§ 4531. Rules of origin

§ 4531. Rules of origin

(a) Definitions In this section:

(1) Aquaculture The term “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.

(2) Customs Valuation Agreement The term “Customs Valuation Agreement” means the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 referred to in section 3511(d)(8) of this title.

(3) Fungible good or fungible material The term “fungible good” or “fungible material” means a good or material, as the case may be, that is interchangeable with another good or material for commercial purposes and the properties of which are essentially identical to such other good or material.

(4) Good wholly obtained or produced entirely in the territory of one or more USMCA countries The term “good wholly obtained or produced entirely in the territory of one or more USMCA countries” means any of the following:

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

(B) A plant, plant good, vegetable, or fungus grown, cultivated, harvested, picked, or gathered in the territory of one or more USMCA countries.

(C) A live animal born and raised in the territory of one or more USMCA countries.

(D) A good obtained in the territory of one or more USMCA countries from a live animal.

(E) An animal obtained by hunting, trapping, fishing, gathering, or capturing in the territory of one or more USMCA countries.

(F) A good obtained in the territory of one or more USMCA countries from aquaculture.

(G) A fish, shellfish, or other marine life taken from the sea, seabed, or subsoil outside the territory of one or more USMCA countries and outside the territorial sea of any country that is not a USMCA country by—

(i) a vessel that is registered or recorded with a USMCA country and flying the flag of that country; or

(ii) a vessel that is documented under the laws of the United States.

(H) A good produced on board a factory ship from goods referred to in subparagraph (G), if such factory ship—

(i) is registered or recorded with a USMCA country and flies the flag of that country; or

(ii) is a vessel that is documented under the laws of the United States.

(I) A good, other than a good referred to in subparagraph (G), that is taken by a USMCA country, or a person of a USMCA country, from the seabed or subsoil outside the territory of a USMCA country, if that USMCA country has the right to exploit such seabed or subsoil.

(J) Waste and scrap derived from—

(i) production in the territory of one or more USMCA countries; or

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

(K) A good produced in the territory of one or more USMCA countries exclusively from goods referred to in any of subparagraphs (A) through (J), or from their derivatives, at any stage of production.

(5) Indirect material The term “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 or buildings;

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

(E) gloves, glasses, footwear, clothing, safety equipment, and supplies;

(F) equipment, devices, and supplies used for testing or inspecting the good;

(G) catalysts and solvents; and

(H) any other material that is not incorporated into the good, if the use of the material in the production of the good can reasonably be demonstrated to be a part of that production.

(6) Intermediate material The term “intermediate material” means a material that is self-produced, used or consumed in the production of a good, and designated as an intermediate material pursuant to subsection (d)(9).

(7) Material The term “material” means a good that is used or consumed in the production of another good and includes a part or an ingredient.

(8) Net cost The term “net cost” means total cost minus sales promotion, marketing, and after-sales service costs, royalties, shipping and packing costs, and nonallowable interest costs that are included in the total cost.

(9) Net cost of a good The term “net cost of a good” means the net cost that can be reasonably allocated to a good using one of the methods set forth in subsection (d)(7).

(10) Nonallowable interest costs The term “nonallowable interest costs” means interest costs incurred by a producer that exceed 700 basis points above the applicable official interest rate for comparable maturities of the country in which the producer is located.

(11) Nonoriginating good or nonoriginating material The term “nonoriginating good” or “nonoriginating material” means a good or material, as the case may be, that does not qualify as originating under this section.

(12) Originating good; originating material The term “originating good” or “originating material” means a good or material, as the case may be, that qualifies as originating under this section.

(13) Packaging materials and containers The term “packaging materials and containers” means materials and containers in which a good is packaged for retail sale.

(14) Packing materials and containers The term “packing materials and containers” means materials and containers that are used to protect a good during transportation.

(15) Producer The term “producer” means a person who engages in the production of a good.

(16) Production The term “production” means—

(A) growing, cultivating, raising, mining, harvesting, fishing, trapping, hunting, capturing, breeding, extracting, manufacturing, processing, or assembling a good; or

(B) the farming of aquatic organisms through aquaculture.

(17) Reasonably allocate The term “reasonably allocate” means to apportion in a manner appropriate to the circumstances.

