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Canada-Korea Free Trade Agreement

Chapter Three : Rules Of Origin

Article 3.1: Originating Goods

Except as otherwise provided in this Chapter, a good is originating under this Agreement if:

Article 3.2: Wholly Obtained

The following goods are considered wholly obtained and therefore originating in the territory of one or both of the Parties:

Article 3.3: Sufficient Production

1. A good is considered to have undergone sufficient production and therefore is originating when the conditions set out for that good in Annex 3-A are fulfilled entirely in the territory of one or both of the Parties and all other applicable requirements of this Chapter are satisfied.

2. Notwithstanding Annex 3-A and except for a good of Chapters 1 through 21, headings 39.01 through 39.15 or Chapters 50 through 63 of the Harmonized System, a good is considered to have undergone sufficient production and therefore is originating, provided that:

Article 3.4: Value Test

1. Except as provided in paragraphs 2 and 3, where Annex 3-A specifies a value test to determine whether a good is originating, the good is originating provided that the value of non-originating materials used in the production of the good does not exceed a given percentage of the transaction value or ex-works price of the good as specified in Annex 3-A.

2. For the purposes of a good of headings 87.01 through 87.08, at the choice of an exporter or a producer of such goods, the good is originating provided that the value of non-originating materials used in the production of the good does not exceed the given percentage of either the transaction value or ex-works price of the good, or the net cost of the good.

3. Notwithstanding paragraph 2, for the purposes of a good of headings 87.01 through 87.06, at the choice of an exporter or a producer of such goods, the good is originating provided that the value of originating materials used in the production of the good is not less than a given percentage of the transaction value or ex-works price of the good.

4. For the purposes of calculating the net cost of a good under paragraph 2, the producer of the good may:

5. For the purposes of calculating the net cost of a good of headings 87.01 through 87.05 under paragraph 4, 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:

6. For the purposes of calculating the net cost under paragraph 4 for a good of headings 87.06 through 87.08 produced in the same plant, the producer may:

Article 3.5: Materials Used in Production

1. If a non-originating material undergoes sufficient production in the territory of one or both of the Parties, the resulting good is originating and no account shall be taken of the non-originating material contained therein when that good is used in the subsequent production of another good.

2. Except as provided in Article 3.6.2, the “value of non-originating materials”, including, for the purposes of this definition, non-originating component goods and non-originating packaging materials and containers as referred to in Article 3.12 and in Annex 3-A, means:

3. Except as provided in Article 3.6.2, the “value of originating materials” means the price paid or payable for the material by the producer in the Party where the producer is located, in accordance with the Generally Accepted Accounting Principles applicable in the territory of the Party where the good is produced. If there is no price paid or payable, the “value of originating materials” will be the value as determined under paragraph 2(b).

Article 3.6: Self-Produced Materials

1. For the purposes of determining the origin of a good, a producer of a good may, at the producer’s choice, designate any self-produced material 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 the rules of origin.

2. The value of a self-produced material shall be:

Article 3.7: Accumulation

1. For the purposes of determining whether a good is an originating good, a good originating in the territory of one or both of the Parties shall be considered as originating in the territory of either of the Parties.

2. For the 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 is, at the choice of the exporter or producer of the good for which preferential tariff treatment is claimed, considered to have been performed in the territory of either of the Parties by that exporter or producer, if:

3. The Parties may agree to review this Article with a view to providing for other forms of cumulation, such as cross-cumulation or pan-free-trade-agreement-cumulation for the purpose of qualifying goods as originating goods under this Agreement.

Article 3.8: De Minimis

1. Notwithstanding Article 3.3 and except for a good of Chapters 50 through 63 of the Harmonized System, a good is considered originating, where the value of all non-originating materials used in the production of the good, which do not undergo the applicable change in tariff classification or fulfill any other condition set out in Annex 3-A, does not exceed 10 percent of the transaction value or ex-works price of the good, provided that:

2. A good of Chapters 50 through 60 of the Harmonized System, that does not originate because certain non-originating yarns used in the production of the good do not fulfill the conditions set out for that good in Annex 3-A , is considered originating if the total weight of all such yarns does not exceed 10 percent of the total weight of that good.

3. A good of Chapters 61 through 63 of the Harmonized System, that does not originate because certain non-originating yarns used in the production of the component of the good that determines the tariff classification of that good do not fulfil the conditions set out for that good in Annex 3-A, is considered originating if the total weight of all such yarns in that component does not exceed 10 percent of the total weight of that component.

4. Except as provided in Annex 3-A, paragraph 1 does not apply to a non-originating material used in the production of a good provided for in Chapters 1 through 21 of the Harmonized System unless the non-originating materials are provided for in a different subheading from that of the good for which the origin is being determined under this Article.

Article 3.9: Fungible Materials and Goods

1. For the purposes of determining whether a material or good is an originating material or good, any fungible material or good shall be distinguished by:

2. Once a particular inventory management method is selected under paragraph 1, that method shall continue to be used for those fungible materials or goods throughout the fiscal year of the person that selected the inventory management method.

