# Implementation of the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA) Uniform Regulations Regarding Rules of Origin

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2020-13865

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** July 1, 2020
- **Citation:** 85 FR 39690

## Text

DEPARTMENT OF HOMELAND SECURITY
U.S. Customs and Border Protection
DEPARTMENT OF THE TREASURY
19 CFR Parts 181 and 182
[USCBP-2020-0036; CBP Dec. 20-11]
RIN 1515-AE55
Implementation of the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA) Uniform Regulations Regarding Rules of Origin

AGENCY:

U.S. Customs and Border Protection, Department of Homeland Security; Department of the Treasury.

ACTION:

Interim final rule; request for comments.

SUMMARY:

This interim final rule amends the U.S. Customs and Border Protection (CBP) regulations to implement the rules of origin provisions for preferential tariff treatment of the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA). This document sets forth the framework for our regulations that provides further guidance regarding the rules of origin for those seeking USMCA preferential tariff treatment and includes the text of the Uniform Regulations regarding rules of origin, as trilaterally agreed upon by the United States, the United Mexican States (Mexico), and Canada. Because the USMCA supersedes the North American Free Trade Agreement (NAFTA) when the USMCA enters into force on July 1, 2020, this document also amends the NAFTA regulations to reflect that the NAFTA provisions do not apply to goods entered for consumption, or withdrawn from warehouse for consumption, on or after July 1, 2020.

DATES:

This interim final rule is effective on July 1, 2020; comments must be received by August 31, 2020.

ADDRESSES:

You may submit comments, identified by
docket number
[USCBP-2020-0036], by
one
of the following methods:

•
Federal eRulemaking Portal at http://www.regulations.gov.
Follow the instructions for submitting comments.

•
Mail:
Due to COVID-19-related restrictions, CBP has temporarily suspended its ability to receive public comments by mail.

Instructions:
All submissions received must include the agency name and docket number for this rulemaking. All comments received will be posted without change to
http://www.regulations.gov,
including any personal information provided. For detailed instructions on submitting comments and additional information on the rulemaking process, see the “Public Participation” heading of the
SUPPLEMENTARY INFORMATION
section of this document.

Docket:
For access to the docket to read background documents or comments received, go to
http://www.regulations.gov.
Due to the relevant COVID-19-related restrictions, CBP has temporarily suspended on-site public inspection of the public comments. Please note that any submitted comments that CBP receives by mail will be posted on the above-referenced docket for the public's convenience.

FOR FURTHER INFORMATION CONTACT:

Operational Aspects:
Maya Kamar, Director, Textile and Trade Agreement Division, Office of Trade, U.S. Customs and Border Protection, (202) 945-7228 or
fta@cbp.dhs.gov.

Audit Aspects:
Amy Johnson, Senior Auditor, Regulatory Audit and Agency Advisory Services, U.S. Customs and Border Protection, (312) 983-5364 or
Amelia.K.Johnson@cbp.dhs.gov.

Legal Aspects:
Monika Brenner, Chief, Valuation & Special Programs Branch, Regulations and Rulings, Office of Trade, U.S. Customs and Border Protection, (202) 325-0038 or
monikarice.brenner@cbp.dhs.gov.

SUPPLEMENTARY INFORMATION:

I. Public Participation

Interested persons are invited to participate in this rulemaking by submitting written data, views, or arguments on this interim final rule. As stated below, U.S. Customs and Border Protection (CBP) will not accept comments upon the Uniform Regulations regarding rules of origin trilaterally agreed upon and contained in Appendix A to part 182 of title 19 of the Code of Federal Regulations (CFR) (19 CFR part 182). CBP also invites comments that relate to the economic, environmental, or federalism effects that might result from this interim final rule. Comments that will provide the most assistance to CBP will reference a specific portion of the interim final rule, explain the reason for any recommended change, and include data, information or authority that support such recommended change.

II. Background

On May 18, 2017, following consultations with the relevant Congressional committees, the Office of the United States Trade Representative (USTR) informed Congress of the President's intent to renegotiate the North American Free Trade Agreement (NAFTA). USTR announced this intention in a notice published in the
Federal Register
on May 23, 2017 (82 FR 23699), requesting public comments to assist in the development of the U.S. negotiating objectives on matters related to the modernization of NAFTA. The negotiations began on August 16, 2017, and concluded on September 30, 2018.

On November 30, 2018, USTR signed the “Protocol Replacing the North American Free Trade Agreement with the Agreement Between the United States of America, the United Mexican States, and Canada” (the Protocol). The Agreement Between the United States of America, the United Mexican States (Mexico), and Canada (the USMCA)
1

is attached as an annex to the Protocol and was subsequently amended to reflect certain modifications and technical corrections in the “Protocol of Amendment to the Agreement Between the United States of America, the United Mexican States, and Canada” (the Amended Protocol), which USTR signed on December 10, 2019.

1
The Agreement between the United States of America, the United Mexican States, and Canada is the official name of the USMCA treaty. Please be aware that, in other contexts, the same document is also referred to as the United States-Mexico-Canada Agreement.

Pursuant to section 106 of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (19 U.S.C. 4205) and section 151 of the Trade Act of 1974 (19 U.S.C. 2191), the United States adopted the USMCA through the enactment of the United States-Mexico-Canada Agreement Implementation Act (USMCA Act), Public Law 116-113, 134 Stat. 11, on January 29, 2020. Mexico, Canada, and the United States certified their preparedness to implement the USMCA on December 12, 2019, March 13, 2020, and April 24, 2020, respectively. As a result, pursuant to paragraph 2 of the Protocol, which provides that the USMCA will take effect on the first day of the third month after the last signatory party provides written notification of the completion of the domestic implementation of the USMCA through the enactment of implementing legislation, the USMCA will enter into force on July 1, 2020.

A. U.S. Implementation of USMCA Uniform Regulations

Section 103(a)(1)(B) of the USMCA Act provides the authority for new or amended regulations to be issued to implement the USMCA, as of the date

of its entry into force. Further, section 103(b)(2) of the USMCA Act requires that interim or initial regulations shall be prescribed not later than the date on which the USMCA enters into force to implement the Uniform Regulations regarding rules of origin. In accordance with section 103(b)(2) of the USMCA Act, CBP is adding to this new part 182, as Appendix A, the Uniform Regulations on rules of origin for Chapters 4 and 6 of the USMCA trilaterally agreed upon by the United States, Mexico, and Canada. Since the USMCA uniform regulations on rules of origin were trilaterally negotiated and may not be unilaterally altered, CBP is not requesting public comments in this interim final rule (IFR) with regard to Appendix A to part 182. CBP welcomes public comments on all other aspects of this IFR.

Claims for preferential tariff treatment under the USMCA may be made as of July 1, 2020. In addition to the regulations set forth in this document, those persons intending to make USMCA preference claims may refer to the CBP website at
https://www.cbp.gov/trade/priority-issues/trade-agreements/free-trade-agreements/USMCA
for further guidance, including the U.S. USMCA Implementing Instructions. The United States International Trade Commission has modified the Harmonized Tariff Schedule of the United States (HTSUS) to include the addition of a new General Note 11, incorporating the USMCA rules of origin, and the insertion of the special program indicator “S or S+” for the USMCA in the HTSUS “special” rate of duty subcolumn.
2

2
The S+ indicator is used for certain agricultural goods and textile tariff preference levels (TPLs).

Pursuant to section 103(b) of the USMCA Act, CBP will issue initial regulations (new part 182 including Appendix A) regarding rules of origin, as provided for under Article 5.16 of the USMCA, not later than the date on which USMCA enters into force. CBP expects to publish additional regulations by July 1, 2021, one year from when the USMCA enters into force, to set forth any remaining USMCA implementing regulations, and to request public comments on those implementing regulations.

B. Impact on NAFTA

The USMCA supersedes NAFTA and its related provisions on USMCA's entry into force date.
See
Protocol, paragraph 1. NAFTA entered into force on January 1, 1994. Pursuant to section 1103 of the Omnibus Trade and Competitiveness Act of 1988 (19 U.S.C. 2903) and section 151 of the Trade Act of 1974 (19 U.S.C. 2191), the United States adopted NAFTA through the enactment of the North American Free Trade Agreement Implementation Act (NAFTA Implementation Act), Public Law 103-182, 107 Stat. 2057 (19 U.S.C. 3301), on December 8, 1993. Section 601 of the USMCA Act repeals the NAFTA Implementation Act, as of the date that the USMCA enters into force.

On December 30, 1993, the U.S. Customs Service [now CBP] published interim regulations (58 FR 69460) in a new part 181 of title 19 of the CFR (19 CFR part 181) to implement the preferential tariff treatment and other customs related provisions of NAFTA. Part 181 sets forth the relevant definitions, the requirements for filing a claim for preferential tariff treatment, post-importation duty refund claims, and the NAFTA uniform regulations on rules of origin, among others.

The general rules of origin in Chapter Four of NAFTA, as well as the specific rules of origin in Annex 401 of NAFTA, are set forth in General Note 12, HTSUS. The NAFTA provisions set forth in 19 CFR part 181 and General Note 12, HTSUS, continue to apply to goods entered for consumption, or withdrawn from warehouse for consumption, prior to July 1, 2020.

III. Amendments to the CBP Regulations

A. Section 181.0

Part 181 of title 19 of the CFR contains the NAFTA duty preference and other related CBP provisions. As the USMCA supersedes NAFTA upon the former's entry into force, CBP is adding a sentence to the scope provision in section 181.0 to indicate that part 181 is not applicable to goods entered for consumption, or withdrawn from warehouse for consumption, on or after July 1, 2020. The USMCA provisions, not the NAFTA provisions, are applicable to goods entered for consumption, or withdrawn from warehouse for consumption, on or after July 1, 2020.

B. New Part 182

CBP is adding a new part 182 to title 19 of the CFR to establish the USMCA preferential tariff treatment and other customs related provisions. This document sets forth the scope of part 182, the rules of origin subpart, and Appendix A to part 182 containing the Uniform Regulations for Chapters 4 and 6 of the USMCA trilaterally agreed upon by the United States, Mexico, and Canada. These amendments are explained below.

This document also includes the structure and subparts for the entirety of part 182. CBP is reserving the remaining sections at this time. As discussed above, CBP will publish in separate subsequent IFRs, additional regulations to set forth the remaining USMCA implementing regulations, which will be in part 182, and also any other affected parts of title 19 of the CFR, as needed, to implement the USMCA (including the United States' implementation of additional Uniform Regulations on origin procedures, as needed, for Chapters 5, 6, and 7 of the USMCA).

Subpart A—General Provisions

Section 182.0 sets forth the scope of the new part 182. Section 182.0 provides the USMCA citations and parameters, and states that the part 181 NAFTA regulations are applicable for goods entered for consumption, or withdrawn from warehouse for consumption, prior to July 1, 2020. This section further clarifies that, except where the context otherwise requires, the requirements contained in part 182 are in addition to the general administrative and enforcement provisions set forth elsewhere in the CBP regulations.

Subpart F—Rules of Origin

Section 182.61 provides that the USMCA implementing regulations regarding rules of origin for preferential tariff treatment provisions of General Note 11, HTSUS, and Chapters Four and Six of the USMCA are contained in Appendix A to part 182.

