that do not undergo an applicable change in tariff classification set out in the rule for the good in Annex 3.1 is not more than ten per cent of the value of the good, adjusted to an F.O.B. basis at the point of direct shipment, provided that the good satisfies all other applicable requirements of this Chapter.

2. Paragraph 1 does not apply to:

(a) a non-originating material provided for in Chapter 4 or tariff item 1901.90.aa of the Harmonized System that is used in the production of a good provided for in f, tariff item 1901.20.aa, 1901.90.aa, heading 21.05, tariff item 2106.90.cc, 2202.90.cc or 2309.90.aa of the Harmonized System;

(b) a non-originating material provided for in subheading 0201.10 through 0201.30 or 0202.10 through 0202.30 of the Harmonized System that is used in the production of a good provided for in Chapter 16 of the Harmonized System;

(c) a printed circuit assembly that is a non-originating material used in the production of a good where the applicable rule in Annex 3.1 places restrictions on the consideration of such non-originating material for the purpose of determining whether the good originates;

(d) a non-originating material used in the production of a good provided for in Chapters 1 through 19, heading 20.01 through 20.08, subheading 2009.90, heading 21.01 through 21.05, subheading 2106.10, tariff item 2106.90.bb, heading 22.01, tariff item 2202.90.bb or heading 22.03 through 22.07 of the Harmonized System, unless that non-originating material is provided for in a different subheading than the good for which origin is being determined under this Chapter;

(e)a non-originating material provided for in Chapters 50 through 64 of the Harmonized System that is used in the production of a good provided for in Chapters 50 through 64 of the Harmonized System; or

(f) a non-originating material used in the production of a good provided for in subheading 3824.90, 8406.10 through 8406.82, 8415.10 through 8415.83, 8418.10 through 8418.69, 8421.12, 8422.11, 8450.11 through 8450.20, 8451.21 through 8451.29, heading 84.56 through 84.61, 84.62 through 84.63, subheading 8477.10 through 8477.20, 8477.30, heading 84.83, 85.01, subheading 8502.11 through 8502.39, 8516.31, 8516.33, 8516.40, tariff item 8516.60.aa, subheading 8516.72, 8526.10 or 8540.71 through 8540.79 of the Harmonized System.

3. Where Annex 3.1 sets out two or more alternative rules for a good, paragraph 1 shall apply only if the determination of whether the good is an originating good is being made under the first rule set out for that good.

3.3:  Rules Regarding Accessories, Spare Parts and Tools, Indirect Materials, and Packaging and Packing Materials and Containers

1. For purposes of determining whether a good is an originating good, the following materials shall be deemed to be originating materials without regard to where the materials are produced:

(a) accessories, spare parts or tools delivered with the good that form part of the good's standard accessories, spare parts or tools, provided that the accessories, spare parts or tools are not invoiced separately from the good and the quantities and value of the accessories, spare parts or tools are customary for the good;

(b) indirect materials used in the production of the good;

(c) packaging materials and containers in which the good is packaged for retail sale, provided that the packaging materials and containers are classified under the Harmonized System with the good that is packaged within; and

(d) packing materials and containers in which the good is packed for shipment.

2. For purposes of applying other Chapters of this Agreement to the materials referred to in subparagraphs 1(a), (c) and (d), these materials shall be deemed to originate if the good referred to in paragraph 1 originates.

Exceptions to the Rules

3.4: Non-Qualifying Operations

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

(a) any work, process or 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;

(b) minor processing; or

(c) a change in tariff classification that is the result of

(i) a change in end use of the good, or

(ii) collecting parts so that the collection of parts is classified as if it were an assembled good pursuant to Rule 2(a) of the General Rules for the interpretation of the Harmonized System.

3.5: Direct Shipment and Transhipment

1. Except as provided in paragraph 2, an originating good that is exported from the territory of a Party shall maintain its originating status only if:

(a) the good is shipped directly from the territory of one Party to the territory of the other Party;

(b) the good is transhipped through the territory of a non-Party, provided that

(i) the good does not undergo further production or any other operation in the territory of that non-Party, other than unloading, splitting up of loads, reloading or any other operation necessary to preserve it in good condition or to transport the good to the territory of a Party, and

(ii) the good remains under customs control in the territory of any non-Party through which the good is transported to the territory of a Party; or

(c) subject to Article 5.12(4), the good is transhipped through the territory of a non-Party with which each Party has entered separately into a free trade agreement under Article XXIV of the GATT 1994 before this Agreement enters into force and does not undergo further production other than minor processing in the territory of that non-Party.

