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      (2) The value of any originating materials used or consumed in the production of the nonoriginating materials undertaken in the territory of one or more USMCA countries.

   (v) Net cost method required in certain cases.—An importer, exporter or producer of a good shall calculate the regional value content of a good solely on the basis of the net cost method set out in subdivision (c)(iii) of this note if the rule for the good set forth in subdivision (o) of this note includes a regional value content requirement not based on the transaction value method described in subdivision (c)(ii) above.

   (vi) Net cost method allowed for adjustments.

    (A) In general.---If an importer, exporter, or producer of a good calculates the regional value content of the good on the basis of the transaction value method described in subdivision (c)(ii) above and a USMCA country subsequently notifies the importer, exporter, or producer, during the course of a verification conducted in accordance with chapter 5 or 6 of the      USMCA, that the transaction value of the good or the value of any material used in the production of the good must be adjusted or is unacceptable under article 1 of the Customs Valuation Agreement, the importer, exporter or producer may calculate the regional value content of the good on the basis of the net cost method described in subdivision (c)(iii).

    (B) Review of adjustment.—Nothing in paragraph (vi)(A) above shall be construed to prevent any review or appeal available in accordance with article 5.15 of the USMCA with respect to an adjustment to or a rejection of—

      (1) the transaction value of a good; or

      (2) the value of any material used in the production of a good.

   (vii) Calculating net cost.—The producer of a good may, consistent with regulations implementing this note, calculate the net cost of the good under subdivision (c)(iii) of this note by—

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

    (B) Calculating the total cost incurred with respect to all goods produced by that producer, reasonably allocating the total cost to the good, and 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 good, or

    (C) Reasonably allocating each cost that is part of the total cost incurred with respect to the good so that the aggregate of those costs does not include any sales promotion, marketing, and after-sales services costs, royalties, shipping and packing costs, and nonallowable interest costs.

   (viii) Value of materials used in production.—For purposes of calculating the regional value content of a good under this note, applying the de minimis rules under subdivision (e) of this note, and calculating the value of nonoriginating components in a set under subdivision (i) of this note the value of a material used in the production of a good is—

    (A) In the case of a material that is imported by the producer of the good—

      (1) the transaction value of the material at the time of importation, including the costs incurred in the international shipment of the material; or

      (2) if the transaction value of the material at the time of importation is not acceptable or if there is no transaction value in accordance with 19 U.S.C. 1401a, the value of the material must be determined in accordance with the Uniform        Regulations with respect to the importation of that material and, if the costs referred to in subsection (x) are included in that value, those costs may be deducted from that value.

    (B) In the case of a material acquired in the territory in which the good is produced—

      (1) The price paid or payable by the producer in the USMCA country where the producer is located; 

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     (2) The value as determined under subparagraph (A), as set forth in regulations prescribed by the Secretary of the       Treasury providing for the application of transaction value in the absence of an importation by the producer; or

     (3) The earliest ascertainable price paid or payable in the territory of the country; or

    (C) In the case of a self-produced material, the sum of—

     (1) All expenses incurred in the production of the material, including general expenses; and

     (2) An amount for profit equivalent to the profit added in the normal course of trade or equal to the profit that is usually reflected in the sale of goods of the same class or kind as the material.

  (ix) Intermediate materials.

    (A) In general.—Any self-produced material that is used in the production of a good may be designated by the producer of the good as an intermediate material for purposes of calculating the regional value content of the good under subdivision      (c)(ii) or (c)(iii) above.

    (B) Materials used in production of intermediate materials.—Subject to the regulations implementing this note, if a self-produced material is designated as an intermediate material under subparagraph (A) for purposes of calculating a regional value content requirement, no other self-produced material subject to a regional value content requirement used or consumed in the production of that intermediate material may be designated by the producer as an intermediate material.

  (x) Further adjustments to the value of materials.—The following expenses, if included in the value of a nonoriginating material or material of undetermined origin calculated under subdivision (c)(viii) of this note, may be deducted from the value of the nonoriginating material:

    (A) The costs of freight, insurance, packing, and all other costs incurred in transporting the material to the location of the producer.

    (B) Duties, taxes, and customs brokerage fees on the material paid in the territory of one or more USMCA countries, other than duties or taxes that are waived, refunded, refundable, or otherwise recoverable, including credit against duty or tax paid or payable.

    (C) 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.

(d) Accumulation.

  (i) Producers.—A good that is produced in the territory of one or more USMCA countries, by one or more producers, is an originating good if the good satisfies the requirements of subdivision (b) of this note and all other applicable requirements.

  (ii) Originating materials used in production of goods of a USMCA country.—Originating materials from the territory of one or more     USMCA countries that are used in the production of a good in the territory of another USMCA country shall be considered to originate in the territory of such other USMCA country.

