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(A) the value of all nonoriginating materials that--
(1) are used in the production of the good, and
(2) do not undergo the applicable change in tariff classification set out in subdivision (n) of this note,
does not exceed 10 percent of the adjusted value of the good;
(B) the value of such nonoriginating materials is included in the value of nonoriginating materials for any applicable regional value content requirement for the good; and
(C) the good meets all other applicable requirements of this note.
(ii) Subdivision (e)(i) does not apply to--
(A) a nonoriginating material provided for in chapter 4, or a nonoriginating dairy preparation containing over 10 percent by weight of milk solids provided for in subheading 1901.90 or 2106.90, that is used in the production of a good provided for in chapter 4;
(B) a nonoriginating material provided for in chapter 4, or a nonoriginating dairy preparation containing over 10 percent by weight of milk solids provided for in subheading 1901.90, that is used in the production of the following goods:
(1) infant preparations containing over 10 percent by weight of milk solids provided for in subheading 1901.10;
(2) mixes and doughs, containing over 25 percent by weight of butterfat, not put up for retail sale, provided for in subheading 1901.20;
(3) dairy preparations containing over 10 percent by weight of milk solids provided for in subheading 1901.90 or 2106.90;
(4) goods provided for in heading 2105;
(5) beverages containing milk provided for in subheading 2202.90; or
(6) animal feeds containing over 10 percent by weight of milk solids provided for in subheading 2309.90;
(C) a nonoriginating material provided for in heading 0805, or any of subheadings 2009.11 through 2009.39, inclusive, that is used in the production of a good provided for in any of subheadings 2009.11 through 2009.39, or in fruit or vegetable juice of any single fruit or vegetable, fortified with minerals or vitamins, concentrated or unconcentrated, provided for in subheading 2106.90 or 2202.90;
(D) a nonoriginating material provided for in heading 0901 or 2101 that is used in the production of a good provided for in heading 0901 or 2101;
(E) a nonoriginating material provided for in heading 1006 that is used in the production of a good provided for in heading 1102 or 1103 or subheading 1904.90;
(F) a nonoriginating material provided for in chapter 15 that is used in the production of a good provided for in chapter 15;
(G) a nonoriginating material provided for in heading 1701 that is used in the production of a good provided for in any of headings 1701 through 1703;
(H) a nonoriginating material provided for in chapter 17 that is used in the production of a good provided for in subheading 1806.10; or
(I) except as provided in subdivisions (e)(ii)(A) through (e)(ii)(H) above and in subdivision (n) of this note, a nonoriginating material used in the production of a good provided for in any of chapters 1 through 24, inclusive, unless the nonoriginating material is provided for in a different subheading than the good for which origin is being determined under this note.
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(f) Regional value content.
(i) For purposes of subdivision (b)(ii)(B) of this note, except for goods to which subdivision (f)(iii) applies, the regional value content of a good referred to in subdivision (n) of this note, shall be calculated by the importer, exporter or producer of the good on the basis of the build-down method or the build-up method described below.
(A) For the build-down method, the regional value content of a good may be calculated on the basis of the formula
RVC = ((AV-VNM)/AV) X 100
where RVC is the regional value content of the good, expressed as a percentage; AV is the adjusted value of the good; and VNM is the value of nonoriginating materials that are acquired and used by the producer in the production of the good, but does not include the value of a material that is self-produced.
(B) For the build-up method, the regional value content of a good may be calculated on the basis of the formula
RVC = ((VOM)/AV) X 100
where RVC is the regional value content of the good, expressed as a percentage; AV is the adjusted value of the good; and VOM is the value of originating materials that are acquired or self-produced, and used by the producer in the production of the good.
(ii) Value of materials.
(A) For the purpose of calculating the regional value content of a good under this note, and for purposes of applying the de minimis rules under subdivision (e) of this note, the value of a material is--
(1) in the case of a material that is imported by the producer of the good, the adjusted value of the material;
(2) in the case of a material acquired in the territory in which the good is produced, the value, determined in accordance with Articles 1 through 8, Article 15, and the corresponding interpretive notes of the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 referred to in section 101(d)(8) of the Uruguay Round Agreements Act, as set forth in regulations promulgated by the Secretary of the Treasury providing for the application of such Articles in the absence of an importation; or
(3) in the case of a material that is self-produced, the sum of--
(I) all expenses incurred in the production of the material, including general expenses; and
(II) an amount for profit equivalent to the profit added in the normal course of trade.