Appendix A—Rules of Origin Regulations

The rules of origin regulations are set forth as Appendix A to part 182. The text contained in this appendix is as trilaterally negotiated by the United States, Mexico, and Canada. This appendix contains the uniform regulations for the interpretation, application, and administration of the rules of origin of Chapter Four of the USMCA and the rules of origin of Chapter Six of the USMCA related to textiles and apparel goods. The regulations contained in Appendix A may be cited as the “USMCA Rules of Origin Regulations.”

Definitions and Currency Conversion

Appendix A sets forth the relevant definitions and interpretations that are applicable to the Uniform Regulations on rules of origin, and the methodology for currency conversion if necessary to determine the value of goods or materials.

General Rules of Origin

Appendix A contains the basic rules of origin established in Chapter Four of the USMCA. The provisions apply to the determination of the status of an imported good as an originating good for purposes of preferential tariff treatment and to the determination of the status of a material as an originating material used in a good which is subject to a determination under Appendix A. Specifically, this section identifies goods that are originating goods because they are wholly obtained or produced in one or more of the USMCA countries. This section also identifies goods that are originating goods because the good, which is produced entirely in the territory of one or more of the USMCA countries, is either made of exclusively originating materials or each of the non-originating materials used in the production of the good satisfies all applicable requirements of the regulations, including the product-specific rules of origin. This section also sets forth exceptions to the change in the tariff classification requirement and the special rule for certain goods, which provides that the goods listed in Schedule II of Appendix A to part 182 (Table 2.10.1 of Article 2.10 to Chapter 2 of the USMCA) are treated as originating goods regardless of whether they meet the applicable product-specific rule of origin, if they are imported from the territory of a USMCA country.

Treatment of Recovered Materials Used in the Production of a Remanufactured Good

Appendix A sets forth the treatment of a recovered material derived in one or more USMCA countries when it is used in the production of, and is incorporated into, a remanufactured good. This section provides the requirements and examples illustrating the treatment of recovered materials used in the production of a remanufactured good.

De Minimis

Appendix A sets forth the
de minimis
rules for goods to qualify as originating goods even when the goods would fail to qualify as such under the general rules of origin. Unless an exception applies, a good shall be considered to be an originating good where the value of all non-originating materials used in the production of the good is not more than ten percent of the transaction value of the good, or, if applicable, the total cost of the good, provided that the good satisfies any regional value content requirements and all other applicable regulations in Appendix A. The
de minimis
rules for textile goods established in Chapter Six of the USMCA and examples illustrating the application of the
de minimis
rules are also provided.

Sets of Goods, Kits or Composite Goods

A good is classified as a set as a result of the application of rule 3 of the General Rules for the Interpretation of the HTSUS. Under the general rule of origin for such goods, a set is an originating good only if each good in the set is originating, and both the set and the goods in the set meet the other applicable requirements in Appendix A. Several examples, including the application to textile sets, are provided to illustrate when a set is considered an originating good.

Regional Value Content

The appendix provides the basic rules that apply for purposes of determining whether an imported good satisfies any applicable regional value content requirement. With some exceptions, the regional value content of a good shall be calculated, at the choice of the importer, exporter or producer of the good, on the basis of either the transaction value method or the net cost method. The specifics of the transaction value method and the net cost method, including the formulas used to calculate each method, are also contained in Appendix A. Several examples of the calculations for the regional value content requirement are provided under both the transaction value method and the net cost method.

Materials

Appendix A sets forth the rules regarding the valuation of materials, the treatment of materials with regard to the change in tariff classification requirement, and the regional value content requirement. Additionally, this section identifies adjustments to the value of materials including certain costs that may be deducted from the value of non-originating material or material of undetermined origin. This section also allows for an optional designation as an intermediate material of self-produced material that is used in the production of the good, and provides the determinations on the value of such intermediate material. Furthermore, it includes provisions for the treatment and value of indirect materials, packaging materials and containers, fungible materials and fungible commingled goods, and accessories, spare parts, tools or instructional or other information materials in determining the originating status of a good. Numerous examples are provided illustrating the provisions on materials.

Accumulation

The appendix identifies the rules by which an importer, exporter or producer of a good has the option to accumulate the production, by one or more producers in the territory of one or more of the USMCA countries, of materials that are incorporated into that good for the determination of the origin of the good. Several examples of accumulation of production are provided to illustrate the process.

Transshipment

Generally, an originating good loses its originating status and is considered non-originating if the good is transported outside of the territories of the USMCA countries. Appendix A sets forth the rule that an originating good transported outside the territories of the USMCA countries retains its originating status if the good remains under customs control, and the good does not undergo further production or any other non-specified operation outside the territories of the USMCA countries.

Non-Qualifying Operations

Appendix A sets forth the rule that a good is not an originating good solely because of its dilution with water or another substance that does not materially alter the characteristics of the good, or by any other production method or pricing practice the purpose of which is to circumvent the rules of origin of Appendix A.

Automotive Goods

The Appendix to Annex 4-B of Chapter 4 of the USMCA includes additional rules of origin requirements that apply to automotive goods. Automotive goods are passenger vehicles, light trucks, heavy trucks, or other vehicles; or an applicable part, component, or material listed in Tables A.1, A.2, B, C, D, E, F, or G of the Appendix to Annex 4-B of Chapter 4 of the USMCA. In addition to the rules of origin requirements, a passenger vehicle, light truck, or heavy truck is originating only if, during the time period specified, at least seventy percent of a vehicle producer's purchases of steel and aluminum, by value, in the territories of the USMCA countries are originating. Furthermore, a passenger vehicle, light truck, or heavy truck is originating only if the vehicle producer certifies and can demonstrate that its production meets the applicable labor value content requirement.

Appendix A to part 182 sets forth the rules of origin related to automotive goods. Specifically, Appendix A provides the definitions that are applicable to automotive goods, the regional value content requirements specific to automotive goods, the steel and aluminum purchase requirement, and the labor value content requirement.

Schedules

Appendix A also contains Schedules I through X. These schedules set forth the most-favored-nation rates of duty on certain goods, and provide much more detail on the calculations of the value of goods and materials, the inventory management methods, the methods of calculating costs, and the Generally Accepted Accounting Principles.

IV. Statutory and Regulatory Requirements

A. Administrative Procedure Act

Under section 553 of the Administrative Procedure Act (APA) (5 U.S.C. 553), agencies generally are required to publish a notice of proposed rulemaking in the
Federal Register
that solicits public comment on the proposed regulatory amendments, considers public comments in deciding on the content of the final amendments, and publishes the final amendments at least 30 days prior to their effective date. However, section 553(a)(1) of the APA provides that the standard prior notice and comment procedures do not apply to an agency rulemaking to the extent that it involves a foreign affairs function of the United States. CBP has determined that these interim regulations involve a foreign affairs function of the United States because they implement preferential tariff treatment and customs related provisions of the USMCA, a specific international agreement. Therefore, the rulemaking requirements under the APA do not apply and this interim rule will be effective on July 1, 2020.

CBP also has determined that there is good cause pursuant to 5 U.S.C. 553(b)(B) to publish this rule without prior public notice and comment procedures. This rule is a nondiscretionary action as it sets forth the uniform regulations that the United States, Mexico, and Canada trilaterally agreed to implement without change. Given CBP's lack of discretion and that this rule sets forth the rules of origin that the public needs knowledge of to claim USMCA preferential tariff treatment, prior public notice and comment procedures for this rule are impracticable, unnecessary, and contrary to the public interest.

For the same reasons, a delayed effective date is not required under 5 U.S.C. 553(d)(3). Pursuant to section 103(b)(2) of the USMCA Act, regulations implementing the USMCA Uniform Regulations regarding rules of origin must be effective no later than the date the USMCA enters into force, which is July 1, 2020. Failure to implement the CBP regulations by the July 1, 2020 entry into force date would be in violation of the USMCA and the USMCA Act, and would result in undesirable international consequences.

B. Executive Orders 13563, 12866, and 13771

Executive Orders 13563 and 12866 direct agencies to assess the costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. Executive Order 13771 directs agencies to reduce regulation and control regulatory costs, and provides that “for every one new regulation issued, at least two prior regulations be identified for elimination, and that the cost of planned regulations be prudently managed and controlled through a budgeting process.”

Rules involving the foreign affairs function of the United States are exempt from the requirements of Executive Orders 13563, 12866, and 13771. Because this document involves a foreign affairs function of the United States by implementing a specific international agreement, it is not subject to the provisions of Executive Orders 13563, 12866, and 13771.

C. Regulatory Flexibility Act

The Regulatory Flexibility Act (5 U.S.C. 601
et seq.
), as amended by the Small Business Regulatory Enforcement and Fairness Act of 1996, requires an agency to prepare and make available to the public a regulatory flexibility analysis that describes the effect of a proposed rule on small entities (
i.e.,
small businesses, small organizations, and small governmental jurisdictions) when the agency is required to publish a general notice of proposed rulemaking for a rule. Since a notice of proposed rulemaking is not necessary for this rule, CBP is not required to prepare a regulatory flexibility analysis for this rule.

V. Signing Authority

This rulemaking is being issued in accordance with 19 CFR 0.1(a)(1), pertaining to the authority of the Secretary of the Treasury (or that of his or her delegate) to approve regulations related to certain customs revenue functions.

List of Subjects

19 CFR Part 181
Administrative practice and procedure, Canada, Exports, Mexico, Reporting and recordkeeping requirements, Trade agreements.

19 CFR Part 182
Administrative practice and procedure, Canada, Exports, Mexico, Reporting and recordkeeping requirements, Trade agreements.

For the reasons stated above, amend part 181 and add a new part 182 of title 19 of the Code of Federal Regulations (19 CFR parts 181 and 182) as set forth below.

PART 181—NORTH AMERICAN FREE TRADE AGREEMENT

1. The general authority citation for part 181 continues to read as follows:

Authority:

19 U.S.C. 66, 1202 (General Note 3(i), Harmonized Tariff Schedule of the United States), 1624, 3314;

§ 181.0
[Amended]

2. In § 181.0, add a new second sentence.
The revision reads as follows:

§ 181.0
Scope.
* * * This part is not applicable to goods entered for consumption, or withdrawn from warehouse for consumption, on or after July 1, 2020.

3. Add part 182 to read as follows:

PART 182—UNITED STATES-MEXICO-CANADA AGREEMENT

Sec.

Subpart A—General Provisions

182.0
Scope.
182.1
[Reserved]

Subpart B—Import Requirements

182.11-182.16
[Reserved]

Subpart C—Export Requirements

182.21
[Reserved]

Subpart D—Post-Importation Duty Refund Claims

182.31-182.33
[Reserved]

Subpart E—Restrictions on Drawback and Duty-Deferral Programs

182.41-182.54
[Reserved]

Subpart F—Rules of Origin

182.61
Rules of origin.
182.62
[Reserved]

Subpart G—Origin Verifications and Determinations

182.71-182.74
[Reserved]

Subpart H—Textile and Apparel Goods

182.81-182.82
[Reserved]
182.82
[Reserved]

Subpart I—Automotive Goods

182.91-182.93
[Reserved]

Subpart J—Commercial Samples and Goods Returned after Repair or Alteration

182.101-182.102
[Reserved]

Subpart K—Penalties

182.111-182.114
[Reserved]
Appendix A to Part 182—Rules of Origin Regulations

Authority:

19 U.S.C. 66, 1202 (General Note 3(i) and General Note 11, Harmonized Tariff Schedule of the United States (HTSUS)), 1624, 4513, 4535; Section 182.61 also issued under 19 U.S.C. 4531, 4532.