  (iii) Production undertaken on nonoriginating materials used in the production of goods.—In determining whether a good is an originating good under this note, production undertaken on nonoriginating material in the territory of one or more USMCA countries by one or more producers may contribute to the originating status of the good, regardless of whether that production is sufficient to confer originating status to the nonoriginating material.

(e) De minimis amounts of nonoriginating materials.

  (i) In general.—Except as provided in subparagraphs (e)(ii) through (iv) below, a good that does not undergo a change in tariff classification or satisfy a regional value content requirement set forth in subdivision (o) of this note is an originating good if—

    (A) the value of all nonoriginating materials that are used in the production of the good, and do not undergo the applicable change in tariff classification set forth in subdivision (o) of this note— 

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      (1) does not exceed 10 percent of the transaction value of the good, adjusted to exclude any costs incurred in the international shipment of the good; or

      (2) does not exceed 10 percent of the total cost of the good;

     (B) the good meets all other applicable requirements of this note; and

     (C) the value of such nonoriginating materials is included in the value of nonoriginating materials for any applicable regional value content requirement for the good.

   (ii) Exceptions for dairy and other products.—Subdivision (e)(i) does not apply to the following:

     (A) a nonoriginating material of headings 0401 through 0406, or a nonoriginating dairy preparation containing over 10 percent by dry weight of milk solids of subheading 1901.90 or 2106.90, used or consumed in the production of a good of headings       0401 through 0406;

     (B) a nonoriginating material of headings 0401 through 0406, or nonoriginating dairy preparations containing over 10 percent by dry weight of milk solids of subheading 1901.90 or 2106.90, used or consumed in the production of any of the following goods:

      (1) infant preparations containing over 10 percent by dry weight of milk solids, of subheading 1901.10;

      (2) mixes and doughs containing over 25 percent by dry weight of butterfat, not put up for retail sale, ofsubheading         1901.20;

      (3) a dairy preparations containing over 10 percent by dry weight of milk solids, of subheading 1901.90 or 2106.90;

      (4) a good of heading 2105;

      (5) beverages containing milk of subheading 2202.90;

      (6) animal feeds containing over 10 percent by dry weight of milk solids of subheading 2309.90.

     (C) A nonoriginating material or heading 0805, or any of subheadings 2009.11 through 2009.39, used or consumed in the production of a good of subheadings 2009.11 through 2009.39, or a fruit or vegetable juice of any single fruit or vegetable, fortified with minerals or vitamins, concentrated or unconcentrated, of subheading 2106.90 or 2202.90.

     (D) A nonoriginating material of chapter 9 used or consumed in the production of instant coffee, not flavored, of subheading       2101.11.

     (E) A nonoriginating material of chapter 15 used or consumed in the production of a good of heading 1501 through 1508,       1512, 1514 or 1515.

     (F) A nonoriginating material of heading 1701 used or consumed in the production of a good of any of headings 1701 through       1703.

     (G) A nonoriginating good of chapter 17 or heading 1805 used in the production of a good of subheading 1806.10.

     (H) Nonoriginating peaches, pears, or apricots of chapter 8 or 20, used in the production of a good of heading 2008.

     (I) A nonoriginating single juice ingredient of heading 2009 used or consumed in the production of a good of—

      (1) subheading 2009.90, or tariff item 2106.90.54 (concentrated mixtures of fruit or vegetable juice, fortified with minerals or vitamins); or

      (2) tariff items 2202.99.37 (mixtures of fruit or vegetable juices, fortified with minerals or vitamins). 

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    (J) A nonoriginating material of any of headings 2203 through 2208 used or consumed in the production of a good provided for under heading 2207 or 2208.

  (iii) Goods provided for under chapters 1 through 27.—Subparagraph (i) of this subdivision does not apply to a nonoriginating material used or consumed in the production of a good provided for in chapters 1 through 27 unless the nonoriginating material is provided for in a different subheading than the subheading of the good for which origin is being determined.

  (iv) Textile or apparel goods.

    (A) Goods classified under chapters 50 through 60.—Except as provided in subparagraph (C) below, a textile or apparel good provided for in any of chapters 50 through 60 or heading 9619 that is not an originating good because certain nonoriginating materials used in the production of the good do not undergo an applicable change in tariff classification set forth in subdivision (o) of this note, shall be considered to be an originating good if the total weight of all such materials, including elastomeric yarns, is not more than 10 percent of the total weight of the good and the good meets all other applicable requirements of this note.

