CUSMA Rules of Origin Regulations (SOR/2020-155)

Marginal note:Set

• 6 (1) This section applies to a good that is classified as a set as a result of the application of Rule 3 of the General Rules for the Interpretation of the Harmonized System.

• Marginal note:Requirement

  (2) Except as otherwise set out in Schedule 1, a set is originating in the territory of a CUSMA country only if each good in the set is an originating good and both the set and the goods in the set meet the other applicable requirements of these Regulations.

• Marginal note:Exceptions

  (3) Despite subsection (2), a set is originating only if the value of all the non-originating goods included in the set does not exceed 10% of the value of the set.

• Marginal note:Value

  (4) For the purposes of subsection (3), the value of non-originating goods in the set and the value of the set must be calculated in the same manner as the value of non-originating materials is determined in accordance with section 8 and the value of the good determined in accordance with section 7.

• Marginal note:Example

  (5) Each of the following examples is an “Example” referred to in subsection 1(4).

  • Example 1: Paint set

    Producer A assembles a paint set for arts and crafts. The set includes tubes of paint, paint brushes and paper, all presented in a reusable wooden box. The paint set for arts and crafts is classified in subheading 3210.00 as a result of the application of Rule 3 of the General Rules for the Interpretation of the Harmonized System and, as a result, this section applies with respect to that set. The paint, paper and wooden box are all originating as they undergo the changes required in Schedule 1. The paint brushes, which represent 4% of the value of the set, are produced in the territory of a non-CUSMA country and are therefore non-originating. The set is nonetheless originating.

  • Example 2 (subsection (2)):

    Producer A, located in a CUSMA country, uses originating materials and non-originating materials to assemble a manicure set of subheading 8214.20. The set includes a nail nipper, cuticle scissors, a nail clipper and a nail file with cardboard support, all presented in a plastic case with zipper. The items are not classified as a set as a result of the application of Rule 3 of the General Rules for the Interpretation of the Harmonized System. The Harmonized System specifies that manicure sets are classified in subheading 8214.20. This means that the specific rule of origin set out in Schedule 1 applies. This rule requires a change in tariff classification from any other Chapter. In order for the manicure set to qualify as an originating good under the rule set out in Schedule 1, Producer A may not use any non-originating material of Chapter 82 in the assembly of the manicure set.

    In this case, Producer A, located in a CUSMA country, produces the nail nipper, cuticle scissors and nail clipper included in the set, and all qualify as originating goods. Despite being classified in the same Chapter as the manicure set (Chapter 82), the originating nail nipper, the cuticle scissors and the nail clipper satisfy the requirement of the applicable change in tariff classification to the manicure set. The nail file with cardboard support (6805.20) and the plastic case with zipper (4202.12) are imported from outside the territories of the CUSMA countries; however, these items are not classified in Chapter 82, so they satisfy the applicable change in tariff classification. Therefore, the manicure set is an originating good.

  • Example 3 (subsection (3)): Pants set

    Producer A makes a pants set, consisting of men’s cotton denim trousers and a polyester belt, packed together for a retail sale. The trousers are made of cotton fabric formed and finished from yarn in a CUSMA country. The sewing thread is formed and finished in a CUSMA country. The pocket bag fabric is formed and finished in a CUSMA country, of yarn wholly formed in a CUSMA country. The trousers are cut and sewn in CUSMA country A. A polyester webbing belt with a metal buckle is made in a non-CUSMA country and shipped to CUSMA country A, where it is threaded through the belt loops of the trousers. The value of the belt is 8% of the value of the trousers and belt combined.

    The men’s trousers are classified in subheading 6203.42. The rule of origin set out in Schedule 1 for subheading 6203.42 requires that the trousers be made from fabric produced in a CUSMA country from yarn produced in a CUSMA country. The trousers satisfy the product-specific rules of origin set out in Schedule 1 and are considered originating. However, the belt does not satisfy the rules and would not be considered originating. The set is nonetheless an originating good if the belt value is 10% or less of the value of the set. Since the value of the belt is 8% of the value of the set, the men’s trousers and belt set would be treated as an originating good.

