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Trade Facilitation and Trade Enforcement Act Meets Annex Origin Criterion Article b indicates that goods may "originate" in Canada, Mexico or the United States, even if they contain non-originating materials, if the materials satisfy the rule of origin specified in Annex of the Agreement.
The Annex rules of origin are commonly referred to as specific rules of origin and are based on a change in tariff classification, a regional value-content requirement or both. Annex gives the applicable rule of origin opposite the HTS number. Tariff Change When a rule of origin is based on a change in tariff classification, each of the non-originating materials used in the production of the goods must undergo the applicable change as a result of production occurring entirely in the NAFTA region.
This means that the non-originating materials are classified under one tariff provision prior to processing and classified under another upon completion of processing. The specific rule of origin in Annex defines exactly what change in tariff classification must occur for the goods to be considered "originating. Frozen pork meat HTS The Annex rule of origin for HTS Since the imported frozen meat is classified in Chapter 2 and the spices are classified in Chapter 9, these non-originating materials meet the required tariff change.
One does not consider whether the cereal meets the applicable tariff change since it is originating--only non-originating materials must undergo the tariff change. Regional Value Content Some Annex specific rules of origin require that a good have a minimum regional value content, meaning that a certain percentage of the value of the goods must be from North America.
Article gives two formulas for calculating the regional value content. In general, the exporter or producer may choose between these two formulas: the "transaction value" method or the "net cost" method. Having two methods gives producers more than one way of demonstrating that the rule of origin has been satisfied.
The transaction value method is generally simpler to use but a producer may choose whichever method is most advantageous. The transaction value method calculates the value of the non-originating materials as a percentage of the GATT transaction value of the good, which is the total price paid for the good, with certain adjustments for packing and other items, and is based on principles of the GATT Customs Valuation Code.
The essence of this method is that the value of non-originating materials can be calculated as a percentage of the invoice price which is usually the price actually paid for them. Because the transaction value method permits the producer to count all of its costs and profit as territorial, the required percentage of regional value content under this method is higher than under the net cost method.
However, there are a number of situations where the transaction value method cannot be used and the net cost method is the only alternative. The net cost method must be used when there is no transaction value, in some related party transactions, for certain motor vehicles and parts, when a producer is accumulating regional value content see Chapter 3 for a discussion of accumulation , as well as to determine the regional value content for designated intermediate materials see Chapter 3.
The producer may also revert to the net cost method if the result using the transaction value method is unfavorable. The net cost method calculates the regional value content as a percentage of the net cost to produce the good.
Net cost represents all of the costs incurred by the producer minus expenses for sales promotion including marketing and after-sales service , royalties, shipping and packing costs and non-allowable interest costs. The percentage content required for the net cost method is lower that the percentage content required under the transaction value method because of the exclusion of certain costs from the net cost calculation.
An electric hair curling iron HTS The first of these two rules is not met since there is no heading change, therefore the producer must verify if the curling irons can qualify under the second rule. In the second rule the required subheading change is met from HTS The regional value content under the transaction value method is: 4. Instead, the producer uses the net cost method.
There are no costs for royalties, sales promotion or non-allowable interest. The regional value content under the net cost method is: 3. Last modified:.
Meets Annex 401 Origin Criterion
Anexo 401 - Reglas de Origen TLCAN.pdf - Grupo-fh.com