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     (III) the cost of waste and spoilage resulting from the use of the material in the production of the good, less the value of renewable scrap or by-products;

(IV) the cost of processing incurred in the territory of Australia or of the United States, or both, in the production of the nonoriginating material; and

(V) the cost of originating materials used in the production of the nonoriginating material in the territory of Australia or of the United States, or both

(C) Any cost or value referred to in this note shall be recorded and maintained in accordance with the generally accepted accounting principles applicable in the territory of the country in which the good is produced (whether Australia or the United States). Such principles comprise the recognized consensus or substantial authoritative support in the territory of Australia or of the United States, as the case may be, with respect to the recording of revenues, expenses, costs, assets and liabilities, the disclosure of information and the preparation of financial statements. These standards may encompass broad guidelines of general application as well as detailed standards, practices and procedures.

(D) For purposes of subdivision (g) of this note, the term “used” means used or consumed in the production of goods.

(iii) Special rule for certain automotive goods.

(A) For purposes of subdivision (b)(ii)(B) of this note, the regional value content of an automotive good shall be calculated by the importer, exporter or producer of the good on the basis of the following net cost method: RVC = (NC - VNM) X 100 / NC, where RVC is the regional value content of the automotive good, expressed as a percentage; NC is the net cost of the automotive good; and VNM means the value of nonoriginating materials that are acquired and used by the producer in the production of the automotive good, but does not include the value of a material that is self produced. For purposes of this subdivision, the term “automotive good” means a good provided for in any of the subheadings 8407.31 through 8407.34, subheading 8408.20, heading 8409 or any of headings 8701 through 8708, inclusive, of the tariff schedule.

(B) For purposes of determining the regional value content under this subdivision for an automotive good that is a motor vehicle provided for in any of headings 8701 through 8705, an importer, exporter or producer may average the amounts calculated under the formula contained in subdivision (A) above, over the producer’s fiscal year--

(I) with respect to all motor vehicles in any one of the categories described in subdivision (C), below; or

(II) with respect to all motor vehicles in any such category that are exported to the territory of the United States or Australia.

(C) A category is described for purposes of subdivision (B)(I) above if it--

(I) is the same model of motor vehicles, is in the same class of vehicles, and is produced in the same plant in the territory of Australia or of the United States, as the good described in subdivision (B) for which regional value content is being calculated;

(II) is the same class of motor vehicles, and is produced in the same plant in the territory of Australia or of the United States, as the good described in subdivision (B) for which regional value content is being calculated; or

(III) is the same model line of motor vehicles produced in either the territory of Australia or of the United States, as the good described in subdivision (B) for which regional value content is being calculated.

(D) For purposes of determining the regional value content under subdivision (A) above for automotive goods provided for in any of subheadings 8407.31 through 8407.34, in subheading 8408.20 or in heading 8409, 8705, 8707 or 8708, that are produced in the same plant, an importer, exporter or producer may--

(I) average the amounts calculated under the formula contained in subdivision (A) above over--

(aa) the fiscal year of the motor vehicle producer to whom the automotive goods are sold,
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        (bb) any quarter or month, or

(cc) its own fiscal year,

if the goods were produced during the fiscal year, quarter or month that is the basis for the calculation;

(II) determine the average referred to in subdivision (I) separately for such goods sold to one or more motor vehicle producers; or

(III) make a separate determination under subdivision (I) or (II) for automotive goods that are exported to the territory of the United States or of Australia.

(E) Consistent with the provisions regarding allocation of costs set out in generally accepted accounting principles, the net cost of the automotive good under subdivision (B) shall be calculated by--

(I) calculating the total cost incurred with respect to all goods produced by the producer of the automotive good, subtracting any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and nonallowable interest costs that are included in the total cost of all such goods, and then reasonably allocating the resulting net cost of those goods to the automotive good;

(II) calculating the total cost incurred with respect to all goods produced by that producer, reasonably allocating the total cost to the automotive good, and then subtracting any sales promotion, marketing and after-sales services costs, royalties, shipping and packing costs and nonallowable interest costs that are included in the portion of the total cost allocated to the automotive good; or

(III) reasonably allocating each cost that forms part of the total cost incurred with respect to the automotive good so that the aggregate of these costs does not include any sales promotion, marketing and after-sales costs, royalties, shipping and packing costs or nonallowable interest costs.