Subpart A—General Provisions

§ 182.0
Scope.
This part implements the duty preference and related customs provisions applicable to imported and exported goods under the Agreement Between the United States of America, the United Mexican States, and Canada (USMCA), signed on December 10, 2019, and entered into force on July 1, 2020, and under the United States-Mexico-Canada Agreement Implementation Act (134 Stat. 11) (the Act). For goods entered for consumption, or withdrawn from warehouse for consumption, prior to July 1, 2020, please see the NAFTA provisions in part 181 of this chapter. Except as otherwise specified in this part, the procedures and other requirements set forth in this part are in addition to the CBP procedures and requirements of general application contained elsewhere in this chapter.

§ 182.1
[Reserved]

Subpart B—Import Requirements

§§ 182.11-182.16
[Reserved]

Subpart C—Export Requirements

§ 182.21
[Reserved]

Subpart D—Post-Importation Duty Refund Claims

§§ 182.31-182.33
[Reserved]

Subpart E—Restrictions on Drawback and Duty-Deferral Programs

§§ 182.41-182.54
[Reserved]

Subpart F—Rules of Origin

§ 182.61
Rules of origin.
The regulations, implementing the rules of origin provisions of General Note 11, Harmonized Tariff Schedule of the United States (HTSUS), and Chapters Four and Six of the USMCA, are contained in Appendix A to this part.

§ 182.62
[Reserved]

Subpart G—Origin Verifications and Determinations

§§ 182.71-182.74
[Reserved]

Subpart H—Textile and Apparel Goods

§§ 182.81-182.82
[Reserved]

Subpart I—Automotive Goods

§§ 182.91-182.93
[Reserved]

Subpart J—Commercial Samples and Goods Returned after Repair or Alteration

§§ 182.101-182.102
[Reserved]

Subpart K—Penalties

§§ 182.111-182.114
[Reserved]
Appendix A to Part 182—Rules of Origin Regulations

Uniform Regulations Regarding the Interpretation, Application, and Administration of Chapter 4 (Rules of Origin) and Related Provisions in Chapter 6 (Textile and Apparel Goods) of the Agreement Between the United States of America, the United Mexican States, and Canada
1

1
Please note that the citing conventions in Appendix A might not conform to the ordinary citing conventions in the Code of Federal Regulations (CFR) because the language is added pursuant to an international agreement without revision.

Part I

Section 1. Definitions and Interpretations

(1)
Definitions.
The following definitions apply in these Regulations,

accessories, spare parts, tools, instructional or other information materials
means goods that are delivered with a good, whether or not they are physically affixed to that good, and that are used for the transport, protection, maintenance or cleaning of the good, for instruction in the assembly, repair or use of that good, or as replacements for consumable or interchangeable parts of that good;

adjusted to exclude any costs incurred in the international shipment of the good
means, with respect to the transaction value of a good, adjusted by

(a) deducting the following costs if those costs are included in the transaction value of the good:

(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, and

(b) if those costs are not included in the transaction value of the good, 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;

Agreement
means the
United States-Mexico-Canada Agreement;

2

2
Please be aware that, in other contexts, the United States-Mexico-Canada Agreement is referred to by its official name, the Agreement Between the United States of America, the United Mexican States, and Canada.

applicable change in tariff classification
means, with respect to a non-originating material used in the production of a good, a change in tariff classification specified in a rule established in Schedule I (PSRO Annex) for the tariff provision under which the good is classified;

aquaculture
means the farming of aquatic organisms, including fish, molluscs, crustaceans, other aquatic invertebrates and aquatic plants from seed stock such as eggs, fry, fingerlings, or larvae, by intervention in the rearing or growth processes to enhance production such as regular stocking, feeding, or protection from predators;

costs incurred in packing
means, with respect to a good or material, the value of the packing materials and containers in which the good or material is packed for shipment and the labor costs incurred in packing it for shipment, but does not include the costs of preparing and packaging it for retail sale;

Customs Valuation Agreement
means the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade, set out in Annex 1A to the WTO Agreement;

customs value
means

(a) in the case of Canada, value for duty as defined in the
Customs Act,
except that for the purpose of determining that value the reference in section 55 of that Act to “in

accordance with the regulations made under the
Currency Act
” is to be read as a reference to “in accordance with subsection 2(1) of these
CUSMA Rules of Origin Regulations
”,

(b) in the case of Mexico, the
valor en aduana
as determined in accordance with the
Ley Aduanera,
converted, if such value is not expressed in Mexican currency, to Mexican currency at the rate of exchange determined in accordance with subsection 2(1), and

(c) in the case of the United States, the value of imported merchandise as determined by the U.S. Customs and Border Protection in accordance with section 402 of the
Tariff Act of 1930,
as amended, converted, if that value is not expressed in United States currency, to United States currency at the rate of exchange determined in accordance with subsection 2(1);

days
means calendar days, and includes Saturdays, Sundays and holidays;

direct labor costs
means costs, including fringe benefits, that are associated with employees who are directly involved in the production of a good;

direct material costs
means the value of materials, other than indirect materials and packing materials and containers, that are used in the production of a good;

direct overhead
means costs, other than direct material costs and direct labor costs, that are directly associated with the production of a good;

enterprise
means an entity constituted or organized under applicable law, whether or not for profit, and whether privately-owned or governmentally-owned or controlled, including a corporation, trust, partnership, sole proprietorship, joint venture, association or similar organization;

excluded costs
means, with respect to net cost or total cost, sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs;

fungible goods
means goods that are interchangeable for commercial purposes with another good and the properties of which are essentially identical;

fungible materials
means materials that are interchangeable with another material for commercial purposes and the properties of which are essentially identical;

Harmonized System
means the
Harmonized Commodity Description and Coding System,
including its General Rules of Interpretation, Section Notes, Chapter Notes and Subheading Notes, as set out in

(a) in the case of Canada, the
Customs Tariff,

(b) in the case of Mexico, the
Tarifa de la Ley de los Impuestos Generales de Importación y de Exportación,
and

(c) in the case of the United States, the
Harmonized Tariff Schedule of the United States;

identical goods
means, with respect to a good, including the valuation of a good, goods that

(a) are the same in all respects as that good, including physical characteristics, quality and reputation but excluding minor differences in appearance,

(b) were produced in the same country as that good, and

(c) were produced

(i) by the producer of that good, or

(ii) by another producer, if no goods that satisfy the requirements of paragraphs (a) and (b) were produced by the producer of that good;

identical materials
means, with respect to a material, including the valuation of a material, materials that

(a) are the same as that material in all respects, including physical characteristics, quality and reputation but excluding minor differences in appearance,

(b) were produced in the same country as that material, and

(c) were produced

(i) by the producer of that material, or

(ii) by another producer, if no materials that satisfy the requirements of paragraphs (a) and (b) were produced by the producer of that material;

incorporated
means, with respect to the production of a good, a material that is physically incorporated into that good, and includes a material that is physically incorporated into another material before that material or any subsequently produced material is used in the production of the good;

indirect material
means a material used or consumed in the production, testing or inspection of a good but not physically incorporated into the good, or a material used or consumed 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 molds,

(c) spare parts and materials used or consumed in the maintenance of equipment and buildings,

(d) lubricants, greases, compounding materials and other materials used or consumed in production or used to operate equipment and buildings,

(e) gloves, glasses, footwear, clothing, safety equipment, and supplies,

(f) equipment, devices and supplies used or consumed for testing or inspecting the goods,

(g) catalysts and solvents, and

(h) any other material that is not incorporated into the good but if the use in the production of the good can reasonably be demonstrated to be part of that production;

interest costs
means all costs paid or payable by a person to whom credit is, or is to be advanced, for the advancement of credit or the obligation to advance credit;

intermediate material
means a material that is self-produced and used in the production of a good, and designated as an intermediate material under subsection 8(6);

location of the producer
means,

(a) the place where the producer uses a material in the production of the good; or

(b) the warehouse or other receiving station where the producer receives materials for use in the production of the good, provided that it is located within a radius of 75 km (46.60 miles) from the production site.

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

month
means a calendar month;

national
means a natural person who is a citizen or permanent resident of a USMCA country, and includes

(a) with respect to Mexico, a national or citizen according to Articles 30 and 34, respectively, of the Mexican Constitution, and

(b) with respect to the United States, a “national of the United States” as defined in the Immigration and Nationality Act on the date of entry into force of the Agreement;

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 the method set out in subsection 7(3) (Regional Value Content);

net cost method
means the method of calculating the regional value content of a good that is set out in subsection 7(3) (Regional Value Content);

non-allowable interest costs
means interest costs incurred by a producer on the producer's debt obligations that are more than 700 basis points above the interest rate issued by the federal government for comparable maturities of the country in which the producer is located;

non-originating good
means a good that does not qualify as originating under these Regulations;

non-originating material
means a material that does not qualify as originating under these Regulations;

originating good
means a good that qualifies as originating under these Regulations;

originating material
means a material that qualifies as originating under these Regulations;

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;

payments
means, with respect to royalties and sales promotion, marketing and after-sales service costs, the costs expensed on the books of a producer, whether or not an actual payment is made;

person
means a natural person or an enterprise;

person of a USMCA country
means a national, or an enterprise constituted or organized under the laws of a USMCA country;

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

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

production
means growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, breeding, extracting, manufacturing, processing, or assembling a good, or aquaculture;

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

recovered material
means a material in the form of one or more individual parts that results from:

(a) The disassembly of a used good into individual parts; and

(b) the cleaning, inspecting, testing or other processing of those parts as necessary for improvement to sound working condition;

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 percent 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;

remanufactured good
means a good classified in HS Chapters 84 through 90 or under heading 94.02 except goods classified under HS headings 84.18, 85.09, 85.10, and 85.16, 87.03 or subheadings 8414.51, 8450.11, 8450.12, 8508.11, and 8517.11, that is entirely or partially composed of recovered materials and:

(a) Has a similar life expectancy and performs the same as or similar to such a good when new; and

(b) has a factory warranty similar to that applicable to such a good when new;

reusable scrap or by-product
means waste and spoilage that is generated by the producer of a good and that is used in the production of a good or sold by that producer;

right to use,
for the purposes of the definition of royalties, includes the right to sell or distribute a good;

royalties
means payments of any kind, including payments under technical assistance or similar agreements, made as consideration for the use of, or right to use, a 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

(a) personnel training, without regard to where the training is performed, or

(b) if performed in the territory of one or more of the USMCA countries, 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, catalogs, technical literature, price lists, service manuals, or sales aid information); establishment and protection of logos and trademarks; sponsorships; wholesale and retail restocking charges; or entertainment;