  • Example 4 (subsection (3)): Shirt and tie set

    Producer A makes a boys’ shirt and tie set in a CUSMA country. The shirt is constructed from 55% cotton, 45% polyester, solid colour, dyed, woven fabric, classified in subheading 5210.31. The fabric contains 73.2 total yarns per square centimetre and 76 metric yarns. The shirt is packaged in a retail polybag with a coordinating colour, 100% polyester, woven fabric tie. The yarns used in the shirt fabric are spun in a non-CUSMA country and the fabric is woven and dyed in the same non-CUSMA country. The shirt fabric is sent to the CUSMA country where it is cut and sewn into finished garments. The coordinating tie is made in a non-CUSMA country from fabric that is woven in that country from yarns that are spun in that country. The value of the coordinating tie is approximately 13% of the value of the set.

    The shirt is classified under heading 62.05. The shirt satisfies the product-specific rule of origin for heading 62.05 set out in Schedule 1 and is considered originating because it is wholly made from fabric of subheading 5210.31 (not of square construction, containing more than 70 warp ends and filling picks per square centimetre, of average yarn number exceeding 70 metric) and cut and sewn into finished garments in the CUSMA country. On the other hand, the tie does not satisfy the product-specific rule for heading 62.15 and would not be considered originating. For the purposes of the sets rule, provided the tie is valued at 10% or less of the value of the set, the set will be considered as originating. However, since the value of the coordinating tie is approximately 13% of the value of the set, the shirt and tie set would not be considered as an originating good.

  • Example 5 (subsection (3)): Chef set

    Producer A, located in a CUSMA country, produces a chef set for retail sale using originating and non-originating materials. This set includes an apron, cooking gloves and a chef hat. The chef set is classified in heading 62.11 as a result of the application of Rule 3 of the General Rules for the Interpretation of the Harmonized System. For this reason, subsection (3) applies to this set. Both the apron and cooking gloves meet the product-specific rules of origin for their respective product categories and are therefore considered to be originating. The chef hat, which represents 9.7% of the value of the set, is produced in the territory of a non-CUSMA country and is therefore non-originating. The set is nonetheless an originating good because less than 10% of the value of the set is non-originating.

PART 3Regional Value Content

Marginal note:Calculation

• 7 (1) Except as otherwise provided in subsection (6), the regional value content of a good must be calculated, at the choice of the importer, exporter or producer of the good, on the basis of either the transaction value method or the net cost method.

• Marginal note:Transaction value method

  (2) The transaction value method for calculating the regional value content of a good is as follows:

  RVC = (TV − VNM) ÷ TV × 100

  where

  RVC

  is the regional value content of the good, expressed as a percentage;

  TV

  is the transaction value of the good, determined in accordance with Schedule 3 with respect to the transaction in which the producer of the good sold the good, adjusted to exclude any costs incurred in the international shipment of the good; and

  VNM

  is the value of non-originating materials used by the producer in the production of the good, determined in accordance with section 8.

• Marginal note:Net cost method

  (3) The net cost method for calculating the regional value content of a good is as follows:

  RVC = (NC − VNM) ÷ NC × 100

  where

  RVC

  is the regional value content of the good, expressed as a percentage;

  NC

  is the net cost of the good, calculated in accordance with subsection (11); and

  VNM

  is the value of non-originating materials used by the producer in the production of the good determined, except as otherwise provided in sections 14 and 15, in accordance with section 8.

• Marginal note:Non-originating materials — values not included

  (4) For the purpose of calculating the regional value content of a good under subsection (2) or (3), the value of non-originating materials used by a producer in the production of the good must not include

  • (a) the value of any non-originating materials used by another producer in the production of originating materials that are subsequently acquired and used by the producer of the good in the production of that good; or

  • (b) the value of any non-originating materials used by the producer in the production of a self-produced material that is an originating material and is designated as an intermediate material.

