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APEC RULES OF ORIGIN - APPENDICES

APPENDIX 3.1

NAFTA REGIONAL VALUE CONTENT

The North American Free Trade Agreement (NAFTA) sets out two different methods of calculating the regional value content of a good - the transaction value method and the net cost method. The following summarizes the information necessary for determining the regional value content for non- automotive goods under these two methods. It does not address the special rules governing automotive goods which are set out in sections 9 through 13 of the NAFTA Rules of Origin Regulations.

Under the NAFTA, a good qualifies for preferential tariff rates if it satisfies one of the four general rules of origin as set out in Article 401. The majority of goods will qualify as originating under Article 401(b). This general rule of origin considers a good to originate, even though the good contains non- originating material, if the good meets the requirements of the Specific Rules of Origin as set out in Annex 401 of the Agreement (or Schedule I of the NAFTA Rules of Origin Regulations) . The specific rule of origin applicable to a good is determined by its tariff classification under the Harmonized System (HS).

For a number of goods, there are two rules of origin. The first rule requires a substantive change in tariff classification that is sufficient in itself to confer origin. The second or alternate rule normally includes a lesser change in tariff classification that must be met together with a regional value content requirement (RVC). There are 24 instances (in HS Chapters 84, 85, 87 and 90) where the alternate rule is comprised only of an RVC requirement.

Regional value content requirements can be found in the Specific Rules of Origin for some of the goods classified in HS Chapters 28 to 38, 39, 40, 64, 73, 74, 78, 79, 83-87, and 89-93. Regional value content must also be calculated when attempting to qualify a good under Article 401(d) which addresses those instances in which a good is unable to meet the required tariff change because:

1. the good is imported into the NAFTA territory in an unassembled or a disassembled form yet is classified as an assembled good pursuant to General Rule of Interpretation 2(a) of the HS; or
   
2. the good is produced using materials imported into a NAFTA country that are provided for as parts according to the HS, and those parts are classified in the same heading (which is not further subdivided into subheadings) or subheading as the finished good.

Which Method should be used to Calculate RVC?

How is the RVC Calculated using the Transaction Value Method?

Under the transaction value method, the regional value content of a good is calculated as follows:

RVC = TV - VNM x 100 / TV

where;

• RCV is the regional value content expressed as a percentage;
• TV is the transaction value of the good adjusted to a FOB basis; and
• VNM is the value of non-originating materials used by the producer in the production of the good.
  

Note that the transaction value is based on the transaction in which the producer of the good sold the good, regardless of whether it is the transaction that results in its sale for export. FOB means free on board, regardless of the mode of transportation, at the point of direct shipment by the seller to the buyer. Point of direct shipment means the location from which a producer of a good normally ships that good to the buyer of the good.

What is the Value of Non-originating Materials?

Where the material is imported by the producer of the good into a NAFTA country, the value of the non-originating materials will be the customs value of the material, and should include certain costs as set out in the NAFTA Rules of Origin Regulations.

For further information on the valuation of non-originating materials, refer to the NAFTA Rules of Origin Regulations, Section 7 and Schedule VIII.

How is the RVC Calculated using the Net Cost Method?

Under the net cost method, the regional value content of the good is calculated as follows:

RVC = NC - VNM x 100 / NC

where;

• RVC is the regional value content, expressed as a percentage;
• NC is the net cost of the good; and
• VNM is the value of non-originating materials used by the producer in the production of the good (see previous section on the valuation of non-originating materials).

Net cost is calculated as follows:

NC = TC - EC

where:

• TC is the total cost of producing the good. Note that the total cost of producing the good includes all product, period and other costs, but does not include profits.
• EC are excluded costs which means sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs. Note that each of these costs are defined in detail in section 2 of the NAFTA Rules of Origin Regulations.
  

Schedule VII of the NAFTA Rules of Origin Regulations provides information on acceptable methods for allocating costs to goods. In summary, any reasonable allocation method used for internal management purposes by the producer will be acceptable. The reasonableness of a cost allocation method will be evaluated against the criteria of benefit, cause or ability to bear. It should also be noted that section 6 of Schedule VII prohibits the allocation of certain costs to a good including gains or losses resulting from the disposition of a discontinued operation or from the sale of capital assets.

What is Averaging?

The provision for calculating the net cost RVC over a period of time for non-automotive goods is contained in subsection 6(15) of the Regulations. For non-automotive goods for which an average RVC is to be calculated, the goods must be identical and/or similar and produced in the same plant. Under section 6, an average RVC may be calculated over the period of one month, three months, six months or a year.

APPENDIX 3.2

NEW ZEALAND

QUALIFYING LABOUR AND OVERHEADS

Forum Island Countries:

b) Factory overhead expenses, namely:

1. All expenses directly or indirectly connected with manufacture, for example, rent, rates, and taxes in respect of the factory;
2. motive power, gas, fuel, water, lighting, and heating of factory;
3. Expenses of factory supervision, for example, wages and salaries of manager, foreman, timekeepers, and watchman;
4. Repairs, renewals, and depreciation of plant, machinery, and tools;
5. Interest on capital outlay on plant, machinery, tools, and factory buildings; and
6. Royalties payable in respect of patented machines or processes used in the manufacture of the goods.
   