2. Subject to Article 5.12(5), with regard to any specifically identified good that is agreed upon by the Parties after the date of entry into force of this Agreement, an originating good that is transhipped through the territory of a non-Party with which each Party has entered separately into a free trade agreement under Article XXIV of the GATT 1994 before this Agreement enters into force may undergo more than minor processing in the territory of that non-Party, provided that the good meets any specifically designated conditions, as agreed by the Parties, regarding the production in the territory of that non-Party.

3.6:  Third Country Materials for Originating Goods

Where each Party has entered separately into a free trade agreement under Article XXIV of the GATT 1994 with the same non-Party before this Agreement enters into force, a good, which, if imported into the territory of one of the Parties under such free trade agreement with that non-Party, would qualify for tariff preferences under that agreement, shall be considered to be an originating good under this Chapter when imported into the territory of the other Party and used as a material in the production of another good in the territory of that other Party.

Application and Interpretation:

3.7: Fungible Goods and Materials

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

(a) where originating materials and non-originating materials that are fungible materials are used in the production of the good, the determination of whether the materials are originating materials may, at the choice of the producer of the good, be made on the basis of any of the applicable inventory management methods set out in Annex 3.7;

(b) where originating goods and non-originating goods that are fungible goods are physically combined or mixed in inventory in the territory of a Party and, prior to exportation to the territory of the other Party, do not undergoproduction or any other operation in the territory of the Party in which they were physically combined or mixed in inventory, other than unloading, reloading or any other operation necessary to preserve the goods in good condition or to transport the goods to the territory of the other Party, the determination of whether the good is an originating good may, at the choice of the exporter of the good, be made on the basis of any of the applicable inventory management methods set out in Annex 3.7; and

(c) where originating goods and non-originating goods that are fungible goods are physically combined or mixed in inventory in the territory of a Party and, prior to acquisition by a person in the territory of that Party, do not undergo production or any other operation in the territory of that Party, other than unloading, reloading or any other operation necessary to preserve the goods in good condition or to transport the goods to that person, the determination of whether the good is an originating good may, at the choice of the person who physically combined or mixed in inventory the fungible goods, be made on the basis of any of the applicable inventory management methods set out in Annex 3.7.

3.8: Self-Produced Materials

For purposes of determining whether a good is an originating good, the producer of a good may, at the producer's choice, designate any self-produced material that is used in the production of the good as a material to be taken into account as an originating or non-originating material, as the case may be, in determining whether the good satisfies the applicable requirements of Article 3.1.

3.9:  Tariff Classification

For purposes of this Chapter, the basis for tariff classification is the Harmonized System.

3.10:  Category of Identical or Similar Materials and Other Requirements Under Articles 3.1(b) and (c)

1. For purposes of determining whether a good is an originating good under Article 3.1(b), where a rule for a good in Annex 3.1 specifies the requirement that at least one category of identical or similar materials used in the production of the good be originating:

(a) only those materials that are provided for in the specific tariff provisions identified as providing for those materials in that rule and that are used in the production of the good shall be considered as materials for the purpose of determining whether that requirement is satisfied;

(b) a category of identical or similar materials shall consist of a single material only if no other material used in the production of the good is identical or similar to that single material; and

(c) the specific tariff provisions referred to in subparagraph (a) shall not include the tariff provision which provides for the good itself.

2. For purposes of determining whether a good is an originating good under Article 3.1(c), where the rule for a good in Annex 3.1 specifies that no change in tariff classification is required and specifies the requirement that at least one category of identical or similar materials used in the production of the good be originating:

(a) only the materials that are provided for in the same tariff provision as the good and that are used in the production of the good shall be considered as materials for the purposes of determining whether the requirement that at least one category of identical or similar materials be originating is satisfied; and

(b) a category of identical or similar materials shall consist of a single material only if no other material used in the production of the good is identical or similar to that single material.

