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      (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 value of materials may be further adjusted as follows:

(1) for originating materials, the following expenses, if not included in the value of an originating material calculated under subdivision (A) above, may be added to the value of the originating material:

(I) the costs of freight, insurance, packing and all other costs incurred in transporting the material within or between the territory of Korea or of the United States, or both, to the location of the producer;

(II) duties, taxes and customs brokerage fees on the material paid in the territory of Korea or of the United States, or both, other than duties and taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable; and

(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 byproducts; and

(2) for non-originating materials, if included the value of a nonoriginating material calculated under subdivision (A) above, the following expenses may be deducted from the value of the nonoriginating material:

(I) the costs of freight, insurance, packing and all other costs incurred in transporting the material within or between the territory of Korea or of the United States, or both, to the location of the producer;

(II) duties, taxes and customs brokerage fees on the material paid in the territory of Korea or of the United States, or both, other than duties and taxes that are waived, refunded, refundable or otherwise recoverable, including credit against duty or tax paid or payable;

(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; or

(IV) the cost of originating materials used in the production of the nonoriginating material in the territory of Korea or of the United States, or both.

(C) All costs considered for the calculation of regional value content shall be recorded and maintained in conformity with the generally accepted accounting principles applicable in the territory of the country in which the good is produced (whether Korea or the United States). The term “generally accepted accounting principles”--

(i) means the recognized consensus or substantial authoritative support given in the territory of Korea 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, and

(ii) may encompass broad guidelines for general application as well as detailed standards, practices and procedures.

(h) Automotive goods.

(i) For purposes of subdivision (b)(ii)(B) of this note, the regional value content of an automotive good referred to in subdivision (o) of this note may be calculated by the importer, exporter or producer of the good on the basis of the build-down method described in subdivision (g)(i)(A) of this note, the build-up method described in subdivision (g)(i)(B) of this note or the following net cost method, RVC = (NC - VNM)/NC X 100, 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 nonoriginating materials, other than indirect materials, 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.

(ii) 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 any of headings 8701 through 8708.
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(iii) For purposes of determining the regional value content under subdivision (h)(i) of this note 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 net cost formula contained in subdivision (h)(i), over the producer’s fiscal year–

(A) with respect to all motor vehicles in any one of the categories described in subdivision (h)(iv), or

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

(iv) A category is described in this subdivision if it–

(A) is the same model line of motor vehicles, is in the same class of motor vehicles and is produced in the same plant in the territory of Korea or of the United States, as the good described in subdivision (h)(iii) for which regional value content is being calculated;

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

(C) is the same model line of motor vehicles produced in the territory of Korea or of the United States as the good described in subdivision (h)(iii) for which regional value content is being calculated.

(v) The term “class of motor vehicles” means any one of the following categories of motor vehicles:

(A) 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;

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

(C) 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

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

(vi) For purposes of determining the regional value content under subdivision (g) of this note for automotive materials 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–

(A) average the amounts calculated under the net cost formula contained in subdivision (h)(i) over–

(1) the fiscal year of the motor vehicle producer to whom the automotive goods are sold,

(2) any quarter or month, or

(3) the fiscal year of the producer of such goods,

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

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

(C) make a separate determination under subdivision (h)(iii) or (h)(iv) for such goods that are exported to the territory of Korea or of the United States.

(vii) The importer, exporter or producer of an automotive good shall, consistent with the provisions regarding allocation of costs provided for in generally accepted accounting principles, determine the net cost of the automotive good under subdivision subdivision (h)(ii) by–
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    (A) 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;

(B) 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

(C) 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 service costs, royalties, shipping and packing costs or nonallowable interest costs.

(i) Accessories, spare parts or tools.

(i) Subject to subdivisions (ii) and (iii) of this subdivision, 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 forth in subdivision (o) of this note.

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

(A) the accessories, spare parts or tools are classified with and not invoiced separately from 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.