• Marginal note:Self-produced material

  (5) For the purposes of subsection (4),

  • (a) in the case of any self-produced material that is not designated as an intermediate material, only the value of any non-originating materials used in the production of the self-produced material is to be included in the value of non-originating materials used in the production of the good; and

  • (b) if a self-produced material that is designated as an intermediate material and is an originating material is used by the producer of the good with non-originating materials — whether or not those non-originating materials are produced by that producer — in the production of the good, the value of those non-originating materials is to be included in the value of non-originating materials.

• Marginal note:Net cost method — when required

  (6) The regional value content of a good must be calculated only on the basis of the net cost method if Schedule 1 does not provide a rule for the good based on the transaction value method.

• Marginal note:Net cost method — change permitted

  (7) If the importer, exporter or producer of a good calculates the regional value content of the good on the basis of the transaction value method and the customs administration of a CUSMA country subsequently notifies that importer, exporter or producer in writing, during the course of a verification of origin, that

  • (a) the transaction value of the good, as determined by that importer, exporter or producer, is required to be adjusted under section 4 of Schedule 3, or

  • (b) the value of any material used in the production of the good, as determined by that importer, exporter or producer, is required to be adjusted under section 4 of Schedule 6,

  the importer, exporter or producer may choose that the regional value content of the good be calculated on the basis of the net cost method, in which case the calculation must be made within 30 days after the producer receives the notification, or such longer period as that customs administration specifies.

• Marginal note:Net cost method — no change permitted

  (8) If the importer, exporter or producer of a good calculates the regional value content of the good on the basis of the net cost method and the customs administration of a CUSMA country subsequently notifies that importer, exporter or producer in writing, during the course of a verification of origin, that the good does not satisfy the applicable regional value content requirement, the importer, exporter or producer of the good may not recalculate the regional value content on the basis of the transaction value method.

• Marginal note:Clarification

  (9) Nothing in subsection (7) is to be construed as preventing any review or appeal under Article 5.15 of the Agreement, as implemented in each CUSMA country, of an adjustment to or a rejection of

  • (a) the transaction value of the good; or

  • (b) the value of any material used in the production of the good.

• Marginal note:Value of identical non-originating materials

  (10) For the purposes of the transaction value method, if non-originating materials that are the same as one another in all respects, including physical characteristics, quality and reputation but excluding minor differences in appearance, are used in the production of a good, the value of those non-originating materials may, at the choice of the producer of the good, be determined in accordance with one of the methods set out in Schedule 7.

• Marginal note:Calculating net cost of good

  (11) For the purposes of subsection (3), the net cost of a good may be calculated, at the choice of the producer of the good, by

  • (a) calculating the total cost incurred with respect to all goods produced by that producer, subtracting any excluded costs that are included in that total cost, and reasonably allocating, in accordance with Schedule 5, the remainder to the good;

  • (b) calculating the total cost incurred with respect to all goods produced by that producer, reasonably allocating, in accordance with Schedule 5, that total cost to the good, and subtracting any excluded costs that are included in the amount allocated to that good; or

  • (c) reasonably allocating, in accordance with Schedule 5, each cost that forms part of the total cost incurred with respect to the good so that the aggregate of those costs does not include any excluded costs.

• Marginal note:Calculation of total cost

  (12) Total cost under subsection (11) consists of the costs referred to in subsection 1(6) and is calculated in accordance with that subsection and subsection 1(7).

• Marginal note:Calculation of net cost of good

  (13) For the purpose of calculating the net cost under subsection (11),

  • (a) excluded costs are the excluded costs that are recorded on the books of the producer of the good;

  • (b) excluded costs that are included in the value of a material that is used in the production of the good are not to be subtracted from or otherwise excluded from the total cost; and

  • (c) excluded costs do not include any amount paid for research and development services performed in the territory of a CUSMA country.