3.11: Applying Article 3.1(e) When Goods and Parts Are Classified Together

For purposes of determining whether a good is an originating good under Article 3.1(e):

(a) only the parts that are provided for in the same tariff provision as the good and that are used in the production of the good shall be considered as parts for the purposes of determining whether the requirement that at least one category of identical or similar materials be originating is satisfied;

(b) 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;

(c) a category of identical or similar materials shall consist of a single material only if no other material used in the production of the good is identical or similar to that single material; and

(d) Article 3.1(e) does not apply for purposes of determining whether a part provided for in a heading referred to in Article 3.1(e)(i) or in a subheading referred to in Article 3.1(e)(ii) is an originating good.

3.12: De Minimis Calculation and Application

1. For purposes of applying the Customs Valuation Code under Article 3.2(1) and paragraphs 2 through 6, 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.

2. For purposes of Article 3.2(1), the de minimis content of a good shall be calculated as follows:

VNM
DMC = _________ x 100
VG

where

DMC is the de minimis content of the good, expressed as a percentage,

VG is the value of the good, determined in accordance with paragraph 3, adjusted to a F.O.B. basis at the point of direct shipment, and

VNM is the value of all the non-originating materials used in the production of the good, determined in accordance with paragraph 6, that do not undergo an applicable change in tariff classification set out in Annex 3.1.

3. For purposes of Article 3.2(1) and paragraph 2, the value of a good shall be:

(a)the transaction value of the good, 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, determined in accordance with Articles 2 through 7 of the Customs Valuation Code.

4. For purposes of paragraph 2, VNM shall not include the value of non-originating materials used to produce originating materials, including originating self-produced materials, that are subsequently used by the producer in the production of the good.

5. For purposes of paragraph 2, where identical materials or fungible materials are used in the production of the good, the value of the non-originating materials may be determined, at the choice of the producer of the good, by one of the methods set out in Annex 3.12.5.

6. For purposes of paragraphs 2, 4 and 5, the value of a non-originating material 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 and taxes paid or payable with respect to the material in the territory of one or both of the Parties, other than duties and taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable,

(iii) the costs of customs brokerage services, including the cost of in-house customs brokerage services, incurred with respect to the material in the territory of one or both of the Parties, and

(iv) 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.

7. Except as provided in Article 3.2(2) or (3), Article 3.2(1) shall apply for purposes of determining whether a good satisfies the requirements of Article 3.1(b) where that good is classified as a set, a mixture or a composite good under the Harmonized System.

3.13: Definitions

For purposes of this Chapter:

adjusted to an F.O.B. basis means, with respect to a good, adjusted by

(a) deducting

(i)the costs of transporting the good after it is shipped from the point of direct shipment,

(ii) the costs of unloading, loading, handling and insurance that are associated with that transportation, and

(iii) the cost of packing materials and containers,

where those costs are included in the transaction value of the good, and

(b) adding

(i)the costs of transporting the good from the place of production to the point of direct shipment,

(ii) the costs of loading, unloading, handling and insurance that are associated with that transportation, and

(iii) the costs of loading the good for shipment at the point of direct shipment,

where those costs are not included in the transaction value of the good;

category of identical or similar materials means those materials that are identical materials or similar materials with respect to each other and that are used in the production of the good for which origin is being determined under this Chapter;

Customs Valuation Code means the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 under the Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations;

direct shipment means transporting or conveying a good from one Party to the other Party on a through bill of lading to a consignee in that other Party;

fungible goods or materials means goods or materials that are interchangeable for commercial purposes with other goods or materials, as the case may be, and the properties of which are essentially identical;

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

(a) a mineral good extracted in the territory of one or both of the Parties;

(b) a vegetable and other good harvested in the territory of one or both of the Parties;

(c) a live animal born and raised in the territory of one or both of the Parties;

(d) a good obtained from hunting, trapping or fishing in the territory of one or both of the Parties;

(e) a fish, shellfish and other marine life taken from the sea by vessels registered or recorded with a Party and flying its flag;