(18) Recovered material The term “recovered material” means a material in the form of individual parts that are the result of—

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

(B) the cleaning, inspecting, testing, or other processing that is necessary for improvement to sound working condition of such individual parts.

(19) Remanufactured good The term “remanufactured good” means a good classified in the HTS under any of chapters 84 through 90 or under heading 9402, other than a good classified under heading 8418, 8509, 8510, 8516, or 8703 or subheading 8414.51, 8450.11, 8450.12, 8508.11, or 8517.11, that—

(A) is entirely or partially composed of recovered materials;

(B) has a life expectancy similar to, and performs in a manner that is the same as or similar to, such a good when new; and

(C) has a factory warranty similar to that applicable to such a good when new.

(20) Royalties The term “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 secret process, excluding payments under technical assistance or similar agreements that can be related to a specific service such as—

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

(B) if performed in the territory of one or more USMCA countries, engineering, tooling, die-setting, software design and similar computer services, or other services.

(21) Sales promotion, marketing, and after-sales service costs The term “sales promotion, marketing, and after-sales service costs” means the costs related to sales promotion, marketing, and after-sales service for the following:

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

(B) Sales and marketing incentives, consumer, retailer, or wholesaler rebates, and merchandise incentives.

(C) Salaries and wages, sales commissions, bonuses, benefits (such as medical, insurance, and pension benefits), traveling and living expenses, and membership and professional fees for sales promotion, marketing, and after-sales service personnel.

(D) Product liability insurance.

(E) Rent and depreciation of sales promotion, marketing, and after-sales service offices and distribution centers.

(F) Payments by the producer to other persons for warranty repairs.

(G) If the costs are identified separately for sales promotion, marketing, or after-sales service of goods on the financial statements or cost accounts of the producer, the following:

(i) Property insurance premiums, taxes, utilities, and repair and maintenance of sales promotion, marketing, and after-sales service offices and distribution centers.

(ii) Recruiting and training of sales promotion, marketing, and after-sales service personnel, and after-sales training of customers’ employees.

(iii) Office supplies for sales promotion, marketing, and after-sales service of goods.

(iv) Telephone, mail, and other communications.

(22) Self-produced material The term “self-produced material” means a material that is produced by the producer of a good and used in the production of that good.

(23) Shipping and packing costs The term “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.

(24) Territory The term “territory”, with respect to a USMCA country, has the meaning given that term in section C of chapter 1 of the USMCA.

(25) Total cost

(A) In general The term “total cost”—

(i) means all product costs, period costs, and other costs for a good incurred in the territory of one or more USMCA countries; and

(ii) does not include—

(I) profits that are earned by the producer of the good, regardless of whether the costs are retained by the producer or paid out to other persons as dividends; or

(II) taxes paid on those profits, including capital gains taxes.

(B) Other definitions In this paragraph:

(i) Other costs The term “other costs” means all costs recorded on the books of the producer that are not product costs or period costs, such as interest.

(ii) Period costs The term “period costs” means 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.

(iii) Product costs The term “product costs” means costs that are associated with the production of a good, including the value of materials, direct labor costs, and direct overhead.

(26) Transaction value The term “transaction value” means the price—

(A) actually paid or payable for a good or material with respect to a transaction of a producer; and

(B) adjusted in accordance with the principles set forth in paragraphs 1, 3, and 4 of article 8 of the Customs Valuation Agreement.

(27) USMCA country The term “USMCA country” means the United States, Canada, or Mexico for such time as the USMCA is in force with respect to Canada or Mexico, and the United States applies the USMCA to Canada or Mexico.

(28) Value The term “value” means the value of a good or material for purposes of calculating customs duties or applying this section.

(b) Application and interpretation In this section:

(1) Tariff classification The basis for any tariff classification is the HTS.

(2) Reference to HTS Whenever in this section there is a reference to a chapter, heading, or subheading, that reference shall be a reference to a chapter, heading, or subheading of the HTS.

(3) Cost or value Any cost or value referred to in this section with respect to a good shall be recorded and maintained in accordance with the generally accepted accounting principles applicable in the territory of the USMCA country in which the good is produced.

