Canada-Costa Rica Free Trade Agreement

Chapter IV: Rules of Origin

Article IV.1 Originating Goods

Except as otherwise provided in this Chapter, a good shall originate in the territory of a Party where:

1. the good is wholly obtained or produced entirely in the territory of one or both of the Parties, as defined in Article IV.15;

2. each of the non-originating materials used in the production of the good undergoes an applicable change in tariff classification as set forth in Annex IV.1 (Specific Rules of Origin) as a result of production occurring entirely in the territory of one or both of the Parties, or the good otherwise satisfies the applicable requirements of that Annex where no change in tariff classification is required, and the good satisfies all other applicable requirements of this Chapter;

3. the good is produced entirely in the territory of one or both of the Parties exclusively from originating materials; or

4. except for a good of Chapter 39 or Chapter 50 through 63 or except as provided in Annex IV.1 (Specific Rules of Origin), the good is produced entirely in the territory of one or both of the Parties but one or more of the non-originating materials used in the production of the good cannot undergo a change in tariff classification because both the good and the non-originating materials are classified in the same subheading, or heading that is not further subdivided into subheadings,provided that the regional value-content of the good, determined in accordance with Article IV.2, is not lower than 35 per cent when the transaction value method is used, or 25 per cent when the net cost method is used, and the good meets the other applicable requirements of this Chapter.

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Article IV.2 Regional Value-content

Except as provided in paragraph 5, each Party shall provide that the regional value content of a good shall be calculated, at the choice of the exporter or producer of the good, on the basis of either the transaction value method set out in paragraph 2 or, for an automotive good of subheading 8407.31 through 8407.34 or heading 87.01 through 87.08, the net cost method set out in paragraph 3.

Each Party shall provide that an exporter or producer may calculate the regional value content of a good on the basis of the following transaction value method:

Regional Value-content
RVC=TV - VNM* 100
 TV 

where:
RVC is the regional value content, expressed as a percentage;
TV is the transaction value of the good,adjusted to an F.O.B. basis; and
VNM is the value of non-originating materials used by the producer in the
production of the good, in accordance with paragraph 6 of this Article.

Each Party shall provide that an exporter or a producer may calculate the regional value content of an automotive good of subheading 8407.31 through 8407.34 or heading 87.01 through 87.08 on the basis of the following net cost method:

Regional Value-content
RVC=NC - VNM* 100
 NC 

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, in accordance with paragraph 6 of this Article.

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 paragraph 2 or 3, include the value of non-originating materials used to produce originating materials that are subsequently used in the production of the good. Footnote 1

For purposes of calculating the net cost of a good under paragraph 3, the producer of the good may:

Except as provided in paragraph 7, the value of a material used in the production of a good shall:

The value of an intermediate material shall be:

The value of an indirect material shall be based on the Generally Accepted Accounting Principles applicable in the territory of the Party in which the good is produced.

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Article IV.3 Accumulation

For purposes of determining whether a good is an originating good, the production of the good in the territory of one or both of the Parties by one or more producers shall, at the choice of the exporter or producer of the good for which preferential tariff treatment is claimed, be considered to have been performed in the territory of either of the Parties by that exporter or producer, provided that:

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Article IV.4 De Minimis

1. Except as provided in paragraphs 2 and 3, a good shall be considered to be an originating good if the value of all non-originating materials used in the production of the good that do not undergo an applicable change in tariff classification set out in Annex IV.1 (Specific Rules of Origin) is not more than 10 per cent of the transaction value of the good, adjusted to an F.O.B. basis, provided that:

2. Except as specified in a product-specific rule of origin of Annex IV.1 (Specific Rules of Origin) applicable to a good, paragraph 1 does not apply to a non-originating material used in the production of a good of Chapter 1 through 24 of the Harmonized System unless the non-originating material is provided for in a different subheading from the good for which origin is being determined under this Article.

3. A good of Chapter 50 through 63 of the Harmonized System that is not originating because certain fibres 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 out in Annex IV.1 (Specific Rules of Origin), shall nonetheless be considered as originating if the total weight of all such fibres or yarns in that component is not more than 10 per cent of the total weight of that component.Footnote 3

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Article IV.5 Fungible Goods and Materials

For purposes of determining whether a good is an originating good:

1. where originating and non-originating fungible materials are used in the production of a good, the determination of whether the materials are originating need not be made through the identification of any specific fungible material, but may be determined on the basis of any of the inventory management methods set out in Annex IV.5 (Inventory Management Methods); and

2. where originating and non-originating fungible goods are physically combined or mixed in inventory and, prior to their exportation, do not undergo any production or any other operation in the territory of the Party in which they were physically combined or mixed in inventory, other than unloading, reloading, or any other operation necessary to preserve the goods in good condition or to transport the goods for exportation to the other Party's territory, the determination may be made on the basis of any of the inventory management methods set out in Annex IV.5 (Inventory Management Methods).