(f) a good produced on board factory ships from a good referred to in subparagraph (e), provided such factory ships are registered or recorded with that Party and fly its flag;

(g) a good 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) a good taken from outer space, provided that the good is obtained by a Party or a person of a Party and does not undergo production outside the territories of the Parties;

(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) good 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 materials means, with respect to a material, materials that are the same as that material in all respects, including physical characteristics, quality and reputation but excluding minor differences in appearance;

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, and includes

(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 other goods,

(g) catalysts and solvents, and

(h) any other goods that are not incorporated into the good but the use of which in the production of the good can reasonably be demonstrated to be part of that production;

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

minor processing means, with respect to a good:

(a) mere dilution with water or any other substance that does not materially alter the characteristics of the good,

(b) cleaning, including removal of rust, grease, paint or any other coating,

(c) applying any preservative or decorative coating, including any lubricant, protective encapsulation, preservative or decorative paint, or metallic coating,

(d) trimming, filing or cutting off small amounts of excess material,

(e) packing or repacking of the good for transport, storage or sale,

(f) packaging or repackaging of the good for retail sale,

(g) repairs or alterations, washing, laundering or sterilizing,

(h) textile decorative processes incidental to the production of textile goods, other than apparel, such as edge pinking, whipping, folding and rolling, fringing, fringe knotting, piping, bordering, minor embroidery, hemstitching, embossing, dyeing or printing, or other similar processes, or

(i) ornamental or finishing operations incidental to apparel assembly and designed to enhance the marketing appeal or the ease of care of the good, such as embroidery, hemstitching, sewn appliqué work, stone or acid washing, printing, piece dyeing, preshrinking, permanent pressing, the attachment of accessories, notions, trimmings or findings, or other similar operations;

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

point of direct shipment means the location from which a producer of a good normally ships that good to the buyer of the good;

packaging materials and containers means materials and containers in which a good is packaged for retail sale;

packing materials and containers means materials and containers that are used to protect a good during transportation, but does not include packaging materials and containers;

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;

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

similar materials means, with respect to a material, materials that, although not alike in all respects, have similar characteristics and component materials that enable the materials to perform the same functions and to be commercially interchangeable with that material when used in the production of a good;

transaction value means the price actually paid or payable for the good or material with respect to the transaction between the producer of the good and the buyer of the good or the seller of the material, respectively, adjusted in accordance with paragraphs 1, 3 and 4 of Article 8 of the Customs Valuation Code; and

used means used or consumed in the production of a good.

Annex 3.7 Inventory Management Methods

Part 1 - Fungible Materials
1: Definitions and Interpretation

For purposes of this Part,

average method means the method by which the origin of fungible materials withdrawn from materials inventory is based on the ratio, calculated under Section 4, of originating materials and non-originating materials in materials inventory;

FIFO method means the method by which the origin of fungible materials first received in materials inventory is considered to be the origin of fungible materials first withdrawn from materials inventory;

LIFO method means the method by which the origin of fungible materials last received in materials inventory is considered to be the origin of fungible materials first withdrawn from materials inventory;

materials inventory means,

(a) with respect to a producer of a good, an inventory of fungible materials that are used in the production of the good, and

(b) with respect to a person from whom the producer of the good acquired such fungible materials, an inventory from which fungible materials are sold or otherwise transferred to the producer of the good;

opening inventory means the materials inventory at the time an inventory management method is chosen; and

origin identifier means any mark that identifies fungible materials as originating materials or non-originating materials.

2: General

1. The inventory management methods for determining whether fungible materials referred to in Article 3.7(1)(a) are originating materials are the following:

(a) specific identification method;

(b) FIFO method;

(c) LIFO method; and

(d) average method.

2. Where a producer of a good or a person from whom the producer acquired the materials that are used in the production of the good chooses an inventory management method referred to in paragraph 1, that method, including the averaging period chosen in the case of the averaging method, shall be used from the time the choice is made until the end of the fiscal year of the producer or person.

3: Specific Identification Method

1. Except as otherwise provided under paragraph 2, where the producer or person referred to in Section 2(2) chooses the specific identification method, the producer or person shall physically segregate, in materials inventory, originating materials that are fungible materials from non-originating materials that are fungible materials.