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

(c) salaries and wages, sales commissions, bonuses, benefits (for example, medical, insurance, or pension), travelling and living expenses, or 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, if those 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, if those 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, if those 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 centers;

(i) property insurance premiums, taxes, cost of utilities, and repair and maintenance of sales promotion, marketing, and after-sales service offices and distribution centers, if those 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 the costs of preparing and packaging the good for retail sale;

similar goods
means, with respect to a good, goods that

(a) although not alike in all respects to that good, have similar characteristics and component materials that enable the goods to perform the same functions and to be commercially interchangeable with that good,

(b) were produced in the same country as that good, and

(c) were produced

(i) by the producer of that good, or

(ii) by another producer, if no goods that satisfy the requirements of paragraphs (a) and (b) were produced by the producer of that good;

similar materials
means, with respect to a material, materials that

(a) although not alike in all respects to that material, have similar characteristics and component materials that enable the materials to perform the same functions and to be commercially interchangeable with that material,

(b) were produced in the same country as that material, and

(c) were produced

(i) by the producer of that material, or

(ii) by another producer, if no materials that satisfy the requirements of paragraphs (a) and (b) were produced by the producer of that material;

subject to a regional value content requirement
means, with respect to a good, that the provisions of these Regulations that are applied to determine whether the good is an originating good include a regional value content requirement;

tariff provision
means a heading, subheading or tariff item;

territory
means:

(a) For Canada, the following zones or waters as determined by its domestic law and consistent with international law:

(i) The land territory, air space, internal waters, and territorial sea of Canada,

(ii) the exclusive economic zone of Canada, and

(iii) the continental shelf of Canada;

(b) for Mexico,

(i) the land territory, including the states of the Federation and Mexico City,

(ii) the air space, and

(iii) the internal waters, territorial sea, and any areas beyond the territorial seas of Mexico within which Mexico may exercise sovereign rights and jurisdiction, as determined by its domestic law, consistent with the
United Nations Convention on the Law of the Sea,
done at Montego Bay on December 10, 1982; and

(c) for the United States,

(i) the customs territory of the United States, which includes the 50 states, the District of Columbia, and Puerto Rico,

(ii) the foreign trade zones located in the United States and Puerto Rico, and

(iii) the territorial sea and air space of the United States and any area beyond the territorial sea within which, in accordance with customary international law as reflected in the
United Nations Convention on the Law of the Sea,
the United States may exercise sovereign rights or jurisdiction.

total cost
means all product costs, period costs, and other costs incurred in the territory of one or more of the USMCA countries, where:

(a) Product costs are costs that are associated with the production of a good and include the value of materials, direct labor costs, and direct overheads;

(b) period costs are 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; and

(c) other costs are all costs recorded on the books of the producer that are not product costs or period costs, such as interest.

Total cost does not include profits that are 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 customs value as determined in accordance with the Customs Valuation Agreement, that is, 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 Articles 8(1), 8(3), and 8(4) of the Customs Valuation Agreement, regardless of whether the good or material is sold for export;

transaction value method
means the method of calculating the regional value content of a good that is set out in subsection 7(2) (Regional Value Content);

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

USMCA country
means a Party to the Agreement;

value
means the value of a good or material for the purpose of calculating customs duties or for the purpose of applying these Regulations.

verification of origin
means a verification of origin of goods under

(a) in the case of Canada, paragraph 42.1(1)(a) of the
Customs Act,

(b) in the case of Mexico, Article 5.9 of the Agreement, and

(c) in the case of the United States, section 509 of the Tariff Act of 1930, as amended.

(2)
Interpretation: “similar goods” and “similar materials
”. For the purposes of the definitions of
similar goods
and
similar materials,
the quality of the goods or materials, their reputation and the existence of a trademark are among the factors to be considered for the purpose of determining whether goods or materials are similar.

(3)
Other definitions.
For the purposes of these Regulations,

(a)
chapter,
unless otherwise indicated, refers to a chapter of the Harmonized System;

(b)
heading
refers to any four-digit number set out in the “Heading” column in the Harmonized System, or the first four digits of any tariff provision;

(c)
subheading
refers to any six-digit number, set out in the “H.S. Code” column in the Harmonized System or the first six digits of any tariff provision;

(d)
tariff item
refers to the first eight digits in the tariff classification number under the Harmonized System as implemented by each USMCA country;

(e) any reference to a tariff item in Chapter Four of the Agreement or these Regulations that includes letters is to be reflected as the appropriate eight-digit number in the Harmonized System as implemented in each USMCA country; and

(f)
books
refers to,

(i) with respect to the books of a person who is located in a USMCA country,

(A) books and other documents that support the recording of revenues, expenses, costs, assets and liabilities and that are maintained in accordance with Generally Accepted Accounting Principles set out in the publications listed in Schedule X with respect to the territory of the USMCA country in which the person is located, and

(B) financial statements, including note disclosures, that are prepared in accordance with Generally Accepted Accounting Principles set out in the publications listed in Schedule X with respect to the territory of the USMCA country in which the person is located, and

(ii) with respect to the books of a person who is located outside the territories of the USMCA countries,

(A) books and other documents that support the recording of revenues, expenses, costs, assets and liabilities and that are maintained in accordance with generally accepted accounting principles applied in that location or, if there are no such principles, in accordance with the International Accounting Standards, and

(B) financial statements, including note disclosures, that are prepared in accordance with generally accepted accounting principles applied in that location or, if there are no such principles, in accordance with the International Accounting Standards.

(4)
Use of examples.
If an example, referred to as an “Example”, is set out in these Regulations, the example is for the purpose of illustrating the application of a provision, and if there is any inconsistency between the example and the provision, the provision prevails to the extent of the inconsistency.

(5)
References to domestic laws.
Except as otherwise provided, references in these Regulations to domestic laws of the USMCA countries apply to those laws as they are currently in effect and as they may be amended or superseded.

(6)
Calculation of Total Cost.
For the purposes of subsections 5(11), 7(11) and 8(8),

(a) total cost consists of all product costs, period costs and other costs that are recorded, except as otherwise provided in subparagraphs (b)(i) and (ii), on the books of the producer without regard to the location of the persons to whom payments with respect to those costs are made;

(b) in calculating total cost,

(i) the value of materials, other than intermediate materials, indirect materials and packing materials and containers, is the value determined in accordance with subsections 8(1) and 8(2),

(ii) the value of intermediate materials used in the production of the good or material with respect to which total cost is being calculated must be calculated in accordance with subsection 8(6),

(iii) the value of indirect materials and the value of packing materials and containers is to be the costs that are recorded on the books of the producer for those materials, and

(iv) product costs, period costs and other costs, other than costs referred to in subparagraphs (i) and (ii), is to be the costs thereof that are recorded on the books of the producer for those costs;

(c) total cost does not include profits that are 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;

(d) gains related to currency conversion that are related to the production of the good must be deducted from total cost, and losses related to currency conversion that are related to the production of the good must be included in total cost;

(e) the value of materials with respect to which production is accumulated under section 9 must be determined in accordance with that section; and

(f) total cost includes the impact of inflation as recorded on the books of the producer, if recorded in accordance with the Generally Accepted Accounting Principles of the producer's country.

(7)
Period for the calculation of total cost.
For the purpose of calculating total cost under subsections 5(11) and 7(11) and 8(8),

(a) if the regional value content of the good is calculated on the basis of the net cost method and the producer has elected under subsection 7(15), 16(1) or (3) to calculate the regional value content over a period, the total cost must be calculated over that period; and

(b) in any other case, the producer may elect that the total cost be calculated over

(i) a one-month period,

(ii) any consecutive three-month or six-month period that falls within and is evenly divisible into the number of months of the producer's fiscal year remaining at the beginning of that period, or

(iii) the producer's fiscal year.

(8)
Election not modifiable.
An election made under subsection (7) may not be rescinded or modified with respect to the good or material, or the period, with respect to which the election is made.

(9)
Election considered made with respect to period.
If a producer chooses a one, three or six-month period under subsection (7) with respect to a good or material, the producer is considered to have chosen under that subsection a period or periods of the same duration for the remainder of the producer's fiscal year with respect to that good or material.

(10)
Election considered made with respect to cost.
With respect to a good exported to a USMCA country, an election to average is considered to have been made

(a) in the case of an election referred to in subsection 16(1) or (3), if the election is received by the customs administration of that USMCA country; and

(b) in the case of an election referred to in subsection 1(7), 7(15) or 16(10), if the customs administration of that USMCA country is informed in writing during the course of a verification of origin of the good that the election has been made.

Section 2. Conversion of Currency

2 (1)
Conversion of currency.
If the value of a good or a material is expressed in a currency other than the currency of the country where the producer of the good is located, that value must be converted to the currency of the country in which that producer is located, based on the following rates of exchange:

(a) In the case of the sale of that good or the purchase of that material, the rate of exchange used by the producer for the purpose of recording that sale or purchase, or

(b) in the case of a material that is acquired by the producer other than by a purchase,

(i) if the producer used a rate of exchange for the purpose of recording another transaction in that other currency that occurred within 30 days of the date on which the producer acquired the material, that rate, or

(ii) in any other case,

(A) with respect to a producer located in Canada, the rate of exchange referred to in section 5 of the
Currency Exchange for Customs Valuation Regulations
for the date on which the material was shipped directly to the producer,

(B) with respect to a producer located in Mexico, the rate of exchange published by

the
Banco de Mexico
in the
Diario Oficial de la Federación,
under the title “
TIPO de cambio para solventar obligaciones denominadas en moneda extranjera pagaderas en la República Mexicana
”, for the date on which the material was shipped directly to the producer, and

(C) with respect to a producer located in the United States, the rate of exchange referred to in 31 U.S.C. 5151 for the date on which the material was shipped directly to the producer.

(2)
Information in other currency in statement.
If a producer of a good has a statement referred to in section 9 that includes information in a currency other than the currency of the country in which that producer is located, the currency must be converted to the currency of the country in which the producer is located based on the following rates of exchange:

(a) If the material was purchased by the producer in the same currency as the currency in which the information in the statement is provided, the rate of exchange must be the rate used by the producer for the purpose of recording the purchase; or

(b) if the material was purchased by the producer in a currency other than the currency in which the information in the statement is provided,

(i) and the producer used a rate of exchange for the purpose of recording a transaction in that other currency that occurred within 30 days of the date on which the producer acquired the material, the rate of exchange must be that rate, or

(ii) in any other case,

(A) with respect to a producer located in Canada, the rate of exchange is the rate referred to in section 5 of the
Currency Exchange for Customs Valuation Regulations
for the date on which the material was shipped directly to the producer,

(B) with respect to a producer located in Mexico, the rate of exchange is the rate published by the
Banco de Mexico
in the
Diario Oficial de la Federacion,
under the title “
TIPO de cambio para solventar obligaciones denominadas en moneda extranjera pagaderas en la Republica Mexicana
”, for the date on which the material was shipped directly to the producer, and

(C) with respect to a producer located in the United States, the rate of exchange is the rate referred to in 31 U.S.C. 5151 for the date on which the material was shipped directly to the producer; and

(c) if the material was acquired by the producer other than by a purchase,

(i) if the producer used a rate of exchange for the purpose of recording a transaction in that other currency that occurred within 30 days of the date on which the producer acquired the material, the rate of exchange must be that rate, and

(ii) in any other case,

(A) with respect to a producer located in Canada, the rate of exchange must be the rate referred to in section 5 of the
Currency Exchange for Customs Valuation Regulations
for the date on which the material was shipped directly to the producer,

(B) with respect to a producer located in Mexico, the rate of exchange must be the rate published by the
Banco de Mexico
in the
Diario Oficial de la Federacion,
under the title “
TIPO de cambio para solventar obligaciones denominadas en moneda extranjera pagaderas en la Republica Mexicana
”, for the date on which the material was shipped directly to the producer, and

(C) with respect to a producer located in the United States, the rate of exchange must be the rate referred to in 31 U.S.C. 5151 for the date on which the material was shipped directly to the producer.