(F) For purposes of this note, the term “class of motor vehicles” means any one of the following categories of motor vehicles:

(I) motor vehicles provided for in subheading 8701.20, 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, or heading 8705 or 8706, or motor vehicles for the transport of 16 or more persons provided for in subheading 8702.10 or 8702.90;

(II) motor vehicles provided for in subheading 8701.10 or any of subheadings 8701.30 through 8701.90, inclusive;

(III) motor vehicles for the transport of 15 or fewer persons provided for in subheading 8702.10 or 8702.90, or motor vehicles provided for in subheading 8704.21 or 8704.31; or

(IV) motor vehicles provided for in any of subheadings 8703.21 through 8703.90.

(G) For purposes of this note, the term “model line” means a group of motor vehicles having the same platform or model name.

(H) For purposes of this note, 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 (whether Australia or the United States).

(I) For purposes of this note, the term “reasonably allocating” means apportioning in a manner that would be appropriate under generally accepted accounting principles.

(J) For purposes of this note, the term “total cost” means all product costs, period costs and other costs for a good incurred in the territory of Australia or of the United States, or both.

(h) Accessories, spare parts or tools.
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  (i) Subject to subdivision (h)(ii) below, accessories, spare parts or tools delivered with a good that form part of the good's standard accessories, spare parts or tools shall--

(A) be treated as originating goods if the good is an originating good; and

(B) be disregarded in determining whether all the nonoriginating materials used in the production of the good undergo the applicable change in tariff classification set out in subdivision (n) of this note.

(ii) Subdivision (i) above shall apply only if--

(A) the accessories, spare parts or tools are not invoiced separately from the good;

(B) the quantities and value of the accessories, spare parts or tools are customary for the good; and

(C) if the good is subject to a regional value content requirement, the value of the accessories, spare parts or tools is taken into account as originating or nonoriginating materials, as the case may be, in calculating the regional value content of the good.

(i) Fungible goods and materials.

(i) A person claiming that a fungible good or fungible material is an originating good may base the claim either on the physical segregation of the fungible good or fungible material or by using an inventory management method with respect to the fungible good or fungible material. For purposes of this subdivision, the term “inventory management method” means:

(A) averaging,

(B) “last-in, first-out,”

(C) “first-in, first out,” or

(D) any other method that is recognized in the generally accepted accounting principles of the country in which the production is performed (whether Australia or the United States) or otherwise accepted by that country.

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.

(ii) A person selecting an inventory management method under subdivision (i) above for a particular fungible good or fungible material shall continue to use that method for that fungible good or fungible material throughout the fiscal year of that person.

(j) Packaging materials and containers.

(i) Packaging materials and containers in which a good is packaged for retail sale, if classified with the good for which the tariff treatment under the terms of this note is claimed, shall be disregarded in determining whether all nonoriginating materials used in the production of the good undergo the applicable change in tariff classification set out in subdivision (n) of this note and, if the good is subject to a regional value content requirement, the value of such packaging materials and containers shall be taken into account as originating or nonoriginating materials, as the case may be, in calculating the regional value content of the good.

(ii) Packing materials and containers for shipment shall be disregarded in determining whether–

(A) the nonoriginating materials used in the production of the good undergo the applicable change in tariff classification set out in subdivision (n) of this note; and

(B) the good satisfies a regional value content requirement.

(k) Indirect materials.
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   An indirect material shall be considered to be an originating material for purposes of this note without regard to where it is produced, and its value shall be the cost registered in the accounting records of the producer of the good. The term “indirect material” means a good used in the production, testing or inspection of a good but not physically incorporated into the good, or a good used in the maintenance of buildings or the operation of equipment associated with the production of a good, including–

(i) fuel and energy;

(ii) tools, dies and molds;

(iii) spare parts and materials used in the maintenance of equipment or buildings;

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

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

(vi) equipment, devices and supplies used for testing or inspecting the goods;

(vii) catalysts and solvents; and

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

(l) Record-keeping requirements and verification.

(i) An importer of a good, for which treatment as an originating good of a UAFTA country is claimed under the provisions of this note, shall make a written declaration that the good qualifies as originating, under the terms of applicable regulations, and shall be prepared to submit, upon request by the appropriate customs officer, a statement setting forth the reasons that the good qualifies as an originating good under the provisions of this note, including pertinent cost and manufacturing information and all other information requested by such customs officer.