(B) The following expenses, if not included in the value of an originating material calculated under subdivision (f)(ii)(A) above, may be added to the value of the originating material:
(1) the costs of freight, insurance, packing and all other costs incurred in transporting the material within or between the territory of one or more of the parties to the Agreement to the location of the producer;
(2) duties, taxes and customs brokerage fees on the material paid in the territory of one or more of the parties to the Agreement, other than duties or taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable;
(3) 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 byproducts.
(C) The following expenses, if included in the value of a nonoriginating material calculated under subdivision (f)(ii)(A) above, may be deducted from the value of the nonoriginating material:
(1) the costs of freight, insurance, packing and all other costs incurred in transporting the material within or between the territory of one or more of the parties to the Agreement to the location of the producer;
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(2) duties, taxes and customs brokerage fees on the material paid in the territory of one or more of the parties to the Agreement, other than duties or taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable;
(3) 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 byproducts;
(4) the cost of originating materials used in the production of the nonoriginating material in the territory of one or more of the parties to the Agreement.
(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 referred to in subdivision (n) of this note may be calculated by the importer, exporter or producer of the good on the basis of the following net cost method:
RVC = ((NC-VNM)/NC) X 100
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 subheadings 8407.31 through 8407.34, subheading 8408.20, heading 8409 or in 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--
(1) with respect to all motor vehicles in any one of the categories described in subdivision (C), below; or
(2) with respect to all motor vehicles in any such category that are exported to the territory of one or more of the parties to the Agreement.
(C) A category is described for purposes of subdivision (B)(1) above if it--
(1) is the same model line of motor vehicles, is in the same class of vehicles, and is produced in the same plant in the territory of a party to the Agreement, as the good described in subdivision (B) for which regional value content is being calculated;
(2) is the same class of motor vehicles, and is produced in the same plant in the territory of a party to the Agreement, as the good described in subdivision (B) for which regional value content is being calculated; or
(3) is the same model line of motor vehicles produced in the territory of a party to the Agreement, 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, 8706, 8707 or 8708, that are produced in the same plant, an importer, exporter or producer may--
(1) average the amounts calculated under the formula contained in subdivision (A) above over--
(I) the fiscal year of the motor vehicle producer to whom the automotive goods are sold,
(II) any quarter or month, or
(III) its own fiscal year,
if the goods were produced during the fiscal year, quarter or month that is the basis for the calculation;
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(2) determine the average referred to in subdivision (1) separately for such goods sold to one or more motor vehicle producers; or
(3) make a separate determination under subdivision (1) or (2) for automotive goods that are exported to the territory of one or more of the parties to the Agreement.
(E) The importer, exporter or producer shall, consistent with the provisions regarding allocation of costs set out in generally accepted accounting principles, determine the net cost of an automotive good under subdivision (B) by--
(1) 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;
(2) 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 service 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
(3) reasonably allocating each cost that forms part of the total cost incurred with respect to the automotive good so that the aggregate of all such costs does not include any sales promotion, marketing and after-sales service 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:
(1) 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;
(2) motor vehicles provided for in subheading 8701.10 or any of subheadings 8701.30 through 8701.90, inclusive;
(3) 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
(4) motor vehicles provided for in any of subheadings 8703.21 through 8703.90, inclusive.
(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 party to the Agreement in which the producer is located.
(I) For purposes of this note, the term “reasonably allocate” means to apportion 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 one or more of the parties to the Agreement.
(g) Accessories, spare parts or tools.
(i) Subject to subdivision (g)(ii) and (g)(iii), 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 (g)(i) shall apply only if--
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(A) the accessories, spare parts or tools are classified with and not invoiced separately from the good, regardless of whether they appear specified or separately identified in the invoice for the good; and
(B) the quantities and value of the accessories, spare parts or tools are customary for the good.
(iii) If the good is subject to a regional value content requirement, the value of the accessories, spare parts or tools shall be taken into account as originating or nonoriginating materials, as the case may be, in calculating the regional value content of the good.
(h) 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 party to the Agreement in which the production is performed 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 (h)(i) 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.
(i) Packaging or packing materials and containers.
(i) For retail sale.--Packaging materials and containers in which a good is packaged for retail sale, if classified with the good, shall 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 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) For shipment.--Packing materials and containers for shipment shall be disregarded in determining whether a good is an originating good.
(j) Indirect materials.
An indirect material shall be treated as an originating material for purposes of this note without regard to where it is produced. 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 or buildings;
(v) gloves, glasses, footwear, clothing, safety equipment and supplies;