Part II

Section 3. Originating Goods

3(1)
Wholly obtained goods.
A good is originating in the territory of a USMCA country if the good satisfies all other applicable requirements of these Regulations and is:

(a) A mineral good or other naturally occurring substance extracted in or taken from the territory of one or more of the USMCA countries;

(b) a plant, plant good, vegetable, or fungus, grown, harvested, picked, or gathered in the territory of one or more of the USMCA countries;

(c) a live animal born and raised in the territory of one or more of the USMCA countries;

(d) a good obtained from a live animal in the territory of one or more of the USMCA countries;

(e) an animal obtained from hunting, trapping, fishing, gathering or capturing in the territory of one or more of the USMCA countries;

(f) a good obtained from aquaculture in the territory of one or more of the USMCA countries;

(g) fish, shellfish or other marine life taken from the sea, seabed or subsoil outside the territories of the USMCA countries and, under international law, outside the territorial sea of non-USMCA countries, by vessels that are registered, listed, or recorded with a USMCA country and entitled to fly the flag of that USMCA country;

(h) a good produced from goods referred to in paragraph (g) on board a factory ship where the factory ship is registered, listed, or recorded with a USMCA country and entitled to fly the flag of that USMCA country;

(i) a good, other than fish, shellfish or other marine life, taken by a USMCA country or a person of a USMCA country from the seabed or subsoil outside the territories of the USMCA countries, if that USMCA country has the right to exploit that seabed or subsoil;

(j) waste and scrap derived from:

(i) Production in the territory of one or more of the USMCA countries, or

(ii) used goods collected in the territory of one or more of the USMCA countries, provided the goods are fit only for the recovery of raw materials; or

(k) a good produced in the territory of one or more of the USMCA countries, exclusively from a good referred to in any of paragraphs (a) through (j), or from their derivatives, at any stage of production.

(2)
Goods produced from non-originating materials.
A good, produced entirely in the territory of one or more of the USMCA countries, is originating in the territory of a USMCA country if each of the non-originating materials used in the production of the good satisfies all applicable requirements of Schedule I (PSRO Annex), and the good satisfies all other applicable requirements of these Regulations.

(3)
Goods produced exclusively from originating materials.
A good is originating in the territory of a USMCA country if the good is produced entirely in the territory of one or more of the USMCA countries exclusively from originating materials and the good satisfies all other applicable requirements of these Regulations.

(4)
Exceptions to the change in tariff classification requirement.
Except in the case of a good of any of Chapters 61 through 63, a good is originating in the territory of a USMCA country if:

(a) One or more of the non-originating materials used in the production of that good cannot satisfy the change in tariff classification requirements set out in Schedule I (PSRO Annex) because both the good and its materials are classified in the same subheading or same heading that is not further subdivided into subheadings, and,

(i) the good is produced entirely in the territory of one or more of the USMCA countries;

(ii) the regional value content of the good, calculated in accordance with section 7 (Regional Value Content), is not less than 60 percent if the transaction value method is used, or not less than 50 percent if the net cost method is used; and

(iii) the good satisfies all other applicable requirements of these Regulations; or

(b) it was imported into the territory of a USMCA country in an unassembled or a disassembled form but classified as an assembled good in accordance with rule 2(a) of the General Rules of Interpretation for the Harmonized System and,

(i) the good is produced entirely in the territory of one or more of the USMCA countries;

(ii) the regional value content of the good, calculated in accordance with section 7 (Regional Value Content), is not less than 60 percent if the transaction value method is used, or not less than 50 percent if the net cost method is used; and

(iii) the good satisfies all other applicable requirements of these Regulations.

(5)
Interpretation of goods and parts of goods.
For the purposes of paragraph (4)(a),

(a) the determination of whether a heading or subheading provides for a good and its parts is to 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; and

(b) if, in accordance with the Harmonized System, a heading includes parts of goods by application of a Section Note or Chapter Note of the Harmonized System and the subheadings under that heading do not include a subheading designated “Parts”, a subheading designated “Other” under that heading is to be considered to cover only the goods and parts of the goods that are themselves classified under that subheading.

(6)
Requirement to meet one rule.
For the purposes of subsection (2), if Schedule I (PSRO Annex) sets out two or more alternative rules for the tariff provision under which a good is classified, if the good satisfies the requirements of one of those rules, it need not satisfy the requirements of another of the rules in order to qualify as an originating good.

(7)
Special rule for certain goods.
A good is originating in the territory of a USMCA country if the good is referred to in Schedule II and is imported from the territory of a USMCA country.

(8)
Self-produced material considered as a material.
For the purpose of determining whether non-originating materials undergo an applicable change in tariff classification, a self-produced material may, at the choice of the producer of that material, be considered as a material used in the production of a good into which the self-produced material is incorporated.

(9)
Each of the following examples is an “Example” as referred to in subsection 1(4).

Example 1: Subsection 3(2) Regarding the `component that determines the tariff classification' of a textile or apparel good)

Producer A, located in a USMCA country, produces women´s wool overcoats of subheading 6202.11 from two different fabrics, one for the body and another for the sleeves. Both fabrics are produced using originating and non-originating materials. The overcoat´s body is made of woven wool and silk fabric, and the sleeves are made of knit cotton fabric.

For the purpose of determining if the women´s wool overcoats are originating goods, Producer A must take into account Note 2 of Chapter 62 of Schedule I, which indicates that the applicable rule will apply only to the component that determines the tariff classification of the good and that the component must satisfy the tariff change requirements set out in the rule for that good.

The woven fabric (80% wool and 20% silk) used for the body is the component of the women´s wool overcoat that determines its tariff classification under subheading 6202.11, because it constitutes the predominant material by weight and makes up the largest surface area of the overcoat. This fabric is made by Producer A from originating wool yarn classified in heading 51.06 and non-originating silk yarn classified in heading 50.04.

Since the knit cotton fabric used in the sleeves is not the component that determines the tariff classification of the good, it does not need to meet the requirements set out in the rule for the good.

Producer A must determine whether the non-originating materials used in the production of the component that determines the tariff classification of the women´s wool overcoats (the woven fabric) satisfy the requirements established in the product-specific rule of origin, which requires both a change in tariff classification from any other chapter, except from some headings and chapters under which certain yarns and fabrics are classified, and a requirement that the good be cut or knit to shape and sewn or otherwise assembled in the territory of one or more of the USMCA countries. The non-originating silk yarn of heading 50.04 used by Producer A satisfies the change in tariff classification requirement, since heading 50.04 is not excluded under the product-specific rule of origin. Additionally, the overcoats are cut and sewn in the territory of one of the USMCA countries, and therefore the women´s wool overcoats would be considered to be originating goods.

Example 2: (Subsection 3(2))

Producer A, located in a USMCA country, produces T-shirts of subheading 6109.10 from knit cotton and polyester fabric (60% cotton and 40% polyester), which is also produced by Producer A using originating cotton yarn of heading 52.05 and polyester yarn made of non-originating filaments of heading 54.02.

As the t-shirt is made of a single fabric and classified under GRI 1 in subheading 6109.10, this fabric is the component that determines tariff classification. Therefore, to be considered originating by application of the tariff-shift rule for subheading 6109.10, each of the non-originating materials used in the production of the t-shirt must undergo the required change in tariff classification.

In this case, the non-originating polyester filaments of heading 54.02 used in the production of the T-shirts do not satisfy the change in tariff classification set out in the product-specific rule of origin. In addition, the weight of the non-originating polyester is over the “de minimis” allowance. Therefore, the T-shirts do not qualify as originating goods.

Example 3: (subsection 3(2))—Note 2 contained in Section XI—Textiles and Textile Articles (Chapter 50-63)

Producer A, located in a USMCA country, produces fabrics of subheading 5211.42 from originating cotton and polyester yarns, and non-originating rayon filament. For the purpose of determining if the fabrics are originating goods, Producer A must consider Note 2 of Section XI of Schedule I, which indicates a good of Chapter 50 through 63 is considered as originating, regardless of whether the rayon filaments used in its production are non-originating materials, provided that the good meets the requirements of the applicable product-specific rule of origin.

With the exception of the rayon filaments of heading 54.03, that Note 2 of Section XI of Schedule I allows, all of the materials used in the production of the fabrics are originating materials, and since General Interpretative Note (d) of Schedule I provides that a change in tariff classification of a product-specific rule of origin applies only to non-originating materials, the fabrics are considered to be originating goods.

Example 4: Subsection 3(2) Note 2 and 5 of Chapter 62 regarding the interpretation of the component that determines the tariff classification and the requirement for pockets.

Producer A, located in a USMCA country, produces men´s suits classified in subheading 6203.12, which are made of three fabrics: A non-originating fabric of subheading 5407.61 used to make a visible lining, an originating fabric of 5514.41 used to make the outer part of the suit and a non-originating fabric of subheading 5513.21 used to make pocket bags.

For the purpose of determining if the men´s suits are originating goods, Producer A should take into account Note 2 of Chapter 62 of Schedule I, which indicates that the applicable rule will only apply to the component that determines the tariff classification of the good and that the component must satisfy the tariff change requirements set out in the rule for that good.

The originating fabric used to make the outer part of the suit is the component of the suit that determines the tariff classification under subheading 6203.12, because it constitutes the predominant material by weight and is the largest surface area of the suit. The origin of the fabric used as visible lining is disregarded for the purpose of determining whether the suit is an originating good since that fabric is not considered the component that determines the tariff classification, and there are no Chapter notes related to visible lining for apparel goods.

Additionally, Producer A uses a non-originating fabric of subheading 5513.21 for the pocket bags of the suits, so it should take into account the second paragraph of Note 5 of Chapter 62 of Schedule I, which requires that the pocket bag fabric must be formed and finished in the territory of one or more USMCA countries from yarn wholly formed in one or more USMCA countries.

In this case, for the production of men´s suits, Producer A uses non-originating fabric for the pockets, and such fabric was not formed and finished in the territory of one or more Parties, therefore the suits would be considered to be non-originating goods.

Example 5 (subsection 3(7)): A wholesaler located in USMCA Country A imports non-originating storage units provided for in subheading 8471.70 from outside the territory of the USMCA countries. The wholesaler resells the storage units to a buyer in USMCA Country B. While in the territory of Country A, the storage units do not undergo any production and therefore do not meet the rule in Schedule I for goods of subheading 8471.70 when imported into the territory of USMCA Country B.

