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10. Products of the Freely Associated States.
(a) Pursuant to sections 101 and 401 of the Compact of Free Association Act of 1985 (99 Stat. 1773 and 1838), the following countries shall be eligible for treatment as freely associated states:
Marshall Islands Micronesia, Federated States of Republic of Palau
(b) Except as provided in subdivisions (d) and (e) of this note, any article the growth, product or manufacture of a freely associated state shall enter the customs territory of the United States free of duty if--
(i) such article is imported directly from the freely associated state, and
(ii) the sum of (A) the cost or value of the materials produced in the freely associated state, plus (B) the direct costs of processing operations performed in the freely associated state is not less than 35 percent of the appraised value of such article at the time of its entry into the customs territory of the United States.
If the cost or value of materials produced in the customs territory of the United States is included with respect to an article the product of a freely associated state and not described in subdivision (d) of this note, an amount not to exceed 15 percent of the appraised value of such article at the time it is entered that is attributed to such United States cost or value may be applied toward determining the percentage referred to in subdivision (b)(ii)(B) of this note.
(c) Tunas and skipjack, prepared or preserved, not in oil, in airtight containers weighing with their contents not over 7 kilograms each, in an aggregate quantity entered in any calendar year from the freely associated states not to exceed 10 percent of United States consumption of canned tuna during the immediately preceding calendar year, as reported by the National Marine Fisheries Service, may enter the customs territory free of duty; such imports shall be counted against, but not be limited by, the aggregate quantity of tuna, if any, that is dutiable under subheading 1604.14.22 for that calendar year.
(d) The duty-free treatment provided under subdivision (b) of this note shall not apply to--
(i) tunas and skipjack, prepared or preserved, not in oil, in airtight containers weighing with their contents not over 7 kilograms each, in excess of the quantity afforded duty-free entry under subdivision (c) of this note;
(ii) textile and apparel articles which were not eligible articles for purposes of this note on January 1, 1994;
(iii) footwear, handbags, luggage, flat goods, work gloves and leather wearing apparel, the foregoing which were not eligible articles for purposes of the Generalized System of Preferences on April 1, 1984;
(iv) watches, clocks and timing apparatus of chapter 91 (except such articles incorporating an optoelectronic display and no other type of display);
(v) buttons of subheading 9606.21.40 or 9606.29.20; and
(vi) any agricultural product of chapters 2 through 52, inclusive, that is subject to a tariff-rate quota, if entered in a quantity in excess of the in-quota quantity for such product.
(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;
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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.
9. United States-Canada Free-Trade Agreement. (Suspended; see general note 12.)
11. United States-Mexico-Canada Agreement.
(a) Goods originating in the territory of a country named herein, pursuant to the United States-Mexico-Canada Agreement (USMCA), are subject to duty as provided herein, including any treatment set forth in subchapter XXIII of chapter 98 and subchapter XXII of chapter 99 of the tariff schedule. For the purposes of this note, as provided in the tariff schedule--
(i) Goods that originate in the territory of Mexico, Canada or the United States (hereinafter referred to as “USMCA country” or “USMCA countries” as further defined in subdivision (l)(xxiv) of this note) under the terms of subdivision (b) of this note and regulations issued by the Secretary of the Treasury (including Uniform Regulations provided for in the USMCA), and goods enumerated in subdivision (p) of this note, when such goods are imported into the customs territoryof the United States and are entered under a subheading for which a rate of duty appears in the "Special" subcolumn, followed by the symbol “S” in parentheses, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act; and
(ii) Goods that originate in the territory of a USMCA country under the terms of subdivision (b) of this note and regulations issued by the Secretary of the Treasury, 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 “S+” in parentheses, or under a subheading whose article description provides for originating goods of one or more USMCA countries, as the case may be, are eligible for such duty rate, in accordance with section 202 of the United States-Mexico-Canada Agreement Implementation Act.
(b) For the purposes of this note, a good imported into the customs territory of the United States from the territory of a USMCA country, as defined in subdivision (l) of this note, is eligible for the preferential tariff treatment provided for in the applicable subheading and quantitative limitations set forth in the tariff schedule as a "good originating in the territory of a USMCA country" only if--
(i) the good is a good wholly obtained or produced entirely in the territory of one or more USMCA countries;
(ii) the good is a good produced entirely in the territory of one or more USMCA countries, exclusively from originating materials;
(iii) the good is a good produced entirely in the territory of one or more USMCA countries using nonoriginating materials, if the good satisfies all applicable requirements set forth in this note (including the provisions of subdivision (o)); or
(iv) except for a good provided for in any of chapters 61 through 63—
(A) the good is produced entirely in the territory of one or more USMCA countries;
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(B) one or more of the nonoriginating materials provided for as parts under the tariff schedule and used in the production of the good do not satisfy the requirements set forth in this note because—
(1) both the good and its materials are classified under the same subheading or under the same heading that is not further subdivided into subheadings; or
(2) the good was imported into the territory of a USMCA country in unassembled form or disassembled form but was classified as an assembled good pursuant to general rule of interpretation 2(a) of the tariff schedule, and
(C) the regional value content of the good, determined in accordance with subdivision (c) of this note, is not less than 60 percent if the transaction value method is used, or not less than 50 percent if the net cost method is used,
and such good satisfies all other applicable provisions of this note.
For purposes of determining whether a remanufactured good is an originating good, a recovered material derived in the territory of one or more USMCA countries shall be treated as originating if the recovered material is used or consumed in the production of, and incorporated in, the remanufactured good.
(c) [Format adjusted for alignment.]
(i) Regional value content.-- Except as provided in subdivision (c)(v) of this note, the regional value content of a good shall be calculated, at the choice of the importer, exporter or producer of such good, on the basis of—
(A) the transaction value method set out in subdivision (c)(ii) or
(B) the net cost method set out in subdivision (c)(iii).
(ii) Transaction value method.--- An importer, exporter or producer of a good may calculate the regional value content of the good on the basis of the following transaction value method:
RVC = ((TV-VNM)/TV) X 100
where RVC means the regional value content of the good, expressed as a percentage; TV means the transaction value of the good adjusted to exclude any costs incurred in the international shipment of the good; and VNM means the value of nonoriginating materials, including materials of undetermined origin, used by the producer in the production of the good.
(iii) Net cost method.-- An importer, exporter or producer of a good may calculate the regional value content of a good on the basis of the following net cost method:
RVC = ((NC - VNM)/NC) x 100
where NC means the net cost of the good; RVC means the regional value content, expressed as a percentage; and VNM is the value of nonoriginating materials, including materials of undetermined origin, used by the producer in the production of the good.
(iv) Value of nonoriginating materials.
(A) In general.--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)(ii) or (c)(iii) of this note, include the value of nonoriginating materials used or consumed to produce originating materials that are subsequently used in the production of the good.
(B) Special rule for certain components.—The following components of the value of nonoriginating materials used by the producer in the production of a good may be counted as originating content for purposes of determining whether the good meets the regional value content requirement set forth in subdivision (c)(ii) or (c)(iii) of this note:
(1) The value of processing the nonoriginating materials undertaken in the territory of one or more USMCA countries; and
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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—