page 23    NAFTA
 (e) (i) Whenever a freely associated state--

(A) has exported (directly or indirectly) to the United States during a calendar year a quantity of such article having an appraised value in excess of an amount which bears the same ratio to $25,000,000 as the gross national product of the United States for the preceding calendar year (as determined by the Department of Commerce) bears to the gross national product of the United States for calendar year 1974 (as determined for purposes of sections 503(c)(2)(A)(i)(I) and 503(c)(2)(A)(ii) of the Trade Act of 1974 (19 U.S.C. 2463(c)(2)(A)(i)(I) and 2463(c)(2)(A)(ii)); or

(B) has exported (either directly or indirectly) to the United States during a calendar year a quantity of such article equal to or exceeding 50 percent of the appraised value of the total imports of such article into the United States during that calendar year;

then on or after July 1 of the next calendar year the duty-free treatment provided under subdivision (b) of this note shall not apply to such article imported from such freely associated state.

(ii) Whenever during a subsequent calendar year imports of such article from such freely associated state no longer exceed the limits specified in this subdivision, then on and after July 1 of the next calendar year such article imported from such freely associated state shall again enter the customs territory of the United States free of duty under subdivision (b) of this note.

(f) The provisions of subdivision (e) of this note shall not apply with respect to an article--

(i) imported from a freely associated state, and

(ii) not excluded from duty-free treatment under subdivision (d) of this note,

if such freely associated state has entered a quantity of such article during the preceding calendar year with an aggregate value that does not exceed the limitation on de minimis waivers applicable under section 503(c)(2)(F) of the Trade Act of 1974 (19 U.S.C. 2463(c)(2)(F)) to such preceding calendar year.

(g) Any article the growth, product or manufacture of a freely associated state and excluded from duty-free treatment pursuant to subdivisions (d) or (e) of this note shall be dutiable at the rate provided in the general subcolumn of rate of duty column 1 for the appropriate heading or subheading.

[11. Products of Countries Designated as Beneficiary Countries for Purposes of the Andean Trade Preference Act (ATPA).

Compiler’s note: The ATPA expired at the close of July 31, 2013, and general note 11 was deleted from the HTS pursuant to Presidential Proclamation 9072.]

12. North American Free Trade Agreement.

(a) Goods originating in the territory of a party to the North American Free Trade Agreement (NAFTA) are subject to duty as provided herein. For the purposes of this note--

(i) Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Canada under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "CA" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.

(ii) Goods that originate in the territory of a NAFTA party under the terms of subdivision (b) of this note and that qualify to be marked as goods of Mexico under the terms of the marking rules set forth in regulations issued by the Secretary of the Treasury (without regard to whether the goods are marked), and goods enumerated in subdivision (u) of this note, when such goods are imported into the customs territory of the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn followed by the symbol "MX" in parentheses, are eligible for such duty rate, in accordance with section 201 of the North American Free Trade Agreement Implementation Act.

(b) For the purposes of this note, goods imported into the customs territory of the United States are eligible for the tariff treatment and quantitative limitations set forth in the tariff schedule as "goods originating in the territory of a NAFTA party" only if--
page 24    NAFTA
   (i) they are goods wholly obtained or produced entirely in the territory of Canada, Mexico and/or the United States; or

(ii) they have been transformed in the territory of Canada, Mexico and/or the United States so that--

(A) except as provided in subdivision (f) of this note, each of the non-originating materials used in the production of such goods undergoes a change in tariff classification described in subdivisions (r), (s) and (t) of this note or the rules set forth therein, or

(B) the goods otherwise satisfy the applicable requirements of subdivisions (r), (s) and (t) where no change in tariff classification is required, and the goods satisfy all other requirements of this note; or

(iii) they are goods produced entirely in the territory of Canada, Mexico and/or the United States exclusively from originating materials; or

(iv) they are produced entirely in the territory of Canada, Mexico and/or the United States but one or more of the non-originating materials falling under provisions for "parts" and used in the production of such goods does not undergo a change in tariff classification because--

(A) the goods were imported into the territory of Canada, Mexico and/or the United States in unassembled or disassembled form but were classified as assembled goods pursuant to general rule of interpretation 2(a), or

(B) the tariff headings for such goods provide for and specifically describe both the goods themselves and their parts and is not further divided into subheadings, or the subheadings for such goods provide for and specifically describe both the goods themselves and their parts,

provided that such goods do not fall under chapters 61 through 63, inclusive, of the tariff schedule, and provided further that the regional value content of such goods, determined in accordance with subdivision (c) of this note, is not less than 60 percent where the transaction value method is used, or is not less than 50 percent where the net cost method is used, and such goods satisfy all other applicable provisions of this note. For purposes of this note, the term "material" means a good that is used in the production of another good, and includes a part or an ingredient; or

(v) they are goods enumerated in subdivision (u) of this note and meet all other requirements of this note.

(c) Regional value content. Except as provided in subdivision (c)(iv) of this note, the regional value content of a good shall be calculated, at the choice of the exporter or producer of such good, on the basis of either the transaction value method set out in subdivision (c)(i) or the net cost method set out in subdivision (c)(ii).