(ii) Importers shall maintain, for a period prescribed in applicable regulations and starting on the date of importation of the good, all information demonstrating that the good qualifies as originating in a format that may be provided for in such regulations, along with all other required documents relating to the importation of the good, including records concerning:

(A) the purchase of, cost of, value of and payment for the good;

(B) where appropriate, the purchase of, cost of, value of and payment for all materials, including indirect materials, used in the production of the good; and

(C) where appropriate, the production of the good in the form in which the good is exported;

and shall, upon request by the appropriate customs officer, make available such records as are necessary under applicable regulations to demonstrate that a good qualifies as an originating good under the provisions of this note.

(iii) For purposes of determining whether a good imported into the customs territory of the United States from the territory of Australia qualifies as an originating good under the provisions of this note, the appropriate customs officer may conduct a verification under such terms or procedures as the United States and Australia may agree, as set forth in pertinent regulations.

(m) Interpretation of rules of origin.

(i) Unless otherwise specified, the requirements of any rule in subdivision (n) of this note that is set out adjacent to a heading or subheading of the tariff schedule and specifies a change of tariff classification applies only to nonoriginating materials. For purposes of this subdivision and subdivision (n) of this note, a tariff provision is a “heading” if its article description is not indented; a provision is a “subheading” if it is designated by 6 digits under the Harmonized Commodity Description and Coding System.
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(ii) Where a specific rule in subdivision (n) of this note is defined using the criterion of a change in tariff classification, and the rule is written to exclude tariff provisions at the level of a chapter, heading or subheading of the tariff schedule, such rule shall be construed to require that materials classified in those excluded provisions be originating for the good to qualify as originating.

(iii) When a heading or subheading of the tariff schedule is subject to alternative specific rules in subdivision (n) of this note, the rule will be considered to be met if a good satisfies one of the alternatives.

(iv) When a single rule applies to a group of headings or subheadings, and that rule specifies a change of heading or subheading, the requirement shall be considered to permit a change within a single heading or subheading in such group or between headings or subheadings of that group. When, however, a rule requires a change in heading or subheading from a provision “outside that group” such change in heading or subheading must occur from a heading or subheading that is outside the group of headings or subheadings set out in the rule.

(v) References to weight in the rules set forth in subdivision (n) of this note for goods provided for in chapters 1 through 24 of the tariff schedule are to dry weight, unless otherwise specified in the tariff schedule.

(vi) For purposes of applying this note to goods of chapters 6 through 14, inclusive, agricultural and horticultural goods grown in the territory of Australia or of the United States shall be treated as originating therein even if grown from seed, bulbs, rootstock, cuttings, grafts, shoots, buds or or other live parts of plants imported from a country other than Australia or the United States.

(vii) Any good of chapters 27 through 40, inclusive (except a good of heading 3823), of the tariff schedule, that is the product of a chemical reaction shall be considered to be an originating good if the chemical reaction occurred in the United States or Australia. Notwithstanding any of the individual tariff classification rules, this “chemical reaction” rule may be applied to any good classified in the above chapters. For purposes of applying this note to goods of the above chapters, a “chemical reaction” is a process (including a biochemical process) which results in a molecule with a new structure by breaking intramolecular bonds and by forming new intramolecular bonds, or by altering the spatial arrangement of atoms in a molecule. The following are not considered to be chemical reactions for purposes of this note:

(A) dissolving in water or other solvents;

(B) the elimination of solvents including solvent water; or

(C) the addition or elimination of water of crystallization.

(viii) For the purposes of chapters 28 through 35 and chapters 38 and 39, purification is considered to be origin conferring under this note provided that one of the following criteria is satisfied:

(A) purification of a good resulting in the elimination of 80 percent by weight of the content of existing impurities; or

(B) reduction or elimination of impurities resulting in a good suitable for one or more of the following applications:

(I) pharmaceutical, medicinal, cosmetic, veterinary or food grade substances;

(II) chemical products and reagents for analytical, diagnostic or laboratory uses;

(III) elements and components for use in micro-elements;

(IV) specialized optical uses;

(V) non-toxic uses for health and safety;

(VI) biotechnical use;

(VII) carriers used in a separation process; or

(VIII)nuclear grade uses.