Article 3.10: Sets or Assortments of Goods

Except as provided in Annex 3-A, a set or assortment of goods, as referred to in General Rule 3 of the Harmonized System, is originating, if:

Article 3.11: Accessories, Spare Parts and Tools

Accessories, spare parts, and tools delivered with a good that form part of its standard accessories, spare parts, or tools are considered originating if the good originates and shall be disregarded in determining whether all the non-originating materials undergo the applicable conditions set out in Annex 3-A, provided that:

Article 3.12: Packaging Materials and Containers for Retail Sale

Except as provided for in Article 3.10 and in Annex 3-A, packaging materials and containers in which a good is packaged for sale shall be disregarded in determining whether all the non-originating materials undergo the applicable conditions as set out in Annex 3-A.

Article 3.13: Packing Materials and Containers for Shipment

Packing materials, containers, pallets, or similar articles, in which a good is packed for shipment is disregarded in determining the origin of that good.

Article 3.14: Indirect Materials

For the purposes of determining whether a good is originating, it is not necessary to determine the origin of indirect materials used in production, testing or inspection of that good, but which have not entered into the final composition of the good, or which have been used in the maintenance of equipment and buildings or the operation of equipment associated with the production of a good including:

Article 3.15: Principle of Territoriality

1. The conditions for acquiring originating status set out in Articles 3.1 through 3.20 must be fulfilled without interruption in the territory of one or both of the Parties.

2. Notwithstanding paragraph 1, an originating good exported from a Party to a non-party shall, when returned, be considered originating if it is demonstrated to the satisfaction of the customs authorities in accordance with the laws and regulations of the importing Party concerned that the returning good:

Article 3.16: Transit and Transhipment

An originating good that is transported through the territory of a non-party is non-originating unless it can be demonstrated that the good:

Article 3.17: Application and Interpretation

For the purposes of this Chapter:

Article 3.18: Discussions and Modifications

1. The Parties shall discuss regularly to ensure that this Chapter is administered effectively, uniformly, and consistently with the spirit and objectives of this Agreement, and cooperate in the administration of this Chapter in accordance with Chapter Four (Origin Procedures and Trade Facilitation).

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 pursuant to Article 4.14 (Rules of Origin and Customs Committee).

Article 3.19: Common Guidelines

The Parties shall discuss whether to develop common guidelines for the interpretation and application of this Chapter by the date of entry into force of this Agreement.

Article 3.20: Definitions

For the purposes of this Chapter:

Chapter, unless otherwise specified, means a chapter of the Harmonized System;

classified means the classification of a good under a particular heading or subheading of the Harmonized System;

customs value means the value as determined in accordance with the Customs Valuation Agreement;

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

Generally Accepted Accounting Principles means accounting principles accepted and commonly used in the territory of a Party with regard to the recording of revenues, expenses, costs, assets, and liabilities, the disclosure of information, and preparation of financial statements. These principles may encompass guidelines for general application, as well as detailed standards, practices, and procedures;

good means merchandise, product, article, or material;

listed with a Party means a foreign registered vessel bare-boat chartered in accordance with the domestic law of a Party and whose registration in the foreign country is suspended for the duration of the charter;

material means an ingredient, component, part, or other good used in the production of another good;

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 3.4.4;

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

non-originating good or non-originating material means a good or material, respectively, that does not qualify as originating;

originating good or originating material means a good or material, respectively, that qualifies as originating;

other costs means all costs recorded on the books of the producer that are not product costs or period costs, such as interest;

period costs means those costs, other than product costs, that are expensed in the period in which they are incurred, such as selling expenses and general and administrative expenses;

producer means a person who engages in the production of a good in the territory of a Party;

product costs means those costs associated with the production of a good and includes the value of materials, direct labour costs, and direct overhead;

production means a method of obtaining goods, including growing, mining, harvesting, fishing, raising, trapping, hunting, manufacturing, processing, assembling, or disassembling a good;

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

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, or secret formula or process, excluding those payments under technical assistance or similar agreements that can be related to specific services such as:

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

self-produced material means a material produced by a 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;

tariff provision means a Chapter, heading, or subheading of the Harmonized System;

territorial sea means an area of the sea extending up to a limit of 12 nautical miles from baselines determined in accordance with Part II of UNCLOS;

total cost means product costs, period costs, and other costs incurred in the territory of one or both of the Parties. Total cost does not include profits earned by the producer, regardless of whether they are retained by the producer, or paid out to other persons as dividends, or taxes paid on those profits, including capital gains taxes;

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 Agreement to include, inter alia, such costs as commissions, production assists, royalties, or license fees; and

transaction value or ex-works price of the good, including, for the purposes of this definition, sets or assortments of goods of Article 3.10 and of Annex 3-A, means:

adjusted, if necessary, to exclude any costs incurred subsequent to the good leaving the place of production, such as freight and insurance.

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