(i) Transaction value method. The regional value content of a good may be calculated on the basis of the following transaction value method:

RVC = ((TV-VNM)/TV) X 100

where RVC is the regional value content, expressed as a percentage; TV is the transaction value of the good adjusted to a F.O.B. basis; and VNM is the value of non-originating materials used by the producer in the production of the good.

(ii) Net cost method. The regional value content of a good may be calculated on the basis of 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 non-originating materials used by the producer in the production of the good.

(iii) Except as provided in subdivisions (d)(i) and (d)(ii)(A)(2) of this note, the value of non-originating 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 subdivision (c)(i) or (c)(ii) of this note, include the value of non-originating materials used to produce originating materials that are subsequently used in the production of such good.

(iv) The regional value content of a good shall be calculated solely on the basis of the net cost method set out in subdivision (c)(ii) of this note where--
page 25    NAFTA
   (A) there is no transaction value for the good;

(B) the transaction value of the good is unacceptable under section 402(b) of the Tariff Act of 1930, as amended (19 U.S.C. 1401a(b));

(C) the good is sold by the producer to a related person and the volume, by units of quantity, of sales of identical or similar goods to related persons (as defined in article 415 of the NAFTA) during the six-month period immediately preceding the month in which the good is sold exceeds 85 percent of the producer's total sales of such goods during that period;

(D) the good is--

(1) a motor vehicle provided for in headings 8701 or 8702, subheadings 8703.21 through 8703.90, inclusive, or headings 8704, 8705 or 8706;

(2) identified in annex 403.1 or 403.2 to the NAFTA and is for use in a motor vehicle provided for in headings 8701 or 8702, subheadings 8703.21 through 8703.90, inclusive, or headings 8704, 8705 or 8706;

(3) provided for in subheadings 6401.10 through 6406.10, inclusive; or

(4) provided for in subheading 8469.11;

(E) the exporter or producer chooses to accumulate the regional value content of the good in accordance with subdivision (e) of this note; or

(F) the good is designated as an intermediate material under subdivision (c)(viii) of this note and is subject to a regional value-content requirement.

(v) If the regional value content of a good is calculated on the basis of the transaction value method set out in subdivision (c)(i) of this note and a NAFTA party subsequently notifies the exporter or producer, during the course of a verification of the origin of the good, that the transaction value of the good, or the value of any material used in the production of the good, is required to be adjusted or is unacceptable under section 402 of the Tariff Act of 1930, as amended (19 U.S.C. 1401a), the exporter or producer may then also calculate the regional value content of the good on the basis of the net cost method set out in subdivision (c)(ii) of this note.

(vi) For purposes of calculating the net cost of a good under subdivision (c)(ii) of this note, the producer of the good may--

(A) calculate the total cost incurred with respect to all goods produced by that producer; subtract any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs that are included in the total cost of all such goods; and then reasonably allocate the resulting net cost of those goods to the good;

(B) calculate the total cost incurred with respect to all goods produced by that producer; reasonably allocate the total cost to the good; and then subtract any sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs that are included in the portion of the total cost allocated to the good; or

(C) reasonably allocate each cost that forms part of the total cost incurred with respect to the 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 and non-allowable interest costs;

provided that the allocation of all such costs is consistent with the provisions regarding the reasonable allocation of costs set out in regulations issued by the Secretary of the Treasury. The term "total cost" means all product costs, period costs and other costs incurred in the territory of Canada, Mexico and/or the United States.

(vii) Except as provided in subdivision (c)(ix) of this note, the value of a material used in the production of a good shall--

(A) be the transaction value of the material determined in accordance with section 402(b) of the Tariff Act of 1930, as amended; or
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     (B) in the event that there is no transaction value or the transaction value of the material is unacceptable under section 402(b) of the Tariff Act of 1930, as amended, be determined in accordance with subsections (c) through (h), inclusive, of such section; and

(C) where not included under subdivision (A) or (B), include--

(1) freight, insurance, packing and all other costs incurred in transporting the material to the location of the producer;

(2) duties, taxes and customs brokerage fees on the material that were paid in the territory of Canada, Mexico, and/or the United States; and

(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 by-product.

(viii) Except for goods described in subdivision (d)(i) of this note, the producer of a good may, for purposes of calculating the regional value content of the good, designate any self-produced material (other than a component, or material thereof, identified in Annex 403.2 to the NAFTA) used in the production of the good as an intermediate material; provided that if the intermediate material is subject to a regional value-content requirement, no other self-produced material that is subject to a regional value-content requirement and is used in the production of that intermediate material may be designated by the producer as an intermediate material.

(ix) The value of an intermediate material shall be--

(A) the total cost incurred with respect to all goods produced by the producer of the good that can be reasonably allocated to that intermediate material; or

(B) the aggregate of each cost that is part of the total cost incurred with respect to that intermediate material that can be reasonably allocated to that intermediate material.

(x) The value of an indirect material shall be based on the Generally Accepted Accounting Principles applicable in the territory of Canada, Mexico, and/or the United States in which the good is produced.