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Article IV.6 Sets or Assortments of Goods

Except as provided in Annex IV.1 (Specific Rules of Origin), a setor assortmentas defined in Rule 3 of the General Rules for the Interpretation of the Harmonized System, shall be considered as originating, provided that:

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Article IV.7 Accessories, Spare Parts and Tools

Accessories, spare parts and tools delivered with the good that form part of the good's standard accessories, spare parts or tools, shall be considered as originating if the good originates and shall be disregarded in determining whether all the non-originating materials used in the production of the good undergo the applicable change in tariff classification set out in Annex IV.1 (Specific Rules of Origin), provided that:

Article IV.8 Indirect Materials

An indirect material shall be considered as originating without regard to where it is produced.

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Article IV.9 Packaging Materials and Containers for Retail Sale

Packaging materials and containers in which a good is packaged for retail sale shall, if classified with the good, be disregarded in determining whether all the non-originating materials used in the production of the good undergo the applicable change in tariff classification set out in Annex IV.1 (Specific Rules of Origin) and, if the good is subject to a regional value content requirement, the value of such packaging materials and containers shall be taken into account as originating or non-originating materials, as the case may be, in calculating the regional value content of the good.

Article IV.10 Packing Materials and Containers for Shipment

Packing materials and containers in which a good is packed for shipment shall be disregarded in determining whether:

Article IV.11 Transshipment

A good shall not be considered to be an originating good by reason of having undergone production that satisfies the requirements of Article IV.1 if, subsequent to that production, the good:

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Article IV.12 Non-Qualifying Operations

Except for sets of Article IV.6 or of Annex IV.1 (Specific Rules of Origin) or except as specified in a product-specific rule of origin of Annex IV.1 (Specific Rules of Origin) applicable to the good, a good shall not be considered to be an originating good merely by reason of :

Article IV.13 Interpretation and Application

For purposes of this Chapter:

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Article IV.14 Consultation and Modifications

The Parties shall consult regularly to ensure that this Chapter is administered effectively, uniformly and consistently with the spirit and objectives of this Agreement, and shall cooperate in the administration of this Chapter in accordance with Chapter V (Customs Procedures).

Should problems arise between the Parties concerning the interpretation of the provisions of this Chapter, the Parties agree to consult with each other on the establishment and implementation, through their respective laws or regulations, of Uniform Regulations regarding the interpretation, application and administration of this Chapter.

A Party that considers that this Chapter requires modification to take into account developments in production processes or other matters may submit a proposed modification along with supporting rationale and any studies to the other Party for consideration and any appropriate action under Chapter III (National Treatment and Market Access of Goods).

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Article IV.15 Definitions

For purposes of this Chapter:

F.O.B. means free on board, regardless of the mode of transportation, at the point of direct shipment by the seller to the buyer;

fungible goods or fungible materials means goods or materials that are interchangeable for commercial purposes and whose properties are essentially identical;

Generally Accepted Accounting Principles means the principles used in the territory of each Party, which provide substantial authorized support with regard to the recording of income, costs, expenses, assets and liabilities involved in the disclosure of information and preparation of financial statements. These indicators may be broad guidelines of general application, as well as those standards, practices and procedures usually employed in accounting;

goods wholly obtained or produced entirely in the territory of one or both of the Parties means:

identical or similar goods means "identical goods" and "similar goods", respectively, as defined in the Customs Valuation Agreement;

indirect material means a good used in the production, testing or inspection of a good but not physically incorporated into the good, or a good used in the maintenance of buildings or the operation of equipment associated with the production of a good, including:

intermediate material means a material that is produced by a producer of a good and used in the production of that good;

material means a good that is used in the production of another good, and includes a part or an ingredient;

net cost means total cost minus 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;

net cost of a good means the net cost that can be reasonably allocated to a good using one of the methods set out in Article IV.2.5;

non-allowable interest costs means interest costs incurred by a producer that exceed 700 basis points above the applicable national government interest rate identified for comparable maturities;

non-originating good or non-originating material means a good or material that does not qualify as originating under this Chapter;

producer means a person who grows, mines, harvests, fishes, hunts, manufactures, processes or assembles a good;

production means growing, mining, harvesting, fishing, trapping, hunting, manufacturing, processing or assembling a good;

reasonably allocate means to apportion in a manner appropriate to the circumstances;

royalties means payments of any kind, including payments under technical assistance or similar agreements, made as consideration for the use or right to use any copyright, literary, artistic, or scientific work, patent, trademark, design, model, plan, secret formula or process, excluding those payments under technical assistance or similar agreements that can be related to specific services such as:

sales promotion, marketing and after-sales service costs means the following costs related to sales promotion, marketing and after-sales service:

shipping and packing costs means the costs incurred in packing a good for shipment and shipping the good from the point of direct shipment to the buyer, excluding costs of preparing and packaging the good for retail sale;

total cost means all product costs, period costs and other costs incurred in the territory of one or both of the Parties;

transaction value means:

used means used or consumed in the production of goods.

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