Notwithstanding the rule in Schedule I, the storage units of subheading 8471.70 are considered originating goods when they are imported to the territory of USMCA Country B because they are referred to in Schedule II and were imported from the territory of another USMCA country.

The buyer in USMCA Country B subsequently uses the storage units provided for in subheading 8471.70 as a material in the production of another good. For the purpose of determining whether the other good originates, the buyer in USMCA Country B may treat the storage units of subheading 8471.70 as originating materials.

Example 6 subsection 3(8): Self-produced Materials as Materials for the purpose of Determining Whether Non-originating Materials Undergo an Applicable Change in Tariff Classification

Producer A, located in a USMCA country, produces Good A. In the production process, Producer A uses originating Material X and non-originating Material Y to produce Material Z. Material Z is a self-produced

material that will be used to produce Good A.

The rule set out in Schedule I for the heading under which Good A is classified specifies a change in tariff classification from any other heading. In this case, both Good A and the non-originating Material Y are of the same heading. However, the self-produced Material Z is of a heading different than that of Good A.

For the purpose of determining whether the non-originating materials that are used in the production of Good A undergo the applicable change in tariff classification, Producer A has the option to consider the self-produced Material Z as the material that must undergo a change in tariff classification. As Material Z is of a heading different than that of Good A, Material Z satisfies the applicable change in tariff classification and Good A would qualify as an originating good.

Section 4. Treatment of Recovered Materials Used in the Production of a Remanufactured Good

4(1)
Treatment of recovered materials used in the production of remanufactured goods.
A recovered material derived in the territory of one or more of the USMCA countries, will be treated as originating, provided that:

(a) It is the result of a disassembly process of a used good into individual parts;

(b) It has undergone certain processing, such as cleaning, inspection, testing or other improvement processing, to sound working condition; and

(c) It is used in the production of, and incorporated into, a remanufactured good.

(2)
Recovered material not used in remanufactured good.
In the case that the recovered material is not used or incorporated in the production of a remanufactured good, it is originating only if it satisfies the requirements established in Section 3, and satisfies all other applicable requirements in these Regulations.

(3)
Requirements of Schedule I (PSRO Annex).
A remanufactured good is originating in the territory of a USMCA country only if it satisfies the applicable requirements established in Schedule I (PSRO Annex), and satisfies all other applicable requirements in these Regulations.

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

Example 1: (Section 4)

In July 2023, Producer A located in a USMCA country manufactures water pumps of subheading 8413.30 for use in automotive engines. In addition to selling new water pumps, Producer A also sells water pumps that incorporate used parts.

To obtain the used parts, Producer A disassembles used water pumps in a USMCA country and cleans, inspects, and tests the individual parts. Accordingly, these parts qualify as recovered materials.

The water pumps that Producer A manufactures incorporate the recovered materials, have the same life expectancy and performance as new water pumps, and are sold with a warranty that is similar to the warranty for new water pumps. The water pumps therefore qualify as remanufactured goods, and the recovered materials are treated as originating materials when determining whether the good qualifies as an originating good.

In this case, because the water pumps are for use in an automotive good, the provisions of Part VI apply. Because the water pump is a part listed in Table B, the RVC required is 70% under the net cost method or 80% under the transaction value method.

The producer chooses to calculate the RVC using net cost as follows:

Water pump net cost = $1,000

Value of recovered materials = $600

Value other originating materials = $20

Value of non-originating materials = $280

RVC = (NC−VNM)/NC × 100

RVC = (1,000−280)/1,000 × 100 = 72%

The remanufactured water pumps are originating goods because their regional value content exceeds the 70% requirement by net cost method.

Example 2: Section 4

Producer A located in a USMCA country, uses recovered materials derived in the territory of a USMCA country in the production of self-propelled “bulldozers” classified in subheading 8429.11.

In the production of the bulldozers, Producer A uses recovered engines, classified in heading 84.07. The engines are recovered materials because they are disassembled from used bulldozers in a USMCA country and then subject to cleaning, inspecting and technical tests to verify their sound working condition.

In addition to the recovered materials, other non-originating materials, classified in subheading 8413.91, are also used in the production of the bulldozers.

Producer A's bulldozers are considered a “remanufactured good” because they are classified in a tariff provision set out in the definition of a remanufactured good, are partially composed of recovered materials, have a similar life expectancy and perform the same as or similar to new self-propelled bulldozers, and have a factory warranty similar to new self-propelled bulldozers.

Once the recovered engines are used in the production of, and incorporated into, the remanufactured bulldozers, the recovered engines would be treated considered as originating materials for the purpose of determining if the remanufactured bulldozers are originating.

The rule of origin set out in in Schedule I for subheading 8429.11 specifies a change in tariff classification from any other subheading.

In this case, because the recovered engines are treated as originating materials, and the non-originating materials, classified in subheading 8413.91, satisfy the requirements set out in Schedule I, the remanufactured bulldozers are originating goods.

Section 5. De Minimis

5(1)
De minimis rule for non-originating materials.
Except as otherwise provided in subsection (3) (Exceptions), a good is originating in the territory of a USMCA country if

(a) the value of all non-originating materials that are used in the production of the good and that do not undergo an applicable change in tariff classification as a result of production occurring entirely in the territory of one or more of the USMCA countries is not more than ten percent

(i) of the transaction value of the good, determined in accordance with Schedule III (Value of Goods), and adjusted to exclude any costs incurred in the international shipment of the good, or

(ii) of the total cost of the good;

(b) if the good is also subject to a regional content requirement under the rule in which the applicable change in tariff classification is specified, the value of those non-originating materials is to be taken into account in calculating the regional value content of the good in accordance with the method set out for that good; and

(c) the good satisfies all other applicable requirements of these Regulations.

(2)
Only one rule to satisfy.
If Schedule I (PSRO Annex) sets out two or more alternative rules for the tariff provision under which the good is classified, and the good is considered an originating good under one of those rules in accordance with subsection (1), it need not satisfy the requirements of any alternative rule to be originating.

(3)
Exceptions.
Subsections (1) and (2) do not apply to:

(a) A non-originating material of heading 04.01 through 04.06, or a non-originating material that is a dairy preparation containing over 10 percent by dry weight of milk solids of subheading 1901.90 or 2106.90, used in the production of a good of heading 04.01 through 04.06;

(b) a non-originating material of heading 04.01 through 04.06, or a non-originating material that is a dairy preparation containing over 10 percent by dry weight of milk solids of subheading 1901.90 or 2106.90, used in the production of a good of:

(i) Infant preparations containing over 10 percent by dry weight of milk solids of subheading 1901.10,

(ii) mixes and doughs, containing over 25 percent by dry weight of butterfat, not put up for retail sale of subheading 1901.20,

(iii) dairy preparations containing over 10 percent by dry weight of milk solids of subheading 1901.90 or 2106.90,

(iv) goods of heading 21.05,

(v) beverages containing milk of subheading 2202.90, or

(vi) animal feeds containing over 10 percent by dry weight of milk solids of subheading 2309.90;

(c) a non-originating material of any of heading 08.05 and subheadings 2009.11 through 2009.39 that is used in the production of a good of any of subheadings 2009.11 through 2009.39 or a fruit or vegetable juice of any single fruit or vegetable, fortified with minerals or vitamins, concentrated or unconcentrated, of subheading 2106.90 or 2202.90;

(d) a non-originating material of Chapter 9 that is used in the production of instant coffee, not flavored, of subheading 2101.11;

(e) a non-originating material of Chapter 15 that is used in the production of a good of any of headings 15.01 through 15.08, 15.12, 15.14 or 15.15;

(f) a non-originating material of heading 17.01 that is used in the production of a good of any of headings 17.01 through 17.03;

(g) a non-originating material of Chapter 17 or heading 18.05 that is used in the production of a good of subheading 1806.10;

(h) a non-originating material that is pears, peaches or apricots of Chapter 8 or 20 that is used in the production of a good of heading 20.08;

(i) a non-originating material that is a single juice ingredient of heading 20.09 that is used in the production of a good of any of subheading 2009.90, or tariff item 2106.90.cc or 2202.90.bb;

(j) a non-originating material of heading 22.03 through 22.08 that used in the production of a good provided for in any of heading 22.07 or 22.08;

(k) a non-originating material that is used in the production of a good of any of Chapters 1 through 27, unless the non-originating material is of a different subheading than the good for which origin is being determined under this section; or

(l) a non-originating material that is used in the production of a good of any of Chapters 50 through 63.

(4)
De minimis rule for regional value content requirement.
A good that is subject to a regional value content requirement is originating in the territory of a USMCA country and is not required to satisfy that requirement if

(a) the value of all non-originating materials used in the production of the good is not more than ten per cent

(i) of the transaction value of the good, determined in accordance with Schedule III (Value of the Good), and adjusted to exclude any costs incurred in the international shipment of the good, or

(ii) of the total cost of the good, and

(b) the good satisfies all other applicable requirements of these Regulations.

(5)
Value of non-originating materials for subsections (1) and (4).
For the purposes of subsections (1) and (4), the value of non-originating materials is to be determined in accordance with subsections 8(1) through (6).

(6)
De minimis rule for textile goods.
A good of any of Chapters 50 through 60 or heading 96.19, that contains non-originating materials that do not satisfy the applicable change in tariff classification requirements, will be considered originating in the territory of a USMCA country if:

(a) The total weight of all those non-originating materials is not more than ten per cent of the total weight of the good, of which the total weight of elastomeric content may not exceed seven per cent of the total weight of the good; and

(b) the good satisfies all other applicable requirements of these Regulations.

(7) A good of any of Chapters 61 through 63, that contains non-originating fibers or yarns in the component of the good that determines the tariff classification that do not undergo the applicable change in tariff classification requirements, will be considered originating in the territory of a USMCA country if:

(a) The total weight of all those non-originating materials is not more than ten per cent of the total weight of that component, of which the elastomeric content may not exceed seven per cent; and

(b) the good satisfies all other applicable requirements of these Regulations.

(8) For purposes of subsection (7),

(a) the component of a good that determines the tariff classification of that good is identified in accordance with the first of the following General Rules for the Interpretation of the Harmonized System under which the identification can be determined, namely, Rule 3(b), Rule 3(c) and Rule 4; and

(b) if the component of the good that determines the tariff classification of the good is a blend of two or more yarns or fibers, all yarns and fibers used in the production of the component must be taken into account in determining the weight of fibers and yarns in that component.

(9) For the purpose of determining if a good of Chapter 61 through 63 is originating, the requirements set out in Schedule I (PSRO Annex) only apply to the component that determines the tariff classification of the good. Materials that are not part of the component that determines the tariff classification of the good are disregarded when determining if a good is originating. Similarly, for the purposes of Section 5 as applicable to a good of Chapters 61 through 63, only the materials used in the component that determines the tariff classification are taken into account in the de minimis calculation.

(10) Subsection (6) does not apply to sewing thread, narrow elastic bands, and pocket bag fabric subject to the requirements set out in Chapter 61 Notes 2 through 4, Chapter 62 Notes 3 through 5 or for coated fabric as set out in Chapter 63 Note 2 of Schedule I (PSRO Annex).