2. Where originating materials or non-originating materials that are fungible materials are marked with an origin identifier, the producer or person need not physically segregate those materials under paragraph 1 if the origin identifier remains visible throughout the production of the good.

4: Average Method

1. Where the producer or person referred to in Section 2(2) chooses the average method, the origin of fungible materials withdrawn from materials inventory is determined on the basis of the ratio of originating materials and non-originating materials in materials inventory that is calculated under paragraphs 2 and 3.

2. The ratio is calculated with respect to a one-month or three-month period, at the choice of the producer or person, by dividing

(a) the sum of

(i) the total units of originating materials or non-originating materials that are fungible materials and that were in materials inventory at the beginning of the preceding one-month or three-month period, and

(ii) the total units of originating materials or non-originating materials that are fungible materials and that were received in materials inventory during that preceding one-month or three-month period,

by

(b) the sum of

(i) the total units of originating materials and non-originating materials that are fungible materials and that were in materials inventory at the beginning of the preceding one-month or three-month period, and

(ii ) the total units of originating materials and non-originating materials that are fungible materials and that were received in materials inventory during that preceding one-month or three-month period.

3. The ratio calculated with respect to a preceding one-month or three-month period under paragraph 2 is applied to the fungible materials remaining in materials inventory at the end of the preceding one-month or three-month period.

5: Manner of Dealing with Opening Inventory

1. Except as otherwise provided under paragraphs 2 and 3, where the producer or person referred to in Section 2(2) has fungible materials in opening inventory, the origin of those fungible materials is determined by

(a) identifying, in the books of the producer or person, the latest receipts of fungible materials that add up to the amount of fungible materials in opening inventory;

(b) determining the origin of the fungible materials that make up those receipts; and

(c) considering the origin of those fungible materials to be the origin of the fungible materials in opening inventory.

2. Where the producer or person chooses the specific identification method and has, in opening inventory, originating materials or non-originating materials that are fungible materials and that are marked with an origin identifier, the origin of those fungible materials is determined on the basis of the origin identifier.

3. The producer or person may consider all fungible materials in opening inventory to be non-originating materials.

Part II - Fungible Goods
6: Definitions and Interpretation

For purposes of this Part,

average method means the method by which the origin of fungible goods withdrawn from finished goods inventory is based on the ratio, calculated under Section 9, of originating goods and non-originating goods in finished goods inventory;

FIFO method means the method by which the origin of fungible goods first received in finished goods inventory is considered to be the origin of fungible goods first withdrawn from finished goods inventory;

finished goods inventory means an inventory from which fungible goods are sold or otherwise transferred to another person;

LIFO method means the method by which the origin of fungible goods last received in finished goods inventory is considered to be the origin of fungible goods first withdrawn from finished goods inventory;

opening inventory means the finished goods inventory at the time an inventory management method is chosen; and

origin identifier means any mark that identifies fungible goods as originating goods or non-originating goods.

7: General

1. The inventory management methods for determining whether fungible goods referred to in Article 3.7(1)(b) or (c) are originating goods are the following:

(a) specific identification method;

(b) FIFO method;

(c) LIFO method; and

(d) average method.

2. Where an exporter of a good or a person from whom the exporter acquired the good chooses an inventory management method referred to in paragraph 1, that method, including the averaging period chosen in the case of the averaging method, shall be used from the time the choice is made until the end of the fiscal year of the exporter or person.

8: Specific Identification Method

1. Except as provided under paragraph 2, where the exporter or person referred to in Section 7(2) chooses the specific identification method, the exporter or person shall physically segregate, in finished goods inventory, originating goods that are fungible goods from non-originating goods that are fungible goods.

2. Where originating goods or non-originating goods that are fungible goods are marked with an origin identifier, the exporter or person need not physically segregate those goods under paragraph 1 if the origin identifier is visible on the fungible goods.