(xi) For purposes of this note, the term "reasonably allocate" means to apportion in a manner appropriate to the circumstances.

(d) Automotive Goods.

(i) For purposes of calculating the regional value content under the net cost method set out in subdivision (c)(ii) of this note for--

(A) a good that is a motor vehicle provided for in tariff items 8702.10.60 or 8702.90.60, or subheadings 8703.21 through 8703.90, inclusive, 8704.21 or 8704.31; or

(B) a good provided for in the tariff items listed in Annex 403.1 where the good is subject to a regional value-content requirement and is for use as original equipment in the production of a good provided for in tariff items 8702.10.60 or 8702.90.60, or subheadings 8703.21 through 8703.90, inclusive, 8704.21 or 8704.31,

the value of non-originating materials used by the producer in the production of the good shall be the sum of the values of non-originating materials, determined in accordance with subdivision (c)(vii) of this note at the time the non-originating materials are received by the first person in the territory of Canada, Mexico or the United States who takes title to them; that are imported from the outside the territories of Canada, Mexico and the United States under the tariff items listed in Annex 403.1 to the NAFTA and that are used in the production of the good or that are used in the production of any material used in the production of the good.

(ii) For purposes of calculating the regional value content under the net cost method for a good that is a motor vehicle provided for in heading 8701, tariff items 8702.10.30 or 8702.90.30, subheadings 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, or headings 8705 or 8706, or for a component identified in Annex 403.2 to the NAFTA for use as original equipment in the production of the motor vehicle, the value of non-originating materials used by the producer in the production of the good shall be the sum of--
page 27    NAFTA
   (A) for each material used by the producer listed in Annex 403.2 to the NAFTA, whether or not produced by the producer, at the choice of the producer and determined in accordance with subdivision (c) of this note, either--

(1) the value of such material that is non-originating, or

(2) the value of non-originating materials used in the production of such material; and

(B) the value of any other non-originating material used by the producer that is not listed in Annex 403.2 to the NAFTA, determined in accordance with subdivision (c) of this note.

(iii) For purposes of calculating the regional value content of a motor vehicle identified in subdivision (d)(i) or (ii) of this note, or for any or all goods provided for in a tariff item listed in Annex 403.1 to the NAFTA, or a component or material identified in Annex 403.2 to the NAFTA, the producer may average its calculation over its fiscal year in accordance with section 202(c)(3) and (4) of the North American Free Trade Agreement Implementation Act of 1993.

(iv) Notwithstanding subdivisions (r), (s) and (t) of this note, and except as provided in subdivision (d)(v) of this note, the regional value-content requirement shall be--

(A) for a producer's fiscal year beginning on the day closest to January 1, 1998 and thereafter, 56 percent under the net cost method, and for a producer's fiscal year beginning on the day closest to January 1, 2002 and thereafter, 62.5 percent under the net cost method, for--

(1) a good that is a motor vehicle provided for in tariff items 8702.10.60 or 8702.90.60; subheadings 8703.21 through 8703.90, inclusive; or subheadings 8704.21 or 8704.31, and

(2) a good provided for in headings 8407 or 8408 or subheading 8708.40, that is for use in a motor vehicle identified in subdivision (d)(iv)(A)(1); and

(B) for a producer's fiscal year beginning on the day closest to January 1, 1998 and thereafter, 55 percent under the net cost method, and for a producer's fiscal year beginning on the day closest to January 1, 2002 and thereafter, 60 percent under the net cost method, for--

(1) a good that is a motor vehicle provided for in heading 8701, tariff items 8702.10.30 or 8702.90.30, subheadings 8704.10, 8704.22, 8704.23, 8704.32 or 8704.90, or headings 8705 or 8706;

(2) a good provided for in headings 8407 or 8408 or subheading 8708.40 that is for use in a motor vehicle identified in subdivision (d)(iv)(B)(1); and

(3) except for a good identified in subdivision (d)(iv)(A)(2) or provided for in subheadings 8482.10 through 8482.80, inclusive, 8483.20 or 8483.30, a good identified in Annex 403.1 to the NAFTA that is subject to a regional value-content requirement and that is for use in a motor vehicle identified in subdivision (d)(iv)(A)(1) or (d)(iv)(B)(1).

(v) The regional value-content requirement for a motor vehicle identified in subdivision (d)(i) or (ii) shall be--

(A) 50 percent for five years after the date on which the first motor vehicle prototype is produced in a plant by a motor vehicle assembler, if--

(1) it is a motor vehicle of a class, or marque, or, except for a motor vehicle identified in subdivision (d)(ii), size category and underbody, not previously produced by the motor vehicle assembler in the territory of Canada, Mexico and/or the United States;

(2) the plant consists of a new building in which the motor vehicle is assembled; and

(3) the plant contains substantially all new machinery that is used in the country of assembly of the motor vehicle; or

(B) 50 percent for two years after the date on which the first motor vehicle prototype is produced at a plant following a refit, if it is a different motor vehicle of a class, or marque, or, except for a motor vehicle identified in subdivision (d)(ii), size category and underbody, than was assembled by the motor vehicle assembler in the plant before the refit.