(11)
Calculation of “Total Cost”, choice of methods.
For the purposes of paragraph (1)(a)(ii) and subparagraph (4)(a)(ii), the total cost of a good is, at the choice of the producer of the good,

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

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

(12)
Calculation of total cost.
Total cost under subsection (11) consists of the costs referred to in subsection 1(6), and is calculated in accordance with that subsection and subsection 1(7).

(13)
Value of non-originating materials—other methods.
For the purpose of determining the value under subsection (1) of non-originating materials that do not undergo an applicable change in tariff classification, if an inventory management method either recognized in the Generally Accepted Accounting Principles (GAAP) of the USMCA country where the production was performed or a method set out in Schedule VIII, is not being used to determine the value of those non-originating materials, the following methods are to be used:

(a) If the value of those non-originating materials is being determined as a percentage of the transaction value of the good and the producer chooses under subsection 7(10) to use one of the methods recognized in the GAAP of the USMCA country where the material was produced, or a method set out in Schedule VII to determine the value of those non-originating materials for the purpose of calculating the regional value content of the good, the value of those non-originating materials must be determined in accordance with that method;

(b) if the following conditions are met and if the value of those non-originating materials is equal to the sum of the values of non-originating materials, determined in accordance with the election under subparagraph (iv), divided by the number of units of the goods with respect to which the election is made

(i) the value of those non-originating materials is being determined as a percentage of the total cost of the good,

(ii) under the rule in which the applicable change in tariff classification is specified, the good is also subject to a regional value content requirement and paragraph (5)(a) does not apply with respect to that good,

(iii) the regional value content of the good is calculated on the basis of the net cost method, and

(iv) the producer elects under subsection 7(15), 16(1) or (10) that the regional value content of the good be calculated over a period;

(c) if the conditions below are met the value of those non-originating materials is the sum of the values of non-originating materials divided by the number of units produced during the period under subparagraph (iii):

(i) The value of those non-originating materials is being determined as a percentage of the total cost of the good,

(ii) under the rule in which the applicable change in tariff classification is specified, the good is not also subject to a regional value content requirement or paragraph (6)(a) applies with respect to that good, and

(iii) the producer elects under paragraph 1(7)(b) that, for the purposes of subsection 5(11), the total cost of the good be calculated over a period; and

(d) in any other case, the value of those non-originating materials may, at the choice of the producer, be determined in accordance with an inventory management method recognized in the GAAP of the USMCA country where the production was performed or one of the methods set out in Schedule VII.

(14)
Value of non-originating materials—production of the good.
For the purposes of subsection (4), the value of the non-originating materials used in the production of the good may, at the choice of the producer, be determined in accordance with an inventory management method recognized in the GAAP of the USMCA country where the production was performed or one of the methods set out in Schedule VII

(15)
Examples illustrating de minimis rules.
Each of the following examples is an “Example” as referred to in subsection 1(4).

Example 1: Subsection 5(1)

Producer A, located in a USMCA country, uses originating materials and non-originating materials in the production of aluminum powder of heading 76.03. The product-specific rule of origin set out in Schedule I for heading 76.03 specifies a change in tariff classification from any other

chapter. There is no applicable regional value content requirement for this heading. Therefore, in order for the aluminum powder to qualify as an originating good under the rule set out in Schedule I, Producer A may not use any non-originating material of Chapter 76 in the production of the aluminum powder.

All of the materials used in the production of the aluminum powder are originating materials, with the exception of a small amount of aluminum scrap of heading 76.02, that is in the same chapter as the aluminum powder. Under subsection 5(1), if the value of the non-originating aluminum scrap does not exceed ten per cent of the transaction value of the aluminum powder or the total cost of the aluminum powder, whichever is applicable, the aluminum powder would be considered an originating good.

Example 2: Subsection 5(2)

Producer A, located in a USMCA country, uses originating materials and non-originating materials in the production of fans of subheading 8414.59. There are two alternative rules set out in Schedule I for subheading 8414.59, one of which specifies a change in tariff classification from any other heading. The other rule specifies both a change in tariff classification from the subheading under which parts of the fans are classified and a regional value content requirement. In order for the fan to qualify as an originating good under the first of the alternative rules, all of the materials that are classified under the subheading for parts of fans and used in the production of the completed fan must be originating materials.

In this case, all of the non-originating materials used in the production of the fan satisfy the change in tariff classification set out in the rule that specifies a change in tariff classification from any other heading, with the exception of one non-originating material that is classified under the subheading for parts of fans. Under subsection 5(1), if the value of the non-originating material that does not satisfy the change in tariff classification specified in the first rule does not exceed ten per cent of the transaction value of the fan or the total cost of the fan, whichever is applicable, the fan would be considered an originating good. Therefore, under subsection 5(2), the fan would not be required to satisfy the alternative rule that specifies both a change in tariff classification and a regional value content requirement.

Example 3: Subsection 5(2)

Producer A, located in a USMCA country, uses originating materials and non-originating materials in the production of copper anodes of heading 74.02. The product-specific rule of origin set out in Schedule I for heading 74.02 specifies both a change in tariff classification from any other heading, except from heading 74.04, under which certain copper materials are classified, and a regional value content requirement. With respect to that part of the rule that specifies a change in tariff classification, in order for the copper anode to qualify as an originating good, any copper materials that are classified under heading 74.02 or 74.04 and that are used in the production of the copper anode must be originating materials.

In this case, all of the non-originating materials used in the production of the copper anode satisfy the specified change in tariff classification, with the exception of a small amount of copper materials classified under heading 74.04. Subsection 5(1) provides that the copper anode can be considered an originating good if the value of the non-originating copper materials that do not satisfy the specified change in tariff classification does not exceed ten per cent of the transaction value of the copper anode or the total cost of the copper anode, whichever is applicable. In this case, the value of those non-originating materials that do not satisfy the specified change in tariff classification does not exceed the ten per cent limit.

However, the rule set out in Schedule I for heading 74.02 specifies both a change in tariff classification and a regional value content requirement. Under paragraph 5(1)(b), in order to be considered an originating good, the copper anode must also, except as otherwise provided in subsection 5(4), satisfy the regional value content requirement specified in that rule. As provided in paragraph 5(1)(b), the value of the non-originating materials that do not satisfy the specified change in tariff classification, together with the value of all other non-originating materials used in the production of the copper anode, will be taken into account in calculating the regional value content of the copper anode.

Example 4: Subsection 5(4)

Producer A, located in a USMCA country, primarily uses originating materials in the production of shoes of heading 64.05. The product-specific rule of origin set out in Schedule I for heading 64.05 specifies both a change in tariff classification from any heading other than headings 64.01 through 64.05 or subheading 6406.10 and a regional value content requirement.

With the exception of a small amount of materials of Chapter 39, all of the materials used in the production of the shoes are originating materials.

Under subsection 5(4), if the value of all of the non-originating materials used in the production of the shoes does not exceed ten per cent of the transaction value of the shoes or the total cost of the shoes, whichever is applicable, the shoes are not required to satisfy the regional value content requirement specified in the rule set out in Schedule I in order to be considered originating goods.

Example 5: Subsection 5(4)

Producer A, located in a USMCA country, produces barbers' chairs of subheading 9402.10. The product-specific rule of origin set out in Schedule I for goods of subheading 9402.10 specifies a change in tariff classification from any other subheading. All of the materials used in the production of these chairs are originating materials, with the exception of a small quantity of non-originating materials that are classified as parts of barbers' chairs. These parts undergo no change in tariff classification because subheading 9402.10 provides for both barbers' chairs and their parts.

Although Producer A's barbers' chairs do not qualify as originating goods under the rule set out in Schedule I, paragraph 3(4)(a) provides, among other things, that, if there is no change in tariff classification from the non-originating materials to the goods because the subheading under which the goods are classified provides for both the goods and their parts, the goods will qualify as originating goods if they satisfy a specified regional value content requirement.

However, under subsection 5(4), if the value of the non-originating materials does not exceed ten per cent of the transaction value of the barbers' chairs or the total cost of the barbers' chairs, whichever is applicable, the barbers' chairs will be considered originating goods and are not required to satisfy the regional value content requirement set out in subparagraph 3(4)(a)(ii).

Example 6: Subsection 5(6):

Producer A, located in a USMCA country, manufactures an infant diaper, classified in heading 96.19, consisting of an outer shell of 94 percent nylon and 6 percent elastomeric fabric, by weight, and a terry knit cotton absorbent crotch. All materials used are produced in a USMCA country, except for the elastomeric fabric, which is from a non-USMCA country. The elastomeric fabric is only 6 percent of the total weight of the diaper. The product otherwise satisfies all other applicable requirements of these Regulations. Therefore, the product is considered originating from a USMCA country as per subsection (6).

Example 7: Subsection 5(6)

Producer A, located in a USMCA country, produces cotton fabric of subheading 5209.11 from cotton yarn of subheading 5205.11. This cotton yarn is also produced by Producer A.

The product-specific rule of origin set out in Schedule I for subheading 5209.11, under which the fabric is classified, specifies a change in tariff classification from any other heading outside 52.08 through 52.12, except from certain headings under which certain yarns are classified, including cotton yarn of subheading 5205.11.

Therefore, with respect to that part of the rule that specifies a change in tariff classification, in order for the fabric to qualify as an originating good, the cotton yarn that is used by Producer A in the production of the fabric must be an originating material.

At one point Producer A uses a small quantity of non-originating cotton yarn in the production of the cotton fabric. Under subsection 5(6), if the total weight of the non-originating cotton yarn does not exceed ten per cent of the total weight of the cotton fabric, it would be considered an originating good.

Example 8: Subsections 5(7) and (8)

Producer A, located in a USMCA country, produces women's dresses of subheading 6204.41 from fine wool fabric of heading 51.12. This fine wool fabric, also produced by Producer A, is the component of the dress that determines its tariff classification under subheading 6204.41.

The product-specific rule of origin set out in Schedule I for subheading 6204.41, under which the dress is classified, specifies both a change in tariff classification from any other chapter, except from those headings and chapters under which certain yarns and

fabrics, including combed wool yarn and wool fabric, are classified, and a requirement that the good be cut and sewn or otherwise assembled in the territory of one or more of the USMCA countries. In addition, narrow elastics classified in subheading 5806.20 or heading 60.02 and sewing thread classified in heading 52.04, 54.01 or 55.08 or yarn classified in heading 54.02 that is used as sewing thread, must be formed and finished in the territory of one or more of the USMCA countries for the dress to be originating. Furthermore, if the dress has a pocket, the pocket bag fabric must be formed and finished in the territory of one or more of the USMCA countries for the dress to be originating.

Therefore, with respect to that part of the rule that specifies a change in tariff classification, in order for the dress to qualify as an originating good, the combed wool yarn and the fine wool fabric made therefrom that are used by Producer A in the production of the dress must be originating materials. In addition, the sewing thread, narrow elastics and pocket bags that are used by Producer A in the production of the dress must also be formed and finished in the territory of one or more of the USMCA countries.