APPENDIX 3.3

PAPUA NEW GUINEA

ANNEX 1 OF TRADE AGREEMENT AMONG

THE MELANESIAN SPEARHEAD GROUP OF COUNTRIES

1. For the purpose of this Agreement goods shall be accepted as originating in a Party, if it has been either wholly obtained or sufficiently worked or processed in a Party territory.
   
2. The following shall be considered as wholly obtained in the Parties' territories:

   (a) Mineral products extracted from their soil or from their seabed

   (b) Vegetable products harvested there

   (c) Live animals born and raised there

   (d) Products from live animals raised there

   (e) Products obtained by hunting or fishing conducted there

   (f) Products of sea fishing and other products taken from the sea by their vessels

   (g) Products made aboard their factory ships exclusively from products referred to in subparagraph (f)

   (h) Used articles collected there fit only fro the recovery of raw materials

   (i) Waste and scrap resulting from manufacturing operations conducted there

   (j) Goods produced there exclusively from products specified in subparagraphs (a) to (i)



3. The following shall be considered as sufficient working and processing.
   

When the product obtained is classified in a heading which is different from those in which all the non-originating materials used in its manufacture are classified, subject to paragraph 4.

The expression "heading" shall mean the 4 digit headings used in the Harmonised Commodity Description and Coding System.



4. The following shall be considered as insufficient working of processing to confer the status of originating products whether or not there is a change of heading:
   

(a) Operations to ensure the preservation of merchandise in good condition during transport and storage (ventilation, spreading out, drying, chilling, placing in salt, sulphur dioxide or other aqueous solutions, removal of damaged parts, and like operations)

(b) Simple operations consisting of removal of dust, sifting of screening, sorting, classifying, matching (including the making up of sets of articlues), washing, painting, cutting up


(c)

(i) Changes of packing and breaking up and assembly of consignments

(ii) Simple placing in bottles, flasks, bags, cases, boxes, fixing on cards or boards, etc., and all other simple packaging operations

(d) Affixing marks, labels or other like distinguishing signs on products or their packaging

(e) Simple mixing of products, whether or not of different kinds, where one or more components of the mixtures do not meet the conditions laid down in the Annex to enable them to be considered as originating products

(f) Simple assembly of parts of articles to constitute a complete article

(g) A combination of two or more operations specified in subparagraphs (a) to (f)

(h) Slaughter of animals



5. The preferential treatment provided for under this Agreement applies to products or materials which are transported directly between the territories of the Parties.
   

However, goods originating in the parties and constituting a single shipment which is not split up may be transported through territory other than that of the Parties with, should the occasion arise, transshipment or temporary warehousing in such territory, provided that the crossing of the latter territory is justified for geographical reasons, that the goods have remained under the surveillance of the customs authorities in the country of transit or of warehousing, that they have not entered into the commerce of such countries nor been delivered for home use there and have not undergone operations other than unloading, reloading or any operation designed to preserve them in good condition.



6. (a) Originating products within the meaning of this Annex shall, on import into the Parties, benefit from the Agreement upon submission of a certificate of origin, Form A, a specimen of which appears in Annex II, signed by the exporter and certified by the Parties' respective Customs Authorities.
   

(b) The exporter shall be prepared to submit a declaration setting forth all pertinent details concerning the production or manufacture of the articles covered by the certificates of origin upon request by a Party. A declaration should only be requested when a Party has reason to question the accuracy of the statement on a certificate of origin or when a Party randomly verifies certificates of origin.

(c) The Parties agree to assist each other in obtaining information for the purpose of reviewing transactions made under this Agreement in order to verify compliance with the conditions set forth in this Agreement.

APPENDIX 3.4

RULES OF ORIGIN FOR THE ASEAN CEPT

In determining the origin of products eligible for the CEPT Scheme under the Agreement on the CEPT, the following Rules shall be applied:

Products under the CEPT imported into the territory of a Member State from another Member State which are consigned directly within the meaning of Rule 5 hereof, shall be eligible for preferential concessions if they conform to the origin requirements under any one of the following conditions:

(b) Products not wholly produced or obtained in the exporting Member State, provided that the said products are eligible under Rule 3 or Rule 4.

Within the meaning of Rule 1 (a), the following shall be considered as wholly produced or obtained in the exporting Member State:

(b) Agricultural products harvested there

(d) Products obtained from animals referred to in paragraph (c) above

(f) Products of sea fishing and other marine products taken from the sea by its vessels

(h) Used articles collected there, fit only for the recovery of raw materials

(j) Goods produced there exclusively from the products referred to in paragraph (a) to (i) above

(a) (i) A product shall be deemed to be originating from ASEAN Member States, if at least 40 percent of its content originates from any Member States.

(b) The value of the non-originating materials, parts or produce shall be:

(i) The CIF value at the time of importation of the products or importation can be proven; or

The formula for 40% ASEAN Content is as follows:

RULE 4 CUMULATIVE RULE OF ORIGIN

RULE 5 DIRECT CONSIGNMENT

(a) If the products are transported passing through the territory of any other ASEAN country;

(c) The products whose transport involves transit through one or more intermediate non-ASEAN countries with or without transhipment or temporary storage in such countries, provided that:

(ii) The products have not entered into trade or consumption there; and

RULE 6 TREATMENT OF PACKING

(b) Where paragraph (a) above is not applied, packing shall be considered as forming a whole with the products and no part of any packing required for their transport or storage shall be considered as having been imported from outside the ASEAN region when determining the origin of the products as a whole.

RULE 7 CERTIFICATE OF ORIGIN

RULE 8 REVIEW