9: Average Method

1. Where the exporter or person referred to in Section 7(2) chooses the average method, the origin of each shipment of fungible goods withdrawn from finished goods inventory during a one-month or three-month period, at the choice of the exporter or person, is determined on the basis of the ratio of originating goods and non-originating goods in finished goods inventory for the preceding one-month or three-month period that is calculated by dividing

(a) the sum of

(i) the total units of originating goods or non-originating goods that are fungible goods and that were in finished goods inventory at the beginning of the preceding one-month or three-month period, and

(ii) the total units of originating goods or non-originating goods that are fungible goods and that were received in finished goods inventory during that preceding one-month or three-month period,

by

(b) the sum of

(i) the total units of originating goods and non-originating goods that are fungible goods and that were in finished goods inventory at the beginning of the preceding one-month or three-month period, and

(ii) the total units of originating goods and non-originating goods that are fungible goods and that were received in finished goods inventory during that preceding one-month or three-month period.

2. The ratio calculated with respect to a preceding month or three-month period under paragraph 1 is applied to the fungible goods remaining in finished goods inventory at the end of the preceding month or three-month period.

10: Manner of Dealing with Opening Inventory

1. Except as otherwise provided under paragraphs 2 and 3, where the exporter or person referred to in Section 7(2) has fungible goods in opening inventory, the origin of those fungible goods is determined by

(a) identifying, in the books of the exporter or person, the latest receipts of fungible goods that add up to the amount of fungible goods in opening inventory;

(b) determining the origin of the fungible goods that make up those receipts; and

(c) considering the origin of those fungible goods to be the origin of the fungible goods in opening inventory.

2. Where the exporter or person chooses the specific identification method and has, in opening inventory, originating goods or non-originating goods that are fungible goods and that are marked with an origin identifier, the origin of those fungible goods is determined on the basis of the origin identifier.

3. The exporter or person may consider all fungible goods in opening inventory to be non-originating goods.

Annex 3.12.5 - Methods for Determining the Value of Non-Originating Materials

Under Article 3.2(1) Where Identical Materials or Fungible Materials Are Used in the Production of the Good

1: Definitions and Interpretation

For purposes of this Annex, with respect to non-originating materials referred to in Article 3.2(1):

FIFO method means the method by which the value of non-originating materials first received in materials inventory, determined in accordance with Article 3.12(6), is considered to be the value of non-originating materials used in the production of the good first shipped to the buyer of the good;

LIFO method means the method by which the value of non-originating materials last received in materials inventory, determined in accordance with Article 3.12(6), is considered to be the value of non-originating materials used in the production of the good first shipped to the buyer of the good;

materials inventory means, with respect to a single plant of the producer of a good, an inventory of non-originating materials that are identical materials and that are used in the production of the good; and

rolling average method means the method by which the value of non-originating materials used in the production of a good that is shipped to the buyer of the good is based on the average value, calculated in accordance with paragraph 3, of the non-originating materials in materials inventory.

2: General

1. The methods for determining the value of non-originating materials that are identical materials or fungible materials and that are referred to in Article 3.12(5) are the following:

(a) FIFO method;

(b) LIFO method; and

(c) rolling average method.

2. Where a producer of a good chooses, with respect to non-originating materials that are identical materials or fungible materials, any of the methods referred to in paragraph 1, the producer may not use another of those methods with respect to any other non-originating materials that are identical materials or fungible materials, as the case may be, and that are used in the production of that good or in the production of any other good with respect to which the calculation under Article 3.12(2) has been made.

3. Where a producer of a good produces the good in more than one plant, the method chosen by the producer shall be used with respect to all plants of the producer in which the good is produced.

4. The method chosen by the producer to determine the value of non-originating materials may be chosen at any time during the producer's fiscal year and may not be changed during that fiscal year.

3: Average Value for Rolling Average Method

1. The average value of non-originating materials that are identical materials or fungible materials and that are used in the production of a good that is shipped to the buyer of the goods is calculated by dividing

(a) the total value of non-originating materials that are identical materials or fungible materials, as the case may be, and that are in materials inventory prior to the shipment of the good, determined in accordance with Article 3.12(6),

by

(b) the total units of those non-originating materials in materials inventory prior to the shipment of the good.

2. The average value calculated under paragraph 1 is applied to the remaining units of non-originating materials in materials inventory.