    (B) Goods classified under chapters 61 through 63.—Except as provided in subparagraph (C) below, a textile or apparel good provided for in chapter 61, 62 or 63 that is not an originating good because certain fibers or yarns used in the production of the component of the good that determines the tariff classification of the good do not undergo an applicable change in tariff classification set forth in subdivision (o) of this note shall be considered to be an originating good if the total weight of all such fibers or yarns in the component, including elastomeric yarns, is not more than 10 percent of the total weight of the component and the good meets all other applicable requirements of this note.

    (C) Goods containing nonoriginating elastomeric yarns.

     (1) Goods classified under chapters 50 through 60 or heading 9619.—A textile or apparel good described in subparagraph        (A) above and containing nonoriginating elastomeric yarns shall be considered to be an originating good only if the nonoriginating elastomeric yarns contained in the good do not exceed 7 percent of the total weight of the good.

     (2) Goods classified under chapters 61 through 63.—A textile or apparel good described in subparagraph (B) shall be considered to be an originating good only if the nonoriginating elastomeric yarns contained in the component of the good that determines the tariff classification of the good do not exceed 7 percent of the total weight of the component.

(f) Fungible goods and materials.

  (i) Fungible materials used in production.—Subject to subparagraph (f)(iii) below, if originating and nonoriginating fungible materials are used or consumed in the production of a good, the determination of whether the materials are originating may be made on the basis of any of the inventory management methods set forth in regulations implementing this note.

  (ii) Fungible goods commingled and exported.—Subject to subparagraph (f)(iii) below, if originating and nonoriginating fungible goods are commingled and exported in the same form, the determination of whether the goods are originating may be made on the basis of any of the inventory management methods set forth in regulations implementing this note. An importer may claim that a fungible material or good is originating if the importer, producer, or exporter has physically segregated each fungible material or good as to allow their specific identification.

  (iii) Use of inventory management method.—A person that selects an inventory management method for purposes of paragraph    (f)(i) or (f)(ii) of this subdivision shall use that inventory management method throughout the fiscal year of the person.

(g) Accessories, spare parts, tools and instructional or other information materials.

  (i) In general.—Subject to paragraph (g)(ii) below, accessories, spare parts, tools or instructional or other information materials delivered with a good shall—

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

    (B) be disregarded in determining whether a good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries or satisfies a process or change in tariff classification set forth in subdivision (o) of this note; and 

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     (C) be taken into account as originating or nonoriginating materials, as the case may be, in calculating any applicable regional value content of the good set forth in subdivision (o) of this note.

   (ii) Conditions.—Paragraph (g)(i) of this subdivision shall apply only if—

     (A) the accessories, spare parts, tools or instructional or other information materials are classified with and delivered with, but not invoiced separately from, the good; and

     (B) the types, quantities and value of the accessories, spare parts, tools or instructional or other information materials are customary for the good.

 (h) [Format adjusted for alignment.]

   (i) Packing materials and containers for shipment.—Packing materials and containers for shipment shall be disregarded in determining whether a good is an originating good.

   (ii) Packaging materials and containers 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 of the nonoriginating materials used in the production of the good undergo the applicable process or change in tariff classification requirement set forth in subdivision (o) of this note, or whether the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries.      If the good is subject to a regional value content requirement set forth in that Annex, 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.

   (iii) Indirect materials.—An indirect material shall be treated as an originating material without regard to where it is produced.

   (iv) Transit and transshipment.—A good that has undergone production necessary to qualify as an originating good under subdivision     (b) of this note shall not be considered to be an originating good if, subsequent to that production, the good--

     (A) undergoes further production or any other operation outside the territory of a USMCA country, other than—

      (1) unloading, reloading, separation from a bulk shipment, storing, labeling or marking, as required by a USMCA country, or

      (2) any other operation necessary to preserve the good in good condition or to transport the good to the territory of the importing USMCA country; or

     (B) does not remain under the control of customs authorities in a country other than a USMCA country.

 (i) Goods classifiable as goods put up in sets.-- Notwithstanding the rules set forth in subdivision (o) of this note, goods classifiable as goods put up in sets for retail sale as provided for in rule 3 of the general rules of interpretation of the tariff schedule shall not be considered to be originating goods unless—

   (A) each of the goods in the set is an originating good; or

   (B) the total value of the nonoriginating goods in the set does not exceed 10 percent of the value of the set. [Compiler's note: numbering of subdivisions as set forth in proclaimed text.]

 (j) Nonqualifying operations.—A good shall not be considered to be an originating good merely by reason of—

   (i) mere dilution with water or another substance that does not materially alter the characteristics of the good; or

   (ii) any production or pricing practice with respect to which it may be demonstrated, by a preponderance of the evidence, that the object of the practice was to circumvent the requirements of this note.

 (k) Special rules for automotive goods.