(c) Originating goods

(1) In general For purposes of this Act and for purposes of implementing the preferential tariff treatment provided for under the USMCA, except as otherwise provided in this section, a good is an originating good if—

(A) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;

(B) the good is produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in Annex 4–B of the USMCA; or

(C) the good is produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;

(D) except for a good provided for under any of chapters 61 through 63—

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

(ii) one or more of the nonoriginating materials provided for as parts under the HTS and used in the production of the good do not satisfy the requirements set forth in Annex 4–B of the USMCA because—

(I) both the good and its materials are classified under the same subheading or under the same heading that is not further subdivided into subheadings; or

(II) the good was imported into the territory of a USMCA country in an unassembled form or a disassembled form but was classified as an assembled good pursuant to rule 2(a) of the General Rules of Interpretation of the HTS; and

(iii) the regional value content of the good 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 the good satisfies all other applicable requirements of this section; or

(E) the good itself, as imported, is listed in table 2.10.1 of the USMCA and is imported into the territory of the United States from the territory of a USMCA country.

(2) Remanufactured goods For purposes of determining whether a remanufactured good is an originating good, a recovered material derived in the territory of one or more USMCA countries shall be treated as originating if the recovered material is used or consumed in the production of, and incorporated into, the remanufactured good.

(3) Special rule for foreign-trade zones Paragraph (1)(B) shall not apply to a good produced in a foreign-trade zone or subzone established pursuant to the Act of June 18, 1934 (commonly known as the “Foreign Trade Zones Act”) (19 U.S.C. 81a et seq.) that is entered for consumption in the customs territory of the United States.

(d) Regional value content

(1) In general Except as provided in paragraph (5), for purposes of subparagraphs (B) and (D) of subsection (c)(1), 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—

(A) the transaction value method described in paragraph (2); or

(B) the net cost method described in paragraph (3).

(2) Transaction value method

(A) In general An importer, exporter, or producer of a good may calculate the regional value content of the good on the basis of the following transaction value method: rvc=tv–vnm×100 tv

(B) Definitions In this paragraph:

(i) RVC The term “RVC” means the regional value content of the good, expressed as a percentage.

(ii) TV The term “TV” means the transaction value of the good, adjusted to exclude any costs incurred in the international shipment of the good.

(iii) VNM The term “VNM” means the value of nonoriginating materials used by the producer in the production of the good.

(3) Net cost method

(A) In general An importer, exporter, or producer of a good may calculate the regional value content of the good on the basis of the following net cost method: rvc=nc–vnm×100 nc

(B) Definitions In this paragraph:

(i) NC The term “NC” means the net cost of the good.

(ii) RVC The term “RVC” means the regional value content of the good, expressed as a percentage.

(iii) VNM The term “VNM” means the value of nonoriginating materials used by the producer in the production of the good.

(4) Value of nonoriginating materials

(A) In general The value of nonoriginating materials used by the producer in the production of a good shall not, for purposes of calculating the regional value content of the good under paragraph (2) or (3), include the value of nonoriginating materials used or consumed to produce originating materials that are subsequently used or consumed in the production of the good.

(B) Special rule for certain components The following components of the value of nonoriginating materials used by the producer in the production of a good may be counted as originating content for purposes of determining whether the good meets the regional value content requirement set forth in Annex 4–B of the USMCA:

(i) The value of processing the nonoriginating materials undertaken in the territory of one or more USMCA countries.

(ii) The value of any originating materials used or consumed in the production of the nonoriginating materials undertaken in the territory of one or more USMCA countries.

(5) Net cost method required in certain cases An importer, exporter, or producer of a good shall calculate the regional value content of the good solely on the basis of the net cost method described in paragraph (3) if the rule for the good set forth in Annex 4–B of the USMCA includes a regional value content requirement not based on the transaction value method described in paragraph (2).

(6) Net cost method allowed for adjustments

(A) In general If an importer, exporter, or producer of a good calculates the regional value content of the good on the basis of the transaction value method described in paragraph (2) and a USMCA country subsequently notifies the importer, exporter, or producer, during the course of a verification conducted in accordance with chapter 5 or 6 of the USMCA, that the transaction value of the good or the value of any material used in the production of the good must be adjusted or is unacceptable under article 1 of the Customs Valuation Agreement, the importer, exporter, or producer may calculate the regional value content of the good on the basis of the net cost method.