• Marginal note:Non-allowable interest

  (14) For the purpose of calculating non-allowable interest costs, the determination of whether interest costs incurred by a producer are more than 700 basis points above the interest rate of comparable maturities issued by the federal government of the country in which the producer is located is to be made in accordance with Schedule 9.

• Marginal note:Use of averaging over a period

  (15) For the purposes of the net cost method, the regional value content of the good, other than a good with respect to which an election to average may be made under subsection 16(1) or (10), may be calculated, if the producer elects to do so, by

  • (a) calculating the sum of the net costs incurred and the sum of the values of non-originating materials used by the producer of the good with respect to the good and identical goods or similar goods, or any combination thereof, produced in a single plant by the producer over

    • (i) a one-month period,

    • (ii) any consecutive three- or six-month period that falls within and is evenly divisible into the number of months of the producer’s fiscal year remaining at the beginning of that period, or

    • (iii) the producer’s fiscal year; and

  • (b) using the sums referred to in paragraph (a) as the net cost and the value of non-originating materials, respectively.

• Marginal note:Application

  (16) The calculation made under subsection (15) applies with respect to all units of the good produced during the period chosen by the producer under paragraph (15)(a).

• Marginal note:No change to goods or period

  (17) An election made under subsection (15) may not be rescinded or modified with respect to the goods or the period to which the election is made.

• Marginal note:Period considered to be chosen

  (18) If a producer chooses a one-, three- or six-month period under subsection (15) with respect to a good, the producer is considered to have chosen under that subsection a period or periods of the same duration for the remainder of the producer’s fiscal year with respect to that good.

• Marginal note:Method and period for remainder of fiscal year

  (19) If the use of the net cost method is required or chosen and an election is made under subsection (15), the regional value content of the good is to be calculated on the basis of the net cost method over the period chosen under that subsection and for the remainder of the producer’s fiscal year.

• Marginal note:Analysis of actual cost

  (20) Except as otherwise provided in subsection 16(9), if the producer of a good has calculated the regional value content of the good under the net cost method on the basis of estimated costs, including standard costs, budgeted forecasts or other similar estimating procedures, before or during the period chosen under paragraph (15)(a), the producer must conduct an analysis at the end of the producer’s fiscal year of the actual costs incurred over the period with respect to the production of the good.

• Marginal note:Option to treat any material as non-originating

  (21) For the purpose of calculating the regional value content of a good, the producer of that good may choose to treat any material used in the production of that good as a non-originating material.

• Marginal note:Examples

  (22) Each of the following examples is an “Example” as referred to in subsection 1(4).

  • Example 1: Point of direct shipment (with respect to the definition adjusted to exclude any costs incurred in the international shipment of the good)

    A producer has only one factory at which the producer manufactures office chairs. Because the factory is located close to transportation facilities, all units of the finished good are stored in a factory warehouse 200 m from the end of the production line. Goods are shipped worldwide from this warehouse. The point of direct shipment is the warehouse.

  • Example 2: Point of direct shipment (with respect to the definition adjusted to exclude any costs incurred in the international shipment of the good)

    A producer has six factories, all located within the territory of one of the CUSMA countries, at which the producer produces garden tools of various types. These tools are shipped worldwide and orders usually consist of bulk orders of various types of tools. Because different tools are manufactured at different factories, the producer decided to consolidate storage and shipping facilities and ships all finished products to a large warehouse located near the seaport from which all orders are shipped. The distance from the factories to the warehouse varies from 3 km to 130 km. The point of direct shipment for each of the goods is the warehouse.