At one point Producer A uses a small quantity of non-originating combed wool yarn in the production of the fine wool fabric. Under subsection 5(7), if the total weight of the non-originating combed wool yarn does not exceed ten per cent of the total weight of all the yarn used in the production of the component of the dress that determines its tariff classification, that is, the wool fabric, the dress would be considered an originating good.

Example 9: Subsection 5(7)

Producer A, located in a USMCA country, manufactures women's knit sweaters, which have knit bodies and woven sleeves. The knit body is composed of 95 percent polyester and 5 percent spandex, by weight. The sleeves are made of non-USMCA woven fabric that is 100 percent polyester. All materials of the knit body are from a USMCA country, except for the spandex, which is from a non-USMCA country. The sweater is cut and sewn in a USMCA country. Since the knit body gives the garment its essential character, the sweater is classified in subheading 6110.30. The product-specific rule of origin set out in Schedule I for subheading 6110.30 is that the product is both cut (or knit to shape) and sewn or otherwise assembled in the territory of one or more of the USMCA countries. The sleeves are disregarded in determining whether the sweater originates in a USMCA country because only the component that determines the tariff classification of the good must be originating and the de minimis provision is applied to that component. Moreover, the total weight of the spandex is less than 10 percent of the total weight of the knit body fabric, which is the component that determines the tariff classification of the sweater, and the spandex does not exceed seven percent of the total weight of good. Assuming that the women's knit sweater satisfies all other applicable requirements of these Regulations, the women's knit sweater is originating from the USMCA country.

Example 10: Subsection 5(9)

A men's shirt of Chapter 61 is made using two different fabrics; one for the body and another for the sleeves. The component that determines the tariff classification of the men's shirt would be the fabric used for the body, as it constitutes the material that predominates by weight and makes up the largest surface area of the shirt`s exterior. If this fabric is produced using non-originating fibers and yarns that do not satisfy a tariff change rule, the de minimis provision would be calculated on the basis of the total weight of the non-originating fibers or yarns used in the production of the fabric that makes up the body of the shirt. The weight of these non-originating fibers or yarns must be ten percent or less of the total weight of that fabric and any elastomeric content must be seven per cent or less of the total weight of that fabric.

Alternatively, if the shirt is made entirely of the same fabric, the component that determines the tariff classification of that shirt would be that fabric, as the shirt is made out of the same material throughout. Therefore, under this second scenario, the total weight of all non-originating fibers and yarns used in the production of the shirt that do not satisfy a tariff change rule, must be ten percent or less of the total weight of the shirt, and any elastomeric content must be seven per cent or less of the total weight of that shirt, for the shirt to be considered as an originating good.

Example 11: Subsection 5(9)

Producer A, located in a USMCA country, produces women´s blouses of subheading 6206.40 from a fabric also produced by Producer A using 90% by weight originating polyester yarns of subheading 5402.33, 3% by weight non-originating lyocell yarn of subheading 5403.49 and 7% by weight non-originating elastomeric filament yarn of subheading 5402.44. This fabric is the component of the women´s blouses that determines its tariff classification under subheading 6206.40.

The product-specific rule of origin of Schedule I applicable to the women´s blouses of subheading 6206.40 requires a change in tariff classification from any other chapter, except from those headings and chapters under which certain yarns and fabrics, including polyester, lyocell and elastomeric filament yarns, are classified and a requirement that the good is cut and sewn or otherwise assembled in the territory of one or more of the USMCA countries.

In this case, the non-originating lyocell yarns of subheading 5403.49 and the non-originating elastomeric filament yarn of subheading 5402.44 do not satisfy the change in tariff classification required by the product-specific rule of origin of Schedule I, because the product specific rule of origin for heading 62.06 excludes a change from Chapter 54 to heading 62.06.
”

However, according to subsection (7), a textile or apparel good classified in Chapters 61 through 63 of the Harmonized System that contains non-originating fibers or yarns in the component of the good that determines its tariff classification that do not satisfy the applicable change in tariff classification, will nonetheless be considered an originating good if the total weight of all those fibers or yarns is not more than 10 percent of the total weight of that component, of which the total weight of elastomeric content may not exceed 7 percent of the total weight of the component, and such good meets all the other applicable requirements of these Regulations.

Since the weight of the non-originating materials used by Producer A does not exceed 10 percent of the total weight of the component that determines the tariff classification of the women´s blouses, and the weight of elastomeric content also does not exceed 7 percent of such total weight, the women´s blouses qualify as originating goods.

Example 12: Subsection 5(10)

A producer located in a USMCA country manufactures boys' swimwear of subheading 6211.11 from fabric that has been woven in a USMCA country from yarn spun in a USMCA country; however, the producer uses non-originating narrow elastic of heading 60.02 in the waist-band of the swimwear. As a result of the use of non-originating narrow elastic of heading 60.02 in the waistband, and provided the garment is imported into a USMCA country at least 18 months after the Agreement enters into force, the swimwear is considered non-originating because it does not satisfy the requirement set out in Note 3 of Chapter 62. In addition, subsection 5(7) is not applicable regarding the narrow elastic of 60.02 and the good is therefore a non-originating good.

Section 6. Sets of Goods, Kits or Composite Goods

6 (1) This section applies to a good that is classified as a set as a result of the application of rule 3 of the General Rules for the Interpretation of the Harmonized System.

(2)
Requirements.
Except as otherwise provided in Schedule I (PSRO Annex), a set is originating in the territory of one or more of the USMCA countries only if each good in the set is originating and both the set and the goods meet the other applicable requirements of these Regulations.

(3)
Exceptions.
Notwithstanding, subsection 2, a set is only originating if the value of all the non-originating goods included in the set does not exceed 10 percent of the value of the set.

(4)
Value.
For the purposes of subsection 3, the value of non-originating goods in the set and the value of the set is to be calculated in the same manner as the value of non-originating materials determined in accordance with section 8 and the value of the good determined in accordance with section 7.

(5)
Examples. Each of the following examples is an “Example” as referred to in subsection 1(4).

Example 1 (paint set)

Producer A assembles a paint set for arts and crafts. The set includes tubes of paint, paint brushes, and paper all presented in a reusable wooden box. The paint set for arts and crafts is classified in subheading 3210.00 as a result of the application of Rule 3 of the General Rules for the Interpretation of the Harmonized System and, as a result, Section 6 will apply with respect to such set. The paint, paper and wooden box are all originating as they each undergo the changes

required in the product-specific rules of origin in Schedule I. The paint brushes, which represent four percent of the value of the set, are produced in the territory of a non-USMCA country and are therefore non-originating. The set is nonetheless originating.

Example 2: Subsection 6(2)

Producer A, located in a USMCA country, uses originating materials and non-originating materials to assemble a manicure set of subheading 8214.20. The set includes a nail nipper, cuticle scissors, a nail clipper and a nail file with cardboard support, all presented in a plastic case with zipper. The items are not classified as a set as a result of the application of rule 3 of the General Rules for the Interpretation of the Harmonized System. The Harmonized System specifies that manicure sets are classified in subheading 8214.20. This means that the specific rule of origin set out in Schedule I is applied. This rule requires a change in tariff classification from any other chapter. In order for the manicure set to qualify as an originating good under the rule set out in Schedule I, Producer A may not use any non-originating material of Chapter 82 in the assembly of the manicure set.

In this case, Producer A, located in a USMCA country, produces the nail nipper, the cuticle scissors and the nail clipper included in the set, and all qualify as originating. Despite being classified in the same chapter as the manicure set (chapter 82), the originating nail nipper, the cuticle scissors and the nail clipper satisfy the change in tariff classification applicable to the manicure set. The nail file with cardboard support (6805.20) and the plastic case with zipper (4202.12) are imported from outside the territories of the USMCA countries; however, these items are not classified in chapter 82, so they satisfy the applicable change in tariff classification. Therefore, the manicure set is an originating good.

Example 3: Pants set Section 6(2)

Producer A makes a pants set, containing men's cotton denim trousers and a polyester belt, packed together for a retail sale. The trousers are made of cotton fabric formed and finished from yarn in a USMCA country. The sewing thread is formed and finished in a USMCA country. The pocket bag fabric is formed and finished in a USMCA country, of yarn wholly formed in a USMCA country. The trousers are cut and sewn in USMCA country A. A polyester webbing belt with a metal buckle is made in a non-USMCA country and shipped to USMCA country A, where it is threaded through the belt loops of the trousers. The value of the belt is 8% of the value of the trousers and belt combined.

The men's trousers are classified under subheading 6203.42. The rule of origin set out in Schedule I for subheading 6203.42 requires that the trousers be made from fabric produced in a USMCA country from yarn produced in a USMCA country. The trousers satisfy the product-specific rules provided in Schedule I and are considered originating. However, the belt does not satisfy the rules and would not be considered originating. The set is nonetheless an originating good if the belt value is 10% or less of the value of the set. Since the value of the belt is 8% of the value of the set, the men's trousers and belt set would be treated as an originating good under the USMCA.

Example 4: Shirt and Tie Set Section 6(2)

Producer A makes a boys' shirt and tie set in a USMCA country. The shirt is constructed from 55% cotton, 45% polyester, solid color, dyed, woven fabric, classified in subheading 5210.31. The fabric contains 73.2 total yarns per square centimeter and 76 metric yarns. The shirt is packaged in a retail polybag with a coordinating color, 100% polyester, woven fabric tie. The yarns used in the shirt fabric are spun in non-USMCA country and the fabric is woven and dyed in the same non-USMCA country. The shirt fabric is sent to the USMCA country where it is cut and sewn into finished garments. The coordinating tie is made in a non-USMCA country from fabric that is woven in that country from yarns that are spun in that country. The value of the coordinating tie is approximately 13% of the value of the set.

The shirt is classified under heading 62.05. The shirt satisfies the product-specific rule for subheading 62.05 set out in Schedule I and is considered originating because it is wholly made from fabric of heading 5210.31 (not of square construction, containing more than 70 warp ends and filling picks per square centimeter, of average yarn number exceeding 70 metric) and cut and sewn into finished garments in the USMCA country. On the other hand, the tie does not satisfy the product specific rule for heading 62.15 and would not be considered originating. For purposes of the sets rule, provided the tie is valued at 10% or less of the value of the set, the set will be treated as originating. However, since the value of the coordinating tie is approximately 13% of the value of the set, the shirt and tie set would not be treated as an originating good under the USMCA.

Example 5: Chef set Section 6(2)

Producer A, located in a USMCA country, produces a chef set for retail sale using originating and non-originating materials. This set includes an apron, cooking gloves and a chef hat. The chef set is classified in heading 62.11 as a result of the application of rule 3 of the General Rules for the Interpretation of the Harmonized System. For this reason, subsection (3) applies to this set. Both the apron and cooking gloves meet the product-specific rules of origin for their respective product categories and are therefore considered to be originating. The chef hat, which represents 9.7 percent of the value of the set, is produced in the territory of a non-USMCA country and is therefore non-originating. The set is nonetheless an originating good because less than ten percent of the value of the set is non-originating.

Part III

Section 7. Regional Value Content

7 (1)
Calculation.
Except as otherwise provided in subsection (6), the regional value content of a good is to be calculated, at the choice of the importer, exporter or producer

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2020-13865. Public record. Not legal advice.