(j) 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 Korea 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 (j)(i) above for a particular fungible good or material shall continue to use that method for that fungible good or material throughout the fiscal year of such person.

(k) Packaging materials and containers.
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  (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 the nonoriginating materials used in the production of the good undergo the applicable change in tariff classification set out in subdivision (o) 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 good is an originating good.

(l) Indirect materials.

An indirect material shall be disregarded in determining whether a good is an originating good under the terms of this note, except for purposes of subdivision (b)(ii)(B) of this note. The term “indirect material” means a good used in the production, testing or inspection of another good but not physically incorporated into that other good, or a good used in the maintenance of buildings or the operation of equipment associated with the production of another 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;

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

(vii) catalysts and solvents; and

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

(m) Record-keeping requirements and verification; claims for preferential treatment.

(i) An importer claiming preferential tariff treatment for a good imported into the territory of the United States under the provisions of this note shall comply in all respects with applicable Customs regulations. Importers 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.

(ii) For purposes of determining whether a good imported into the customs territory of the United States from the territory of Korea 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 Korea may agree, as set forth in pertinent regulations.

(iii) An importer may make a claim for the tariff and other treatment provided for under the terms of this note based on either--

(A) a written or electronic certification by the importer, exporter or producer; or

(B) the importer's knowledge that the good is an originating good, including reasonable reliance on information in the importer's possession that the good is an originating good, in such form and manner as may be required in applicable regulations.

(n) Interpretation of rules of origin.

(i) Unless otherwise specified, a rule in subdivision (o) of this note that is set out adjacent and is applicable to a 6-digit subheading in the tariff schedule shall take precedence over a rule applicable to a 4-digit heading superior thereto and covering the goods of such subheading. For purposes of this subdivision and subdivision (o) 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) Reference to weight in the rules set forth in subdivision (o) of this note for goods provided for in chapters 1 through 24 of the tariff schedule means dry weight, unless otherwise specified in the tariff schedule.

(iii) A requirement of a change in tariff classification in subdivision (o) of this note applies only to nonoriginating materials.

(iv) If goods are classified as a set as a result of the application of rule 3 of the general rules of interpretation of the tariff schedule, the set is originating under this note only if each good in the set is originating. Notwithstanding the first sentence of this subdivision, a set of goods is originating if the value of all the nonoriginating goods in the set does not exceed 15 percent of the adjusted value of the set.

(v) A good of chapters 1 through 40, inclusive, shall not be considered to be originating solely by reason of mere dilution with water or another substance that does not materially alter the characteristics of the good.

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

(vii) For purposes of applying this note to goods of chapters 27 through 40, inclusive (except a good of heading 3823), of the tariff schedule,a good that undergoes a chemical reaction as defined herein shall be treated as an originating good for purposes of this note, notwithstanding any product-specific rules enumerated in this note, provided all other applicable requirements are satisfied. 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) A good of heading in chapters 28 through 40 that satisfies one or more of the provisions enumerated in this subdivision shall be treated as an originating good for purposes of this note, except as otherwise specified in such provisions. Notwithstanding the preceding sentence, a good is an originating good if it meets the applicable change in tariff classification or satisfies the applicable value content requirement specified in the rules of origin in subdivision (o) for such chapters.

(A) A good of chapters 28 through 40 that is subject to purification shall be treated as an originating good provided that the purification occurs in the territory of Korea or of the United States, or both and results in the following:

(1) the elimination of not less than 80 percent of the impurities; or

(2) the reduction or elimination of impurities resulting in a good suitable:

(I) as a pharmaceutical, medicinal, cosmetic, veterinary or food grade substance;

(II) as a chemical product or reagent for analytical, diagnostic or laboratory uses;

(III) as an element or component for use in micro-elements;

(IV) for specialized optical uses;

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

(VI) for biotechnical use;

(VII) as a carrier used in a separation process; or

(VIII)for nuclear grade uses.