  • Example 3: Point of direct shipment (with respect to the definition adjusted to exclude any costs incurred in the international shipment of the good)

    A producer has only one factory, located near the centre of one of the CUSMA countries, at which the producer manufactures office chairs. The office chairs are shipped from that factory to three warehouses leased by the producer, one on the west coast, one near the factory and one on the east coast. The office chairs are shipped to buyers from these warehouses, the shipping location depending on the shipping distance from the buyer. Buyers closest to the west coast warehouse are normally supplied by the west coast warehouse, buyers closest to the east coast are normally supplied by the warehouse located on the east coast and buyers closest to the warehouse near the factory are normally supplied by that warehouse. In this case, the point of direct shipment is the location of the warehouse from which the office chairs are normally shipped to customers in the location in which the buyer is located.

  • Example 4 (subsection (3)): Net cost method

    A producer located in CUSMA country A sells Good A that is subject to a regional value content requirement to a buyer located in CUSMA country B. The producer of Good A chooses to calculate the regional value content of that good using the net cost method. All applicable requirements of these Regulations, other than the regional value content requirement, have been met. The applicable regional value content requirement is 50%.

    In order to calculate the regional value content of Good A, the producer first calculates the net cost of Good A. Under paragraph (11)(a), the net cost is the total cost of Good A (the aggregate of the product costs, period costs and other costs) per unit, minus the excluded costs (the aggregate of the sales promotion, marketing and after-sales service costs, royalties, shipping and packing costs and non-allowable interest costs) per unit. The producer uses the following figures to calculate the net cost:

    • Product costs:
      • Value of originating materials$30.00
      • Value of non-originating materials$40.00
      • Other product costs$20.00
    • Period costs:$10.00
    • Other costs:$0.00
    • Total cost of Good A, per unit:$100.00

    
    

    • Excluded costs:
      • Sales promotion, marketing and after-sales service costs$5.00
      • Royalties$2.50
      • Shipping and packing costs$3.00
      • Non-allowable interest costs$1.50
    • Total excluded costs:$12.00

    The net cost is the total cost of Good A, per unit, minus the excluded costs.

    • Total cost of Good A, per unit:$100.00
    • Excluded costs:- $12.00
    • Net cost of Good A, per unit:$88.00

    The net cost ($88) and the value of non-originating materials ($40) are needed in order to calculate the regional value content. The producer calculates the regional value content of Good A under the net cost method in the following manner:

    RVC	=	(NC − VNM) ÷ NC × 100
    	=	(88 - 40) ÷ 88 × 100
    	=	54.5%

    Therefore, under the net cost method, Good A qualifies as an originating good, with a regional value content of 54.5%.

  • Example 5 (paragraph (11)(a)):

    A producer in a CUSMA country produces Good A and Good B during the producer’s fiscal year.

    The producer uses the following figures, which are recorded on the producer’s books and represent all of the costs incurred with respect to both Good A and Good B, to calculate the net cost of those goods:

    • Product costs:

      Value of originating materials$2,000

      Value of non-originating materials$1,000

      Other product costs$2,400

    • Period costs (including $1,200 in excluded costs):$3,200
    • Other costs:$400
    • Total cost of Good A and Good B:$9,000

    The net cost is the total cost of Good A and Good B, minus the excluded costs incurred with respect to those goods.

    • Total cost of Good A and Good B:$9,000
    • Excluded costs:- $1,200
    • Net cost of Good A and Good B:$7,800

    The net cost must then be reasonably allocated, in accordance with Schedule 5, to Good A and Good B.

  • Example 6 (paragraph (11)(b)):

    A producer in a CUSMA country produces Good A and Good B during the producer’s fiscal year.

    In order to calculate the regional value content of Good A and Good B, the producer uses the following figures that are recorded on the producer’s books and incurred with respect to those goods:

    • Product costs:

      Value of originating materials$2,000

      Value of non-originating materials$1,000

      Other product costs$2,400

    Period costs (including $1,200 in excluded costs):$3,200

    Other costs:$400

    Total cost of Good A and Good B:$9,000

    Under paragraph (11)(b), the total cost of Good A and Good B is then reasonably allocated, in accordance with Schedule 5, to those goods. The costs are allocated in the following manner:

    	Allocated to Good A	Allocated to Good B
    Total cost ($9,000 for both Good A and Good B)	$5,220	$3,780

    The excluded costs ($1,200) that are included in the total cost allocated to Good A and Good B, in accordance with Schedule 5, are subtracted from that amount.

    Total excluded costs:	Excluded cost allocated to Good A ($)	Excluded cost allocated to Good B ($)
    Sales promotion, marketing and after-sale service costs$500	290	210
    Royalties$200	116	84
    Shipping and packing costs$500	290	210
    Net cost (total cost minus excluded costs):	$4,524	$3,276

    Therefore the net cost of Good A is $4,524 and the net cost of Good B is $3,276.

  • Example 7 (paragraph (11)(c)):

    A producer located in a CUSMA country produces Good C and Good D. The following costs are recorded on the producer’s books for the months of January, February and March, and each cost that forms part of the total cost is reasonably allocated, in accordance with Schedule 5, to Good C and Good D.

    	Total cost: Good C and Good D (in thousands of dollars)	Allocated to Good C (in thousands of dollars)	Allocated to Good D (in thousands of dollars)
    Product costs:
    Value of originating materials	100	0	100
    Value of non-originating materials	900	800	100
    Other product costs	500	300	200
    Period costs (including $420 in excluded costs):	5,679	3,036	2,643
    Minus excluded costs	420	300	120
    Other costs:	0	0	0
    Total cost (aggregate of product costs, period costs and other costs):	6,759	3,836	2,923

  • Example 8 (subsection (12)):

    Producer A, located in a CUSMA country, produces Good A that is subject to a regional value content requirement. The producer chooses to calculate the regional value content of that good using the net cost method. Producer A buys Material X from Producer B, located in a CUSMA country. Material X is a non-originating material and is used in the production of Good A. Producer A provides Producer B, at no charge, with moulds to be used in the production of Material X. The cost of the moulds that is recorded on the books of Producer A has been expensed in the current year. Pursuant to subparagraph 4(1)(b)(ii) of Schedule 6, the value of the moulds is included in the value of Material X. Therefore, the cost of the moulds that is recorded on the books of Producer A and that has been expensed in the current year cannot be included as a separate cost in the net cost of Good A because it has already been included in the value of Material X.

  • Example 9 (subsection (12)):

    Producer A, located in a CUSMA country, produces Good A that is subject to a regional value content requirement. The producer chooses to calculate the regional value content of that good using the net cost method and averages the calculation over the producer’s fiscal year under subsection (15). Producer A determines that during that fiscal year Producer A incurred a gain on foreign currency conversion of $10,000 and a loss on foreign currency conversion of $8,000, resulting in a net gain of $2,000. Producer A also determines that $7,000 of the gain on foreign currency conversion and $6,000 of the loss on foreign currency conversion is related to the purchase of non-originating materials used in the production of Good A and $3,000 of the gain on foreign currency conversion and $2,000 of the loss on foreign currency conversion is not related to the production of Good A. The producer determines that the total cost of Good A is $45,000 before deducting the $1,000 net gain on foreign currency conversion related to the production of Good A. The total cost of Good A is therefore $44,000. That $1,000 net gain is not included in the value of non-originating materials under subsection 8(1).

  • Example 10 (subsection (12)):

    Given the same facts as in Example 9, except that Producer A determines that $6,000 of the gain on foreign currency conversion and $7,000 of the loss on foreign currency conversion is related to the purchase of non-originating materials used in the production of Good A the total cost of Good A is $45,000, which includes the $1,000 net loss on foreign currency conversion related to the production of Good A. That $1,000 net loss is not included in the value of non-originating materials under subsection 8(1).